Registration No. 33-60105
_______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST EFFECTIVE AMENDMENT NO. 2
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.( )
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 employees 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 , 1996.
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.
FOR ARIZONA AND MASSACHUSETTS INVESTORS
NO SHARES MAY BE OFFERED TO OR PURCHASED BY RESIDENTS OF ARIZONA OR
MASSACHUSETTS UNLESS THE PURCHASER IS (I) A FRANCHISE OWNER, (II) A MEMBER OF
THE FRANCHISE OWNER'S FAMILY, (III) A TRUST FOR THE BENEFIT OF PERSONS
OTHERWISE ELIGIBLE TO PURCHASE SHARES, (IV) A CORPORATION OR PARTNERSHIP
CONTROLLED BY THE FRANCHISE OWNER, OR (V) A KEY EMPLOYEE WITH RESPECT TO THE
FRANCHISE.
FOR FLORIDA INVESTORS
THE SECURITIES BEING OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE FLORIDA
DIVISION OF SECURITIES. ANY SALE MADE PURSUANT TO THIS PROSPECTUS MAY BE
VOIDED BY THE PURCHASER WITHIN THREE DAYS OF THE FIRST TENDERING OF
CONSIDERATION.
FOR MISSISSIPPI INVESTORS
THE COMMISSIONER OF INSURANCE OF THE STATE OF MISSISSIPPI (THE "MISSISSIPPI
INSURANCE COMMISSIONER") HAS NOT APPROVED OR DISAPPROVED THIS OFFERING, NOR HAS
THE MISSISSIPPI INSURANCE COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS.
FOR NEBRASKA INVESTORS
ALL NEBRASKA INVESTORS DESIRING TO PURCHASE PARTICIPATING STOCK SHALL FORWARD
THEIR EXECUTED STOCK PURCHASE AGREEMENTS, CERTIFIED OR CASHIER'S CHECK, AND
CERTIFICATION OF ELIGIBILITY TO:
MOTORS INSURANCE CORPORATION
3044 W. GRAND BOULEVARD
RM GM 2-202
DETROIT, MI 48202
ATTENTION: ROBERT E. CAPSTACK
FOR NORTH CAROLINA INVESTORS
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSIONER OF
INSURANCE FOR THE STATE OF NORTH CAROLINA, NOR HAS THE COMMISSIONER OF
INSURANCE RULED UPON THE ACCURACY OR THE ADEQUACY OF THIS DOCUMENT. THE BUYER
IN NORTH CAROLINA UNDERSTANDS THAT THE OFFERER IS NOT LICENSED AS AN INSURANCE
COMPANY IN NORTH CAROLINA, NOR DOES IT MEET THE BASIC ADMISSIONS REQUIREMENTS
FOR LICENSING AS AN INSURANCE COMPANY IN NORTH CAROLINA.
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 Related Risks ....................................
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 ...................................................
Certain Transactions ........................................
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 July 12, 1995 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 1, 1996, 24,400 shares of Participating
Stock representing 244 series were issued and
outstanding and were held by 422 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 employees of MIC, on a
continuous basis. Neither MIC nor its employees are
compensated specifically for their services in that
regard, and no commissions are charged or paid in
connection with sales of the Shares. (See "Plan of
Distribution.")
RISK FACTORS
Investment in the Company is subject to significant risk. Prospective
investors should carefully consider, together with the information contained
elsewhere in this Prospectus, the following:
Relationship with MIC. MIC owns all of the Common Stock of the Company, which
permits it to control the Board and determine, among other things, the
selection of the Company's officers, outside insurance management company and
outside investment adviser. (See "Description of Capital Stock.") 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 is 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 affect on the sales of
mechanical breakdown insurance coverage, and thus on the retrocession business
of the Company.
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 100% 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. 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 Related Risks. 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. The
Company invests primarily 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. Subject to satisfaction of certain conditions, the Company may
make limited investments in non-dollar denominated bonds on a currency-hedged
basis. Such forward foreign currency transactions 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, 2016.
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 employees. 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 a pool of funds for payment of future claims in the event
premiums prove insufficient to cover such claims. 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.
The consideration received by the Company upon issuance of a series of Shares
is allocated to the Subsidiary Capital Account established with respect to that
series of Shares. (See "Description of Capital Stock - Allocations to
Subsidiary Capital Accounts.")
