Registration No. _______
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
(Exact name of registrant as specified in charter)
Barbados Not Applicable
(State or other jurisdiction (I.R.S. employer identification
of incorporation or organization) number)
Financial Services Centre
Bishops Court Hill
St. Michael, Barbados, W.I.
(246) 436-4895
(Address, including zip code, and telephone number, including
area code, 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.
(246) 436-4895
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
George R. Abramowitz, Esq.
Douglas N. Beck, Esq.
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
1875 Connecticut Avenue, N.W.
Washington, D.C. 20009
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration becomes effective.
<PAGE>
PAGE 1
In accordance with Rule 429 under the Securities Act of 1933, the prospectus
contained in this registration statement relates to securities previously
registered under Registration Statement on Form S-2, File No. 033-60105.
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. [_] _______________
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_] _______________
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] _______________
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] _______________
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
maximum maximum
Title of each offering aggregate Amount of
class of securities Amount to be price offering registration
to be registered registered per unit price fee
<S> <C> <C> <C> <C>
Shares of Participating 9,000 shs(1) $75 $675,000 $187.65
Stock (no par value)
- --------------------------------------- --------------------- ---------------- ----------------- --------------------
</TABLE>
(1) 3,000 shares are being carried forward from Registration Statement No.
033-60105. A registration fee of $77.59 was previously paid with respect to
such shares.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that the registrant statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to section 8(a), may
determine.
<PAGE>
PAGE 2
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;
Our Business; 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
<PAGE>
PAGE 3
P R O S P E C T U S
Motors Mechanical Reinsurance Company, Limited
12,000 Shares of Participating Stock
We are a Barbados company engaged in the business of reinsuring risks covering
motor vehicle mechanical repairs.
The participating shares being offered by this prospectus are divided into 120
series, and the authorized number of participating shares of each series is 100.
The offering price is $75.00 per participating share. All Amounts Of Money Shown
In This Prospectus Are Stated In U.S.
Dollars.
We will issue participating shares only to persons certified by the owners of
entities selling motor vehicles to be identified with that series and only if we
receive stock purchase agreements executed by such persons which are acceptable
to us in our sole discretion.
Investing in our participating shares involves risks. See "Risk Factors" (page
__).
Neither The Securities And Exchange Commission Nor Any State Securities
Commission Has Approved Or Disapproved These Securities Or Passed Upon The
Accuracy Or Adequacy Of This Prospectus. Any Representation To The Contrary Is A
Criminal Offense.
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 , 1999.
<PAGE>
PAGE 4
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
FOR ARIZONA AND MASSACHUSETTS INVESTORS
NO SHARES MAY BE OFFERED TO OR PURCHASED BY RESIDENTS OF ARIZONA OR
MASSACHUSETTS UNLESS THE PURCHASER IS (I) AN OWNER OF THE ENTITY WITH RESPECT TO
WHICH THE PARTICIPATING SHARES ARE ISSUED, (II) A MEMBER OF THE FAMILY OF THE
ENTITY WITH RESPECT TO WHICH THE PARTICIPATING SHARES ARE ISSUED, (III) A TRUST
FOR THE BENEFIT OF PERSONS OTHERWISE ELIGIBLE TO PURCHASE SHARES, (IV) A
CORPORATION OR PARTNERSHIP CONTROLLED BY THE OWNER OF THE ENTITY WITH RESPECT TO
WHICH THE PARTICIPATING SHARES ARE ISSUED, OR (V) A KEY EMPLOYEE WITH RESPECT TO
SUCH ENTITY.
FOR FLORIDA INVESTORS
THE SECURITIES BEING OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE FLORIDA
DIVISION OF SECURITIES. ANY SALE MADE PURSUANT TO THIS PROSPECTUS MAY BE VOIDED
BY THE PURCHASER WITHIN THREE DAYS OF THE FIRST TENDERING OF CONSIDERATION.
FOR MISSISSIPPI INVESTORS
THE COMMISSIONER OF INSURANCE OF THE STATE OF MISSISSIPPI (THE "MISSISSIPPI
INSURANCE COMMISSIONER") HAS NOT APPROVED OR DISAPPROVED THIS OFFERING, NOR HAS
THE MISSISSIPPI INSURANCE COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS.
FOR NEBRASKA INVESTORS
ALL NEBRASKA INVESTORS DESIRING TO PURCHASE PARTICIPATING STOCK SHALL FORWARD
THEIR EXECUTED STOCK PURCHASE AGREEMENTS, CERTIFIED OR CASHIER'S CHECK PAYABLE
TO MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED, AND CERTIFICATION OF
ELIGIBILITY TO:
GMAC SECURITIES CORPORATION
3044 W. GRAND BOULEVARD
MC 482-102-201
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.
<PAGE>
PAGE 5
TABLE OF CONTENTS
Page
SUMMARY ...........................................................
RISK FACTORS ......................................................
ELIGIBILITY TO PURCHASE THE SHARES ................................
USE OF PROCEEDS ...................................................
DETERMINATION OF OFFERING PRICE ...................................
DIVIDENDS .........................................................
OUR BUSINESS . ....................................................
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 To Us................................
United States Federal Income Tax Consequences -- The Shareholders.
LEGAL MATTERS .....................................................
EXPERTS ...........................................................
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE .................
ADDITIONAL INFORMATION ............................................
INDEPENDENT AUDITORS' REPORT ......................................
FINANCIAL STATEMENTS...............................................
<PAGE>
PAGE 6
APPENDIX A (Restated Articles of Incorporation of the Company)...
APPENDIX B (Stock Purchase Agreement)............................
APPENDIX C (Certification Form)..................................
<PAGE>
PAGE 7
SUMMARY
The following summary highlights important information about our business and
about this offering. Because it is a summary, it does not contain all the
information you should consider before investing in our participating shares.
You should read the entire prospectus, including the financial statements and
notes to the financial statements, before you decide to buy participating
shares.
OUR BUSINESS
We are a Barbados reinsurance company. We assume risks with respect to motor
vehicle repairs that are covered under motor vehicle mechanical service
agreements sold to purchasers of new and used motor vehicles. These risks are
initially insured under policies that are issued either to General Motors
Corporation or its affiliates, or to automobile dealers, and reinsured by Motors
Insurance Corporation. We then assume the risks under these policies from Motors
Insurance Corporation. (See "Our Business.")
THE OFFERING
Securities Being
Offered ........... Shares of participating stock, not to exceed 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 . We issue series of participating shares with respect to
specific MIC Mechanical Accounts. An MIC Mechanical Account
refers to the record maintained by Motors Insurance
Corporation with respect to mechanical service agreements
sold by one or more entities that sell motor vehicles. Only
one series of participating shares will be issued with
respect to each MIC Mechanical Account. To be eligible to
purchase participating shares, you must be certified to
purchase shares by the owners of the entity for which the
MIC Mechanical Account is maintained. We will not issue any
participating shares of a series unless all shares of that
series are purchased by you or other eligible persons. (See
"Eligibility to Purchase the Shares.")
Offering Period ... This offering commenced as of the date of this prospectus.
Participating shares will be offered and sold on a
continuous basis unless we terminate the offering. All funds
paid by purchasers of participating shares will be held in
an escrow account at Barclays Bank PLC in Bridgetown,
Barbados until we accept the purchaser's stock purchase
agreement. Once we accept the stock purchase agreement, the
funds will be paid to us and shares will be issued.
Purchase Procedure..To purchase participating shares, you must send the
following to us: (1) two executed stock purchase agreements;
(2) a certified or cashier's check in the amount of the
purchase price of the participating shares payable to
"Motors Mechanical Reinsurance Company, Limited -- Escrow
Account"; and (3) a certification of eligibility. (See
"Eligibility to Purchase the Shares.")
<PAGE>
PAGE 8
Restrictions on
Transfer .......... Generally, you will not be able to transfer participating
shares unless you have first offered us the opportunity to
purchase the shares. In addition, generally you will need to
obtain our prior written consent to transfer less than all
of the shares of a series. (See "Description of Capital
Stock -- Restrictions on Transfer.")
Voting Rights ..... As a holder of participating shares, you and the other
holders of participating shares will be entitled to elect
one out of six members of our board of directors. Your right
to vote on other matters will be limited. (See "Description
of Capital Stock -- Voting Rights.")
Risk Factors ...... This investment is subject to significant risks. (See "Risk
Factors.")
Capital............ Structure.. As of April 1, 1999, there were 31,200
participating shares representing 312 series issued and
outstanding and held by 544 shareholders. In addition, we
have issued 2,000 shares of our common stock to Motors
Insurance Corporation that remain outstanding.
Use of Proceeds ... We will add the proceeds of this offering to our general
funds and utilize these funds in our reinsurance business.
(See "Use of Proceeds.")
Plan of
Distribution ...... The participating shares are being offered, on a continuous
basis, by registered representatives of GMAC Securities
Corporation, a broker-dealer affiliate of Motors Insurance
Corporation. No commissions are charged or paid in
connection with the sale of the participating shares.
RISK FACTORS
An investment in our participating shares is subject to significant risk. Before
you decide to purchase participating shares, please carefully consider the
following risk factors:
We Are Controlled By and Dependent Upon Motors Insurance Corporation.
Motors Insurance Corporation owns all of our common stock. This permits Motors
Insurance Corporation to control our board of directors and determine, among
other things, the selection of our officers, management company and investment
adviser. We have entered into a retrocession agreement with Motors Insurance
Corporation. Under this agreement, we assume (reinsure) risks of Motors
Insurance Corporation under insurance policies covering motor vehicle mechanical
service agreements. We rely exclusively on this retrocession agreement and,
thus, on Motors Insurance Corporation for our business. Therefore, any matters
adversely affecting Motors Insurance Corporation may have an adverse impact on
our business. In addition, under the retrocession agreement, Motors Insurance
Corporation has the ability to limit our reinsurance with respect to particular
MIC Mechanical Accounts. This could adversely affect the value of your
participating shares. (See "Our Business;" and "Description of Capital Stock.")
Under the retrocession agreement, we are required to reimburse Motors Insurance
Corporation for all claims paid by Motors Insurance Corporation with respect to
the motor vehicle mechanical service agreements that are covered by the
retrocession agreement. We may, at our own expense,
<PAGE>
PAGE 9
participate with Motors Insurance Corporation in the defense of any claim.
However, Motors Insurance Corporation generally has full authority to
investigate and settle, or defend, all claims.
The retrocession agreement does not specify a date upon which it will terminate.
The agreement may generally be terminated at any time by either Motors Insurance
Corporation or by us upon 30 days written notice. If the retrocession agreement
is terminated, we may not be able to continue to operate in the manner described
in this prospectus.
Restrictions Applicable to Motors Insurance Corporation's Ability to Retrocede
Risks to Us.
Motors Insurance Corporation believes that there is no federal or state law or
regulation that limits its ability to retrocede (assign) to us its risks with
respect to the mechanical service agreements. However, certain state insurance
laws and regulations are imprecise and subject to varied interpretations.
Accordingly, it is possible that a state administrator could attempt to limit
the retrocession arrangement between Motors Insurance Corporation and us on the
grounds that we are a non-United States company or a company that is affiliated
with the ceding company (i.e. Motors Insurance Corporation) or its producers
(i.e. the entities selling the mechanical service agreements). In addition, from
time to time, there are legislative and regulatory proposals that could, if
adopted, affect the ability of Motors Insurance Corporation to retrocede its
liability under the mechanical service agreements to us.
Extension of New Vehicle Warranties Could Adversely Affect Our Business.
Our business is largely dependent upon sales of mechanical service agreements.
Therefore, our business could be adversely affected by changes in warranties
provided by manufacturers for new motor vehicles that limit the need for, and
sales of, mechanical service agreements. For example, if warranties provided by
manufacturers are expanded, there could be an adverse affect on the sales of
mechanical service agreements, and thus on our business.
Losses Paid With Respect to Mechanical Service Agreements May Exceed Our Income.
The amount of losses that are incurred under mechanical service agreements are
unpredictable and highly volatile. If the amount of losses and expenses we incur
under the mechanical service agreements exceeds the amount of premium we earn
and our investment income, we would incur net losses.
Each series of participating shares generally bears 100% of the losses incurred
with respect to mechanical service agreements sold by the entity with respect to
which the shares are issued. To the extent losses incurred with respect to
mechanical service agreements sold by the entity with respect to which your
participating shares are issued are substantial, you might lose all or a portion
of your investment even if other holders of participating shares do not
experience a similar loss. In addition, under certain circumstances, losses
incurred with respect to mechanical service agreements other than those sold by
the entity with respect to which your shares are issued, may be allocated to the
account maintained for your shares. (See "Description of Capital Stock --
Allocations to Subsidiary Capital Accounts.")
Investment Related Risks.
Our profitability depends in part on the amount of income we earn on our
investments. There is a risk that we will not earn a net investment return
which, when added to our earned premium, will be sufficient to offset our
liability for claims and expenses. In addition, we could suffer investment
losses due to declines in the market values of securities in which we invest
which may be caused by, among other things, volatile interest rates. We invest
primarily in U.S. dollar-denominated securities issued outside of the United
States by non-U.S. private or governmental issuers and U.S. dollar-denominated
bank certificates of deposit issued by foreign banks and foreign branches of
U.S. banks. Subject to satisfaction of certain conditions, we may
<PAGE>
PAGE 10
make limited investments in non-U.S. dollar denominated bonds on a fully
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.
Our board of directors recently approved a plan to invest a portion of our
portfolio in equity securities, including securities issued by non-U.S. issuers.
We began to implement this plan in June of 1999 by purchasing shares of a fund
organized in Luxembourg that invests in such securities. Investing in securities
issued outside the United States subjects us to certain risks not generally
associated with securities issued in the United States. These risks include
fluctuations in currency exchange rates, lack of standard financial and
accounting information, and lack of liquidity in such securities.
