Registration No.333-34088
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
INTEGON RE (BARBADOS), LIMITED
(Exact name of registrant as specified in charter)
Barbados Application Pending
(State or other jurisdiction (I.R.S. employer identification
of incorporation or organization) number)
One Financial Place
Collymore Rock
St. Michael, Barbados, W.I.
(246) 436-4895
(Address, including zip code, and telephone number, including
area code, of principal executive office)
RONALD W. JONES, Vice-President, Finance
Integon Re (Barbados), Limited
One Financial Place
Collymore Rock
St. Michael, Barbados, W.I.
(246) 436-4895
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
George R. Abramowitz, Esq.
Douglas N. Beck, Esq.
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
1875 Connecticut Avenue, N.W.
Washington, D.C. 20009
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. (X)
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. ( ) _______________
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. ( ) ______________
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. ( ) ______________
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. ( ) ______________
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.
P R O S P E C T U S
Integon Re (Barbados), Limited
30,000 Shares of Participating Stock
We are a Barbados company engaged in the business of reinsuring property and
casualty insurance risks including primarily automobile and motorcycle insurance
policies.
By this prospectus, we are offering 300 series of participating shares of our
stock with each series consisting of 100 shares. The offering price is
$250.00 per participating share. All Amounts Of Money Shown In This
Prospectus Are Stated In U.S. Dollars.
We will issue participating shares only to persons or entities certified by
independent insurance agencies and only if we receive stock purchase agreements
executed by such persons or entities that are acceptable to us in our sole
discretion.
No underwriting discounts or commissions will be paid in connection with the
offering of participating shares. The participating shares are not listed on any
national securities exchange or the Nasdaq Stock Market.
Investing in our participating shares involves risks. See "Risk Factors"
(page __).
Neither The Securities And Exchange Commission Nor Any State Securities
Commission Has Approved Or Disapproved These Securities Or Passed Upon The
Accuracy Or Adequacy Of This Prospectus. Any Representation To The Contrary Is A
Criminal Offense.
The date of this Prospectus is , 2001.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
FOR ARIZONA INVESTORS
NO SHARES MAY BE OFFERED TO OR PURCHASED BY RESIDENTS OF ARIZONA UNLESS THE
PURCHASER IS (I) AN OWNER OF THE ENTITY WITH RESPECT TO WHICH THE PARTICIPATING
SHARES ARE ISSUED, (II) A MEMBER OF THE FAMILY OF THE ENTITY WITH RESPECT TO
WHICH THE PARTICIPATING SHARES ARE ISSUED, (III) A TRUST FOR THE BENEFIT OF
PERSONS OTHERWISE ELIGIBLE TO PURCHASE SHARES, (IV) A CORPORATION OR PARTNERSHIP
CONTROLLED BY THE OWNER OF THE ENTITY WITH RESPECT TO WHICH THE PARTICIPATING
SHARES ARE ISSUED, OR (V) A KEY EMPLOYEE WITH RESPECT TO SUCH ENTITY.
FOR FLORIDA INVESTORS
THE SECURITIES BEING OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE FLORIDA
DIVISION OF SECURITIES. ANY SALE MADE PURSUANT TO THIS PROSPECTUS MAY BE VOIDED
BY THE PURCHASER WITHIN THREE DAYS OF THE FIRST TENDERING OF CONSIDERATION.
FOR MISSISSIPPI INVESTORS
THE COMMISSIONER OF INSURANCE OF THE STATE OF MISSISSIPPI (THE "MISSISSIPPI
INSURANCE COMMISSIONER") HAS NOT APPROVED OR DISAPPROVED THIS OFFERING, NOR HAS
THE MISSISSIPPI INSURANCE COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS.
TABLE OF CONTENTS
SUMMARY ......................................................................1
OUR BUSINESS...................................................................1
THE OFFERING ..................................................................1
RISK FACTORS...................................................................3
OUR COMPANY....................................................................8
ELIGIBILITY TO PURCHASE THE SHARES.............................................9
USE OF PROCEEDS...............................................................11
DETERMINATION OF OFFERING PRICE...............................................11
DIVIDENDS.....................................................................11
OUR BUSINESS..................................................................12
INTRODUCTION..................................................................12
REINSURANCE...................................................................13
General Considerations...............................................13
The Retrocession Agreement...........................................13
Reallocation of Insurance Losses; Retention of Insurance
Losses by MIC......................................................15
INVESTMENT INCOME.............................................................15
INSURANCE MANAGEMENT AGREEMENT................................................16
EMPLOYEES.....................................................................17
COMPETITION...................................................................17
BARBADOS REGULATION AND TAXES.................................................17
Insurance Regulation.................................................17
Taxes ............................................................18
Exchange Control.....................................................18
FACILITIES....................................................................18
LEGAL PROCEEDINGS ............................................................18
AVAILABLE INFORMATION.........................................................18
REPORTS TO STOCKHOLDERS.......................................................18
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST OUR DIRECTORS, US AND OTHERS......19
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS ..........................................................19
Liquidity............................................................19
Capital Resources....................................................19
Results of Operations................................................20
Market Risk .........................................................20
MANAGEMENT....................................................................21
DIRECTORS AND OFFICERS .......................................................21
COMMITTEES OF THE BOARD.......................................................22
REMUNERATION..................................................................22
PRINCIPAL SHAREHOLDER.........................................................22
CERTAIN TRANSACTIONS..........................................................22
DESCRIPTION OF CAPITAL STOCK..................................................22
ALLOCATIONS TO SUBSIDIARY CAPITAL ACCOUNTS....................................23
Proceeds of Sale of Stock............................................23
Underwriting Income and Expenses.....................................23
Reallocation of Losses...............................................24
Day-to-Day Operating Expenses........................................24
United States Tax....................................................24
Share Issuance Expenses..............................................24
Miscellaneous Expenses...............................................25
Investment Income....................................................25
Dividends, Redemptions and Liquidations..............................25
VOTING RIGHTS.................................................................26
Election of Directors................................................26
Proxies ............................................................26
Liquidation..........................................................26
Changes in Articles and By-Laws......................................26
Other Matters........................................................26
REDEMPTION....................................................................27
LIQUIDATION...................................................................27
RESTRICTIONS ON TRANSFER......................................................27
Transfers of Less Than All Shares of a Series........................28
Right of First Refusal...............................................28
Exceptions to Restrictions on Transfers..............................28
Provisions Applicable to All Transfers...............................28
COMMON STOCK..................................................................29
BARBADOS CORPORATE LAW PROVISIONS.............................................29
Dividends and Distributions..........................................29
Repurchase...........................................................29
Shareholders' Remedies...............................................29
Enforcement of United States Judgments...............................29
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Indemnification......................................................30
Inspection of Corporate Records......................................30
PLAN OF DISTRIBUTION..........................................................30
OFFERING PROCEDURE............................................................30
PURCHASE PROCEDURES...........................................................30
TERMS OF SALE.................................................................31
CONDITIONS OF SALE............................................................31
Approval of Purchase.................................................31
Minimum Sales........................................................32
TERMINATION OF OFFERING.......................................................32
UNITED STATES FEDERAL TAX CONSIDERATIONS......................................33
UNITED STATES -- BARBADOS INCOME TAX TREATY...................................33
UNITED STATES PREMIUM EXCISE TAX..............................................34
UNITED STATES FEDERAL INCOME TAX RISKS AND CONSEQUENCES TO US.................34
Risks and Consequences of Carrying on a United States
Reinsurance Business Through a Permanent Establishment......34
United States Withholding Tax Applicable to Certain Investment Income
Not Attributable to a United States Permanent Establishment.34
Reallocations By Internal Revenue Service............................35
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES -- THE SHAREHOLDERS.............35
Taxation of Our Income to Shareholders Under Subpart F of the Code...35
Risk of Recharacterization of Reinsurance Profits on
Business Retroceded to Us...................................36
LEGAL MATTERS.................................................................36
EXPERTS .....................................................................37
ADDITIONAL INFORMATION........................................................37
INDEPENDENT AUDITORS' REPORT..................................................38
ARTICLES OF INCORPORATION.....................................................47
THE COMPANIES ACT OF BARBADOS
SCHEDULE TO ARTICLES OF INCORPORATION................................48
DEFINITIONS .........................................................48
ALLOCATIONS TO SUBSIDIARY CAPITAL ACCOUNTS...........................49
PARTICIPATING SHARES.................................................51
LIQUIDATION..........................................................52
DIVIDENDS............................................................53
REDEMPTION...........................................................53
SCHEDULE B....................................................................54
SCHEDULE C...........................................................55
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STOCK PURCHASE AGREEMENT......................................................57
CERTIFICATION FORM............................................................62
PART II INFORMATION NOT REQUIRED IN PROSPECTUS............................63
SIGNATURES....................................................................66
EXHIBIT 23(a)
CONSENT OF COUNSEL...................................................67
EXHIBIT 23(b)
CONSENT OF COUNSEL...................................................68
EXHIBIT 23(c)
CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS.........................69
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SUMMARY
The following summary highlights important information about our business and
about this offering. Because it is a summary, it does not contain all the
information you should consider before investing in our participating shares.
You should read the entire prospectus before you decide to buy participating
shares.
OUR BUSINESS
We are a Barbados reinsurance company. We will assume risks under property and
casualty insurance policies, including primarily automobile and motorcycle
insurance policies, sold to consumers in the United States through independent
insurance agencies. Insurance companies owned by or affiliated with Integon
Corporation issue these policies which Motors Insurance Corporation reinsures.
We assume the risks under these policies from Motors Insurance Corporation. (See
"Our Business.")
THE OFFERING
Securities Being
Offered...................... Shares of participating stock, not to exceed
30,000 shares, in series of 100 shares each,
without nominal or par value. (See "Description
of Capital Stock.")
Offering Price .............. $250.00 per share, or $25,000 per series.
Terms of Offering ........... We will issue series of participating shares for
specific Integon Accounts. An "Integon Account"
means the record maintained by Integon
Corporation for insurance policies sold by one
or more independent insurance agencies. We will
issue only one series of participating shares
for each Integon Account.
You must be certified to purchase participating
shares by the insurance agency for which the
Integon Account is maintained. We will issue
only complete series of participating shares
to one or more certified purchasers. (See
"Eligibility to Purchase the Shares.")
Subsidiary Capital
Accounts..................... We will establish a record keeping account for
each series of participating shares that we
issue. Our articles of incorporation define
these accounts as "Subsidiary Capital Accounts."
We maintain these accounts solely 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
participating shares. These accounts are used
exclusively to maintain a record of these
allocations and have no other legal or
accounting significance. These accounts are not
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separate corporations or legal entities.
Furthermore, none of our assets are segregated
or earmarked with respect to the accounts.
Potential Value of
Securities Being
Offered.........................We will allocate to the Subsidiary Capital
Account we establish for a particular series of
participating shares, premium we receive and
losses we pay on insurance policies sold by the
insurance agencies that are associated with that
series. We will also apportion our investment
income, operating expenses, and other items of
income and expense, including net losses from
other series of participating shares, among
these accounts in accordance in rules contained
in our articles of incorporation. The amount of
dividends we pay on a series of participating
shares and the redemption value of those shares
will depend on the amounts that are allocated to
the account for that series.