DETERMINATION OF OFFERING PRICE
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 1996, 1995 and 1994, the Company declared dividends on the Shares
aggregating $4,007,483, $1,188,614 and $2,156,304, respectively. These
dividends, in each case, were declared as a varying percentage of earned
surplus attributable to each series of Shares with the percentage applicable to
each series depending on the amount of earned surplus attributable to such
series. The applicable percentages were 20% to 60% for the dividend declared
in 1996, 15% to 40% for the dividend declared in 1995, and 20% to 55% for the
dividend declared in 1994.
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 Company was incorporated in Barbados on June 12, 1986. It became
registered in Barbados as an insurer on June 30, 1986 and commenced operations
in December, 1987. The Company was organized by MIC. All of MIC's outstanding
stock is owned by General Motors Acceptance Corporation which, in turn, is a
wholly owned subsidiary of General Motors Corporation ("GM").
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 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, 1995, the Company paid
fees to the Manager in the amount of $168,577.
SELECTED FINANCIAL DATA
The following selected financial data for the years ended December 31, 1995,
1994, 1993, 1992 and 1991 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, 1995 and
1994 and for each of the three years in the period ended December 31, 1995 is
included elsewhere in this Prospectus. 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>
December 31
_____________________________________________________________________
<C> <C> <C> <C> <C>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Premiums Assumed $44,084,952 $38,371,896 $27,779,063 $19,386,455 $16,784,405
___________ ___________ ___________ ___________ ___________
Premiums Earned $28,800,689 $21,316,685 $15,429,611 $13,005,184 $10,292,788
Net Investment
Income 5,563,573 1,227,816 2,700,242 2,522,712 1,792,947
___________ ___________ ___________ ___________ ___________
Total Income 34,364,262 22,544,501 18,129,853 15,527,896 12,085,735
Less Losses and
Expenses 27,462,338 20,825,943 15,425,146 12,020,682 10,165,350
___________ ___________ ___________ ___________ ___________
Net Income* $ 6,901,924 $ 1,718,558 $ 2,704,707 $ 3,507,214 $1,920,385
___________ ___________ ___________ ___________ ___________
Dividends Per
Common Share 0 0 0 0 0
Total Assets $91,526,976 $66,012,284 $50,359,633 $36,847,490 $28,124,056
Total Policy
Reserves and
Other Liabilities 76,350,313 60,246,641 42,430,269 29,777,783 23,148,003
Stockholders' Equity 15,176,663 5,765,643 7,929,364 7,069,707 4,976,053
Dividends Paid on
Participating Shares 1,188,614 2,156,304 2,021,504 1,021,705 150,317
*/ 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 to the financial statements.
</TABLE>
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 to
$16,418,640 in 1995 and $14,960,494 in 1994 from $11,550,335 in 1993. The
Company believes that such funds will be sufficient to meet its liquidity
requirements in 1996 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 $72,752,532 as of December 31,
1995, and $57,468,269 as of December 31, 1994. 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.
On April 11, 1996, the Board of Directors authorized the payment of dividends
to eligible holders of Participating Shares aggregating $4,007,483. See
"Dividends" for a discussion of dividends paid and legal restrictions on the
payment of dividends.
Capital Resources. Capitalization of the Company, as of December 31, 1995, was
comprised of paid-in capital with respect to the Common Stock of $200,000,
paid-in capital with respect to the Shares of $1,807,500 (compared with
$1,665,000 and $1,417,500 as of December 31, 1994 and 1993, respectively), and
earnings retained for use in the business of $11,517,542. 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 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, 1996, the Company's required minimum net assets computed in
accordance with Barbados law was approximately $3,380,069, compared to
total capital and retained earnings computed for purpose of Barbados law of
$ 13,525,042.
Results of Operations. During the year ended December 31, 1995, the Company
had net income of $6,901,924 compared to $1,718,558 and $2,704,707 for the
years ended December 31, 1994 and 1993, respectively. As described below, the
increase in net income during 1995 compared to the previous year was the result
of realized gains on the sale of investments, increases in interest earned and
improved underwriting results. The reduction in net income during 1994
compared to the previous year was the result primarily of realized losses on
the sale of investments.