United States Tax Risks.
We conduct a reinsurance business in Barbados. We execute and administer our
retrocession agreements and manage our business affairs from Barbados. On this
basis, we believe that we should not be deemed to be engaged in business within
the United States through a permanent establishment, and, therefore, we believe
we should not be subject to United States income tax. However, given the factual
nature of the questions involved and certain aspects of our treaty reinsurance
program related to the United States, there can be no assurance that for tax
purposes we ultimately will not be deemed to be engaged in business within the
United States through a permanent establishment. In such event, we would be
subject to United States income tax on business profits attributable to such
permanent establishment, as well as an additional 5% branch profits tax.
Under captive insurance company provisions contained in the Internal Revenue
Code, each holder of participating shares generally will be subject to United
States income tax currently on his or her pro rata share of our earnings,
whether or not such earnings are distributed. To the extent that we were subject
to United States income tax on our business profits, the holders of
participating shares would not be subject to current tax on such profits, but
the holders of participating shares would be subject to tax on our actual
distributions with respect to such profits. (See "United States Federal Tax
Considerations -- United States Federal Income Tax Consequences -- The
Shareholders.")
No representation is made as to the effect that any change in United States tax
laws or the interpretation thereof may have on us or holders of participating
shares.
Risks Related to Foreign Business Operations.
Our 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, we are subject to the provisions of the
Barbados Companies Act, 1982. (See "Description of Capital Stock -- Barbados
Corporate Law Provisions.")
Competition and Loss of Business.
The business of insuring risks under motor vehicle mechanical service agreements
is highly competitive, with many companies seeking to insure mechanical service
agreements sold by entities selling motor vehicles. Since all of our business is
currently derived from the retrocession agreement with Motors Insurance
Corporation, the volume of our business is
<PAGE>
PAGE 11
dependent, to some extent, upon the marketability of agreements and plans
developed by General Motors Corporation and its subsidiaries, including Motors
Insurance Corporation, and offered through motor vehicle dealers. In addition,
General Motors may choose not to insure its liability under mechanical repair
plans with Motors Insurance Corporation or its subsidiaries which would limit
our business.
Barbados Regulatory Limitations May Restrict The Amount of Our Business.
Barbados insurance law requires that we maintain certain levels of capital and
surplus in relation to the amount of premium we earn. To the extent that our net
asset value does not meet these minimum requirements and to the extent that the
capital and surplus attributable to a particular series of participating shares
does not support the business attributable to such series, we may reduce the
amount of our business attributable to such deficient series.
We Rely on Outside Consultants.
We do not have any full-time officers or employees. We rely on outside
consultants for insurance management, day-to-day administrative services, and
investment advice. (See "Our Business.")
Our Ability to Pay Dividends is Subject to Certain Restrictions.
Although our articles of incorporation require that we pay a minimum annual
dividend to holders of participating shares under certain circumstances, we will
not be able to pay any dividend unless such payment is in compliance with
Barbados insurance regulatory requirements, the Barbados Companies Act and other
limitations provided in our articles. (See Appendix A; and "Dividends.")
There Is No Public Market For Our Stock and There are Restrictions on Transfers.
There is no public market for the participating shares, and none is expected to
develop. In addition, the participating shares are subject to substantial
restrictions on transfer. Except for transfers to certain members of a
transferor's family, certain trusts, certain business affiliates, or estates, a
transfer of any series of shares is subject to our right of first refusal, and a
transfer of less than all of the shares of a series cannot be made without our
express written consent. All transferees must agree to be bound by the
provisions of a stock purchase agreement, including, among other things,
restrictions on the transfer of their shares. (See "Description of Capital Stock
- -- Restrictions on Transfer," "Eligibility to Purchase the Shares," and "Plan of
Distribution.")
We Have the Right to Redeem Shares.
We have the right to cause a redemption of participating shares of any series at
any time and for any reason. This would permit us, among other things, to redeem
your shares, at our discretion, if loss experience with respect to the
mechanical service agreements sold by the entity or entities with respect to
which your participating shares are issued, is unsatisfactory. We also may
reject any request for redemption by a shareholder. (See "Description of Capital
Stock -- Redemption.")
Year 2000
Many computerized systems and microprocessors that are used in our business have
the potential for operational problems if they lack the ability to handle the
transition to the Year 2000. The effects of the Year 2000 issue are also
complicated by our dependence on Motors Insurance Corporation as well as other
service providers such as our management company and investment adviser. The
Year 2000 issue has the potential to cause disruption to our business. To date,
we have not incurred, expensed or capitalized amounts related to the Year 2000
remediation, and
<PAGE>
PAGE 12
we do not expect to incur incremental expenses or to forego or delay information
technology projects due to Year 2000. Based on information provided by the
companies we do business with, we do not anticipate that we will experience a
disruption of our business as a result of the Year 2000 issue. However, there is
still uncertainty about the broader scope of the Year 2000 issue as it may
affect us and third parties that are critical to our operations. In the event
that we or our service providers are unable to complete remedial actions or are
unable to implement adequate contingency plans in the event that problems are
encountered, there could be a material adverse effect on our business, results
of operations and financial condition.
ELIGIBILITY TO PURCHASE THE SHARES
Participating shares ("Shares") of a series may be purchased only by an
individual or entity certified by all the owner(s) of the entity or entities for
which an MIC Mechanical Account is maintained, as a purchaser of all or part of
a series of Shares in respect of such MIC Mechanical Account ("Eligible
Purchaser"). An "MIC Mechanical Account" is the separate business record
maintained by MIC or any of its subsidiaries to track volume, experience, and
commissions with respect to mechanical service agreements sold by one or more
particular entities selling new and/or used motor vehicles. There are no formal
eligibility requirements for certification. The owners of the entity or entities
for which an MIC Mechanical Account is maintained have complete discretion with
respect to whom they choose to certify as Eligible Purchasers (including
themselves), provided that all beneficial owners of the entity or entities for
which an MIC Mechanical Account is maintained consent to such designation. In
addition, we have complete discretion to accept or reject any offer to purchase
Shares. No more than one series of Shares is issued with respect to each MIC
Mechanical Account. No Shares of a series are issued unless executed stock
purchase agreements (see Appendix B) for all Shares of that series have been
received and accepted by us.
A prospective purchaser is considered to be properly certified when we have
received a certificate in the form furnished by us (see Appendix C) from each
owner of the entity or entities for which an MIC Mechanical Account is
maintained 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 entity or entities for which an MIC Mechanical
Account is maintained have consented to such designation. In addition, the
prospective purchaser must execute a stock purchase agreement, in the form
approved by us (see Appendix B) and forward that agreement, together with
payment for the Shares purchased, to us. Stock purchase agreements are subject
to acceptance by us. (See "Plan of Distribution.")
Transfer of Shares is subject to restrictions. If less than all the Shares of a
series are transferred, we must give our consent. In addition, we have a right
of first refusal to purchase any Shares which the holder attempts to transfer.
However, a transfer is not subject to either of the foregoing restrictions if
the transferee falls into one of the categories of designated transferees set
forth in our articles of incorporation. (See "Description of Capital Stock --
Restrictions on Transfer.")
USE OF PROCEEDS
The offering of the Shares pursuant to this prospectus is being made on a
continuous basis. This means that it is not possible to predict how many series
of Shares will ultimately be purchased or the maximum net proceeds to be derived
by us from this offering.
The proceeds derived from this offering are added to our general funds to
provide a pool of funds for the payment of future claims in the event premiums
prove insufficient to cover such claims. Under Barbados law, we are required to
have minimum net assets, determined by reference to our annual earned premium.
All of our available capital, including the proceeds of this offering, is
invested in accordance with guidelines established by our board of directors. We
believe that the proceeds derived from this offering will be sufficient,
<PAGE>
PAGE 13
together with our other capital, to support our insurance operations for the
foreseeable future.
We establish a bookkeeping record for each particular series of Shares or class
of stock which we maintain for the purpose of accounting for items of income and
expense, gains and losses, capital contributions, and shareholder distributions
which are allocated to the particular series of Shares or class of stock
("Subsidiary Capital Account"). The consideration we receive upon 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 our projected capital needs and bears no
relationship to any valuation criteria.
DIVIDENDS
Dividends may be declared and paid at the discretion of our board of directors,
provided that, subject to the restrictions described in the following
paragraphs, each holder of Shares of a series will be entitled to receive a
minimum dividend, payable annually, equal to 20% of the annual net income
attributable to the Subsidiary Capital Account associated with that series of
Shares.
Pursuant to the general corporate laws of Barbados, dividends on the Shares are
payable only if after the payment: (a) we would be able to pay our liabilities
as they come due; and (b) the realizable value of our assets exceeds our
liabilities and stated capital. Dividends may not be paid out of unrealized
profits. Further, under Barbados insurance law, we are required to maintain a
minimum capitalization of $125,000 and, in addition, the recorded value of our
assets must exceed our liabilities by: (a) $125,000 where our earned premium in
the preceding financial year did not exceed $750,000; (b) an amount equal to 20%
of 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, our articles of incorporation
place limitations on the payment of dividends. Dividends may be declared and
paid only out of our earned surplus and only if, after giving effect to the
distribution, we meet the Barbados margin of solvency requirements without
regard to any letters of credit. Further, dividends with respect to any series
of Shares may be paid only out of earned surplus attributable to the Subsidiary
Capital Account identified with those Shares, and only to the extent that, after
giving effect to the dividend, the capital and surplus identified with that
Subsidiary Capital Account (without regard to any guarantee or letter of credit)
would meet its pro rata share, based on allocable earned premium, of the minimum
margin of solvency required of us under Barbados law, as described in the
preceding paragraph. To the extent that we declare a dividend, other than a
minimum dividend, on the Shares, it will be declared and paid subject to the
foregoing limitations on all series of Shares as a percentage of the net income
and/or earned surplus attributable to each series, provided that such percentage
may vary with the level of net income and/or earned surplus.
In February of 1999, February of 1998 and March of 1997, we declared dividends
on the Shares aggregating $4,066,464, $5,171,956 and $4,196,730, 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 15% to 45% for dividends declared
<PAGE>
PAGE 14
in 1999, 20% to 50% for dividends declared in 1998, and 20% to 45% for dividends
declared in 1997.
The payment of dividends on our common stock (the "Common Stock"), all of which
is held by Motors Insurance Corporation ("MIC"), is also subject to the
restrictions under Barbados law and our articles of incorporation. In addition,
our articles provide that dividends may not be declared or paid on the Common
Stock unless and until each holder of Shares of a series has received any
minimum dividend to which he is entitled for the current period and may be
declared and paid only to the extent that the earned surplus attributable to the
Common Stock exceeds Restricted Earned Surplus (as defined in "Description of
Capital Stock -- Allocations to Subsidiary Capital Accounts").
OUR BUSINESS
We were incorporated under the laws of Barbados on June 12, 1986. We became
registered as a licensee under the Barbados Exempt Insurance Act, 1983 to carry
on the business of an Exempt Insurance Company from within Barbados on June 30,
1986 and commenced operations in December, 1987. Our registered and principal
offices are located in St. Michael, Barbados. We were organized by MIC. All of
MIC's outstanding stock is owned by GMAC Insurance Holdings, Inc., a subsidiary
of General Motors Acceptance Corporation which, in turn, is a wholly owned
subsidiary of General Motors Corporation.
Our business is the assumption of risks arising under mechanical breakdown
protection plans sold to purchasers of motor vehicles. These plans provide
coverage against specific motor vehicle mechanical breakdowns during the
manufacturer's new vehicle warranty period that are not attributed to
manufacturing defects and coverage for certain specified mechanical breakdowns
(whether or not caused by manufacturing defects) beyond the period covered by
the manufacturer's warranty. The risk of loss under these plans is covered by
insurance policies that are issued either to General Motors or its affiliates,
or to automobile dealers, reinsured by MIC, and retroceded to us to the extent
that such policies are attributable to an MIC Mechanical 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.
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 us, the retrocessionaire (us) 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 with MIC, we assume 100% of each
risk retroceded to us by MIC in return for which we receive 75% of the gross
premium with respect to the risk, reduced by related agents' or brokers'
commission if any. The remaining 25% of the gross premium is retained by MIC as
a ceding commission.
A major source of income to us is income earned on the investment of amounts not
currently required to meet claims or expenses. The funds available for
investment by us come primarily from accumulated capital and from unearned
premiums. We currently invest primarily in U.S. dollar-denominated securities
issued outside the United States by non-United States private or governmental
issuers and U.S. dollar-denominated bank certificates of deposit issued by
foreign banks and foreign branches of U.S. banks. Subject to the satisfaction of
certain conditions, we may make limited investments in non-U.S. dollar
denominated bonds, on a fully currency- hedged basis. We plan to invest a
portion, not to exceed 20%, of our investment portfolio in equity securities in
1999.
<PAGE>
PAGE 15
Rothschild Asset Management Limited ("Rothschild") manages the investment and
reinvestment of our non-equity investments in accordance with investment
policies and guidelines adopted by our board of directors. Rothschild charges a
management fee of 0.225% per annum on the first $20,000,000 of assets under
management, 0.2% per annum on the next $20,000,000, and 0.15% per annum on the
excess thereof based on the market value of our investment portfolio at the end
of each calendar quarter.
We have entered into an Insurance Management Agreement (the "Management
Agreement") with Aon Insurance Managers (Barbados) Ltd. (the "Manager"),
pursuant to which the Manager collects and disburses funds on our behalf,
provides accounting, clerical, telephone, facsimile, information management and
other services for us, and advises and consults with us in regard to all aspects
of our retrocession activities. Under the terms of the Management Agreement, we
pay the Manager a fixed annual fee plus a monthly variable fee based on the
number of outstanding series of Shares at each calendar month end. For the year
ended December 31, 1998, we paid fees to the Manager in the amount of $228,968.