Offering Period ................This offering will begin on the date of this
prospectus. We will offer and sell
participating shares on a continuous basis
unless we terminate the offering. Barclays Bank
PLC in Bridgetown, Barbados will hold all funds
paid by purchasers of participating shares in an
escrow account until we have received and
accepted stock purchase agreements for all of
the shares of at least 5 series of
participating shares. After we have issued the
first 5 series of participating shares, Barclays
Bank will hold funds paid by prospective
purchasers of a series of participating shares
until we accept the purchaser's stock purchase
agreement. If we have not received and accepted
stock purchase agreements for at least 5 series
by June 30, 2002, we will terminate this
offering and Barclays Bank will refund all funds
submitted by purchasers, together with any
interest earned on such funds while held in the
escrow account.
Purchase Procedure .............To purchase participating shares, you must send
the following to us: (1) two executed stock
purchase agreements; (2) a certified or
cashier's check in the amount of the purchase
price of the participating shares payable to
"Integon Re (Barbados), Limited -- Escrow
Account"; and (3) a certification of
eligibility. (See "Eligibility to Purchase the
Shares.")
Restrictions on
Transfer........................Generally, you will not be able to transfer
participating shares unless you have first
offered us the opportunity to purchase the
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shares. In addition, in most situations, you
will need to obtain our prior written consent to
transfer less than all of the shares of a
series. (See "Description of Capital Stock --
Restrictions on Transfer.")
Voting Rights ..................As a holder of participating shares, you and the
other holders of participating shares will be
entitled to elect one member of our board of
directors. Your right to vote on other matters
will be limited. (See "Description of Capital
Stock -- Voting Rights.")
Risk Factors ...................This investment is subject to significant risks.
(See "Risk Factors.")
Capital Structure...............In addition to the participating shares, we have
issued 1,000,000 shares of our common stock to
Integon Corporation, all of which are
outstanding as of the date of this Prospectus.
Use of Proceeds ................We will add the proceeds of this offering to our
general funds and use these funds in our
reinsurance business. Integon Corporation will
pay any cost we incur prior to the issuance of
any participating shares that are incidental to
our formation and organization or related to
compliance with United States Federal and state
securities laws and we will not reimburse
Integon Corporation for these amounts. (See
"Use of Proceeds.")
Plan of
Distribution ...................Registered representatives of GMAC Securities
Corporation, a broker-dealer affiliate of
Integon Corporation, will offer the
participating shares on a continuous basis.
GMAC Securities Corporation will not charge or
be paid any commissions in connection with the
sale of the participating shares. The
registered representatives will deliver this
prospectus in printed form only by hand or mail
delivery. (See "Plan of Distribution - Offering
Procedure.")
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 Integon Corporation and Holders of the Participating Shares
Will Not Control Us.
Integon Corporation owns all of our common stock. This permits Integon
Corporation to control our board of directors and determine, among other things,
the selection of our officers, management company and investment
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guidelines, and other business matters such as the terms of our reinsurance
arrangements. As a result, holders of participating shares will have no
ability to control these matters. (See "Our Business;" and "Description of
Capital Stock.")
If Integon Corporation Is Unable to Sell Insurance Polices In Sufficient
Quantities Or With Adequate Premium Rates, We May Not Be Able to Operate
Profitably.
We have entered into a retrocession agreement with Motors Insurance Corporation,
an affiliate of Integon Corporation. Under this agreement, we will assume
(reinsure) risks under property and casualty insurance policies issued by
subsidiaries and affiliates of Integon Corporation covering primarily
automobiles and motorcycles. We rely exclusively on this retrocession agreement
and, thus, on Motors Insurance Corporation and subsidiaries and affiliates of
Integon Corporation for our business. Therefore, if subsidiaries and affiliates
of Integon Corporation are unable to sell insurance policies in sufficient
quantities or with adequate premium rates, we could be unprofitable and you
could lose the money you have invested in the participating shares.
If Motors Insurance Corporation Terminates or Seeks to Modify the Retrocession
Agreement, We May Not Be Able To Operate as Described in This Prospectus.
The retrocession agreement does not have a specific termination date. Motors
Insurance Corporation may generally terminate the agreement at any time upon 30
days written notice. If Motors Insurance Corporation terminates the retrocession
agreement, we may not be able to enter into a similar arrangement with another
company and therefore may not be able to continue to operate in the manner
described in this prospectus. Likewise, if Motors Insurance Corporation seeks to
modify the retrocession agreement, we may not be able to continue to operate in
the manner described in this prospectus. (See "Our Business;" and "Description
of Capital Stock.")
New Interpretations of Existing Laws or the Adoption of New Laws Could Limit the
Ability of Motors Insurance Corporation to Retrocede Risks to Us.
Insurance and reinsurance are highly regulated by states. 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 under to the insurance
policies that it reinsures from subsidiaries and affiliates of Integon
Corporation. However, the application to us and our business of some state
insurance laws and regulations is uncertain, and 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 (because Motors Insurance
Corporation controls us) or the entities selling the insurance policies. In
addition, from time to time, there are legislative and regulatory proposals that
could, if adopted, limit the ability of Motors Insurance Corporation to
retrocede its liability under the insurance policies to us.
If Motors Insurance Corporation Limits the Reinsurance of Policies Sold by the
Agencies Associated With Your Shares, the Value of Your Shares May be Reduced.
Under the retrocession agreement, Motors Insurance Corporation has the ability
to limit our reinsurance of policies sold by particular agencies if necessary
4
to comply with applicable law. If we have to limit reinsurance of polices
sold by the agencies associated with your shares, the potential value of your
shares may be reduced. (See "Our Business -- Reinsurance.")
If the Insurance Companies That Issue the Policies We Reinsure Take Actions That
Limit the Ability of the Agency Associated With Your Shares to Market These
Policies, the Value of Your Shares May be Adversely Affected.
We assume risks under property and casualty insurance policies issued by
insurance companies owned by or affiliated with Integon Corporation. These
insurance companies have total discretion to limit or prevent an insurance
agency from marketing these policies. In addition, these insurance companies may
discontinue issuing policies in any state. If one of these insurance companies
were to limit or prevent the insurance agency with respect to which your shares
are issued from marketing policies, or were to stop issuing policies in a state
in which the insurance agency with respect to which your shares are issued
operates, the potential value of your shares could be reduced.
The Value of Your Shares May be Reduced by Bad Underwriting or Investment
Experience.
Each series of participating shares will generally bear 100% of the losses
incurred on insurance policies sold by the insurance agency associated with the
shares. To the extent losses incurred on insurance policies sold by the
insurance agency associated with your shares 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. (See "Description of Capital Stock -- Allocations
to Subsidiary Capital Accounts.")
Our profitability also will depend in part on the amount of income we earn on
our investments. We will invest primarily in debt instruments that are not
subject to U.S. withholding tax. There is a risk that we will not earn a net
investment return which, when added to our earned premium, will be sufficient to
offset our liability for claims and expenses. In addition, we could suffer
investment losses due to declines in the market values of securities in which we
invest which may be caused by, among other things, volatile interest rates. If
either of these occur, the value of your shares could be reduced. (See "Our
Business -- Investment Income.")
The Value of Your Shares May be Reduced by Bad Underwriting Experience On
Insurance Policies Sold by Other Insurance Agencies.
Under circumstances specified in our articles, losses incurred with respect to
insurance policies sold by insurance agencies other than the agency associated
with your shares, may be allocated to the account maintained for your shares,
and reduce the value of your shares. (See "Description of Capital Stock --
Allocations to Subsidiary Capital Accounts.")
If We Are Treated As Being Engaged In A Business In The United States, We Could
be Subject to United States Taxes.
We executed our retrocession agreement in Barbados. We also will administer
our retrocession agreement and manage our business affairs from Barbados.
Accordingly, we believe that we should not be treated for U.S. tax purposes as
5
being engaged in business within the United States and therefore, should not be
subject to United States income tax. However, this is a factual question and it
is possible that we could be treated as being engaged in business within the
United States. In such event, we would be subject to United States income tax on
business profits earned on our U.S. business, as well as an additional 5% branch
profits tax.
Under captive insurance company provisions contained in the Internal Revenue
Code, each holder of participating shares generally will be subject to United
States income tax currently on their pro rata share of our earnings, whether or
not such earnings are distributed. To the extent that we were subject to United
States income tax on our business profits, the holders of participating shares
would not be subject to current tax on such profits, but the holders of
participating shares would be subject to tax on our actual distributions with
respect to such profits. (See "United States Federal Tax Considerations --
United States Federal Income Tax Consequences -- The Shareholders.")
Changes in Political Conditions In Barbados Could Limit Our Ability to Operate
Profitably.
We are a Barbados corporation and therefore changes in the Barbados government
and other political and economic conditions in Barbados could limit our ability
to operate as described in this prospectus.
If We Are Unable to Maintain Adequate Levels of Capital and Surplus, We May Have
to Limit the Amount of Our Business.
Barbados insurance law requires that we maintain specified levels of capital and
surplus in relation to the amount of premium we earn. This may limit the amount
of business that we will be able to reinsure. To the extent that our net asset
value does not meet these minimum requirements and to the extent that the
capital and surplus for 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.
There Are Restrictions on our Ability to Pay Dividends.
Although our articles of incorporation require that we pay a minimum annual
dividend to holders of participating shares, we will not be able to pay any
dividend unless such payment is in compliance with Barbados insurance regulatory
requirements, the Barbados Companies Act and other limitations provided in our
articles. We may not be able to pay dividends in our early years of operation.
(See Appendix A; and "Dividends.")
There Is No Public Market For Our Stock and There are Restrictions on
Transfers.
There is no public market for the participating shares, and we do not expect one
to develop. In addition, our articles impose substantial restrictions on
transfers of participating shares. Except for transfers to persons or entities
in one of the categories specified in our articles, 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.
Any person acquiring shares from another shareholder must agree to be bound by
the provisions of a stock purchase agreement, including
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restrictions on the transfer of the shares. (See "Description of Capital Stock
- -- Restrictions on Transfer," "Eligibility to Purchase the Shares," and "Plan of
Distribution.")
The Price of Our Shares Has Been Arbitrarily Determined
We have set the price for the participating shares arbitrarily. Accordingly, the
price bears no relationship to our assets, prospective earnings, book value or
other recognized criteria of value.
You May not be Able to Enforce Judgements Obtained In the United States Against
Us or Our Directors
We are a resident of Barbados, as are some of our directors, and some of the
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 you to enforce judgments obtained in courts
in the United States against us or our directors.
We May Hold Your Money Until June 30, 2002 Before We Issue Shares Or Return The
Money To You
All funds paid by purchasers of participating shares will be held in an escrow
account until the earlier of:
(i) the date we have received and accepted stock purchase agreements
for all of the shares of at least 5 series of participating
shares, and
(ii) June 30, 2002.
If we have not received and accepted stock purchase agreements for all of the
shares of at least 5 series by June 30, 2002, we will terminate this offering
and funds submitted by purchasers will be refunded to purchasers, together with
any interest earned on such funds while held in the escrow account. Once we have
accepted your stock purchase agreement, you have no right to the return of your
money unless we do not make the minimum sales by June 30, 2002.