The Company had net underwriting income of approximately $1,338,351 in 1995
compared to $490,742 and $4,465 for the years ended December 31, 1994 and 1993,
respectively. The increase in underwriting income during 1995 was the result
of an increase in the amount of premiums earned coupled with an improvement in
the loss ratio (the ratio of losses incurred to premiums earned). During 1995,
the Company had earned premiums of $28,800,689 compared to $21,316,685 and
$15,429,611 during 1994 and 1993, respectively. Increased premium income has
been generated by the issuance of additional series of Shares during the year
ended December 31, 1995, and the continuing flow of reinsurance premiums from
series issued in prior years. During 1995, the Company issued 20 new series of
Shares and redeemed 1 series of Shares for a net increase of 19 series. There
were a total of 241 series outstanding at December 31, 1995 compared to 222 and
189 series of Shares outstanding at December 31, 1994 and 1993, respectively.
The Company incurred losses and expenses during the year ended December 31,
1995 of $27,462,338 compared with $20,825,943 and $15,425,146 for the years
ended December 31, 1994 and 1993, respectively. Expenses in 1995 were
comprised of provisions for losses incurred of $19,431,032, ceding commissions
and excise taxes of $7,486,469 and operating expenses of $544,837. Losses
incurred in 1994 and 1993 were $14,830,166 and $10,912,683 respectively. The
loss ratio for the year ended December 31, 1995 was 67.5% compared to 69.6% and
70.7% for the years ended December 31, 1994 and 1993, respectively.
The Company incurred operating expenses during the year ended December 31, 1995
of $544,837 compared to $455,238 and $503,178 for the years ended December 31,
1994 and 1993, respectively. MIC has agreed to pay directly certain costs of
registering and issuing shares if such costs can not be allocated to the
Subsidiary Capital Account for the Common Stock. In 1995 and 1994, $171,079
and $162,989, respectively, of such costs were paid directly by MIC. For the
year ended December 31, 1993, $74,461 of such costs were paid by the Company
and allocated to the Subsidiary Capital Account for the Common Stock.
Investment income in 1995 was $5,563,573 compared to $1,227,816 and $2,700,242
for the years ended December 31, 1994 and 1993, respectively. The increase in
investment income during 1995 compared to 1994 was attributable to realized
gains on the sale of investment securities and an increase in interest earned.
The decrease in investment income during 1994 compared to 1993 was primarily
attributable to realized losses on the sale of investment securities which
offset an increase in interest earned. The sale of investment securities for
the year ended December 31, 1995 resulted in realized gains of $1,857,519
compared to realized losses of $1,543,358 for the year ended December 31, 1994,
and realized gains of $872,313 for the year ended December 31, 1993. The
realized gains during 1995 were due to increased sales of investment securities
to take advantage of market opportunities presented by fluctuations in interest
rates. The realized losses on the sale of investment securities during 1994
resulted from changes in interest rates which adversely affected the market
values of the Company's investment portfolio. Interest earned for the year
ended December 31, 1995 was $3,706,054 compared to $2,771,174 and $1,827,929
for the years ended December 31, 1994 and 1993, respectively. The increase in
interest earnings during 1995 was largely a result of an increase in the amount
of assets under management which offset the impact of lower interest rates.
Unrealized appreciation on investment securities held at December 31, 1995 was
$1,651,621 compared to unrealized depreciation at December 31, 1994 of
$1,896,089. The unrealized appreciation as of December 31, 1995 compared to
the unrealized depreciation as of December 31, 1994 is in large part
attributable to lower long term interest rates in effect during 1995 which
increased the market value of the Company's investment portfolio.
At December 31, 1995, approximately 78.5% of the Company's investments are in
U.S. dollar-denominated fixed-income securities. Approximately 21.5% of the
Company's investments are in non-U.S. dollar-denominated bonds, on a currency-
hedged basis. The Company's investment manager seeks to identify non-U.S.
dollar-denominated investments that offer 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 used to hedge non-U.S. dollar-denominated investments 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, 1995, the Company had furnished such a letter of
credit in the amount of $58,050,000.
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 required 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 11,
1996 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
William B. Noll ......... 53 Chairman and Chief Executive Officer,
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. .... 52 Vice-President and Director (Vice-President,
MIC).