We are a resident of Barbados, as are certain of our directors, and certain
experts named herein, and all or a substantial portion of our assets and the
assets of such persons are or may be located outside the United States. As a
result, it may not be possible for investors to effect service of process within
the United States upon us or such persons, or to enforce against them judgments
obtained in United States courts predicated upon the civil liability provisions
of the Securities Act of 1933, as amended (the "1933 Act"). We have been advised
by our Barbados counsel, Evelyn, Gittens & Farmer, that there is doubt as to
whether Barbados courts would (1) enforce judgments of United States courts
obtained against us or such persons predicated upon the civil liability
provisions of the 1933 Act, or (2) impose, in original actions in Barbados,
liabilities against us or such persons predicated upon the 1933 Act.
We are subject to the informational requirements of the Securities Exchange Act
of 1934 (the "Exchange Act"), and in accordance therewith file reports and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports and other information can be inspected and copied at the offices of the
Commission, at Room 1024, 450 Fifth Street, N.W., Washington, D.C.; Room 1204,
Kluczynski Federal Building, 230 South Dearborn Street, Chicago, Illinois; and
Room 1102, Jacob K. Javits Building, 26 Federal Plaza, New York, New York.
Copies of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The information we file with the Commission is also available through the
Commission's Internet site at "http://www.sec.gov."
We furnish to our stockholders annual reports containing financial statements
that reflect our overall results and condition and that have been audited and
reported upon by independent public accountants, and quarterly reports for each
of the first three quarters of each fiscal year containing unaudited financial
information. In addition, we furnish to each holder of Shares of a series a
quarterly statement containing unaudited financial information relating to such
series. The reports furnished by us contain information prepared in accordance
with accounting principles generally accepted in the United States.
SELECTED FINANCIAL DATA
The selected financial data set forth below as of December 31, 1997 and 1998 and
for the three years ended December 31, 1998 are derived from our financial
statements which have been audited by Deloitte & Touche, independent chartered
accountants, and are included and incorporated by reference in this prospectus.
The selected financial data as of December 31, 1994, 1995 and 1996 and for the
years ended December 31, 1994 and 1995 are derived from our audited financial
statements. The data presented for the three month periods ended March 31, 1999
and 1998 are derived from unaudited financial statements presented elsewhere in
this prospectus and, in our opinion, include all adjustments, consisting of
normal recurring accruals, which are necessary for a fair presentation of the
results for these interim periods presented. The results for
<PAGE>
PAGE 16
the three month period ended March 31, 1999 are not necessarily indicative of
the results to be expected for the full fiscal year. You should read this
information in conjunction with the information under "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the financial
statements and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
December 31
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Premiums Assumed $ 72,634,160 $ 57,071,313 $ 47,410,037 $44,084,952 $38,371,896
============ ============ ============ =========== ===========
Premiums Earned $ 57,845,674 $ 45,701,595 $ 36,077,699 $28,800,689 $21,316,685
Net Investment
Income 10,375,464 5,704,678 5,341,924 5,563,573 1,227,816
------------ ------------ ------------ ----------- -----------
Total Income 68,221,138 51,406,273 41,419,623 34,364,262 22,544,501
Less Losses and
Expenses 61,027,782 43,503,363 33,965,100 27,462,338 20,825,943
------------ ------------ ------------ ----------- -----------
Net Income* $ 7,193,356 $ 7,902,910 $ 7,454,523 $ 6,901,924 $ 1,718,558
============ ============ ============ =========== ===========
Dividends Per
Common Share 0 0 0 0 0
Total Assets $139,312,516 $123,065,286 $106,041,164 $91,526,976 $66,012,284
Total Policy
Reserves and
Other Liabilities 115,786,948 100,999,317 88,479,590 76,350,313 60,246,641
Stockholders' Equity 23,525,568 22,065,969 17,561,574 15,176,663 5,765,643
Dividends Paid on
Participating Shares 5,171,956 4,196,730 4,007,483 1,188,614 2,156,304
</TABLE>
<PAGE>
PAGE 17
<TABLE>
<CAPTION>
Three Months Ended March 31
(unaudited)
1999 1998
---- ----
<S> <C> <C>
Premiums Assumed........................................ $17,861,028 $17,579,710
=========== ===========
Premiums Earned......................................... $15,509,404 $13,293,165
Net Investment Income................................... 224,284 2,640,030
----------- -----------
Total Income............................................ 15,733,688 15,933,195
Less Losses and Expenses................................ 16,116,459 12,204,674
----------- -----------
Net (Loss)/Income....................................... $ (382,771) $ 3,728,521
=========== ===========
March 31, 1999
Total Assets............................................ $136,113,075
Total Policy Reserves and Other Liabilities............. 118,201,922
Stockholders' Equity.................................... 17,911,153
Dividends Paid on Participating Shares.................. 4,066,464
</TABLE>
*/ 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Liquidity.
We expect to generate sufficient funds from operations to cover current
liquidity needs. Our liquidity requirements are related to payment of insurance
losses, administrative expenses, and dividends. Premiums generated by our
reinsurance business, combined with investment earnings plus proceeds from the
sale of Shares, will continue to be the principal sources of our funds. 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
decreased to $16,077,051 in 1998 from $17,304,385 in 1997 and $17,588,199 in
1996. We believe that such funds will be sufficient to meet our liquidity
requirements in 1999 and in future years to which our reinsurance liabilities
extend. No capital expenditures are expected during the next few years.
We had unearned premium reserves of $112,594,698 as of March 31, 1999,
$110,243,074 as of December 31, 1998, and $95,454,588 as of December 31, 1997.
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,
our risk of loss 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 we have limited exposure to 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.
<PAGE>
PAGE 18
On February 26, 1999, we paid dividends aggregating $4,066,464 to eligible
holders of Shares. See "Dividends" for a discussion of dividends paid and legal
restrictions on the payment of dividends.
The payment of the 1998 fourth quarter reinsurance cession due to the ceding
company, MIC, during the first quarter 1999 was deferred for settlement during
the second quarter 1999 resulting in zero cash flow from reinsurance premiums
collected for the three months ended March 31, 1999.
Capital Resources.
Our capitalization, as of December 31, 1998, was comprised of paid-in capital
with respect to the Common Stock of $200,000, paid-in capital with respect to
the Shares of $2,362,500 (compared with $2,115,000 and $1,905,000 as of December
31, 1997 and 1996, respectively), and retained earnings of $20,629,009. As of
March 31, 1999, our capitalization was $2,540,000 comprised of paid in capital
with respect to the Common Stock of $200,000 and paid in capital with respect to
Shares of $2,340,000. In addition, as of March 31, 1999, we had surplus from
retained earnings in the amount of $16,182,420. The net decrease in retained
earnings from December 31, 1998 is primarily attributable to the dividend paid
on February 26, 1999.
Barbados law requires that our net assets equal at least the aggregate of
$1,000,000 and 10% of the amount by which our earned premium exceeded $5,000,000
in the previous year. If our net assets are less than mandated by Barbados law,
we have the right to reduce the business related to a Subsidiary Capital Account
by retrocession or any other means to the extent necessary to permit the
Subsidiary Capital Account to meet its pro rata share of our required capital
and surplus. At January 1, 1999, our required minimum net assets computed in
accordance with Barbados law was approximately $6,284,567, compared to total
capital and retained earnings computed for purposes of Barbados law of
$23,191,509.
Results of Operations.
Fiscal Years Ended December 31, 1998 and 1997. During the year ended December
31, 1998, we had net income of $7,193,356 compared to $7,902,910 and $7,454,523
for the years ended December 31, 1997 and 1996, respectively. As described
below, the decrease in net income during 1998 compared to the previous year was
primarily a result of an underwriting loss which partially offset an increase in
investment income. The increase in net income in 1997 compared to 1996 was
primarily a result of an increase in investment income combined with a modest
increase in underwriting income.
We had a net underwriting loss of $3,182,108 in 1998 compared to net
underwriting income of $2,198,232 and $2,112,599 for the years ended December
31, 1997 and 1996, respectively. The net underwriting loss recorded during 1998
reflected an increase in our loss ratio (the ratio of losses incurred to
premiums earned) as more fully described below. The modest increase in
underwriting income during 1997 was the result of an increase in the amount of
premiums earned partially offset by an increase in our loss ratio. During 1998,
we earned premiums of $57,845,674 compared to $45,701,595 and $36,077,699 during
1997 and 1996, respectively.
Increased premium income has been generated by the issuance of additional series
of Shares during the year ended December 31, 1998, and the continuing flow of
reinsurance premiums from series issued in prior years. During 1998, we issued
37 new series of Shares and redeemed 4 series of Shares for a net increase of 33
series. There were a total of 315 series outstanding at December 31, 1998
compared to 282 and 254 series of Shares outstanding at December 31, 1997 and
1996, respectively.
<PAGE>
PAGE 19
We incurred losses and administrative expenses during the year ended December
31, 1998 of $61,027,782 compared with $43,503,363 and $33,965,100 for the years
ended December 31, 1997 and 1996, respectively. Expenses in 1998 were comprised
of losses paid and provisions for losses incurred of $45,552,545, ceding
commissions and excise taxes of $14,919,916 and operating expenses of $555,321.
Losses incurred in 1997 and 1996 were $31,118,622 and $24,037,827 respectively.
The loss ratio for the year ended December 31, 1998 was 78.7% compared to 68.1%
and 66.6% for the years ended December 31, 1997 and 1996, respectively.
The increased loss ratio in 1998 resulted from loss experience which was heavily
influenced by the type of repairs and price of repaired parts. Specifically,
during the second and third quarters of 1998 unusually hot weather in certain
areas of the United States resulted in a higher number of covered repairs for
mechanical components such as air conditioners and water pumps which contributed
to higher loss costs. Loss experience in 1998 also reflected, in part,
implementation of previously announced increases in suggested list prices of
parts to dealers.
MIC believes that dealer management is a key factor in loss experience. Many of
the dealerships producing mechanical business assumed by us are profitable. At
dealerships where loss experience has been unprofitable, MIC has recently
implemented loss control procedures including on-site adjusters and/or
empowerment restrictions. MIC believes these loss control procedures should have
a favourable effect on the performance of those unprofitable accounts. However,
there can be no assurance that such results will be achieved.
We incurred operating expenses during the year ended December 31, 1998 of
$555,321 compared to $503,020 and $548,525 for the years ended December 31, 1997
and 1996, respectively. MIC has agreed to pay directly certain costs of
registering and issuing shares. In 1998, $69,280 of such costs were paid
directly by MIC compared to $77,329 and $64,848 for the years ended December 31,
1997 and 1996, respectively.
Investment income in 1998 was $10,375,464 compared to $5,704,678 and $5,341,924
for the years ended December 31, 1997 and 1996, respectively. The increase in
investment income during 1998 arose primarily as a result of increases in gains
on sale of investment securities as more fully described below. The increase in
investment income during 1997 compared to 1996 was attributable to an overall
increase in funds available for investment and somewhat higher yields available
in the U.S. and other global bond markets.
The sale of investment securities for the year ended December 31, 1998 resulted
in realized gains of $4,404,651 compared to realized gains of $750,923 and
$64,244 for the years ended December 31, 1997 and 1996, respectively. The
increases in realized gains during the year under review arose primarily as a
result of increased sales of investment securities to take advantage of market
opportunities presented by uncertainty in the U.S. dollar denominated
international equity markets. Interest earned for the year ended December 31,
1998 was $5,970,813 compared to $4,953,755 and $5,277,680 for the years ended
December 31, 1997 and 1996, respectively. The increase in interest earned during
1998 compared to 1997 was largely a result of an increase in the amount of
assets under management combined with a slight increase in the overall rate of
return. The decrease from 1996 compared to 1997 resulted from lower available
yields.
Unrealized appreciation on investment securities held at December 31, 1998 was
$334,059 compared to unrealized appreciation at December 31, 1997 of $1,135,201.
The decrease in unrealized appreciation as of December 31, 1998 compared to
December 31, 1997 resulted from sales of investment securities during the third
and fourth quarters of 1998 to take advantage of market conditions.
Although at December 31, 1998 and 1997, 100% of our fixed income investments
were in U.S. dollar-denominated fixed-income securities, our fixed income
investment manager seeks on occasion to identify non-U.S. dollar-denominated
investments that offer a higher rate of return (net of currency hedging costs)
than would be available in the market for similarly rated U.S.
<PAGE>
PAGE 20
dollar-denominated bonds. 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. Our investment
guidelines do not permit the use of derivatives in managing interest rate risk.
Pursuant to the retrocession agreement with MIC, we 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, 1998, we had furnished such a letter of credit in the amount
of $88,075,000.
In June 1997, the Financial Accounting Standards Board ("FASB") issued a
Statement of Financial Accounting Standards ("FASB") No.130, Reporting
Comprehensive Income, effective for fiscal years beginning after December 15,
1997. Under this statement, all items required to be recognized under accounting
standards as components of comprehensive income must be reported in a financial
statement that is displayed with the same prominence as other financial
statements. We adopted this accounting standard in 1998. Adopting the accounting
standard has no impact on our reported net income.
Quarter Ending March 31, 1999. During the quarter ended March 31, 1999, we had a
net loss of $382,771, compared with net income of $3,728,521 for the quarter
ended March 31, 1998. As discussed below, the decrease in net income for the
quarter ended March 31, 1999 compared to the comparable period of 1998 is the
result of realized losses on the sale of investment securities and unfavorable
loss reserve development as advised by MIC.
During the quarter ended March 31, 1999, one new series of Shares was added and
four series were redeemed bringing the total number of series issued and
outstanding to 312 as of the end of the quarter. Premiums earned increased to
$15,509,404 during the quarter ended March 31, 1999 compared to $13,293,165 for
the same period in 1998. Expenses incurred during the quarter ended March 31,
1999 were $16,116,459 compared to $12,204,674 for the comparable quarter of
1998. Net underwriting loss for the quarter ended March 31, 1999 was $607,055
compared to income of $1,088,491 for the comparable period in 1998. The ratio of
losses incurred to premiums earned for the first quarter of 1999 was 76.9%
compared to 64.8% for the comparable period in 1998.