We Have An Absolute Right to Terminate Reinsurance and Redeem Shares.
We have the right to redeem participating shares of any series at any time and
for any reason, provided that the director that is elected by the holders of the
participating shares approves the redemption. Therefore, participation in our
company on an ongoing basis is not assured. In addition, we may, for any reason,
stop the assumption of insurance business, on a prospective basis, with respect
to any particular series of shares. Moreover, in these circumstances, we are not
required to redeem the shares of such series, and any value of these shares
could be lost if we experience negative operating results. (See "Description of
Capital Stock -- Redemption.")
If the Organization for Economic Cooperation and Development Continues to
Identify Barbados as Being Engaged in Harmful Tax Practices, the U.S. Could
Takes Actions That Would Adversely Affect Us.
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For some time, the Organization for Economic Cooperation and Development
("OECD"), an international organization consisting of member countries devoted
to promoting international trade and development, has been engaged in an effort
to eliminate so-called "harmful tax practices" engaged in by some countries. As
part of that effort, in June 2000, the OECD released a list of tax haven
countries allegedly engaged in harmful tax practices that have not cooperated in
the OECD's efforts. Barbados is on that list. If the OECD continues to include
Barbados on this list after July 2001, member countries, such as the U.S., could
impose sanctions to deter harmful tax practices in Barbados. We do not know what
form such sanctions would take, although they could include, among other things,
denial of deductions for payments made to Barbados companies, reductions in
benefits under the tax treaty currently in place between Barbados and the U.S.
or other actions that could directly or indirectly affect us and our
shareholders. Barbados government officials have indicated that they are
currently working closely with the OECD to resolve all issues necessary for the
OECD to remove Barbados from the list. However, such efforts may not be
successful, and, if successful, they could include actions that may be harmful
to us such as the imposition of additional taxes.
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OUR COMPANY
We were incorporated in Barbados on January 10, 2000 and became licensed to
carry on the business of an Exempt Insurance Company in Barbados on March 31,
2000. Our registered and principal offices are located at One Financial Place,
Collymore Rock, St. Michael, Barbados and our telephone number is (246)
436-4895. We are subject to general corporate and insurance regulation under the
laws of Barbados, which include minimum net asset value and reporting
requirements. (See "Our Business -- Barbados Regulation and Taxes.")
As of the date of this prospectus, we have not begun our reinsurance business.
Under the terms of the retrocession agreement (the "Retrocession Agreement")
that we have entered into with Motors Insurance Corporation ("MIC"), we intend
to engage in the business of assuming risks with respect to property and
casualty insurance policies, including primarily automobile and motorcycle
insurance policies, that are reinsured by MIC from subsidiaries and affiliates
of Integon Corporation and that are sold by an independent insurance agency or
agencies with respect to which a series of our participating shares ("Shares")
is issued and outstanding.
We were organized by Integon Corporation ("Integon"). All of Integon's
outstanding stock is owned by GMAC Insurance Holdings, Inc., a subsidiary of
General Motors Acceptance Corporation which, in turn, is a wholly owned
subsidiary of General Motors Corporation ("GM"). MIC, a stock insurance company
organized under the laws of Michigan, is also a wholly owned subsidiary of GMAC
Insurance Holdings, Inc. The following chart provides a simplified illustration
of this structure:
General Motors
Corporation
GMAC Insurance Holdings, Inc.
Integon Corporation Motors Insurance Corporation
100%
Common Stock
Integon Re (Barbados), Ltd.
Barbados is an island nation located in the Atlantic Ocean. It is the eastern-
most island of the West Indies. Formerly a British colony, Barbados gained its
independence in 1966 and maintains a parliamentary form of government. The
currency of Barbados is linked by law to the U.S. dollar at a fixed exchange
rate, which at present is two Barbadian dollars to one U.S. dollar.
9
ELIGIBILITY TO PURCHASE THE SHARES
Shares of a series may be purchased only by an Eligible Purchaser. An "Eligible
Purchaser" is an individual or entity certified by the insurance agency or
agencies for which an Integon Account is maintained, as a purchaser of all or
part of a series of Shares to be associated with such Integon Account. An
"Integon Account" is the separate business record maintained by Integon or any
of its subsidiaries or affiliates to track volume, experience, and commissions
with respect to insurance policies sold by one or more particular insurance
agencies. There are no formal eligibility requirements for certification. The
insurance agency or agencies for which an Integon Account is maintained have
complete discretion with respect to whom they choose to certify as Eligible
Purchasers. In addition, we have complete discretion to accept or reject any
offer to purchase Shares. No more than one series of Shares is issued with
respect to each Integon Account. No Shares of a series are issued unless
executed stock purchase agreements (see Appendix B) for all Shares of that
series have been received and accepted by us.
A prospective purchaser is considered to be properly certified when we have
received a certificate in the form of Appendix C from the agency for which an
Integon Account is maintained. This form certifies that the prospective
purchaser has been designated by such agency to be eligible to purchase the
particular Shares and represents that all necessary corporate or other actions
have been taken with respect to such certification. If the Integon Account with
respect to which the Shares are to be issued relates to multiple agencies, each
agency must make this certification. In situations where the certifying
insurance agency is a sole proprietor, the individual proprietor must make the
certification; where the agency is an entity (i.e. corporation, partnership,
limited liability company), a duly authorized officer or other duly authorized
representative of such entity must make this certification. In addition to being
certified by the relevant agency, the prospective purchaser must execute a stock
purchase agreement, in the form approved by us (see Appendix B) and forward that
agreement, together with payment for the Shares to be 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 is being made on a continuous basis. This means that
it is not possible to predict how many series of Shares will ultimately be
purchased or the maximum net proceeds to be derived by us from this offering.
Integon will pay all expenses of this offering. Accordingly, all proceeds
derived from this offering will be added to our general funds to provide a pool
of funds for the payment of future claims and expenses in the event premiums
prove insufficient to cover such claims and expenses. Barbados law requires that
we maintain minimum net assets in an amount that is calculated based on our
annual earned premium. Although such amounts may initially be invested by our
insurance manager in short term instruments, we intend for all
10
of our available capital, including the proceeds of this offering, to be
invested in accordance with guidelines established by our board of directors. We
believe that the proceeds derived from this offering will be sufficient,
together with our other capital, to support our insurance operations for the
foreseeable future and therefore we do not anticipate that we will need to raise
additional funds, other than those derived from this offering, for at least six
months from the date of this prospectus.
We establish a bookkeeping record for each particular series of Shares or class
of stock which we maintain for the purpose of accounting for items of income and
expense, gains and losses, capital contributions, and shareholder distributions
which are allocated to the particular series of Shares or class of stock
("Subsidiary Capital Account"). Subsidiary Capital Accounts are maintained
solely for the purpose of maintaining a record of these allocations, and have no
other legal or accounting significance. None of our assets are segregated or
earmarked with respect to the accounts. 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
Prior to this offering, there was no public trading market for the Shares and
there will be no public trading market after the issuance of Shares. The price
per Share reflects our projected capital needs and bears no relationship to any
valuation criteria.
DIVIDENDS
Dividends on the Shares may be declared and paid at the discretion of our board
of directors, provided that our articles of incorporation provide for a minimum
dividend, payable annually, equal to 20% of the annual net income attributable
to the Subsidiary Capital Account associated with a series of Shares. Apart from
the minimum dividend, we may declare dividends on the Shares based on the net
income or earned surplus attributable to each series of Shares. Dividends on our
common stock (the "Common Stock"), all of the outstanding shares of which are
held by Integon, may be declared and paid at the discretion of our board of
directors, provided 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. All dividend
payments are subject to the restrictions described below. These restrictions may
prevent us from being able to pay dividends (including minimum dividends) in our
early years of operation.
Under the general corporate laws of Barbados, dividends on the Shares or on the
Common Stock are payable only if after the payment: (a) we would be able to pay
our liabilities as they come due; and (b) the realizable value of our assets
would exceed our liabilities and stated capital. Dividends may not be paid out
of unrealized profits. Further, under Barbados insurance law, we are required to
maintain a minimum capitalization of $125,000 and, in addition, the recorded
value of our assets must exceed our liabilities by: (a) $125,000 where our
earned premium in the preceding financial year did not exceed $750,000; (b) an
amount equal to 20% of our earned premium for the preceding financial year,
where such income exceeded $750,000 but did not exceed $5,000,000; and (c) an
amount equal to the aggregate of $1,000,000 and 10% of the amount by which our
earned premium for the preceding financial year
11
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 on the Shares or on
the Common Stock. 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.
OUR BUSINESS
INTRODUCTION
As of the date of this prospectus, we have not begun our reinsurance business
operations. When we do (upon the issuance of 5 series of Shares), our business
will be the assumption of risks under insurance policies, including primarily
automobile and motorcycle insurance policies, sold through independent insurance
agencies. These policies provide liability, physical damage, and/or other types
of insurance coverage that a consumer may elect. These policies of insurance are
issued by subsidiaries or affiliates of Integon, reinsured by MIC, and
retroceded to us to the extent that such policies relate to an Integon Account
in respect of which a series of Shares is issued and outstanding. The amount MIC
retrocedes to us cannot exceed 50% of the risk associated with such policies and
cannot be less than 20% of the risk associated with such policies, subject to
compliance with applicable state law restrictions. However, the portion of the
risk we retain may be reduced to less than 20% if necessary in order to comply
with applicable capital and surplus requirements under Barbados law.
We will sell Shares to persons or entities designated by the insurance agency or
agencies for which Integon maintains an Integon Account. We will issue a
separate series of Shares with respect to each Integon Account, and we will
establish a separate "Subsidiary Capital Account" for each series of Shares. Our
profitability will reflect both our underwriting and investment experience which
we will allocate among the Subsidiary Capital Accounts as described elsewhere in
this prospectus.
REINSURANCE
General Considerations. Reinsurance is a means of transferring the risk of loss
arising under a contract of insurance from the company that initially insured
the risk to the reinsurer. Retrocession is the transfer of the risk borne by the
reinsurer (the "retroceding company") to another company which, in turn, assumes
such risk (the "retrocessionaire"). Retrocession agreements are of numerous
different types and may be individually negotiated by the parties to meet
particular needs. Under a "quota share" indemnity
12
retrocession agreement, such as the Retrocession Agreement, the retrocessionaire
(us) is paid ("ceded") a certain percentage of the premiums assumed by the
retroceding company (MIC) and, in return, agrees to indemnify the retroceding
company for a certain percentage of the losses in respect of those risks.
Further, a "treaty" arrangement, such as is involved here, covers all risks of a
defined class. Under the Retrocession Agreement, all business is ceded to us at
the time the policy covering the risk is written.
Integon, through its subsidiaries and affiliates, markets and underwrites
various automobile insurance products, all of which it reinsures with MIC. These
products provide primarily physical damage and liability coverages. Integon also
offers specialty automobile insurance products including business vehicle
insurance designed primarily for tradespeople and artisans who have small fleets
or lightweight single vehicles, as well as motorcycle insurance. Integon
currently markets its products in approximately 33 states through approximately
14,600 independent agencies. A.M. Best Company, Inc. has assigned a consolidated
rating of "A+" (Superior) to the GMAC Insurance Group, which includes the
subsidiaries and affiliates of Integon that issue the policies that we will
reinsure.