Mr. Carrio became Vice President and
Director in June of 1991.
Bernard J. Buselmeier ... 40 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.
John J. Dunn, Jr......... 37 Vice-President and Director (Assistant
Treasurer, MIC, 1995; previously manager,
Coopers & Lybrand, L.L.P.)
Mr. Dunn became a Director in April of 1996.
Peter R. P. Evelyn ...... 54 Director (Attorney, Evelyn, Gittens &
Farmer, a Barbados law firm).
Mr. Evelyn has been a Director since 1986.
Warren R. Weidner ....... 49 Director (President, Weidner Chevrolet,
Inc.)
Mr. Weidner became a Director in April of
1996.
Ronald W. Jones ......... 43 Vice-President, Finance (Managing Director,
Alexander Insurance Managers (Barbados)
Ltd.).
Mr. Jones has served as Vice-President,
Finance since 1987.
Michael R. Boyce ......... 57 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.
CERTAIN TRANSACTIONS
It is the Company's policy not to make loans to any of its officers, directors,
control persons or other affiliates.
All transactions between the Company and its officers, directors, employees and
affiliates, will be on terms no less favorable to the Company than can be
obtained from unaffiliated parties. Any such transactions will be subject to
the approval of a majority of the disinterested members of the Board of
Directors.
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 1, 1996, 24,400 Shares representing 244 series had been issued and
were outstanding and were held of record by 422 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, 100% to the
related Subsidiary Capital Account.
(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. Management has proposed that
the Company's Articles be amended to provide that, on a going forward
basis, the expenses and liabilities specified in the prior sentence be
allocated equally among the Subsidiary Capital Accounts, provided that no
such expenses and liabilities shall be allocated to a Subsidiary Capital
Account for any portion of the fiscal year of the Company during which
such Subsidiary Capital Account is first established. A shareholder vote
on such amendment is expected during 1996.
(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, 1995, $1,883,188 of net
underwriting gains and $544,837 of administrative expenses were allocated among
the 241 series of Shares outstanding as of December 31, 1995, and $5,563,573
of net investment income was allocated among such series of Shares and the
Common Stock.
As of December 31, 1995, 216 such series had balances greater than $7,500
(ranging from $7,559 to $431,157) and 25 series had balances less than $7,500
(ranging from $6,762 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, 1995, an aggregate of
$1,281,396 had been advanced from the Restricted Earned Surplus (which forms a
portion of the Account established for the Common Stock owned by MIC) to 22
Subsidiary Capital Accounts and remained outstanding at that date. In
addition, at December 31, 1995, net deficits of $458,609 associated with 4
series of Shares that have been redeemed had been charged against Restricted
Earned Surplus and remained outstanding at that date. As of December 31, 1995,
$849,452 of aggregate deficits had been reallocated among the Subsidiary
Capital Accounts of the Shares and remained outstanding.
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 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. 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 employee 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. (However, liability for violations of the 1933 Act
by the Company may be imposed directly on MIC in a United States court as a
result of MIC being a "control person" with respect to the Company under the
1933 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 employees 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. In this
connection, for example, it is to be noted that President Clinton's 1997 Budget
Plan contains a proposal concerning the Taxation of Certain Captive Insurance
Companies and Their Shareholders which might, if enacted, have a significant
effect on the tax consequences described below and possibly on the business of
the Company. In general, that proposal would eliminate the tax benefit for an
insured's insurance premium deductions when the insured's risks ultimately are
assumed by a "related-party" reinsurer and would materially alter the way in
which the reinsurer accounts for tax payments for the reinsurance of such
"related-party" risks. It appears that for this purpose a substantial portion
of the Company's business would be composed of the reinsurance of "related-
party" risks. (See "Business of the Company.") Accordingly, although it is
not entirely clear at this time, the enactment of the President's captive
proposal could materially alter the tax treatment with respect to "related-
party" risks assumed by the Company. Such a change could in turn result in a
change in the reinsurance and/or stock ownership relationships between MIC and
the Company.