MIC experienced increased losses during the last half of 1998, primarily due to
adverse climatic conditions during the latter half of 1998 which affected the
performance of certain motor vehicle parts under service contracts combined with
economic changes in the pricing of repairs during the same period. MIC continues
to monitor and implement measures to control loss costs. The loss ratio reported
for the first quarter of 1999 of 76.9% represents a decrease from the last
quarter of 1998 ratio of 88.5%.
Investment income for the quarter ended March 31, 1999 was $224,284 compared to
$2,640,030 for the comparable period of 1998. During the first quarter of 1999,
we realized losses on the sale of investment securities of $1,155,006 compared
to gains of $1,279,397, during the comparable period of 1998. As of March 31,
1999, we had net unrealized depreciation of $811,267 on our investments compared
to unrealized appreciation of $334,059 as of December 31, 1998. The losses on
the sale of investment assets during the first quarter of 1999 and the change in
the amount of the unrealized position on the portfolio as of March 31, 1999
compared to December 31, 1998 are in large part attributable to a sell off of
U.S. dollar denominated bonds in anticipation of higher interest rates due to
continued strength in U.S. economic growth. The gains on sales of investments
during the comparable quarter of the prior year were due to declines in long
term U.S. interest rates.
<PAGE>
PAGE 21
For the quarter ended March 31, 1999 we had interest income of $1,379,290
compared to $1,360,633 for the comparable period of 1998. These increases were
largely attributable to increases in the amount of our assets.
Year 2000
Many computerized systems and microprocessors that are used by our Manager have
the potential for operational problems if they lack the ability to handle the
transition to the Year 2000. The effects of the Year 2000 issue are also
complicated by our dependence on MIC, as well as other service providers such as
our management company and investment adviser. The Year 2000 issue has the
potential to cause disruption to our business and the business of our customers.
In early 1998, we initiated communications with our Manager and other service
and technology providers in order to assess and reduce the risk that our
operations could be adversely affected by the failure of these third parties to
adequately address the Year 2000 issue. MIC has completed its Year 2000
assessment phase and is in the remediation phase with respect to its critical
systems.
We do not separately own or license any computers or computer software
applications, instead we have outsourced these functions to the Manager. To
date, we have not incurred, expensed or capitalized amounts related to the Year
2000 remediation. We do not expect to incur incremental expenses or to forego or
delay information technology projects due to Year 2000. In view of the
foregoing, we do not currently anticipate that we will experience a disruption
of our business as a result of the Year 2000 issue. However, there is still
uncertainty about the broader scope of the Year 2000 issue as it may affect us
and third parties that are critical to our operations. In the event that we or
our service providers are unable to complete remedial actions or are unable to
implement adequate contingency plans in the event that problems are encountered,
there could be a material adverse effect on our business, results of operations
or financial condition.
The foregoing Management Discussion and Analysis of Financial Condition and
Results of Operations contains various forward looking statements within the
meaning of applicable federal securities laws and are based upon our current
expectations and assumptions concerning future events, which are subject to a
number of risks and uncertainties that could cause actual results to differ
materially from those anticipated.
Market Risk
We are exposed to market risk from changes in interest rates, foreign currency
exchange rates, and certain equity security prices. Market risk is inherent to
all financial instruments. Active management of market risk is integral to our
operations, and we seek to manage our exposure to market risk generally by
monitoring the character of investments that are purchased or sold.
A discussion of our accounting policies for derivative instruments is included
in Note 3 to our consolidated financial statements included in this prospectus.
The following analyses are based on sensitivity analysis tests that assume
instantaneous, parallel shifts in exchange rates, interest rates, and interest
rate yield curves. There are shortcomings inherent to the sensitivity analyses
presented. The model assumes interest rate changes are instantaneous, parallel
shifts in the yield curve. In reality, changes are rarely instantaneous or
parallel. Although certain assets may have similar maturities or periods to
repricing, they may not react correspondingly to changes in market interest
rates. Also, the interest rates on certain types of assets may fluctuate with
changes in market interest rates, while interest rates on other types of assets
may lag behind changes in market rates.
Interest Rate Risk. We have exposure to economic losses due to interest rate
risk arising from changes in the level or volatility of interest rates. We
attempt to mitigate our exposure to interest rate risk through active portfolio
management. Our investment guidelines do not permit the use of derivatives in
managing interest rate risk. As of December 31, 1998, our
<PAGE>
PAGE 22
net fair value asset exposure to interest risk was approximately $89.5 million.
The potential loss in fair value resulting from a hypothetical 10% increase in
interest rates would be approximately $2.1 million We do not hold financial
instruments for trading purposes.
Foreign Exchange Risk. Foreign exchange rate risk arises from the possibility
that changes in foreign currency exchange rates will impact the value of
financial instruments. We have foreign exchange exposure when we buy or sell
foreign currencies or financial instruments denominated in a foreign currency.
While we primarily invest in US dollar-denominated securities, we may make
limited investments in non-US dollar-denominated bonds on a fully currency
hedged basis. We use forward currency contracts, which provide for settlement in
US dollars in the future, to hedge our exposure.
At December 31, 1998, 100% of our investments were denominated in US dollars.
Equity Price Risk. Equity price risk results from changes in the level or
volatility of equity prices which affect the value of equity securities. At
December 31, 1998, we had no equity investments. We will be exposed to equity
price risk as a result of our investment in equity securities, beginning in
mid-1999.
Overall Limitations and Forward-Looking Statements. We have developed the fair
value estimates by utilization of available market information or other
appropriate valuation methodologies. However, considerable judgment is required
in interpreting market data to develop estimates of fair value; therefore, the
estimates are not necessarily indicative of the amounts that could be realized
or would be paid in a current market exchange. The effect of using different
market assumptions and/or estimation methodologies may be material to the
estimated fair market value amounts. In addition, the above discussion and the
estimated amounts generated from the sensitivity analyses referred to above
include forward-looking statements of market risk which assume, for analytical
purposes, that certain adverse market conditions may occur. Actual future market
conditions may differ materially from such assumptions because the amounts noted
previously are the result of analyses used for the purpose of assessing possible
risks and the mitigation thereof. Accordingly, the forward-looking statements
should be considered projections by us of future events or losses.
<PAGE>
PAGE 23
MANAGEMENT
DIRECTORS AND OFFICERS
Five of the current members of our board of directors were elected by MIC
through its ownership of the Common Stock at the annual shareholders meeting
held on April 22, 1999 and one director was elected by the holders of the Shares
at such meeting. Our directors and officers are as follows:
<TABLE>
<CAPTION>
POSITION WITH US
(AND OTHER EMPLOYMENT DURING PAST FIVE YEARS)
NAME AGE
<S> <C> <C>
William B. Noll ............ 56 Chairman and Chief Executive Officer, President and
Director (President, Motors Insurance Corporation
("MIC"), 1999; Executive Vice President & Chief
Financial Officer, MIC, 1993-1999).
Mr. Noll became President and Director in 1995.
Thomas D. Callahan . ..... 46 Executive Vice-President and Director (Senior
Vice-President, MIC, 1998; Vice-President, MIC, 1994-
1998).
Mr. Callahan became Executive Vice-President and
Director in April of 1999.
John J. Dunn, Jr........... 40 Vice-President and Director (Vice-President and
Treasurer, MIC, 1998; Assistant Treasurer, MIC, 1995-
1998; manager, Coopers & Lybrand, L.L.P.)
Mr. Dunn became Vice-President and Director in 1996.
Robert E. Capstack ....... 58 Vice-President and Director (Section Manager, MIC,
1994; Vice-President, GMAC Securities Corporation,
1999).
Mr. Capstack became Vice-President and Director in
April of 1999.
Peter R. P. Evelyn ........ 57 Director (Attorney, Evelyn, Gittens & Farmer, a
Barbados law firm).
Mr. Evelyn has been a Director since 1986.
Diane Sauer . . . ......... 48 Director (Martin Chevrolet, Warren, Ohio).
Ms. Sauer became a Director in April of 1999.
Ronald W. Jones ........... 46 Vice-President, Finance (Managing Director, Aon
Insurance Managers (Barbados) Ltd.).
<PAGE>
PAGE 24
Mr. Jones has served as Vice-President, Finance since
1987.
Michael R. Boyce ........... 59 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 our Assistant Secretary.
</TABLE>
The directors and officers named above serve in those capacities until the
annual meeting of shareholders next following their election.
CERTAIN TRANSACTIONS
It is our policy not to make loans to any of our officers, directors, control
persons or other affiliates.
All transactions between us and our officers, directors, employees and
affiliates, will be on terms no less favorable to us than can be obtained from
unaffiliated 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
We are 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, we are currently authorized to issue 100,000 Shares,
also without nominal or par value per share (collectively, the Shares and the
Common Stock are referred to as the "Capital Stock"). The Shares are issued in
series of 100 shares. As of April 1, 1999, 31,200 Shares representing 312 series
had been issued and were outstanding and were held of record by 544
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
We have established a Subsidiary Capital Account with respect to the Common
Stock as a class, and we establish such an account with respect to each series
of Shares at the time a series is issued. Subsidiary Capital Accounts are
maintained solely for the purpose of the allocations described below, and do not
serve any other legal or accounting function. None of our assets are segregated
or earmarked with respect to those accounts.
The consideration we receive upon the issuance of a particular series of Shares
and the Common Stock as a class is 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 of
incorporation.
For purposes of the following discussion, items shall be "related" to the
Subsidiary Capital Account for the series identified with the MIC Mechanical
Account to which such items can be attributed.
<PAGE>
PAGE 25
(1) Allocations with respect to underwriting activities are made as follows:
(a) With respect to premiums ceded by MIC to us, 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 our day-to-day operations,
excluding any United States Federal income taxes, are allocated among all
Subsidiary Capital Accounts for the Shares pro rata on the basis of the
number of series issued and outstanding at the end of the fiscal quarter in
which the expense or liability is incurred, provided that for purposes of
such allocation, series of Shares issued at any time during the twelve
calendar months proceeding the end of the fiscal quarter in which the
expense of liability is incurred and series with respect to which unearned
premium is zero as of the date of such allocation, shall be excluded.
(3) Any United States Federal income tax liability (and any interest thereon or
any penalties related thereto) is allocated among the Subsidiary Capital
Accounts based upon the relative contribution of each of those accounts to
our taxable income upon which the tax (or any interest or penalties) is
imposed.
(4) Any expenses or liabilities attributable to the sale and issuance of
Shares, including but not limited to the costs of compliance with
regulations and requirements of the 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 of our expenses or liabilities not allocable in the manner described in
paragraphs 2 through 4 above are allocated among the Subsidiary Capital
Accounts on the basis of the relative 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 us attributable to those accounts as of the last day
of the quarter preceding
<PAGE>
PAGE 26
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 us 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 (to the extent such losses relate to premiums ceded
to such account) and 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.
<PAGE>
PAGE 27
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 us pursuant to our
right of first refusal or redeemed in accordance with our procedures
for redemption, the Subsidiary Capital Account for that series is
terminated. 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, we have 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 year ended December 31, 1998, $2,626,787 of net underwriting losses
and $555,321 administrative expenses were allocated among the 315 series of
Shares outstanding as of December 31, 1998, and $10,375,464 of net investment
income was allocated among such series of Shares and the Common Stock.
As of December 31, 1998, 236 series of Shares outstanding had balances greater
than or equal to $7,500 (ranging from $7,672 to $809,892) and 79 of such series
had balances less than $7,500 (ranging from $7,453 to zero). (The amounts in the
Subsidiary Capital Accounts can fluctuate substantially and therefore may not be
indicative of future accumulated amounts.) At December 31, 1998, an aggregate of
$3,530,320 had been advanced from the Restricted Earned Surplus (which forms a
portion of the Account established for the Common Stock owned by MIC) to 67
Subsidiary Capital Accounts and remained outstanding at that date including net
deficits of $946,174 associated with 7 series of Shares that have been redeemed.
As of December 31, 1998, $2,702,259 of aggregate deficits has been reallocated
among the Subsidiary Capital Accounts of the Shares and remained outstanding. Of
this amount $2,004,811 is available to be recovered from deficit accounts should
they return to profitability and to the extent that the risk fund is repaid in
full.
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
<PAGE>
PAGE 28
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 our board of directors, 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 our procedures for redemption. (See
"Description of Capital Stock -- Redemption.")
Barbados insurance law requires that we maintain certain levels of net assets,
which for this purpose are calculated without taking into account unrealized
gains or losses. We are currently in compliance with these requirements.
However, in the event that we are unable to comply with such requirements in the
future, we have the right to reduce the business related to a Subsidiary Capital
Account by retrocession or any other means to the extent necessary to permit the
Subsidiary Capital Account to meet its pro rata share of our required capital
and surplus.
VOTING RIGHTS
Subject to the following, holders of Capital Stock are entitled to one vote for
each share held on any question on which the holder is entitled to vote. The
matters on which holders of Capital Stock are entitled to vote, and the relative
voting rights of each class of stock, are set forth below.
Election of Directors. The holders of Shares as a class are entitled to elect
one member of our board of directors and 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 may appoint another person as his or her proxy to act
on behalf of the appointing shareholder at any of our annual meetings. The
appointment of a person as proxy for a shareholder must be in writing.
Liquidation. We may be liquidated upon the vote of at least 75% of the
outstanding Shares. (See "Description of Capital Stock -- Liquidation.")
Changes in Articles and By-Laws. No change may be made to our articles of
incorporation or by-laws unless a majority of the Shares, and a majority of the
Common Stock, present in person or by proxy and voting at a meeting at which a
vote on that issue is put forth for a vote, approve the change. In addition, no
amendment may vary the rights associated with any one series unless either the
rights associated with all other series are similarly changed or a majority of
the holders of the Shares of each series present in person or by proxy at a
meeting vote in favor of the amendment.