Integon maintains Integon Accounts in respect of independent insurance agencies
that sell insurance products of Integon's subsidiaries and affiliates. These
insurance agencies consist of sole proprietorships as well as corporations,
partnerships, and limited liability companies.
The Retrocession Agreement. The Retrocession Agreement will become
effective as of the date on which Shares are first issued. Under the
Retrocession Agreement, MIC is obligated to transfer (or retrocede) to us, and
we are obligated to assume, a portion of MIC's risks in respect of automobile
and motorcycle insurance policies reinsured by MIC, to the extent that such
policies are attributable to an Integon Account in respect of which a series of
Shares is issued, outstanding and in good-standing (the "Policies"), and such
Policies are issued or renewed on or after the effective date of the
Retrocession Agreement. Under the Retrocession Agreement, we will not assume
liability with respect to any losses resulting from events occurring prior to
the effective date of the Retrocession Agreement. We may terminate prospectively
the assumption of risks related to a particular series of Shares at any time for
any reason by a vote of our board of directors.
Under the Retrocession Agreement, MIC retrocedes to us a portion (the
"Retrocession Percentage") of MIC's risk in respect of each Policy. Our
liability under the Retrocession Agreement with respect to each Policy takes
effect at the time MIC becomes liable with respect to such Policy and remains in
effect as long as the Policy remains in force. The amount of our liability for
any loss paid on a Policy is equal to the Retrocession Percentage multiplied by
the amount of the loss. Except as discussed below under "Reallocation of
Insurance Losses; Retention of Insurance Loses by MIC," our loss exposure is not
capped. The Retrocession Percentage, which can be either 20%, 30%, 40% or 50%,
is established for each Integon Account with respect to which a series of Shares
is issued, outstanding and in good standing. For each such Integon Account, the
applicable Retrocession Percentage is designated in the stock purchase
agreements submitted to us by prospective purchasers of Shares, provided that if
there is more than one purchaser of the Shares of a series and all of the
purchasers do not designate the same Retrocession Percentage, then the
Retrocession Percentage for that series will be the lowest available
Retrocession Percentage designated by any of the purchasers. (See "Plan of
Distribution - Purchase Procedures.") Subject to our approval, the Retrocession
Percentage for a series of Shares may be changed for a subsequent calendar year
provided that the owners of all Shares
13
of the series submit a written request to us at least thirty days prior to the
end of the calender year requesting such change.
In return for our assuming the risk retroceded to us by MIC under the
Retrocession Agreement, MIC pays us an amount equal to the Retrocession
Percentage multiplied by the gross premiums MIC receives with respect to the
retroceded business, after cancellations, reduced by:
(i) a ceding commission which is equal to the amount of such premiums
multiplied by 26.5%, reduced by the amount of certain service fees
paid to MIC;
(ii) any related agents' or brokers' commissions; and
(iii) any U.S. premium excise tax imposed on such premiums.
Settlements between MIC and us with respect to all amounts under the
Retrocession Agreement will be made on a quarterly basis.
As explained more fully below under "Reallocation of Insurance Losses; Retention
of Insurance Losses by MIC," the Retrocession Agreement provides that losses
will be retained (reinsured) by MIC to the extent that losses allocated to a
Subsidiary Capital Account exceed a specified amount. Except for this
arrangement, we currently do not intend to seek reinsurance protection for any
of our obligations under the Retrocession Agreement.
The Retrocession Agreement requires that we furnish an irrevocable letter of
credit of at least 12 months duration in an amount equal to the lesser of:
(i) the amount of unearned retroceded premiums plus unpaid loss reserves
(including reserves for losses incurred but not reported) otherwise
required to be maintained by MIC in respect of the Policies, less
deferred acquisition costs; and
(ii) the maximum amount that we can provide based on our net assets.
This letter of credit must be issued by a bank acceptable to regulatory
authorities having jurisdiction over MIC.
The Retrocession Agreement provides that in the event that we redeem or
repurchase a series of Shares, MIC will retrocede no further risks to us with
respect to new or renewal Policies attributable to the Integon Account related
to the redeemed or repurchased Shares that become effective on or after the
effective date of redemption or repurchase. In addition, MIC will recapture, as
of that date, the business retroceded to us with respect to the Integon Account
related to such Shares. In consideration of that recapture, we will pay a
termination premium to MIC in an amount equal to the unearned premiums and
unpaid losses (discounted under applicable U.S. tax rules) less deferred
acquisition costs ("Termination Premium") on the recaptured business. This
recapture will relieve us of any obligations in respect of risks retroceded to
us with respect to the Subsidiary Capital Account related to the Shares before
the date of the repurchase or redemption.
The Retrocession Agreement may be terminated as of the beginning of any month by
either party upon not less than 30 days written notice. Upon termination of the
Retrocession Agreement, MIC will not retrocede any further risks to us with
respect to new or renewal Policies that become effective on or after the
effective date of termination, and MIC will recapture the retroceded business as
of that date. In consideration of that recapture, we will pay a
14
Termination Premium to MIC on the recaptured business. Termination of the
Retrocession Agreement will relieve us of any obligations in respect of risks
retroceded to us before the date that the Reinsurance Agreement terminated.
Reallocation of Insurance Losses; Retention of Insurance Losses by MIC. Our
articles of incorporation generally provide that losses we incur on the business
we reinsure that are attributable to an Integon Account will be allocated to the
Subsidiary Capital Account for the Shares issued with respect to that Integon
Account and therefore will reduce the value of such Shares. However, losses on
the business are not always allocated in this manner. Under our articles, to the
extent that the allocation of losses incurred under the Retrocession Agreement
would result in a "Combined Ratio" for a Subsidiary Capital Account in excess of
108% for any calendar year, such losses are not allocated to such Account.
Instead, such losses will be reallocated among the other Subsidiary Capital
Accounts ("Unrelated Accounts"), pro rata, based on relative earned premium. The
Combined Ratio for a Subsidiary Capital Account is equal to the sum of losses
incurred, commission expense, ceding fee and U.S. premium excise taxes divided
by earned premium, to the extent that such amounts are attributable to the
business allocated to the Subsidiary Capital Account. In the event that the
Combined Ratio for each Subsidiary Capital Account for each series of Shares
issued and outstanding is 108% after reallocation of losses, any additional
losses will be reallocated to the Subsidiary Capital Account for the Common
Stock. (See "Description of Capital Stock -- Allocations to Subsidiary Capital
Accounts"). The Retrocession Agreement provides that MIC will retain losses that
would otherwise be reallocated to a Unrelated Account pursuant to such
reallocation provisions to the extent that the reallocation of losses would
increase the Combined Ratio for the Unrelated Account for any calendar year by
more than 5 percentage points.
INVESTMENT INCOME
A major source of income to us will be income earned on the investment of
amounts not currently required to meet claims or expenses. The funds available
for investment by us will come primarily from capital and accumulated earnings
and from unearned premiums and unpaid losses.
Our funds will be invested in a manner consistent with investment guidelines
established by our board of directors. We are currently permitted to invest in
investment grade debt instruments that are not subject to U.S. withholding tax,
including U.S. Treasury and agency securities, mortgage-backed securities,
obligations of domestic and foreign corporations, asset-backed securities,
municipal securities and money market instruments. Our board will review on a
regular basis and, where appropriate, revise the investment objectives and
guidelines for the investment of our funds. There can be no assurance, however,
concerning whether a particular investment objective, once adopted, can be
achieved or that adverse factors would not cause a decrease in the overall value
of our portfolio.
We have entered into an investment management agreement with BlackRock
International, Ltd. ("BlackRock"). BlackRock is a subsidiary of BlackRock, Inc.
which had approximately $204 billion of assets under management as of December
31, 2000. BlackRock, Inc. manages assets on behalf of more than 3,000
institutions and 150,000 individuals through a variety of equity, fixed income,
liquidity and alternative investment separate accounts and mutual funds. The
management agreement provides that BlackRock will charge a management fee
calculated as a percentage of the net asset value of our portfolio managed by
BlackRock with the applicable percentage based on the aggregate amount of assets
managed by BlackRock on behalf of us and certain
15
other related entities. The applicable percentage is tiered on the first $50
million of aggregate assets under management and lower on all assets in excess
of $50 million.
INSURANCE MANAGEMENT AGREEMENT
We have entered into an Insurance Management Agreement (the "Management
Agreement") with Aon Insurance Managers (Barbados) Ltd. (the "Manager"). Under
the Management Agreement, 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 about
all aspects of our reinsurance activities. The Management Agreement also
requires that the Manager maintain an office in Barbados to perform its duties.
This office serves as our business office. Except for the Manager's office, we
have no other office facilities.
Under the terms of the Management Agreement, we will pay the Manager a fixed
annual fee of $70,000 and a variable monthly fee of approximately $44 per series
of Shares outstanding. The Manager is responsible for the payment of the
salaries of its officers and employees and all office and staff overhead and
other costs attributable to its services on our behalf. However, we will pay all
out-of-pocket expenses, such as telephone, facsimile, postage, travel, and other
items on an expense reimbursement basis.
The Manager was incorporated in Barbados in 1984, and is an affiliate of Aon
Corporation Group, an international insurance brokerage and consulting firm. The
Manager performs services similar to those performed for the Company for other
entities. The Manager currently has thirteen employees. In addition, the Manager
may draw upon the resources of its affiliates as needed to provide the services
contemplated under the Management Agreement. No employee of the Manager devotes
all of his or her time to our business. However, the Manager is obligated to
devote all employee time necessary to ensure the performance of the Manager's
duties under the Management Agreement. The Manager is subject to the control and
direction of our board of directors. The Managing Director of the Manager serves
as one of our officers.
The Management Agreement may be terminated by either party upon 90 days advance
written notice.
EMPLOYEES
We currently anticipate that we will not have any full-time employees. Rather,
we will rely on the Manager to handle day-to-day operations. (See "Our Business
- -- Insurance Management Agreement.") In addition, Colybrand Company Services
Limited of St. Michael, Barbados will provide our corporate secretarial
services. However, our board of directors will remain responsible for the
establishment and implementation of policy decisions.
COMPETITION
The business of insuring automobile and motorcycle risks is highly competitive,
with many companies seeking to underwrite automobile and motorcycle insurance.
All of our business is currently derived from our retrocession agreement with
MIC. Under this agreement, we reinsure insurance policies issued by subsidiaries
and affiliates of Integon Corporation. Accordingly, the volume of our business
is dependent on the ability of those companies to market insurance products.
Integon, through its subsidiaries and affiliates, competes with both large
national writers and smaller regional
16
companies in each state in which they operate. Some of these competitors have,
from time to time, decreased prices in order to gain market share.
BARBADOS REGULATION AND TAXES
Insurance Regulation. We are subject to regulation under the Barbados Exempt
Insurance (Amendment) Act, 1995-22, as amended (the "Exempt Insurance Act"). The
Exempt Insurance Act and related regulations impose a number of requirements on
us.