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 1% 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
1% to 4%, 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 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 as of December 31, 1995 and 1994 and for each of the
three years in the period ended December 31, 1995, 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 year ended December 31, 1995,
File No. 33-6534, as filed by the Company with the Securities and Exchange
Commission, Washington, D.C. (the "Commission"), is incorporated in this
Prospectus by reference. Any statement contained in such Annual 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, 1995 and 1994 and the related
statements of income and retained earnings and cash flows for each of the three
years in the period ended December 31, 1995. 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, 1995 and 1994 and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995 in conformity with accounting principles generally accepted
in the United States of America.
s/DELOITTE & TOUCHE
CHARTERED ACCOUNTANTS
Bridgetown, Barbados
March 1, 1996
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(Expressed in U.S. Dollars)
1995 1994
___________ ___________
ASSETS
Investments $59,898,265 $42,903,056
Cash and cash equivalents 7,093,106 3,303,060
Accrued investment income 2,532,813 1,559,195
Due from Motor Insurance Corporation 3,095,587 3,315,506
Deferred acquisition costs 18,907,205 14,931,467
___________ ___________
Total Assets $91,526,976 $66,012,284
___________ ___________
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Unearned premiums $72,752,532 $57,468,269
Loss reserves 3,480,334 2,660,270
Accrued liabilities 117,447 118,102
___________ ___________
Total Liabilities 76,350,313 60,246,641
___________ ___________
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Share capital
Common stock - no par value;
Authorized - 2,000 shares;
issued and outstanding -
2,000 shares 200,000 200,000
Participating stock - no par value;
Authorized - 100,000 shares;
issued and outstanding -
24,100 shares at December 31,
1995 and 22,200 shares at
December 31, 1994 1,807,500 1,665,000
___________ ___________
2,007,500 1,865,000
Retained earnings 11,517,542 5,796,732
Unrealized appreciation
(depreciation) on investments 1,651,621 (1,896,089)
___________ ___________
Total Stockholders' Equity 15,176,663 5,765,643
___________ ___________
Total Liabilities and
Stockholders' Equity $91,526,976 $66,012,284
___________ ___________
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, 1995, 1994 AND 1993
(Expressed in U.S. Dollars)
1995 1994 1993
___________ ___________ ___________
INCOME
Reinsurance
premiums assumed $44,084,952 $38,371,896 $27,779,063
Increase in
unearned premiums (15,284,263) (17,055,211) (12,349,452)
___________ ___________ ___________
Premiums earned 28,800,689 21,316,685 15,429,611
___________ ___________ ___________
Investment income:
Interest earned 3,706,054 2,771,174 1,827,929
Realized gains (losses)
on investments 1,857,519 (1,543,358) 872,313
___________ ___________ ___________
Investment income - net 5,563,573 1,227,816 2,700,242
___________ ___________ ___________
TOTAL INCOME 34,364,262 22,544,501 18,129,853
___________ ___________ ___________
EXPENSES
Acquisition costs 7,486,469 5,540,539 4,009,285
Losses paid 18,610,968 14,079,926 10,625,508
Increase in loss
reserves 820,064 750,240 287,175
Administrative expenses:
Related Parties 174,443 171,135 168,933
Other 370,394 284,103 334,245
___________ ___________ ___________
TOTAL EXPENSES 27,462,338 20,825,943 15,425,146
___________ ___________ ___________
NET INCOME 6,901,924 1,718,558 2,704,707
RETAINED EARNINGS,
beginning of year 5,796,732 6,211,978 5,528,775
LESS: DIVIDENDS (1,188,614) (2,156,304) (2,021,504)
ADD: REDEMPTION OF PARTICIPATING
STOCK 7,500 22,500 -
___________ ___________ ___________
RETAINED EARNINGS, end of year $11,517,542 $ 5,796,732 $ 6,211,978
___________ ___________ ___________
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, 1995, 1994, AND 1993
(Expressed in U.S. dollars)
1995 1994 1993
___________ ___________ ___________
CASH FLOWS FROM OPERATING ACTIVITIES:
Reinsurance premiums collected $42,818,628 $35,580,944 $26,933,330
Losses and underwriting
expenses paid (28,599,428) (22,168,851) (16,977,784)
Administrative expenses paid (540,841) (527,767) (490,616)
Investment income received 2,740,281 2,076,168 2,085,405
___________ ___________ __________
Net cash provided by operating
activities 16,418,640 14,960,494 11,550,335
___________ ___________ __________
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment
securities (182,526,749) (70,748,944) (49,834,608)
Sales and maturities of investment
securities 170,936,769 54,189,043 45,038,810