Other Matters. Any matters other than those described above which call for a
shareholder vote require only approval by a majority of the outstanding shares
of Common Stock.
REDEMPTION
Pursuant to our articles of incorporation, the Capital Stock may be redeemed as
follows: We may redeem outstanding Shares of a series at any time for any reason
if the redemption of such Shares is approved by a majority of our board of
directors, provided that the director representing the Shares must vote in favor
of the action being taken. The Common Stock is nonredeemable in all
circumstances.
A redemption of Shares is effective as of the date specified by our board of
directors but no later than the end of the calendar year in which the redemption
was approved by the board.
<PAGE>
PAGE 29
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 of directors to reflect unrealized gains and losses on our
investments 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, we may be liquidated upon
the vote of 75% of the outstanding Shares. In the event of liquidation, after
payment of all of our liabilities, each holder of Shares of a series is entitled
to receive his pro rata share of his respective Account Balance before any
distribution of our assets is made to the holder(s) of Common Stock. Thereafter,
the holders of Shares are not entitled to participate further in the
distribution of our assets. Each holder of Common Stock will be entitled to
receive his pro rata share of our remaining assets, if any.
RESTRICTIONS ON TRANSFER
There is no existing public market for the Shares, and it is not anticipated
that one will develop in the future. In addition, our articles of incorporation
set forth a number of restrictions on the manner in which the Shares may be
transferred. These restrictions and certain exceptions thereto are described
below.
Transfers of Less Than All Shares of a Series. Subject to the exceptions
described below, transfers of less than all Shares of a series may not be made
unless the transfer is to us, or the holder(s) of the Shares sought to be
transferred has received our written consent. A request for consent must be made
in writing and set forth the name(s) and address(es) of the intended
transferee(s), the desired date of the transfer and the consideration to be
paid. No transfer may otherwise be made by a shareholder of less than all of the
Shares of a particular series that he owns. If we fail to give our written
consent, any subsequent transfer is void and of no effect.
Right of First Refusal. Subject to the exceptions described below, transfers of
Shares of a series may not in any event be made unless the holder(s) has
received a bona fide written offer to purchase such Shares, a copy of that offer
has been furnished to us, and we are thereafter offered the opportunity to
purchase the Shares. We will have 60 days during which to exercise its right to
purchase the Shares sought to be transferred. If we accept 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 us, or the
bona fide offering price. A purchase made by us pursuant to this "right of first
refusal" will be deemed effective upon acceptance by us of the offer to
purchase, although payment by us may be deferred until the end of the quarter in
which the offer to purchase is accepted by us. Shares purchased by us 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 our consent or right of first
refusal where our board of directors determines that the transferee of the
Shares is: (1) a member of the transferring shareholder's immediate family; (2)
a trust for the benefit of the transferring shareholder or
<PAGE>
PAGE 30
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 the entity with respect to which
the Shares held by the transferor were issued.
Provisions Applicable to All Transfers. No Shares may be transferred unless and
until our board of directors has received, from the holder of the Shares sought
to be transferred, assurances of compliance with all applicable laws and
regulations. Further, transferees of Shares must agree to abide by the
requirements set forth in the stock purchase agreement entered into by the
transferor. In addition, all transfers of Shares require the approval of the
Barbados Supervisor of Insurance.
Certificates representing the Shares will bear a legend noting the applicable
limitations on transfers.
COMMON STOCK
We are currently authorized to issue 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, our Barbados counsel. The summary does not
purport to contain all applicable provisions and does not purport to be complete
or cover all respects in which Barbados corporate law may differ from laws
generally applicable to United States corporations and their shareholders.
Dividends and Distributions. Under Barbados law, a company may pay dividends
only if there are reasonable grounds for believing that (a) the company would be
able, after the payment of the dividends, to pay its liabilities as they become
due, and (b) the realizable value of the company's assets would be greater than
the aggregate of its liabilities and stated capital of all classes. Dividends
may not be paid out of unrealized gains.
Repurchase. We are authorized by our articles, subject to certain approvals, to
repurchase our own shares. Such purchases may only be effected if we can satisfy
a similar solvency test as that described above under "Dividends and
Distributions."
Shareholders' Remedies. Barbados corporate law contains wide protection for
minority shareholders and investors generally. A statutory right of action is
conferred on subscribers
<PAGE>
PAGE 31
to shares of a Barbados company against the directors and officers responsible
for the issue of a prospectus, in respect of damages suffered by reason of
untrue statements therein. In addition, we may take action against directors and
officers for breach of their statutory duty to act honestly and in good faith
with a view to our best interests.
Enforcement of United States Judgments. Except as mentioned below, a judgment of
a court in the United States, under which a sum of money is payable, will under
most circumstances be enforced as a debt by the courts of Barbados without
reexamination of the merits of the case. This will not apply where the judgment
is for payment of taxes, fines or penalties. There is also doubt as to whether a
Barbados court would enforce judgments of United States courts obtained against
us, or our directors and officers resident in Barbados, predicated on the civil
liability provisions of the 1933 Act or, in original actions, impose liabilities
against us or such persons predicated upon that Act. (However, liability for
violations of the 1933 Act by us may be imposed directly on MIC in a United
States court as a result of MIC being a "control person" with respect to us
under the 1933 Act.)
Indemnification. Our by-laws provide for the indemnification of our directors
and officers against liabilities incurred in their capacities as such, but the
indemnity does not extend to any liability incurred in respect of wilful
negligence, wilful default, fraud or dishonesty in relation to us.
Inspection of Corporate Records. Shareholders have the right to inspect and copy
our articles and by-laws, corporate register, security register, minutes of
shareholders meetings, any unanimous shareholder agreement, as well as our
audited financial statements, which must be presented to the annual meeting of
shareholders.
<PAGE>
PAGE 32
PLAN OF DISTRIBUTION
The Shares are being offered, on a continuous basis, by registered
representatives of GMAC Securities Corporation. GMAC Securities Corporation is
an affiliate of MIC and is registered as a broker-dealer under the Securities
Exchange Act of 1934 and in each of the states in which Shares are being
offered. It is also a member of the National Association of Securities Dealers,
Inc. No commissions are charged or paid in connection with the sale of Shares.
All sales of Shares are subject to our approval. (See "Eligibility to Purchase
the Shares")
PURCHASE PROCEDURES
In order to purchase the Shares, the following documents must be sent to us in
Barbados:
(1) two duly executed stock purchase agreements (see Appendix B);
(2) all necessary certifications of the eligibility of prospective
purchasers by all the owner(s) of the entity or entities related to the
MIC Mechanical 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 we approve the offer and execute the agreement. (See
"Plan of Distribution--Conditions of Sale.")
Following execution of the stock purchase agreement by us, the prospective
purchaser has no right to withdraw the amount of the purchase payment or any
interest earned thereon. Amounts remain in the escrow account pending
satisfaction of the conditions set forth below under "Conditions of Sale."
TERMS OF SALE
Shares are sold only to Eligible Purchasers who have executed a stock purchase
agreement and returned it to us. Shares must be purchased by series, although
more than one person may buy the Shares of one series. Pursuant to the stock
purchase agreement, the purchaser must accept and agree to be bound by our
articles and by-laws, including the restrictions on transfer. (See "Description
of Capital Stock -- Restrictions on Transfer.") The stock purchase agreement
further provides that we may place on a certificate issued with respect to
Shares a legend stating that the transfer or other disposition of the Shares
evidenced thereby is restricted pursuant to our articles and by-laws.
Once it is accepted by us, a stock purchase agreement remains in effect as long
as the Shares purchased pursuant thereto remain outstanding. A stock purchase
agreement terminates only upon the redemption of the Shares or our liquidation.
Upon a transfer of Shares, the transferor is relieved of all restrictions and
obligations under the stock purchase agreement which the transferor had entered
into upon the purchase of those Shares and the transferee, as a condition of the
transfer, is required to agree to abide by all of the provisions of the stock
purchase agreement.
CONDITIONS OF SALE
<PAGE>
PAGE 33
We maintain an escrow account at Barclays Bank PLC in Bridgetown, Barbados (the
"Escrow Account"), into which checks from prospective purchasers are deposited
pending satisfaction of the conditions described below. This account 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 us within 120
days from the date of execution of the stock purchase agreement by the
Purchaser. If we determine to accept an offer to purchase Shares from an
Eligible Purchaser, we execute both copies of the stock purchase agreement
remitted by such person and return one copy to such person. If we determine not
to approve an offer to purchase, we return the stock purchase agreement without
having executed it.
Pending approval of offers, each check for the purchase of Shares (which
ordinarily is received together with a stock purchase agreement) 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 we determine not to approve a sale of Shares to a prospective
purchaser, the purchase payment is returned, together with any interest earned
thereon. We have the right to reject any prospective purchaser for any reason
whatsoever.
TERMINATION OF OFFERING
Unless terminated sooner by our board of directors, this offering will terminate
on the date on which all of the Shares offered hereby have been sold.
UNITED STATES FEDERAL TAX CONSIDERATIONS
It is impractical to comment here on all aspects of the Federal, state, and
local tax laws that may affect the United States taxation of us and our
shareholders. The following is a discussion, based on the facts set forth herein
and existing law, of the material Federal tax consequences which, in the opinion
of our U.S. tax counsel, LeBoeuf, Lamb, Greene & MacRae, L.L.P., are associated
with an investment in Shares.
United States taxation of us and our shareholders involves a number of complex
questions of fact and law with respect to some of which there is no statutory,
administrative, or judicial authority directly on point. We have not requested
advance rulings on these questions from the Internal Revenue Service (the
"Service") and, at least as to certain matters, there is no assurance that
favorable rulings could be obtained. There is also no assurance that the laws in
existence as of the date of this prospectus will not be modified so as to alter
the tax consequences described below.
This discussion does not address all aspects of Federal income taxation that may
be relevant to a particular shareholder in light of his or her personal tax
circumstances. Nor does it address state, local, or foreign tax laws that may
affect taxation of shareholders. You Should Consult Your Own Tax Advisor
Concerning The Tax Implications Of Your Investment In Shares.
UNITED STATES -- BARBADOS INCOME TAX TREATY
The United States and Barbados have entered into an income tax treaty (the
"Treaty") that offers certain tax benefits (some of which are discussed below)
to those persons who qualify for its protection. As a Barbados corporation that
ultimately is owned more than 50% by U.S. persons, we are entitled to the
benefits of the Treaty provided that we are "resident" (that is, "managed and
controlled") in Barbados. We attempt to conduct our business in such a manner
that we will be considered to be "managed and controlled" in Barbados in order
to qualify for the benefits of the Treaty.
<PAGE>
PAGE 34
UNITED STATES PREMIUM EXCISE TAX
The United States imposes an excise tax at the rate of 1% of the gross premiums
paid to foreign insurance companies for reinsurance covering risks located
within the United States. Reinsurance premiums paid to us are subject to this
excise tax.
UNITED STATES FEDERAL INCOME TAX RISKS AND CONSEQUENCES TO US
Risks and Consequences of Carrying on a United States Reinsurance Business
Through a Permanent Establishment. As a "resident" of Barbados, if we engage in
business within the United States through a permanent establishment, we will be
subject to United States Federal income tax at normal corporate tax rates on our
business profits that are attributable to such permanent establishment. Insofar
as is relevant hereto, all of our underwriting income and investment income
(such as dividends and interest) generally would be treated as business profits
attributable to such a permanent establishment. In addition, a Barbadian
resident corporation engaged in business in the United States through a
permanent establishment would be subject to a branch-level tax at the rate of 5%
(reduced by the Treaty from a 30% statutory rate that would apply generally to
foreign corporations engaged in business in the United States) on its after-tax
earnings attributable to its United States permanent establishment that are
considered remitted to the head office of the corporation.
All relevant facts and circumstances must be taken into account in any
particular case in determining whether a person is engaged in business within
the United States and, if so, whether the business is carried on through a
permanent establishment within the meaning of the Treaty. Under the Treaty, the
activities of both dependent and independent agents in some circumstances may be
deemed to create a permanent establishment of the principal that they represent.
As discussed elsewhere herein, we conduct reinsurance business in Barbados and
in that regard execute and administer our reinsurance agreements and manage our
business affairs from Barbados. On this basis, we believe that we should not be
deemed to be engaged in business within the United States through a permanent
establishment, and therefore we believe we should not be subject to United
States income tax. However, given the factual nature of the questions involved
and certain aspects of our treaty reinsurance program related to the United
States, and given the absence of any clear legal interpretation of the
application of the provisions of the permanent establishment standard under the
circumstances, there can be no assurance that for tax purposes we ultimately
will not be deemed to be engaged in business within the United States through a
permanent establishment.
United States Withholding Tax Applicable to Certain Investment Income Not
Attributable to a United States Permanent Establishment. If we do not engage in
business within the United States through a permanent establishment, we
generally will be subject to a United States withholding tax on interest,
dividends, and certain other investment income derived from sources within the
United States. (The 30% rate of United States withholding tax provided by
statute is reduced by the Treaty to 5% in the case of interest and 15% in the
case of dividends derived from portfolio investments.) An exemption from the
United States withholding tax is provided for interest earned on amounts on
deposit in a bank, savings and loan association, or insurance company, and
interest income, termed "portfolio interest," on certain debt obligations of
United States issuers.
Although we could, in the circumstances described above, invest our funds in the
United States without incurring a withholding tax, we generally invest our funds
outside of the United States. (See "Our Business.")