The principal requirements are as follows:
(1) we must maintain a principal office in Barbados, appoint an auditor, and
have a resident citizen of Barbados as one of our directors;
(2) we must, during our first financial year, maintain capital of $125,000;
(3) additionally, we must, after our first financial year, maintain assets that
exceed our liabilities by:
(a) $125,000, where the premium income (which has been deemed to be the same as
earned premium) in the preceding financial year did not exceed $750,000;
(b) an amount equal to 20% of the premium income for the preceding financial
year where such income exceeded $750,000 but did not exceed $5,000,000; and
(c) an amount equal to the aggregate of $1,000,000 and 10% of the amount by
which the premium income for the preceding financial year exceeded
$5,000,000;
(4) we must have audited financial statements ("Financial Statements") in
respect of our operations for each year that are currently required to be
prepared in accordance with Generally Accepted Accounting Principles;
(5) we must submit our Financial Statements to the Barbados Supervisor of
Insurance ("Supervisor") and the Barbados Commissioner of Inland Revenue
within six months after the end of the relevant financial year; and
(6) we must submit to the Supervisor on an annual basis a certificate of our
auditor that we are in compliance with the solvency requirements of the
Exempt Insurance Act as at the balance sheet date.
Taxes. Under the Exempt Insurance Act, no income tax, capital gains tax or other
direct tax or impost is levied in Barbados on (1) our profits or gains, (2) the
transfer of our securities to any person who is not a resident of Barbados, (3)
us, our shareholders or transferees in respect of the transfer of all or any
part of our securities or other assets to another licensee under the Exempt
Insurance Act or to any person who is not a resident of Barbados, or (4) any
portion of any dividend, interest, or other return payable to any person in
respect of his or her holding any Shares or other of our securities. We have
received a guarantee from the Minister of Finance of Barbados that such benefits
and exemptions effectively will be available through the year 2029.
Exchange Control. The Exempt Insurance Act exempts us from the Barbados Exchange
Control Act. Accordingly, we may hold any non-Barbadian currency and convert
that currency into any other currency without restriction.
17
FACILITIES
We do not own or maintain any office space or facilities. Instead, the Manager
provides our business office which is located at Collymore Rock, Barbados. We
believe that these facilities are adequate for our current and anticipated
future needs. The Manager also supplies all equipment used in our business and
maintains all of our records.
LEGAL PROCEEDINGS
As of the date of this prospectus, we are not subject to any material legal
proceedings, and none of our property is subject to any material legal
proceedings.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities Exchange Act
of 1934 (the "Exchange Act"), and in accordance therewith will file reports and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports and other information can be inspected and copied at
the offices of the Commission, at Room 1024, 450 Fifth Street, N.W., Washington,
D.C.; Room 1204, Kluczynski Federal Building, 230 South Dearborn Street,
Chicago, Illinois; and Room 1102, Jacob K. Javits Building, 26 Federal Plaza,
New York, New York. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The information we file with the Commission is also
available through the Commission's Internet site at "http://www.sec.gov."
REPORTS TO STOCKHOLDERS
We will furnish to our stockholders annual reports containing financial
statements that reflect our overall results and condition and that have been
audited and reported upon by independent public accountants. These reports will
contain information prepared in accordance with accounting principles generally
accepted in the United States.
ENFORCEABILITY OF CIVIL LIABILITIES AGAINST OUR DIRECTORS, US AND OTHERS
We are a resident of Barbados, as are certain of our directors, and certain
experts named herein, and all or a substantial portion of our assets and the
assets of such persons are or may be located outside the United States. As a
result, it may not be possible for investors to effect service of process within
the United States upon us or such persons, or to enforce against them judgments
obtained in United States courts predicated upon the civil liability provisions
of the Securities Act of 1933, as amended (the "Securities Act"). We have been
advised by our Barbados counsel, Evelyn, Gittens & Farmer, that there is doubt
as to whether Barbados courts would (1) enforce judgments of United States
courts obtained against us or such persons predicated upon the civil liability
provisions of the Securities Act, or (2) impose, in original actions in
Barbados, liabilities against us or such persons predicated upon the Securities
Act.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Liquidity.
Our liquidity requirements will relate to payment of insurance losses,
administrative expenses, and dividends. Premiums generated by our reinsurance
business, combined with investment earnings plus proceeds from the sale of
Shares, will be our principal sources of funds. We believe that such funds will
be sufficient to meet our liquidity requirements in 2001 and in future years to
which our reinsurance liabilities extend. No capital expenditures are expected
during the next few years.
Capital Resources.
Our capitalization on December 31, 2000, consists of paid in capital with
respect to the Common Stock of $1,000,000, and earnings retained for use in our
business. In the future, our capitalization will also include paid in capital
with respect to the Shares which will range from $125,000 to $7,500,000
(depending on the number of Shares sold).
Barbados insurance law requires that we maintain a minimum capitalization of
$125,000 and, in addition, that the recorded value of our assets exceed our
liabilities by: (a) $125,000 where our earned premium in the preceding financial
year did not exceed $750,000; (b) an amount equal to 20% of our earned premium
for the preceding financial year, where such income exceeded $750,000 but did
not exceed $5,000,000; and (c) an amount equal to the aggregate of $1,000,000
and 10% of the amount by which our earned premium for the preceding financial
year exceeded $5,000,000. 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.
Results of Operations
As of the date of this prospectus, we have not commenced our reinsurance
business operations. Accordingly, for the period from March 20 through December
31, 2000, our only income consisted of $43,667 of investment income that we
earned on paid in capital with respect to the Common Stock.
The foregoing Management Discussion and Analysis of Financial Condition and
Results of Operations contains various forward looking statements within the
meaning of applicable federal securities laws and are based upon our current
expectations and assumptions concerning future events, which are subject to a
number of risks and uncertainties that could cause actual results to differ
materially from those anticipated.
Market Risk
As of December 31, 2001, all of our assets were in the form of cash and
accordingly, our exposure to risk of loss from changes in interest rates or
equity prices was not material.
19
MANAGEMENT
DIRECTORS AND OFFICERS
The following is a list of our current officers and directors:
NAME AGE POSITION WITH US (AND OTHER
EMPLOYMENT DURING PAST FIVE YEARS)
Gary Y. Kusumi ....... 54 Chairman and Chief Executive
Officer, President and Director
(Director, Integon, March 1998;
President Windsor Insurance, 1996-
1998; President Leader National
Insurance, 1993-1996).
Pamela H. Godwin ....... 51 Vice-President and Director
(President and Chief Operating
Officer, Integon, September 1999;
President, Forum Of Executive Women,
1998-1999; Acting President, Women's
Way, 1998-1999; Senior Vice
President, Advanta Corporation,
1996-1998; President, Change
Partners, Inc., 1995-1996; President
& Chief Operating Officer, Providian
Corporation, 1993-1994).
Bernard J. Buselmeier..... 45 Vice-President and Director
(Executive Vice-President and Chief
Financial Officer, Integon, April
1998; Vice-President and Treasurer,
MIC, 1993-1998, Treasurer, MIC 1989-
1993).
Kenneth J. Jakubowski..... 44 Vice-President and Director
(Vice-President, Integon, May 1997;
Assistant Treasurer, Alexander &
Alexander 1992-1997).
Peter R. P. Evelyn ........ 58 Director (Attorney, Evelyn, Gittens
& Farmer, a
Barbados law firm,
1987).
Ronald W. Jones ........... 47 Vice-President, Finance (Managing
Director, Aon Insurance Managers
(Barbados) Ltd. (previously
Alexander Insurance Managers),
1987).
20
Michael R. Boyce ........... 60 Secretary (Principal, Colybrand
Company Services, Limited, Barbados,
1993; previously principal, Price
Waterhouse, Eastern Caribbean).
The directors and officers named above will serve in those capacities until the
annual meeting of shareholders following the initial issuance of Shares. After
Shares are first issued, and prior to such meeting, the directors named above
may, but are not obligated to, select an additional director from among the
holders of Shares. Thereafter, all directors will serve until the annual meeting
of shareholders following their election.
COMMITTEES OF THE BOARD
Our By-Laws authorize our board of directors to establish committees consisting
of two or more directors. Subject to Barbados law, our board may delegate any of
its powers to such committees. The By-laws provide that non- directors may serve
on such committees. Currently, no committees of our board have been formed,
although our board will likely establish certain committees, including a
nominating committee which will consist of three directors, one elected by the
holders of Shares and two elected by holders of our Common Stock.
REMUNERATION
It is not anticipated that any of our directors or officers will be compensated
directly by us for his or her services as such. However, each of our directors
and officers is reimbursed for expenses incurred for attendance at board,
committee, and shareholder meetings. In addition, Mr. Jones is an officer of the
Manager, which receives management fees; Mr. Evelyn is a member of the law firm
of Evelyn, Gittens & Farmer, which serves as our Barbados counsel; and Mr. Boyce
is affiliated with Colybrand Company Services Limited, St. Michael, Barbados,
which provides our corporate secretarial services.
PRINCIPAL SHAREHOLDER
Integon owns all of the issued and outstanding shares of the our common stock
which consists of 1,000,000 shares.
CERTAIN TRANSACTIONS
It is our policy not to make loans to any of our officers, directors, control
persons or other affiliates.
All transactions between us and our officers, directors, employees and
affiliates, will be on terms no less favorable to us than can be obtained from
unaffiliated third parties. Any such transactions will be subject to the
approval of a majority of the members of our board of directors who do not have
an interest in the transaction and who have had access, at our expense, to our
counsel or to independent counsel.
DESCRIPTION OF CAPITAL STOCK
Our articles of incorporation authorize two classes of equity - the Shares and
Common Stock. Our articles authorize us to issue an unlimited number of shares
of Common Stock, without nominal or par value per share, 1,000,000 of which have
been issued to Integon and are outstanding. The Company is not
21
offering any shares of Common Stock in this offering. In addition to the Common
Stock, our articles authorize us to issue 30,000 Shares, also without nominal or
par value per share (collectively, the Shares and the Common Stock are referred
to as the "Capital Stock"). The Shares are issued in series of 100 shares. All
of the Capital Stock is, when issued and outstanding, fully paid and
nonassessable. No shares of Capital Stock have conversion, preemptive or
sinking-fund rights. The financial interest of holders of shares of our Capital
Stock (including the Shares) is limited to our assets existing after we pay all
of our liabilities. (See "-- Liquidation.")
ALLOCATIONS TO SUBSIDIARY CAPITAL ACCOUNTS
We have established a Subsidiary Capital Account with respect to the Common
Stock as a class, and we will establish such an account with respect to each
series of Shares at the time a series is issued. Subsidiary Capital Accounts are
maintained solely for the purpose of the allocations described below, and do not
serve any other legal or accounting function. None of our assets are segregated
or earmarked with respect to those accounts.
In general, the allocation rules contained in our articles of incorporation are
designed to allocate to the Subsidiary Capital Account for a particular series
of Shares the underwriting results (which is generally equal to the premiums
earned less losses paid) on insurance policies sold by the insurance agency or
agencies associated with Shares. In addition, our articles generally allocate
our expenses and investment income among the Subsidiary Capital Accounts based
on the amount of our reinsurance business that is attributable to the insurance
agency or agencies associated with the series of Shares. However, our articles
contain detailed allocation rules that include some exceptions to the foregoing.