____________ ___________ __________
Net cash invested (11,589,980) (16,559,901) (4,795,798)
___________ ___________ __________
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of
Participating Stock 150,000 270,000 345,000
Dividends paid (1,188,614) (2,156,304) (2,021,504)
___________ ___________ __________
Net cash used in financing
activities (1,038,614) (1,886,304) (1,676,504)
___________ ___________ __________
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 3,790,046 (3,485,711) 5,078,033
CASH AND CASH EQUIVALENTS, beginning
of year 3,303,060 6,788,771 1,710,738
___________ __________ __________
CASH AND CASH EQUIVALENTS, end of
year $ 7,093,106 $ 3,303,060 $6,788,771
___________ ___________ __________
RECONCILIATION OF NET INCOME TO
NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Net income $ 6,901,924 $ 1,718,558 $2,704,707
Realized losses (gains) on
investments (1,857,519) 1,543,358 (872,313)
Change in:
Accrued investment income (973,618) (698,005) 254,177
Due from Motors Insurance
Corporation 219,919 (983,528) 24,630
Deferred acquisition costs (3,975,738) (4,436,261) (3,213,352)
Unearned premiums 15,284,263 17,055,211 12,349,452
Loss reserves 820,064 750,240 287,175
Accrued liabilities (655) 10,921 15,859
___________ ___________ __________
NET CASH PROVIDED BY OPERATING
ACTIVITIES $16,418,640 $14,960,494 $11,550,335
___________ ___________ ___________
The accompanying notes form an integral part of these financial statements.
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(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, and amendments
thereto.
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 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
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.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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.
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.
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.
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, 2016.
Stockholders who are United States residents are taxed in the United
States on their share of the Company's income on a deemed
distribution basis.
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).
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 fair value of investments in debt securities are as
follows:
Gross Gross
Unrealized Unrealized Fair
Cost Appreciation Depreciation Value
_________ ____________ ______________ ________
December 31, 1995:
Debt securities
issued by
foreign
governments
and their
agencies $56,243,544 $1,711,611 $ (135,765) $57,819,390
Debt securities
issued by
supra-nationals 2,003,100 75,775 - 2,078,875
___________ __________ ___________ ___________
Total $58,246,644 $1,787,386 $ (135,765) $59,898,265
___________ __________ ___________ ___________
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 fair value of debt securities at December 31, 1995,
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.
Fair
Cost Value
___________ __________
Due after one year
through five years $40,242,673 $41,233,791
Due after five years
through ten years 18,003,971 18,664,474
___________ ___________
$58,246,644 $59,898,265
___________ ___________
In 1995, gross gains of $3,147,972 and gross losses of
$1,290,453 were realized. In 1994, gross gains of $150,704 and
gross losses of $1,694,062 were realized. In 1993, gross gains
of $964,613 and gross losses of $92,300 were realized.
At March 31 1996, the cost and fair value of the Company's
investment portfolio were approximately $57,384,000 and
$57,158,000 (unaudited), respectively. Realized net gains on
the sale of securities in the three months ended March 31, 1996
were approximately $750,000 (unaudited).
The following summarizes net unrealized appreciation
(depreciation) on investments:
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 $ 3,547,710
___________
Balance, December 31, 1995 $ 1,651,621
___________
The investment portfolio is comprised of diverse debt securities
which do not result in any concentration of credit risk. At
December 31, 1995, approximately 78.5% of the Company's
investments are denominated in U.S. dollars and 21.5% are in
non-U.S. dollar denominated securities on a currency-hedged
basis.
The Company uses forward currency contracts to hedge its
exposure to changes in currency exchange rates relating to its
investments denominated in currencies other than the U.S.
dollar. The contracts provide for settlement in U.S. dollars in
the future. Credit risk is managed by dealing with financially-
sound counterparties. Market risk is mitigated because the
forward contracts hedge corresponding non-U.S. dollar
investments. The notional amount of forward contracts
outstanding at December 31, 1995, all of which mature in 1996,
was $11,017,000.