Reallocations By Internal Revenue Service. Under section 482 of the Internal
Revenue Code (the "Code"), the Service may allocate gross income, deductions,
and credits between or among two or more businesses, owned or controlled
directly or indirectly by the same interests, in order to prevent evasion of
taxes or to reflect clearly the true taxable income of such businesses. As
<PAGE>
PAGE 35
described elsewhere herein, MIC elects five of our six directors through its
ownership of all of our issued and outstanding Common Stock. Thus, if
transactions between MIC and us were determined not to reflect the true taxable
income of the parties, a reallocation of income or deductions between such
entities could result. However, as long as the transactions between MIC and us
are conducted on an "arm's-length" basis in a manner consistent with industry
standards and practices, section 482 should not provide a basis for
reallocations by the Service between MIC and us.
In addition, section 845 of the Code grants broad authority to the Service to
adjust items arising under certain reinsurance agreements (including
retrocession agreements), whether or not they involve related parties. If two or
more "related" parties enter into a reinsurance contract, the Service in general
may make any adjustment necessary to reflect the "proper source and character"
of the taxable income of each such party. The Service also has broad authority
to make proper adjustments where any reinsurance contract between unrelated
parties has a "significant tax avoidance effect" on any party to the contract.
Because MIC is entitled to elect five of our six directors, we and MIC may be
considered "related" parties within the meaning of section 845 of the Code. To
date, there are no regulations under section 845 of the Code to aid in its
interpretation. However, the legislative history of section 845 suggests that
certain types of reinsurance transactions -- such as a coinsurance reinsurance
transaction that covers new business of the ceding company and that allocates
expenses and income items between the ceding company and the reinsurer in the
same proportion as the allocation of the risk reinsured -- generally should not
be subject to reallocations or adjustments. The ongoing quota share retrocession
agreement between MIC and us, in general, would seem to be similar to such
transactions for which adjustments generally should not be made, but there is
substantial uncertainty at the present time concerning the scope of section 845.
If the Service were successful in an effort to reallocate to MIC business
retroceded to us by MIC, MIC would likely be subject to tax on such business.
Since we have no obligation to indemnify MIC against such adverse tax
consequences, a reallocation of business to MIC should not directly affect us.
However, any such reallocation might contribute to the early termination of the
retrocession agreement between MIC and us.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES -- THE SHAREHOLDERS
Taxation of Our Income to Shareholders Under Subpart F of the Code. Under the
so-called "Subpart F" provisions (sections 951-964) of the Code, current United
States income tax is imposed on each United States person who owns stock in any
25% or more U.S.-owned foreign insurance company with respect to "related person
insurance income," whatever the degree of ownership of the United States
shareholder. For this purpose, the term "related person insurance income" means
underwriting and investment income of a foreign insurer attributable to a policy
of insurance or reinsurance with respect to which the insured is a United States
shareholder of the foreign insurer or a person related to such a shareholder.
Under this provision, all of our income (as determined for tax purposes) will be
treated as "related person insurance income," and, as such, will be passed
through and taxed currently to all of our shareholders ("Shareholders") under
Subpart F of the Code.
The basis of the stock of a Shareholder will be increased by the amount required
to be included in the Shareholder's income with respect to such stock under
Subpart F. Further, a distribution from our earnings and profits attributable to
amounts that have been included in gross income of the Shareholders under
Subpart F would not be included again in gross income of the Shareholders but
would reduce the adjusted tax basis of the stock with respect to which the
distribution is made. It should be noted that Subpart F income will be computed
for us as a single entity. The amount of Subpart F income attributable to one
series of Shares in these circumstances may be affected by results with respect
to other series. It also should be noted
<PAGE>
PAGE 36
that our Subpart F income generally will be computed under the same rules that
govern the computation of taxable income of domestic property and casualty
insurance companies.
Although Subpart F income generally is allocated based on book income,
differences between the financial and tax accounting rules applicable to the
computation of our income may result in differences in any year between the
amount of income subject to pass-through to a Shareholder for United States tax
purposes and the amount of book income allocable to a Shareholder's Subsidiary
Capital account. Since the consideration payable to the holders of a series of
Shares upon redemption is based substantially on book income previously
allocated to the Shares being redeemed, such consideration may not reflect the
amount of income previously passed through and taxed to the holders of those
Shares.
To the extent that we were subject to United States income tax on our business
profits, the Shareholders generally would not be subject to current tax on such
profits under Subpart F, but would be taxed when profits were distributed by us.
(See "United States Federal Tax Considerations -- United States Federal Income
Tax Consequences To Us.")
Risk of Recharacterization of Reinsurance Profits on Business Retroceded to Us.
As described elsewhere herein, a portion of the underwriting experience in
respect of insurance business retroceded to us is allocated to the series of
Shares issued in respect of the entity 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 us relative to the volume of our business, the degree of
pooling of risks among all series of Shares, the fact that distributions with
respect to Shares are, subject to certain "minimum dividends," within the
discretion of our board of directors, and the vote accompanying each Share,
there should be substantial arguments against the recharacterization of profits
with respect to the Shares.
Deductibility of Premiums Paid By Entities Selling Motor Vehicles for Certain
Coverages Reinsured by Us. As discussed elsewhere herein, risks arising under
mechanical service agreements entered into with respect to a particular entity
selling motor vehicles ultimately may be retroceded to us and allocated in part
to a series of Shares owned by the owner(s) of such entity 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 us,
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 among the series of Shares, 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 us by our
Barbados counsel, Evelyn, Gittens & Farmer, Heritage House, Pinfold Street,
Bridgetown, Barbados, West Indies. LeBoeuf, Lamb, Greene & MacRae, L.L.P., 1875
Connecticut Avenue, N.W., Washington, D.C. 20009, will advise us as to certain
matters pertaining to the laws of the United States.
EXPERTS
The financial statements as of December 31, 1998 and 1997 and for each of the
three years in the period ended December 31, 1998, included and incorporated by
reference in this prospectus,
<PAGE>
PAGE 37
have been audited by Deloitte & Touche, independent chartered accountants,
Bridgetown, Barbados, as stated in their report, which is included and
incorporated by reference herein, and has been so included and incorporated in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The matters of Barbados law referred to in this prospectus are set forth in
reliance upon the opinion of Evelyn, Gittens & Farmer and upon their authority
as experts in Barbados law. LeBoeuf, Lamb, Greene & MacRae, L.L.P. has passed
upon the statements concerning United States tax laws contained in the
discussion under "United States Federal Tax Considerations," which is included
herein in reliance upon their authority as experts with respect to such matters.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by us (File No. 33-6534) with the Securities and
Exchange Commission, Washington, D.C. (the "Commission") are incorporated
herein: (1) our Annual Report on Form 10-K for the year ended December 31, 1998,
and (2) our Quarterly Report for the quarter ended March 31, 1999. Any statement
contained in such Annual or Quarterly Report shall be deemed to be modified or
superseded for purposes of this prospectus to the extent that a statement
contained herein modifies or supersedes such statement.
We undertake to provide without charge to each person to whom a copy of this
prospectus is delivered, upon written or oral request of such person, a copy of
any or all of the documents incorporated here by reference, other than exhibits
to such documents unless such documents are specifically incorporated by
reference in to such documents. Requests for such documents should be directed
to us at Bishops Court Hill, St. Michael, Barbados, W.I., Attention Ronald W.
Jones, Vice President, Finance, telephone number (246) 436-4895.
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.
<PAGE>
PAGE 38
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, 1998 and 1997 and the related statements of
income and retained earnings, cash flows and changes in shareholders' equity for
each of the three years in the period ended December 31, 1998. 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, such financial statements present fairly, in all material
respects, the financial position of Motors Mechanical Reinsurance Company,
Limited as of December 31, 1998 and 1997 and the results of its operations, its
cash flows and its changes in shareholders' equity for each of the three years
in the period ended December 31, 1998 in conformity with accounting principles
generally accepted in the United States of America.
s/DELOITTE & TOUCHE
CHARTERED ACCOUNTANTS
Bridgetown, Barbados
February 12, 1999
<PAGE>
PAGE 39
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
BALANCE SHEETS
DECEMBER 31, 1998, 1997 AND MARCH 31, 1999
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
March 31, 1999
Notes 1998 1997 unaudited
----- ------------ ------------- ---------
<S> <C> <C> <C> <C>
ASSETS
Investments 3,7 $ 89,474,377 $ 88,585,513 $100,924,615
Cash and cash equivalents 7 19,504,563 5,645,482 2,938,396
Accrued investment income 1,788,490 3,178,446 1,757,884
Due (to)/from Motors Insurance Corporation (115,667) 841,927 1,183,011
Deferred acquisition costs 28,660,753 24,813,918 29,272,294
Prepaid expenses 36,875
------------ ------------ ------------
Total Assets $139,312,516 $123,065,286 $136,113,075
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Unearned premiums $110,243,074 $ 95,454,588 $112,594,698
Loss reserves 4 5,393,818 5,421,160 5,427,910
Accrued liabilities 150,056 123,569 179,314
------------ ------------ ------------
Total Liabilities 115,786,948 100,999,317 118,201,922
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES 7
STOCKHOLDERS' EQUITY
Share capital 5
Common stock - no par value;
Authorized - 2,000 shares;
Issued and outstanding -
2,000 shares 200,000 200,000 200,000
Participating stock - no par value;
Authorized - 100,000 shares;
Issued and outstanding -
31,500 shares at December 31,
1998 and 28,200 shares at
December 31, 1997 2,362,500 2,115,000 2,340,000
------------ ------------ ------------
2,562,500 2,315,000 2,540,000
Retained earnings 8 20,629,009 18,615,768 16,182,420
Accumulated other comprehensive
income/(loss) 3 334,059 1,135,201 (811,267)
------------ ------------ ------------
Total Stockholders' Equity 23,525,568 22,065,969 17,911,153
------------ ------------ ------------
Total Liabilities and
Stockholders' Equity $139,312,516 $123,065,286 $136,113,075
============ ============ ============
</TABLE>
The accompanying notes form an integral part of these financial statements.
<PAGE>
PAGE 40
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 AND
THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
Notes 1998 1997 1996
----- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INCOME
Reinsurance
premiums assumed 6 $72,634,160 $57,071,313 $47,410,037
Increase in
unearned premiums (14,788,486 (11,369,718) (11,332,338)
----------- ----------- -----------
Premiums earned 57,845,674 45,701,595 36,077,699
----------- ----------- -----------
Investment income:
Interest earned 5,970,813 4,953,755 5,277,680
Realized gains
on investments - net 4,404,651 750,923 64,244
----------- ----------- -----------
Investment income 10,375,464 5,704,678 5,341,924
----------- ----------- -----------
TOTAL INCOME 68,221,138 51,406,273 41,419,623
----------- ----------- -----------
EXPENSES
Acquisition costs 14,919,916 11,881,721 9,378,748
Losses paid 45,579,887 29,981,766 23,233,857
(Decrease)/Increase in loss
reserves (27,342) 1,136,856 803,970
Administrative expenses:
Related Parties 225,922 219,760 211,001
Other 329,399 283,260 337,524
----------- ----------- -----------
TOTAL EXPENSES 61,027,782 43,503,363 33,965,100
----------- ----------- -----------
NET INCOME FOR THE YEAR 7,193,356 7,902,910 7,454,523
RETAINED EARNINGS,
beginning of year 18,615,768 14,913,053 11,517,542
LESS: DIVIDENDS (5,171,956) (4,196,730) 4,007,483)
DEDUCT REDEMPTION OF
PARTICIPATING STOCK (8,159) (3,465) (51,529)
----------- ----------- -----------
RETAINED EARNINGS, end of year $20,629,009 $18,615,768 $14,913,053
=========== =========== ===========
</TABLE>
The accompanying notes form an integral part of these financial statements.
<PAGE>
PAGE 41
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 AND
THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (Cont'd)
(Expressed in U.S. Dollars)
Three Month Periods
Ended March 31,
(unaudited)
1999 1998
------------ -----------
INCOME
Reinsurance premiums assumed $17,861,028 $17,579,710
Increase in unearned premiums 2,351,624 4,286,545
----------- -----------
Premiums earned 15,509,404 13,293,165
----------- -----------
Investment Income
Interest earned 1,379,290 1,360,633
Realized (losses)
/gains on investments - net (1,155,006) 1,279,397
----------- -----------
Investment income 224,284 2,640,030
----------- -----------
TOTAL INCOME 15,733,688 15,933,195
----------- -----------
EXPENSES
Acquisition costs 4,032,443 3,456,533
Losses paid 11,884,161 9,384,199
(Decrease)/Increase in loss reserves 34,092 (769,872)
Administrative expenses
Related Parties 61,251 52,644
Other 104,512 81,170
----------- -----------
TOTAL EXPENSES 16,116,459 12,204,674
----------- -----------
NET (LOSS)/INCOME (382,771) 3,728,521
RETAINED EARNINGS, beginning of period 20,629,009 18,615,768
LESS: DIVIDENDS (4,066,464) (5,171,956)
DEDUCT REDEMPTION OF PARTICIPATING STOCK 2,646 0
----------- -----------
RETAINED EARNINGS, end of period $16,182,420 $17,172,333
=========== ===========
<PAGE>
PAGE 42
MOTORS MECHANICAL REINSURANCE COMPANY LIMITED
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
AND THE THREE MONTHS ENDED MARCH 31, 1999 and 1998
(Expressed in U.S. dollars)
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Reinsurance premiums collected $ 67,293,382 $ 57,014,145 $ 46,031,997
Losses and acquisition
expenses paid (58,004,044) (42,436,530) (34,302,453)
Administrative expenses paid (581,648) (502,230) (501,147)
Investment income received 7,369,361 3,229,000 6,359,802
Net cash provided by operating
activities 16,077,051 17,304,385 17,588,199
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments (324,678,378) (318,139,315) (232,194,343)
Sales and maturities of investments 327,393,023 297,544,335 224,400,822
Net cash from/(used in) investing 2,714,645 (20,594,980) (7,793,521)
activities ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of
Participating Stock 277,500 217,500 120,000
Redemption of Participating Stock (38,159) (10,965) (74,029)
Dividends paid (5,171,956) (4,196,730) (4,007,483)
------------ ------------ ------------
Net cash used in financing
activities (4,932,615) (3,990,195) (3,961,512)
------------ ------------ ------------
INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS 13,859,081 (7,280,790) 5,833,166
CASH AND CASH EQUIVALENTS, beginning
of year 5,645,482 12,926,272 7,093,106
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of
year $ 19,504,563 $ 5,645,482 $ 12,926,272
============ ============ ============
RECONCILIATION OF NET INCOME TO
NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Net income $ 7,193,356 $ 7,902,910 $ 7,454,523
Realized gains on
investments (4,404,651) (750,923 (64,244)
Change in:
Accrued investment income 1,389,956 (1,724,755) 1,079,122
Due from Motors Insurance
Corporation 957,594 2,316,137 (62,477)
Deferred acquisition costs (3,846,835) (2,958,711) (2,948,002)
Unearned premiums 14,788,486 11,369,718 11,332,338
Loss reserves (27,342) 1,136,85 803,970
Accrued liabilities 26,487 13,153 (7,031)
NET CASH PROVIDED BY OPERATING
ACTIVITIES $ 16,077,05 $17,304,385 $ 17,588,199
============ =========== ============
</TABLE>
The accompanying notes form an integral part of these financial statements.