The following is a summary of the allocation rules contained in our articles of
incorporation which are included as appendix A to this prospectus. Because the
following is a summary, it does not include all of the allocation rules
contained in our articles.
Proceeds of Sale of Stock. The money we receive upon the issuance of a
particular series of Shares and the Common Stock as a class, including any
interest earned on funds while held in the Escrow Account (as described
under "Plan of Distribution -- Conditions of Sale") is allocated to the
Subsidiary Capital Account for that series or class.
Underwriting Income and Expenses. We allocate 100% of each of the
following items to the Subsidiary Capital Account for the series of Shares
that are identified with the Integon Account associated with the insurance
agency (or agencies) that sold the insurance polices to which such items
can be attributed (the "related Subsidiary Capital Account"):
o premiums ceded to us;
o agents' or brokers' commissions, ceding fees and commissions,
commissions recaptured, unearned premiums, reinsurance premiums
ceded, and any United States excise tax;
o losses incurred and any amount of losses recovered through
salvage, subrogation, reinsurance recoveries, reimbursement or
otherwise;
22
o return premiums;
o any recapture premium or termination premium we pay to MIC upon
partial or complete termination of the Retrocession Agreement,
and any fees, expenses, or losses recaptured in connection with
such termination; and
o any recovery or offset for losses retained by MIC pursuant to the
terms of the Retrocession Agreement between MIC and us.
Reallocation of Losses. On an annual basis, we reallocate losses
incurred under the Retrocession Agreement that we would otherwise allocate
to a Subsidiary Capital Account based on the rules discussed above to the
extent such losses would result in a Combined Ratio for such Subsidiary
Capital Account exceeding 108%. We reallocate these losses among other
Subsidiary Capital Accounts, pro rata, based upon the relative earned
premiums of each Subsidiary Capital Account for the calendar year;
provided, however, that only those Subsidiary Capital Accounts for Shares
that each have a Combined Ratio of less than 108% for the year without this
reallocation will be taken into account for this purpose. If, as a result
of a reallocation of losses, a Combined Ratio in excess of 108% otherwise
would be created in one or more Subsidiary Capital Accounts, then the
losses incurred above a 108% Combined Ratio will be reallocated in the
manner provided in the preceding sentence until all losses incurred on the
business reinsured from MIC for the year have been allocated to Subsidiary
Capital Accounts for the Shares or until each Subsidiary Capital Account
for the Shares has a Combined Ratio for the year of 108%. In the event that
the Combined Ratio of each Subsidiary Capital Account for the Shares is
108% after the application of the preceding sentences of this paragraph,
the losses incurred above a Combined Ratio of 108% will be allocated to the
Subsidiary Capital Account of the Common shares.
Day-to-Day Operating Expenses. We allocate any expenses or liabilities
attributable to our day-to-day operations, excluding any United States
Federal income taxes, among all Subsidiary Capital Accounts for the Shares
pro rata in accordance with the relative earned premiums allocated to those
accounts for the fiscal quarter in which the expense or liability is
incurred. However, we generally do not allocate any expenses to a series of
Shares for approximately one year after they are issued or to a series of
Shares once all of the premium allocated to the Subsidiary Capital Account
for such series has been earned. (See Section 2(1)(2) of Articles.) Integon
has agreed to bear all of the expenses identified in this paragraph for a
period of approximately one year from the date that Shares are first
issued.
United States Tax. We allocate any United States Federal income tax
liability (and any interest thereon or any penalties related thereto) 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.
Share Issuance Expenses. We allocate any expenses or liabilities
attributable to the sale and issuance of Shares, including but not limited
to the costs of compliance with regulations and requirements of the U.S.
Securities and Exchange Commission and state securities laws (but not
including ongoing periodic reporting costs), to the Subsidiary
23
Capital Account for the Common Stock. However, Integon may pay such
expenses directly.
Miscellaneous Expenses. We allocate any of our expenses or liabilities
that are not covered by one of the foregoing rules among the Subsidiary
Capital Accounts on the basis of the relative amount of capital and surplus
attributable to those accounts as of the end of the quarter preceding the
date on which the expense or liability is incurred. For purposes of such
allocation, Subsidiary Capital Accounts with negative balances are
excluded.
Investment Income. We allocate investment income, net of any direct
investment expense, among the Subsidiary Capital Accounts, pro rata, based
upon the relative "Investment Asset Balance." For purposes of these
allocations, net investment income includes realized (but not unrealized)
gains and losses.
The "Investment Asset Balance" of each Subsidiary Capital Account is
equal to the sum of the beginning cash balance in a Subsidiary Capital
Account and the ending cash balance (excluding allocation of any investment
income for the quarter then ending) in such account for a quarter divided
by two. The cash balance in a Subsidiary Capital Account is equal to the
sum of the loss reserves, unearned premium reserves and capital and surplus
less deferred expenses.
Dividends, Redemptions and Liquidations. We allocate dividends,
payments upon redemption or liquidation (described below), and any other
distributions with respect to the Capital Stock to the Subsidiary Capital
Account for the class or series with respect to which the dividend, payment
or distribution was made.
Where all Shares of a series are redeemed in accordance with our
procedures for redemption, we allocate any deficit in the Subsidiary
Capital Account for that series first to the Subsidiary Capital Account for
the Common Shares and then allocate any remaining unallocated deficit among
the Subsidiary Capital Accounts for Shares with positive balances, pro
rata, based upon such balances.
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, we terminate the Subsidiary Capital Account for that series
and, under the terms of the Retrocession Agreement, MIC recaptures the
business previously allocated to the Subsidiary Capital Account.
Our articles also provide that if we are liquidated, any deficit
existing in any Subsidiary Capital Account is allocated first to the
Subsidiary Capital Account for the Common Stock and then, any remaining
unallocated deficit is allocated among the Subsidiary Capital Accounts for
Shares with positive balances, pro rata, based upon such balances.
The Subsidiary Capital Account for the Common Stock had, at the time it was
established, a balance of approximately $1,000,000, representing the capital
paid in by Integon for the 1,000,000 shares of the Common Stock issued to it.
That Subsidiary Capital Account is not affected directly by underwriting gains
and losses attributable to the various Subsidiary Capital Accounts related to
series of Shares.
24
After our board of directors approves the allocations of income and expense,
gains and losses, and distributions described above, they 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.")
Our board of directors is authorized to interpret and apply the above allocation
provisions and to adopt additional rules and guidelines as the board deems
appropriate to carry out the intent of these provisions. The board's
interpretations and any additional rules and guidelines adopted will also be
binding on all shareholders.
Barbados insurance law requires that we maintain certain levels of net assets,
which for this purpose are calculated without taking into account unrealized
gains or losses. We are currently in compliance with these requirements.
However, in the event that we are unable to comply with such requirements in the
future, we have the right to reduce the business related to a Subsidiary Capital
Account by retrocession or any other means to the extent necessary to permit the
Subsidiary Capital Account to meet its pro rata share of our required capital
and surplus.
VOTING RIGHTS
Subject to the following, holders of Capital Stock are entitled to one vote for
each share held on any question on which the holder is entitled to vote. The
matters on which holders of Capital Stock are entitled to vote, and the relative
voting rights of each class of stock, are set forth below.
Election of Directors. The holders of Shares as a class are entitled to elect
one member of our board of directors, and the holders of Common Stock as a class
are entitled to elect five directors. At least one of the directors must be
resident in Barbados. Cumulative voting is not permitted.
Proxies. Any shareholder may appoint another person as his or her proxy to act
on behalf of the appointing shareholder at any of our annual meetings. The
appointment of a person as proxy for a shareholder must be in writing.
Liquidation. We may be liquidated upon the vote of at least 75% of the
outstanding Shares, voting as a single class. Holders of Common Stock have no
right to vote with respect to liquidation. (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, voting as a class, and
a majority of the Common Stock, voting as a class, 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
voting as a class and 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. Holders of Shares have no right to vote with respect to such
matters.
25
REDEMPTION
We may redeem outstanding Shares of a series at any time for any reason if the
redemption of such Shares is approved by a majority of our board of directors,
provided that the director representing the Shares must vote in favor of the
action being taken. The Common Stock is nonredeemable in all circumstances.
A redemption of Shares is effective as of the last day of the calendar year in
which the redemption was approved by our board of directors. This date is
referred to hereinafter as the "Redemption Date." The consideration payable to
the holders of redeemed Shares will be the balance of the Subsidiary Capital
Account ("Account Balance") for those Shares as of the Redemption Date, as
adjusted by the board of directors to reflect:
(i) an appropriate share of the deficits in other Subsidiary Capital
Accounts as of the Redemption Date;
(ii) unrealized gains and losses on our investments; and
(iii) any contingent liabilities allocable to such account.
Each holder of redeemed Shares will receive the pro rata portion of the adjusted
Account Balance that corresponds to the proportionate number of Shares of the
series owned. The adjusted Account Balance will be paid within five months of
the Redemption Date and bear interest from the Redemption Date until the date of
payment at a rate equal to the yield on 26-week U.S. Treasury Bills for the
issue immediately following the Redemption Date.
Upon the redemption of Shares on the Redemption Date, the redeemed Shares will
be canceled and the holders thereof will no longer have any interest in the
Shares redeemed or in the Subsidiary Capital Account with respect to the Shares
redeemed.
LIQUIDATION
Subject to Barbados regulatory and judicial approvals, we may be liquidated upon
the vote of 75% of the outstanding Shares. In the event of liquidation, holders
of Shares have a priority over the holders of Common Shares with respect to the
distribution of our assets. As a result, holders of Shares may receive
distributions even if as a result, we will not have sufficient remaining assets
to make any distributions to holders of Common Stock. However, neither the
holders of the Shares or the holders of Common Stock will receive any
distribution of our assets in a liquidation unless and until we have paid all of
our liabilities. 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, 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 all of our remaining assets, if any.
RESTRICTIONS ON TRANSFER
There is no existing public trading market for the Shares and none 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.
26
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 effective as of the
end of the calendar year (the "Repurchase Date"), a copy of that offer has been
furnished to us, and we are thereafter offered the opportunity to purchase the
Shares. We will have 60 days during which to exercise our right to purchase the
Shares sought to be transferred. If we accept the offer to purchase, the price
will be the lesser of the bona fide offering price and the Account Balance for
the series of Shares sought to be transferred as of the Repurchase Date,
provided that the Account Balance shall be adjusted to reflect:
(i) an appropriate share of the deficits in other Subsidiary Capital
Accounts as of the Repurchase Date;
(ii) unrealized gains and losses on our investments; and
(iii) any contingent liabilities allocable to such account.
A purchase made by us pursuant to this "right of first refusal" will be deemed
effective upon the Repurchase Date, although payment by us may be deferred until
the end of the quarter following the Repurchase Date. Shares purchased by us
pursuant to our right of first refusal will be canceled.