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, 1995, 1994 and 1993:
1995 1994 1993
1995 1994 1993
____ ____ ____
Beginning balance in
reserves for losses $ 2,660,270 $ 1,910,030 $1,622,855
____________ ____________ __________
Add-provision for losses
incurred related to:
Current claim year 19,540,192 14,893,890 11,046,932
Prior claim years (109,160) (63,724) (134,249)
____________ ___________ __________
Total 19,431,032 14,830,166 10,912,683
____________ ____________ ___________
Deduct-paid losses
attributable to:
Current claim year 16,461,768 12,527,026 9,363,720
Prior claim years 2,149,200 1,552,900 1,261,788
____________ ____________ __________
Total 18,610,968 14,079,926 10,625,508
____________ ____________ ___________
Ending balance in reserves
for losses $ 3,480,334 $ 2,660,270 $1,910,030
____________ ____________ __________
As a result of change in estimates of losses incurred in prior years, the
provisions for losses incurred in 1995, 1994 and 1993 decreased by $109,160,
$63,724 and $134,249, respectively, because of lower than expected claims.
Note 5. STOCKHOLDERS' EQUITY
All of the Company's Common Stock is held by MIC. The Company is
offering, on a continuous basis, 12,000 shares of Participating Stock
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 1995, 20 additional series of 100 shares of Participating
Stock were issued as compared with 36 for the year ended December 31,
1994. In addition, in 1995 the Board of Directors redeemed 1 series
of 100 shares that had a substantial accumulated deficit. As a
result of the redemption, $7,500 was transferred from the
Participating Stock to retained earnings to eliminate the capital
account and accumulated deficit of that series.
In the years ended December 31, 1995, 1994 and 1993, costs in the
amount of $171,079, $162,989 and $74,461, respectively, were incurred
in the sale of Participating Stock. The Common Stockholder
reimbursed the Company directly for these expenses in 1995 and 1994.
During 1993, these amounts were expensed by the Company and allocated
to the account of the Common Stockholder.
The holder of Common Stock is entitled to elect five directors, at
least one of whom must be a resident of Barbados. The holder of
Common Stock has no right to vote with respect to liquidation of the
Company. The holder generally has 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 of
Incorporation or By-Laws require the approval of a majority of
the shares of Participating Stock present and voting together
with a majority of the shares 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.
Note 6. REINSURANCE PREMIUMS
Under the provisions of the retrocession agreement, the Company will
receive additional cessions of $24,250,844 ($19,156,090 at December
31, 1994) relating to premiums written by Motors Insurance
Corporation 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
At March 1, 1996, the Company has provided an irrevocable letter of
credit to MIC, in the amount of $58,050,000 to collateralize the
amounts recoverable from the Company related to the business ceded.
Cash equivalents and investments are assigned to collateralize the
letter of credit.
Note 8. RETAINED EARNINGS
Items of income or loss and premiums 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 of the net income, if any, for the
preceding 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 year. At January 1, 1996, the Company's required
minimum capital computed in accordance with Barbados law was
approximately $3,380,000.
Retained earnings applicable to the Common and Participating
Stockholders are comprised of the following:
Common Participating Total
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 (loss) for the year 18,627 6,883,297 6,901,924
Net transfers 23,732 (23,732) -
Dividend paid - (1,188,614) (1,188,614)
Redemption of Participating
Stock - 7,500 7,500
_________ ___________ ___________
Balance (Deficit)
December 31, 1995 $ (10,861) $11,528,403 $11,517,542
_________ ___________ ___________
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
[April 15, 1996] 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, one hundred
percent (100%) shall be allocated to the related Subsidiary Capital
Account. 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 employee 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, employee, fiduciary or
member of any other corporation, partnership, joint venture, trust, enterprise
or organization, except with respect to any matter for which indemnification
would be void pursuant to the Companies Act, 1982 of Barbados (the "Companies
Act").
Under the Companies Act, indemnification of Registrant's officers and directors
against any liability which would attach by reason of any contract entered into
or act or thing done or omitted to be done by them in performance of their
office or in any way in the discharge of their duties, if the same happens
through their not acting in good faith and in the best interest of the
Registrant is void.
The position of the Securities and Exchange Commission regarding
indemnification for liabilities arising under the Securities Act of 1933 is set
forth under Item 17, paragraph 4 of this Part II.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
A. Exhibits:
4 Restated Articles of Incorporation (filed as Appendix A to the
Prospectus).