MOTORS MECHANICAL REINSURANCE COMPANY LIMITED
STATEMENTS OF CASH FLOWS
<PAGE>
PAGE 43
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
AND THE THREE MONTHS ENDED MARCH 31, 1999 and 1998 (Cont'd)
(Expressed in U.S. dollars)
Three Month Periods
Ended March 31,
(unaudited)
1999 1998
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Reinsurance premiums collected $ 0 $12,554,630
Losses and acquisition expenses paid 0 (11,735,610)
Administrative expenses paid (141,175) (142,302)
Investment income received 1,411,896 2,857,010
----------- -----------
Net cash provided by operating
activities 1,270,721 3,533,728
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments (114,998,010) (97,764,585)
Sales and maturities of investments 101,247,440 100,389,098
----------- -----------
Net cash (used in)/from investing activities (13,750,570) 2,624,513
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of
Participating Stock 7,500 67,500
Redemption of Participating Stock (27,354) 0
Dividends paid (4,066,464) (5,171,956)
----------- -----------
Net cash used in investing activities (4,086,318) (5,104,456)
----------- -----------
(DECREASE)/INCREASE IN CASH AND CASH
EQUIVALENTS (16,566,167) 1,053,785
CASH AND CASH EQUIVALENTS, beginning of
period 19,504,563 5,645,482
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 2,938,396 $ 6,699,267
=========== ===========
RECONCILIATION OF NET INCOME/(LOSS) TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net income/loss (382,771) 3,728,521
Realized losses/(gains) on investments 1,155,006 (1,279,397)
Change in:
Accrued investment income 30,606 1,494,377
Due from Motors Insurance Corporation (1,298,678) (2,817,778)
Deferred acquisition costs (611,541) (1,114,670)
Prepaid expenses (36,875) (3,189)
Unearned premiums 2,351,624 4,286,545
Loss reserves 34,092 (769,872)
Accrued liabilities 29,258 9,191
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,270,721 $ 3,533,728
=========== ===========
<PAGE>
PAGE 44
MOTORS MECHANICAL REINSURANCE COMPANY LIMITED
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 AND
THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(Expressed in U.S. dollars)
<TABLE>
<CAPTION>
Accumulated
Total Other
Shareholders' Comprehensive Retained Comprehensive Common Participating
Equity Income Earnings Income Stock Stock
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1997 $22,065,969 $ - $18,615,768 $1,135,201 $200,000 $2,115,000
Comprehensive Income:
Net income 7,193,356 7,193,356 7,193,356 - - -
Other comprehensive
income, net of tax:
Unrealized loss
on securities-
net of
reclassification (801,142) (801,142) - (801,142) - -
----------
Comprehensive income - $6,392,214 - - - -
==========
Dividends declared on
Participating Stock (5,171,956) (5,171,956) - - -
Participating Stock
Issued 285,000 - - - 285,000
Redeemed (45,659) (8,159) - - (37,500)
---------- ----------- ---------- -------- ----------
Balance at
December 31, 1998 $23,525,568 $20,629,009 $ 334,059 $200,000 $2,362,500
=========== =========== ========== ======== ==========
Disclosure of reclass-
ification amount
Unrealized holding
gains arising
during period 3,603,509
Less: reclassification
adjustment for gains
included in
net income (4,404,651)
Net unrealized
loss on securities (801,142)
</TABLE>
<PAGE>
PAGE 45
MOTORS MECHANICAL REINSURANCE COMPANY LIMITED
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 AND
THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (Cont'd)
(Expressed in U.S. dollars)
<TABLE>
<CAPTION>
December 31, 1997
Accumulated
Total Other
Shareholders' Comprehensive Retained Comprehensive Common Participating
Equity Income Earnings Income Stock Stock
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996 $17,561,574 $ - $14,913,053 $ 543,521 $200,000 $1,905,000
Comprehensive Income:
Net income 7,902,910 7,902,910 7,902,910 - - -
----------
Other comprehensive income,
net of tax:
Unrealized loss on securities-
net of reclassification 591,680 591,680 - 591,680 - -
----------
Comprehensive income - $8,494,590 - - - -
==========
Dividends declared on
Participating Stock (4,196,730) (4,196,730) - - -
Participating Stock
Issued 225,000 - - - 225,000
Redeemed (18,465) (3,465) - - (15,000)
----------- ----------- ---------- -------- -----------
Balance at
December 31, 1997 $22,065,969 $18,615,768 $1,135,201 $200,000 $2,115,000
=========== =========== ========== ======== ==========
Disclosure of reclassification amount
Unrealized holding gains arising
during period 1,342,603
Less: reclassification adjustment
for gains included in net income (750,923)
Net unrealized gain on securities $ 591,680
</TABLE>
<PAGE>
PAGE 46
MOTORS MECHANICAL REINSURANCE COMPANY LIMITED
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 AND
THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (Cont'd)
(Expressed in U.S. dollars)
<TABLE>
<CAPTION>
Accumulated
Total Other
Shareholders' Comprehensive Retained Comprehensive Common Participating
Equity Income Earnings Income Stock Stock
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1995 $15,176,663 $ - $11,517,542 $1,651,621 $200,000 $1,807,500
Comprehensive Income:
Net income 7,454,523 7,454,523 7,454,523 - -
-----------
Other comprehensive income, net of tax:
Unrealized loss on securities-
net of
reclassification (1,108,100) (1,108,100) - (1,108,100) -
-----------
Comprehensive income - $ 6,346,423 - - -
===========
Dividends declared on
participating stock (4,007,483) (4,007,483) - -
Participating stock
Issued 120,000 - - - - 120,000
Redeemed (74,029) - (51,529) - - (22,500)
---------- ----------- ----------- ---------- ---------- ---------
Balance at
December 31, 1996 $17,561,574 $14,913,053 $ 543,521 $200,000 $1,905,000
=========== =========== ========== ======== ==========
Disclosure of reclassification amount
Unrealized holding loss arising
during period (1,043,856)
Less: reclassification adjustment
for gains included in net income (64,244)
Net unrealized loss on securities (1,108,100)
</TABLE>
The accompanying notes form an integral part of these financial statements.
<PAGE>
PAGE 47
MOTORS MECHANICAL REINSURANCE COMPANY LIMITED
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 AND
THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (Cont'd)
(Expressed in U.S. dollars)
<TABLE>
<CAPTION>
March 31, 1999 (unaudited)
---------------------------------------------------------------------------------------
Total Other
Shareholders' Comprehensive Retained Comprehensive Common Participat-
Equity Income Earnings Income Stock ing Stock
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance of
December 31, 1998 $23,525,568 - $20,629,009 $334,059 $200,000 $2,362,500
Comprehensive Income:
Net Income (382,771) (382,771) (382,771) - - -
Other comprehensive
income, net of tax:
Unrealized loss on
securities net of
reclassification (1,145,326) (1,145,326) - (1,145,326) - -
Comprehensive income - $(1,528,097) - - - -
Dividends declared on
Participating Stock (4,066,464) (4,066,464) - - -
Participating Stock
Issued 7,500 - - - 7,500
Redeemed (27,354) 2,646 (30,000)
----------- ----------- --------- -------- ----------
Balance at
March 31, 1999 $17,911,153 $16,182,420 (811,267) $200,000 $2,340,000
=========== =========== ========= ======== ==========
Disclosure of
reclassification
amount
Unrealized holding
losses arising
during period (2,300,332)
-----------
Add: reclassifica-
tion adjustment for
losses included in
net income 1,155,006
-----------
Net unrealized loss
on securities (1,145,326)
===========
</TABLE>
<PAGE>
PAGE 48
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1999 and
for the three month periods ended March 31, 1999
and 1998)
(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"), a member of the GMAC Insurance Group. MIC is an
indirect wholly-owned subsidiary of General Motors Corporation. The
principal activity of the Company is the assumption of motor vehicle
mechanical service agreements arising under insurance policies
reinsured by MIC and attributable to an MIC Mechanical Account in
respect of which shares of Participating Stock are issued and
outstanding. All premiums received were assumed from MIC.
Note 2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements are stated in United States dollars and
prepared in conformity with accounting principles generally accepted
within 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.
Certain amounts in the 1996 financial statements have been
reclassified to conform with the 1997 and 1998 presentation.
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.
<PAGE>
PAGE 49
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1999 and
for the three month periods ended March 31, 1999
and 1998)
(Expressed in U.S. Dollars)
Note 2 SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
Premiums are written on the basis of quarterly cessions and earned
relative 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, all of which are available for sale, 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 accumulated other
comprehensive income.
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. Thereafter and until December
31, 2031, the Company will be subject to a tax at a rate of 2% on its
taxable income provided that the amount of such tax will not exceed
$2,500 per annum.
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.
<PAGE>
PAGE 50
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1999 and
for the three month periods ended March 31, 1999
and 1998)
(Expressed in U.S. Dollars)
Note 2. SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
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).
Interim Financial Information
The financial statements as of March 31, 1999 and for the three month
periods ended March 31, 1999 and 1998, are unaudited, but in the
opinion of Management, reflect all adjustments, consisting of normal
recurring accruals, which are necessary for a fair presentation of the
results for the periods presented. Results for the three month period
ended March 31, 1999 are not necessarily indicative of the results to
be expected for the whole fiscal year.
<PAGE>
PAGE 51
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31,
1999 and for the three month periods
ended March 31, 1999 and 1998)
(Expressed in U.S. Dollars)
Note 3. INVESTMENTS
The cost and fair value of investments in debt securities are as
follows:
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Fair
Cost Appreciation Depreciation Value
<S> <C> <C> <C> <C>
December 31, 1998:
Debt securities
issued by foreign
governments and
their agencies $27,522,957 $ 43,649 $ (290,075) $27,276,531
Debt securities
issued by
corporations 25,150,984 538,236 (2,142) 25,687,078
Debt securities
issued by
supra-nationals 36,466,377 154,367 (109,976) 36,510,768
----------- ---------- ---------- -----------
Total $89,140,318 $ 736,252 $ (402,193) $89,474,377
=========== ========== ========== ===========
December 31, 1997:
Debt securities
issued by foreign
governments and
their agencies $27,300,940 $ 524,635 $ (119,450) $27,706,125
Debt securities
issued by
corporations 46,527,723 714,077 (15,881) 47,225,919
Debt securities
issued by
supra-nationals 13,621,649 31,820 - 13,653,469
----------- ---------- ----------- -----------
Total $87,450,312 $1,270,532 $ (135,331) $88,585,513
=========== ========== =========== ===========
</TABLE>
<PAGE>
PAGE 52
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31,
1999 and for the three month periods
ended March 31, 1999 and 1998)
(Expressed in U.S. Dollars)
Note 3. INVESTMENTS (Cont'd)
The cost and fair value of debt securities at December 31, 1998, 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 $58,087,649 $57,989,686
Due after five years
through ten years 31,052,669 31,484,691
----------- -----------
$89,140,318 $89,474,377
=========== ===========
In 1998, gross gains of $6,253,358 and gross losses of $1,848,707 were
realized. In 1997, gross gains of $1,494,878 and gross losses of
$743,955 were realized. In 1996, gross gains of $1,997,197 and gross
losses of $1,932,953 were realized.
The following summarizes net unrealized appreciation (depreciation) on
investments:
Balance, December 31, 1995 $ 1,651,621
Net depreciation (1,108,100)
-----------
Balance, December 31, 1996 $ 543,521
Net appreciation 591,680
-----------
Balance, December 31, 1997 $ 1,135,201
Net depreciation (801,142)
-----------
Balance, December 31, 1998 $ 334,059
-----------
Net depreciation (unaudited) $(1,145,326)
Balance, March 31, 1999 (unaudited) $ (811,267)
===========
The investment portfolio is comprised of diverse debt securities which
do not result in any concentration of credit risk. At December 31,
1998, 100% of the Company's investments are denominated in U.S.
dollars.
<PAGE>
PAGE 53
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1999 and for the
three month periods ended March 31, 1999 and 1998)
(Expressed in U.S. Dollars)
Note 3. INVESTMENTS (Cont'd)
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.