Exceptions to Restrictions on Transfers. A transfer of either all or a portion
of the Shares of a series is not subject to either our consent or right of first
refusal where our board of directors determines that the transferee of the
Shares is: (1) a member of the transferring shareholder's immediate family; (2)
a trust for the benefit of the transferring shareholder or for the benefit of
other exempted transferees described in this paragraph; (3) if the transferor is
a corporation, any of its shareholders; (4) if the transferor is a partnership,
any of its partners; (5) a corporation which is controlled by or under common
control with the transferor; (6) the estate of a deceased shareholder and
legatees or heirs of a deceased shareholder; (7) a charitable or other
qualifying organization described in section 170(c)(2) of the United States
Internal Revenue Code of 1986, or any successor provision thereto; (8) in the
case of a transfer of less than all the Shares of a series, a person who
immediately prior to such transfer is a holder of Shares of that series; or (9)
a key employee of an insurance agency with respect to which the Shares held by
the transferor were issued.
Provisions Applicable to All Transfers. No Shares may be transferred unless and
until our board of directors has received, from the holder of the Shares sought
to be transferred, assurances of compliance with all applicable laws and
regulations. Further, persons to whom Shares are transferred must agree to abide
by the requirements set forth in the stock purchase agreement entered into by
the person transferring the Shares. In addition, all transfers of Shares require
the approval of the Barbados Supervisor of Insurance.
27
Certificates representing the Shares will bear a legend noting the applicable
limitations on transfers.
COMMON STOCK
We are currently authorized to issue an unlimited number of shares of Common
Stock, without nominal or par value, 1,000,000 of which have been issued to
Integon and are outstanding.
We have established a Subsidiary Capital Account for this class of stock, and
allocations of various items to such account are described above. (See
"Description of Capital Stock -- Allocations to Subsidiary Capital Accounts.")
Holders of Common Stock as a class are entitled to elect five directors, at
least one of whom must be resident in Barbados. As a class, these holders
generally have the sole right to vote on matters not specifically reserved to
the Shares. (See "Description of Capital Stock -- Voting Rights.")
BARBADOS CORPORATE LAW PROVISIONS
The corporate law of Barbados was derived historically from that of England
prior to the coming into force in 1985 of the Companies Act Cap. 308 of the Laws
of Barbados, which is similar to the Canada Corporations Act. Barbados law may
differ in certain respects from comparable law in the United States. The
following is a summary of certain provisions of Barbados corporate law as
prepared by Evelyn, Gittens & Farmer, our Barbados counsel. The summary does not
purport to contain all applicable provisions and does not purport to be complete
or cover all respects in which Barbados corporate law may differ from laws
generally applicable to United States corporations and their shareholders.
Dividends and Distributions. Under Barbados law, a company may pay dividends
only if there are reasonable grounds for believing that (a) the company would be
able, after the payment of the dividends, to pay its liabilities as they become
due, and (b) the realizable value of the company's assets would be greater than
the aggregate of its liabilities and stated capital of all classes. Dividends
may not be paid out of unrealized gains.
Repurchase. We are authorized by our articles, subject to certain approvals, to
repurchase Shares. Such purchases may only be effected if we can satisfy a
similar solvency test as that described above under "Dividends and
Distributions."
Shareholders' Remedies. Barbados corporate law contains wide protection for
minority shareholders and investors generally. A statutory right of action is
conferred on subscribers to shares of a Barbados company against the directors
and officers responsible for the issue of a prospectus, in respect of damages
suffered by reason of untrue statements therein. In addition, we may take 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
28
obtained against us, or our directors and officers resident in Barbados,
predicated on the civil liability provisions of the Securities Act or, in
original actions, impose liabilities against us or such persons predicated upon
that Act. (However, liability for violations of the Securities Act by us may be
imposed directly on Integon in a United States court as a result of Integon
being a "control person" with respect to us under the Securities Act.)
Indemnification. Our by-laws provide for the indemnification of our directors
and officers against liabilities incurred in their capacities as such, but the
indemnity does not extend to any liability incurred in respect of wilful
negligence, wilful default, fraud or dishonesty in relation to us.
Inspection of Corporate Records. Shareholders have the right to inspect and copy
our articles and by-laws, corporate register, security register, minutes of
shareholders meetings, any unanimous shareholder agreement, as well as our
audited financial statements, which must be presented to the annual meeting of
shareholders.
PLAN OF DISTRIBUTION
OFFERING PROCEDURE
The Shares are being offered, on a continuous basis, by registered
representatives of GMAC Securities Corporation. GMAC Securities Corporation is
an affiliate of Integon and is registered as a broker-dealer under the Exchange
Act and in each of the states in which Shares are being offered. It is also a
member of the National Association of Securities Dealers, Inc. No commissions
are charged by or paid to GMAC Securities Corporation or the registered
representatives in connection with the sale of Shares. The registered
representatives will deliver this prospectus in printed form only by hand or
mail delivery. GMAC Securities Corporation will not be a market- maker for the
Shares. All sales of Shares are subject to our approval. (See "Eligibility to
Purchase the Shares.")
PURCHASE PROCEDURES
In order to purchase the Shares, the following documents must be sent to us in
Barbados:
(1) two duly executed stock purchase agreements (see Appendix B);
(2) all necessary certifications of the eligibility of prospective purchasers
by the insurance agency or agencies related to the Integon Account with
respect to which the Shares will be issued (see Appendix C); and
(3) a certified or cashier's check payable to "Integon Re (Barbados), Limited
-- Escrow Account" in the amount of the aggregate cost of the Shares to be
purchased, based on the offering price of $250.00 per Share ("Purchase
Payment").
None of these 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.")
29
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 Share certificate a legend stating that
the transfer or other disposition 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 associated Shares remain outstanding. A stock purchase agreement
terminates only upon the redemption of the Shares or our liquidation. Upon a
transfer of Shares, the person transferring the Shares is relieved of all
restrictions and obligations and the person to whom the Shares are transferred,
as a condition of the transfer, is required to agree to abide by all of the
provisions of the stock purchase agreement.
CONDITIONS OF SALE
We will maintain an escrow account at Barclays Bank PLC in Bridgetown, Barbados
(the "Escrow Account"), into which checks from prospective purchasers are
deposited pending satisfaction of the conditions described below. This account
will bear interest at prevailing rates but will not be subject to the investment
guidelines discussed above. If the conditions are not satisfied, the Purchase
Payment will be returned together with any interest earned.
Approval of Purchase. Each purchase of Shares must be accepted by us within 120
days from the date of execution of the stock purchase agreement by the
Purchaser. If we determine to accept an offer to purchase Shares from an
Eligible Purchaser, we will execute both copies of the stock purchase agreement
remitted by such person and return one copy to such person. If we determine not
to approve an offer to purchase, we will return the stock purchase agreement
without having executed it.
Pending approval of offers, each check for the purchase of Shares (which
ordinarily is received together with a stock purchase agreement) will be
deposited in the Escrow Account. If a request to purchase is approved:
(i) the Purchase Payment, together with any interest earned thereon
in the Escrow Account, will be released to us and allocated to
the Subsidiary Capital Account for the Shares; and
(ii) Shares will be issued and the Eligible Purchaser will receive a
certificate evidencing ownership of the Shares.
Where we determine not to approve a sale of Shares to a prospective purchaser,
the Purchase Payment will be returned, together with any interest earned
thereon. We have the right to reject any prospective purchaser for any reason
whatsoever.
30
Minimum Sales. We will not issue any Shares unless executed Stock Purchase
Agreements for at least 5 series of Shares have been received and approved by
June 30, 2002. (The minimum number of sales necessary to satisfy this condition
is hereinafter referred to as the "Minimum Sales.") If, at the time we execute a
stock purchase agreement, the Minimum Sales have not been made, then the
Purchase Payment with respect to that Agreement will remain on deposit in the
Escrow Account until the earlier of (1) the date as of which the Minimum Sales
have been made, or (2) June 30, 2002. In the event that (1) occurs first, the
Shares will be issued and the Eligible Purchaser will receive a certificate
evidencing ownership of Shares. In the event (2) occurs first, the Eligible
Purchaser will promptly be sent the amount of the Purchase Payment, together
with any interest earned thereon in the Escrow Account.
After we have made the Minimum Sales, all funds paid to us with Stock Purchase
Agreements will be deposited in the Escrow Account. These funds will remain on
deposit in the Escrow Account until the Stock Purchase Agreement pursuant to
which the funds are sent is either approved or rejected by us. If it is
approved, the funds, including any interest earned thereon in the Escrow
Account, will be paid over to our general funds and allocated to the respective
Subsidiary Capital Account for the Shares; if it is rejected, the funds,
including any interest earned thereon in the Escrow Account, will be returned to
the Eligible Purchaser, together with any accumulated interest earned.
TERMINATION OF OFFERING
Unless terminated as a result of our failure to make the Minimum Sales by June
30, 2002 or otherwise terminated sooner by our board of directors, this offering
will terminate on the date on which all of the Shares offered hereby have been
sold.
31
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.
For some time, the Organization for Economic Cooperation and Development
("OECD"), an international organization consisting of member countries devoted
to promoting international trade and development, has been engaged in an effort
to eliminate so-called "harmful tax practices" engaged in by some countries. As
part of that effort, in June 2000, the OECD released a list of tax haven
countries allegedly engaged in harmful tax practices that have not cooperated in
the OECD's efforts. Barbados is on that list. If the OECD continues to include
Barbados on this list after July 2001, member countries, such as the U.S., could
impose sanctions to deter harmful tax practices in Barbados. We do not know what
form such sanctions would take, although they could include, among other things,
denial of deductions for payments made to Barbados companies, reductions in
benefits under the tax treaty currently in place between Barbados and the U.S.
or other actions that could directly or indirectly affect us and our
shareholders. Barbados government officials have indicated that they are
currently working closely with the OECD to resolve all issues necessary for the
OECD to remove Barbados from the list. However, such efforts may not be
successful, and, if successful, they could include actions that may be harmful
to us such as the imposition of additional taxes.
32
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.
Under our investment guidelines, we are only permitted to invest our funds in
assets that are not subject to U.S. withholding tax. (See "Our Business.")
33
Reallocations By Internal Revenue Service. Under section 482 of the Internal
Revenue Code (the "Code"), the Service may allocate gross income, deductions,
and credits between or among two or more businesses, owned or controlled
directly or indirectly by the same interests, in order to prevent evasion of
taxes or to reflect clearly the true taxable income of such businesses. As
described elsewhere herein, Integon elects five of our six directors through its
ownership of all of our issued and outstanding Common Stock. Further, Integon
and MIC are commonly controlled by their parent, GMAC Insurance Holdings, Inc.
Thus, if transactions between MIC and us were determined not to reflect the true
taxable income of the parties, a reallocation of income or deductions between
MIC and us could result. However, as long as the transactions between MIC and us
are conducted on an "arm's-length" basis in a manner consistent with industry
standards and practices, section 482 should not provide a basis for
reallocations by the Service between Integon and us.
In addition, section 845 of the Code grants broad authority to the Service to
adjust items arising under certain reinsurance agreements (including
retrocession agreements), whether or not they involve related parties. If two or
more "related" parties enter into a reinsurance contract, the Service in general
may make any adjustment necessary to reflect the "proper source and character"
of the taxable income of each such party. The Service also has broad authority
to make proper adjustments where any reinsurance contract between unrelated
parties has a "significant tax avoidance effect" on any party to the contract.