5 Opinion of Evelyn, Gittens & Farmer filed by reference to
Exhibit 5 to Registration Statement on Form S-2, File No. 33-
60105, filed June 9, 1995.
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 Ministry of Finance of Barbados.
(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 11, 1996
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/William B. Noll Chairman and Chief Executive April 17, 1996
William B. Noll Officer and Director
(Principal Executive Officer)
s/Ronald W. Jones Vice-President (Principal April 11, 1996
Ronald W. Jones Financial and Accounting
Officer)
s/Louis S. Carrio, Jr. Vice-President and Director April 17, 1996
Louis S. Carrio, Jr.
s/Bernard J. Buselmeier Vice-President and Director April 11, 1996
Bernard J. Buselmeier
s/John J. Dunn, Jr. Vice-President and Director April 17, 1996
John J. Dunn, Jr.
s/Peter R. P. Evelyn Director April 11, 1996
Peter R. P. Evelyn
s/Warren R. Weidner Director April 11, 1996
Warren R. Weidner
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 11, 1996
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.
April 22, 1996
EXHIBIT 23(c)
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
Motors Mechanical Reinsurance Company, Limited:
We hereby consent to the use in Post Effective Amendment No. 2 to
Registration Statement No. 33-60105 of Motors Mechanical
Reinsurance Company, Ltd. on Form S-2 of our report dated March
1, 1996, included in the Annual Report on Form 10-K for Motors
Mechanical Reinsurance Company, Ltd. for the year ended December
31, 1995, and to the use of our report dated March 1, 1996,
appearing in the Prospectus, which is part of such Registration
Statement. We also consent to the reference to us under the
headings "Selected Financial Data" and "Experts" in such
Prospectus.
s/DELOITTE & TOUCHE
Bridgetown, Barbados
April 11, 1996
EXHIBIT 99(b)
MINISTRY OF FINANCE
GOVERNMENT OF BARBADOS
GUARANTEE
The Exempt Insurance Act 1983
Section 32
BARBADOS
THIS GUARANTEE is given this 19th day of February one
thousand nine hundred and ninety six by THE GOVERNMENT OF BARBADOS
acting herein by the Minister of Finance to Motors Mechanical
Reinsurance Company, Limited a company incorporated and
registered under the provisions of the Companies Act, Cap. 308
of the laws of Barbados and having its registered office situate
at Financial Services Centre, Bishop's Court Hill, St. Michael
(hereinafter called "the Company") pursuant to section 32 of the
Exempt Insurance Act 1983.
WHEREBY IT IS AGREED AND DECLARED as follows:-
1. The Company is entitled to all benefits and exemptions
at present set forth in sections 29, 30, 31 and 33 of the Act for
a period of thirty (30) years, that is to say, a period
commencing with the date of issue of the licence to the company
and ending with the close of the Company's fiscal period in the
thirtieth year following the year of its incorporation.
2. Subject to paragraph 1 hereof, this Guarantee will
continue to apply with full effect and shall during its term be
subject to any amendments made to the Act.
3. The Guarantee will continue to apply notwithstanding
any changes in the Company's name, Articles of Incorporation,
place of business, directors or ownership in accordance with the
Exempt Insurance Act 1983 and other laws of Barbados, and the
Guarantee will also apply to any successor corporation of the
Company:
Provided that the successor corporation is at all material
times duly licensed and approved under the act as amended or
future legislation of a substantially similar nature.
4. If at any time during the term of this Guarantee, the
Act or similar legislation is amended to provide tax rates or
exemptions which are more favourable to the Company, the Company
shall be entitled to those tax rates or exemptions and shall
inform the Minister in writing of its intention to claim the
benefits thereof and the Guarantee shall then continue to apply
for the remainder of the thirty (30) year term.
IN WITNESS whereof this Guarantee has been executed the day
and year first before written.
SIGNED for and on behalf of the
GOVERNMENT OF BARBADOS by
the Minister of Finance in the
presence of: s/ O. Arthur
Witness: s/Shirley A. King
Name: Shirley A. King
Abode: 17 Clermont, St. Michael
Calling: Executive Secretary