<PAGE>
PAGE 54
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1999 and
for the three month periods ended March 31, 1999
and 1998)
(Expressed in U.S. Dollars)
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, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Beginning balance in
reserves for losses $ 5,421,160 $ 4,284,304 $ 3,480,334
------------ ------------ -----------
Add provision for losses
incurred related to:
Current claim year 45,843,093 31,904,950 24,080,078
Prior claim years (290,547) (746,024) (42,251)
----------- ----------- -----------
Total 45,552,546 31,158,926 24,037,827
----------- ----------- -----------
Deduct paid losses
attributable to:
Current claim year 40,767,738 27,024,981 20,330,269
Prior claim years 4,812,150 2,997,089 2,903,588
------------ ------------ -----------
Total 45,579,888 30,022,070 23,233,857
------------ ------------ -----------
Ending balance in
reserves for losses $ 5,393,818 $ 5,421,160 $ 4,284,304
------------ ------------ -----------
</TABLE>
As a result of change in estimates of losses incurred in prior years, the
provisions for losses incurred in 1998, 1997 and 1996 decreased by $290,547,
$746,024 and $42,251 respectively, because of lower actual claims.
<PAGE>
PAGE 55
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1999 and
for the three month periods ended March 31, 1999
and 1998)
(Expressed in U.S. Dollars)
Note 5. STOCKHOLDERS' EQUITY
All of the Company's Common Stock is held by MIC. A prospectus dated
May 12, 1998 is offering 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 the quarter ended March 31, 1999 one additional series of 100
shares was added and 4 series of 100 shares were redeemed.
During 1998, 37 additional series of 100 shares of Participating Stock
were issued as compared with 29 for the year ended December 31, 1997.
In addition, in 1998 the Board of Directors redeemed 4 series of 100
shares at the request of the shareholders. The redeemed series had
been previously placed in run off and had reached a fully earned
position during 1998.
In the years ended December 31, 1998, 1997 and 1996, costs in the
amount of $69,280, $77,239, and $64,848 respectively, were incurred in
the sale of Participating Stock. The Common Stockholder reimbursed the
Company directly for these expenses.
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
Participating Stock applications. Such amounts are not included in
cash and cash equivalents in the accompanying financial statements. At
December 31, 1998, there were no funds held in escrow.
<PAGE>
PAGE 56
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1999 and
for the three month periods ended March 31, 1999
and 1998)
(Expressed in U.S. Dollars)
Note 6. REINSURANCE PREMIUMS
Under the provisions of the retrocession agreement, the Company will
assume additional cessions of $36,747,691 ($31,818,196 at December 31,
1997) 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
The Company has provided an irrevocable letter of credit to MIC, in
the amount of $88,075,000 to collateralize the amounts recoverable
from the Company related to the business ceded to it. 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.
<PAGE>
PAGE 57
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited as to information as of March 31, 1999 and
for the three month periods ended March 31, 1999
and 1998)
(Expressed in U.S. Dollars)
Note 8 RETAINED EARNINGS (Cont'd)
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, 1999, the Company's required minimum
stockholders equity computed in accordance with Barbados law was
approximately $6,284,567.
<PAGE>
PAGE 58
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
NOTES TO THE FINANCIAL STATEMENTS
((Unaudited as to information as of March 31, 1999 and for the
three month periods ended March 31, 1999 and 1998)
(Expressed in U.S. Dollars)
Note 8. RETAINED EARNINGS (Cont'd)
Retained earnings applicable to the Common and Participating
Stockholders are comprised of the following:
<TABLE>
<CAPTION>
Common Participating Total
<S> <C> <C> <C>
Balance (Deficit)
December 31, 1995 $(10,861) $11,528,403 $11,517,542
Net income for the year 14,131 7,440,392 7,454,523
Net transfers 6,147 (6,147) -
Dividend paid - (4,007,483) (4,007,483)
Redemption of Participating
Stock - (51,529) (51,529)
-------- ----------- -----------
Balance December 31, 1996 9,417 14,903,636 14,913,053
Net income for the year 12,304 7,890,606 7,902,910
Net transfers (29,881) 29,881 -
Dividend paid - (4,196,730) (4,196,730)
Redemption of Participating
Stock - (3,465) (3,465)
-------- ----------- -----------
Balance (Deficit),
December 31, 1997 (8,160) 18,623,928 18,615,768
Net income for the year 20,970 7,172,386 7,193,356
Net transfers (21,529) 21,529 -
Dividends paid - (5,171,956) (5,171,956)
Redemption of Participating
Stock - (8,159) (8,159)
-------- ----------- -----------
Balance (Deficit)
December 31, 1998 $ (8,719) $20,637,728 $20,629,009
-------- ----------- -----------
Net income/(loss) for the
quarter 433 (383,204) (382,771)
Net transfer (866) 866 -
Dividends paid - (4,066,464) (4,066,464)
Redemption of Participating Stock - 2,646 2,646
-------- ----------- -----------
Balance (Deficit) March 31, 1999 $ (9,152) $16,191,572 $16,182,420
======== =========== ===========
</TABLE>
<PAGE>
PAGE 59
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
[Date] Peter Evelyn Director
FOR MINISTRY USE ONLY
COMPANY NO. FILED
<PAGE>
PAGE 60
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.
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 affiliates to track volume, experience, and commissions with respect to
mechanical service agreements sold by one or more particular entities selling
new and/or used motor vehicles.
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: (1) premiums allocated to the Subsidiary Capital Account of the Common
shares during the immediately preceding five-year period pursuant to Section
3(1)(1)(a), plus (ii) deficits restored to such Account during such period
pursuant to Section 3(1)(7)(c), less (iii) return premiums allocated to such
account during such period pursuant to Section 3(1)(1)(d), and less (iv)
deficits allocated to such account during such period pursuant to Section
3(1)(7)(a)(i) to the extent that they relate to amounts described in clauses (i)
and (ii) of this definition.
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.
<PAGE>
PAGE 61
(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 on the basis of
the number of series issued and outstanding at the end of the fiscal quarter in
which the expense or liability is incurred, provided that for purposes of such
allocation, series of Shares issued at any time during the twelve calendar
months preceding the end of the fiscal quarter in which the
<PAGE>
PAGE 62
expense or liability is incurred, and series with respect to which the unearned
premium is zero as of such date, shall be excluded.
(3) Any United States Federal income tax liability (and any interest thereon or
any penalties related thereto) incurred by the Company shall be allocated among
the Subsidiary Capital Accounts based upon the relative contribution of each of
those accounts to the taxable income of the Company upon which the tax (and any
interest or penalties) is imposed.
(4) Any expenses or liabilities attributable to the organization of the Company
or to the offer, sale or issuance of Shares, including but not limited to the
costs of compliance with regulations and requirements of the United States
Securities and Exchange Commission and the various states and other
jurisdictions of the United States as they pertain thereto, shall be allocated
to the Subsidiary Capital Account for the Common shares.
(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;
<PAGE>
PAGE 63
(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
<PAGE>
PAGE 64
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 entity or entities
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.
<PAGE>
PAGE 65
(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
<PAGE>
PAGE 66
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
<PAGE>
PAGE 67
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
<PAGE>
PAGE 68
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 of
the entity with respect to which the Shares held by the transferor were
issued.
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.
<PAGE>
PAGE 69
APPENDIX B
STOCK PURCHASE AGREEMENT
BETWEEN
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
AND
(Certified Purchaser)
-----------------
(Month/Date/Year)
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
- -------, 1999 with respect to the stock described herein.
1. DEFINITIONS
1.1 MIC. The term "MIC" means Motors Insurance Corporation, a New York
corporation.
1.2 MIC Mechanical Account. The term "MIC Mechanical 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 mechanical service
agreements sold by:
(insert names and addresses of particular entity or entities selling new and/or
used motor vehicles with respect to which the applicable MIC Mechanical Account
is maintained).
1.3 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.
1.4 Shareholder. The term "Shareholder" means , taxpayer
identification number , who is a citizen of ,
and who resides at .
<PAGE>
PAGE 70
1.5 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 Mechanical
Account.
1.6 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
owner(s) of the entity or entities with respect to which the MIC Mechanical
Account is maintained and meets the requirements for this purchase and sale as
set forth in the Articles of Incorporation of the Company (the "Articles"),
copies of which are attached to the prospectus. (It is understood that, if more
than one person owns the entity or entities referred to in the foregoing
sentence, 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 Mechanical 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 Mechanical Account and
similar MIC accounts maintained with respect to entity or entities 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
<PAGE>
PAGE 71
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], 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
<PAGE>
PAGE 72
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 Motors
Mechanical Reinsurance Company, 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.
<PAGE>
PAGE 73
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.
<PAGE>
PAGE 74
APPENDIX C
MOTORS MECHANICAL REINSURANCE COMPANY, LIMITED
CERTIFICATION FORM
The undersigned represent(s) that he (she)(they) is (are) the owner(s) of the
entity or entities selling new and/or used motor vehicles doing business as
- ---------------------- (name of dealership), with respect to which MIC
Mechanical 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 Dealership Owner
--------------------------------
Print Name of Dealership 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
<PAGE>
PAGE 75
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 ................ $ 188
State "Blue Sky" fees ................... $ 25,000
Accountants Fees and Expenses ........... $ 10,000
Legal Fees and Expenses ................. $ 40,000
Printing and Engraving .................. $ 8,000
Miscellaneous ........................... $ -
--------
Total Expenses ..................... $ 83,188
--------
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.
<PAGE>
PAGE 76
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
A. Exhibits:
4 Restated Articles of Incorporation (filed as Appendix A to the Prospectus).
5 Opinion of Evelyn, Gittens & Farmer.
10 (a) Form of Principal Retrocession Agreement between Motors Insurance
Corporation and Registrant filed by reference to Exhibit 10(a) of the
Registration Statement on Form S-1, File No. 33-6534, dated June 18,
1986.
(b) Form of Supplemental Retrocession Agreement between Motors Insurance
Corporation and Registrant filed by reference to Exhibit 10(b) of the
Registration Statement on From S-1, File No. 33-6534 dated June 18,
1986.
(c) Specimen Stock Purchase Agreement (filed as Appendix B to the
Prospectus).
(d) Amended and Restated Stock Purchase Agreement between Registrant and
Motors Insurance Corporation filed by reference to Exhibit 10(d) to
Amendment No. 1 to Registration Statement on Form S-1, File No.
33-6534, dated February 12, 1987.
(e) Insurance Management Agreement between Registrant and Aon Insurance
Managers (Barbados) Ltd. (previously Alexander Insurance Managers
(Barbados) Ltd.) effective January 1, 1996, filed by reference to
Exhibit 10(e) to Annual Report on From 10-K, File No. 33-6534, for the
year ended December 31, 1996.
(f) Investment Management Agreement between Registrant and N.M. Rothschild
Asset Management Limited, effective January 26, 1998 filed by
reference to Exhibit 10(f) to Annual Report on Form 10-K, File No,
33-6354 for the year ended December 31, 1997.
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 filed by
reference to Exhibit 99(b) to Amendment No. 2 to Registration
Statement on Form S-2, File No. 33-6534.
(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.
<PAGE>
PAGE 77
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. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than
20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the Securities Act
of 1933 (the "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 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
<PAGE>
PAGE 78
it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
<PAGE>
PAGE 79
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 June 30, 1999.
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 June 2, 1999
- ----------------------- Officer and Director
William B. Noll (Principal Executive Officer)
s/Ronald W. Jones Vice-President (Principal June 30, 1999
- ----------------------- Financial and Accounting
Ronald W. Jones Officer)
s/Thomas D. Callahan Executive Vice-President and Director June 22, 1999
- -----------------------
Thomas D. Callahan.
s/John J. Dunn, Jr. Vice-President and Director June 28, 1999
- -----------------------
John J. Dunn, Jr.
s/Robert E. Capstack Vice-President and Director June 22, 1999
- -----------------------
Robert E. Capstack
s/Peter R. P. Evelyn Director June 30, 1999
- -----------------------
Peter R. P. Evelyn
Director
- -----------------------
Diane Sauer
Board of Directors
Motors mechanical Reinsurance Company, Limited
The Financial Services Centre
Bishop's Court Hill
St. Michael
Gentlemen,
Re: Participating Stock-Registration Statement on From S-2
Reference is made to the Registration Statement on Form S-2 (the "Registration
Statement") of Motors Mechanical Reinsurance Company, Limited, a Barbados
corporation (the "Company"), to be filed with the Securities and Exchange
Commission under the Securities Act of 1993, as amended, in connection with the
proposed offer and sale by the Company of up to 12,000 shares of Participating
Stock, no par value (the "Shares").
As counsel to the Company, we have examined the corporate proceedings and such
other legal matters relating to the Shares as we deemed relevant to the opinions
expressed below.
Based on such examination, we are of the opinion that:
1. The Company is a corporation duly organized and existing under the laws of
Barbados.
2. The Company has corporate power to authorize, issue and sell the Shares.
3. Upon the issuance and sale, the Shares shall be duly and validly issued and
outstanding, fully paid and non-assessable.
Yours faithfully,
/s/ Peter R.P. Evelyn
PETER R.P. EVELYN
EXHIBIT 23(a)
CONSENT OF COUNSEL
Motors Mechanical Reinsurance Company, Limited:
We hereby consent to (i) the filing of our opinion as Exhibit 5 to the
Registration Statement of Motors Mechanical Reinsurance Company, Limited (the
"Company"), on Form S-2 registering up to 12,000 shares of the Company's
participating stock, and (ii) the reference to our name under the captions
"Barbados Corporate Laws Provisions," "Legal Matters" and "Experts" in the
Prospectus which is part of such Registration Statement.
s/EVELYN, GITTENS & FARMER
Bridgetown, Barbados
June 30, 1999
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.
June 30, 1999
EXHIBIT 23(c)
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS
Motors Mechanical Reinsurance Company, Limited:
We consent to the use in this Registration Statement of Motors Mechanical
Reinsurance Company, Limited (the "Company"), on Form S-2 registering up to
12,000 shares of the Company's participating stock of our report dated February
12, 1999, included in the Annual Report on Form 10-K of Motors Mechanical
Reinsurance Company, Limited for the year ended December 31, 1998, and to the
use of our report dated February 12, 1999, appearing in the Prospectus, which is
part of this 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
June 30, 1999