Because Integon is entitled to elect five of our six directors and Integon and
MIC are owned by a common parent, we and MIC may be considered "related" parties
within the meaning of section 845 of the Code. To date, there are no regulations
under section 845 of the Code to aid in its interpretation. However, the
legislative history of section 845 suggests that certain types of reinsurance
transactions -- such as a coinsurance reinsurance transaction that covers new
business of the ceding company and that allocates expenses and income items
between the ceding company and the reinsurer in the same proportion as the
allocation of the risk reinsured -- generally should not be subject to
reallocations or adjustments. The ongoing quota share retrocession agreement
between MIC and us, in general, would seem to be similar to such transactions
for which adjustments generally should not be made, but there is substantial
uncertainty at the present time concerning the scope of section 845.
If the Service were successful in an effort to reallocate to MIC business
retroceded to us by MIC, MIC would likely be subject to tax on such business.
Since we have no obligation to indemnify MIC against such adverse tax
consequences, a reallocation of business to MIC should not directly affect us.
However, any such reallocation might contribute to the early termination of the
retrocession agreement between MIC and us.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES -- THE SHAREHOLDERS
Taxation of Our Income to Shareholders Under Subpart F of the Code. Under the
so-called "Subpart F" provisions (sections 951-964) of the Code, current United
States income tax is imposed on each United States person who owns stock in any
25% or more U.S.-owned foreign insurance company with respect to "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
34
(as determined for tax purposes) will be treated as "related person insurance
income," and, as such, will be passed through and taxed currently to all of our
shareholders ("Shareholders") under Subpart F of the Code.
The basis of the stock of a Shareholder will be increased by the amount required
to be included in the Shareholder's income with respect to such stock under
Subpart F. Further, a distribution from our earnings and profits attributable to
amounts that have been included in gross income of the Shareholders under
Subpart F would not be included again in gross income of the Shareholders but
would reduce the adjusted tax basis of the stock with respect to which the
distribution is made. It should be noted that Subpart F income will be computed
for us as a single entity. The amount of Subpart F income attributable to one
series of Shares in these circumstances may be affected by results with respect
to other series. It also should be noted that our Subpart F income generally
will be computed under the same rules that govern the computation of taxable
income of domestic property and casualty insurance companies.
Although Subpart F income generally is allocated based on book income,
differences between the financial and tax accounting rules applicable to the
computation of our income may result in differences in any year between the
amount of income subject to pass-through to a Shareholder for United States tax
purposes and the amount of book income allocable to a Shareholder's Subsidiary
Capital account. Since the consideration payable to the holders of a series of
Shares upon redemption is based substantially on book income previously
allocated to the Shares being redeemed, such consideration may not reflect the
amount of income previously passed through and taxed to the holders of those
Shares.
To the extent that we were subject to United States income tax on our business
profits, the Shareholders generally would not be subject to current tax on such
profits under Subpart F, but would be taxed when profits were distributed by us.
(See "United States Federal Tax Considerations -- United States Federal Income
Tax Consequences To Us.")
Risk of Recharacterization of Reinsurance Profits on Business Retroceded to Us.
As described elsewhere herein, a portion of the business retroceded to us is
allocated to the Subsidiary Capital Account for the series of Shares identified
with the Integon Account to which such business is attributable. In this
connection, the Service could question whether profits on such business should
be treated as being related to equity ownership for tax purposes, or whether the
Shares should be treated, in whole or in part, as a means by which the direct
insurer pays additional income to certain of its business producers, such that
the producers (rather than the Shareholders) should be subject to ordinary
income tax on all or some of such profits. Although the issue is not free from
doubt, given, among other things, the significance of the Shareholders'
"at-risk" investment in us relative to the volume of our business, the degree of
pooling of risks among all series of Shares, the fact that distributions with
respect to Shares are, subject to certain "minimum dividends," within the
discretion of our board of directors, and the vote accompanying each Share,
there should be substantial arguments against the recharacterization of profits
with respect to the Shares.
LEGAL MATTERS
The legality of the securities offered hereby is passed upon for us by our
Barbados counsel, Evelyn, Gittens & Farmer, Heritage House, Pinfold Street,
Bridgetown, Barbados, West Indies. LeBoeuf, Lamb, Greene & MacRae, L.L.P.,
35
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, 2000, included and incorporated by
reference in this prospectus, have been audited by Deloitte & Touche,
independent chartered accountants, Bridgetown, Barbados, as stated in their
report, which is included and incorporated by reference herein, and has been so
included and incorporated in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The matters of Barbados law referred to in this prospectus are set forth in
reliance upon the opinion of Evelyn, Gittens & Farmer and upon their authority
as experts in Barbados law. LeBoeuf, Lamb, Greene & MacRae, L.L.P. has passed
upon the statements concerning United States tax laws contained in the
discussion under "United States Federal Tax Considerations," which is included
herein in reliance upon their authority as experts with respect to such matters.
ADDITIONAL INFORMATION
A registration statement under the Securities Act has been filed with the
Commission with respect to the Shares offered hereby. This prospectus does not
contain all of the information set forth in such registration statement, certain
parts having been omitted pursuant to the rules and regulations of the
Commission. The omitted information may be examined at the Commission's Public
Reference Room located at 450 5th Street, N.W., Washington, D.C., or at the
following regional offices: New York City, 26 Federal Plaza, Room 1102; Chicago,
219 South Dearborn Street, Room 1204; and Los Angeles, 5757 Wilshire Boulevard,
Suite 500 East. The public may obtain information on the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. Copies may be
obtained upon payment of the fees prescribed from the public reference section
of the Commission, Washington, D.C. 20549.
Statements contained in this prospectus as to the contents of any contract or
other document are not necessarily complete and, in each instance, reference is
hereby made to the copy of the contract or other document filed as an exhibit to
the registration statement, of which this prospectus is a part, for a full
statement of the provisions, and each such statement in this prospectus is
qualified in all respects by such reference.
36
INDEPENDENT AUDITORS' REPORT
To the Shareholder of
INTEGON RE (BARBADOS) LIMITED
One Financial Place
Collymore Rock
St. Michael, Barbados
We have audited the accompanying balance sheet of Integon Re (Barbados) Limited
as at December 31, 2000 and the related statement of income and retained
earnings, and cash flows for the period March 20, 2000 (commencement of
operations) to December 31, 2000 (expressed in United States dollars). 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance that 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 audit provides a reasonable basis
for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of Integon Re (Barbados) Limited as at December
31, 2000 and the results of its operations, and cash flows for the period March
20, 2000 (commencement of operations) to December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.
CHARTERED ACCOUNTANTS
Bridgetown, Barbados
February 23, 2001
37
INTEGON RE (BARBADOS) LIMITED
BALANCE SHEET
AS AT December 31, 2000
(Expressed in United States Dollars)
Note
ASSETS
Cash and cash equivalents $1,005,501
Accrued interest income 490
Due from shareholder 37,676
----------
Total Assets $1,043,667
==========
STOCKHOLDER'S EQUITY
Share capital 4
Common shares - no par value
Authorized - an unlimited
number of shares;
Issued and outstanding
1,000,000 shares at
December 31, 2000. 1,000,000
Retained earnings 43,667
---------
Total Shareholder's Equity $1,043,667
==========
The accompanying notes form an integral part of these financial statements.
38
INTEGON RE (BARBADOS) LIMITED
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE PERIOD MARCH 20, 2000 (COMMENCEMENT
OF OPERATIONS) TO DECEMBER 31, 2000
(Expressed in United States Dollars)
INCOME
Interest $ 43,667
---------
INCOME, for the period and
RETAINED EARNINGS, end of period $ 43,667
=========
The accompanying notes form an integral part of these financial statements.
39
INTEGON RE (BARBADOS) LIMITED
STATEMENT OF CASH FLOWS
FOR THE PERIOD MARCH 20, 2000 (COMMENCEMENT
OF OPERATIONS) TO DECEMBER 31, 2000
(Expressed in United States Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES
Interest income received $ 43,177
Expenses paid and recoverable (37,676)
----------
Net cash provided by operating activities 5,501
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 1,000,000
----------
INCREASE IN CASH AND CASH EQUIVALENTS, for
the period and CASH AND CASH EQUIVALENTS, end
of period $1,005,501
==========
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES
Net income $ 43,667
Change in:
Accrued interest income (490)
----------
Due from shareholder (37,676)
----------
$ 5,501
==========
The accompanying notes form an integral part of these financial statements.
40
INTEGON RE (BARBADOS) LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD MARCH 20, 2000 (COMMENCEMENT
OF OPERATIONS) TO DECEMBER 31, 2000
(Expressed in United States Dollars)
Note 1. NATURE OF BUSINESS
The Company was incorporated on January 10, 2000 under the Laws
of Barbados and is licensed under the Barbados Exempt Insurance
Act. The Company's principal activity will be to assume risks
with respect to property and casualty insurance policies
(primarily automobile and motorcycle) sold to consumers in the
United States through independent insurance agencies.
All of the common shares of the Company are owned by Integon
Corporation (Integon). Integon is an indirect wholly-owned
subsidiary of General Motors Corporation.
Note 2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These financial statements are stated in United States dollars
and prepared in conformity with accounting principles generally
accepted in the United States of America.
Foreign Currency Translation
Foreign currency assets and liabilities are translated into
United States dollars at the rate of exchange prevailing at the
balance sheet date with any translation adjustments being
included in shareholders equity. Transactions in foreign
currencies are converted at the rates of exchange ruling at the
date of the transactions and are included in net income.
The functional currency for the Company is U.S. dollars.
Insurance premiums are ceded to the Company in U.S. dollars and
investments are generally made in U.S. dollar denominated
securities.
41
INTEGON RE (BARBADOS) LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD MARCH 20, 2000 (COMMENCEMENT
OF OPERATIONS) TO DECEMBER 31, 2000
(Expressed in United States Dollars)
Note 3. RELATED PARTY TRANSACTIONS
During the period, costs incurred on the formation of the company
and other operating expenses were paid by Integon Corporation and
totalled $389,352. The Company is not obligated to repay these
amounts to Integon Corporation.
Note 4. SHAREHOLDER'S EQUITY
The Company is authorized to issue an unlimited number of shares
of one class without par value to be designated common shares and
30,000 shares of one class without par value to be designated
participating shares. At the balance sheet date, the share
capital account consisted of the following shares which were
issued and fully paid.
Issued and Outstanding
Number Amount
Common shares 1,000,000 $1,000,000
The holder of the common shares shall be entitled to elect five
directors of the Company, one of whom must be a resident citizen
in Barbados. The holders of the participating shares shall be
entitled to elect one director of the Company.
Generally, liquidation of the Company requires approval by at
least 75% of the participating shares issued and outstanding.
42
INTEGON RE (BARBADOS) LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD MARCH 20, 2000 (COMMENCEMENT
OF OPERATIONS) TO DECEMBER 31, 2000
(Expressed in United States Dollars)
Note 5. SIGNIFICANT AGREEMENTS
Retrocession Agreement
Motor Insurance Corporation (MIC) and the Company are related
parties. All of the common shares of the Company are owned by
Integon. Integon and MIC are both wholly owned subsidiaries of
GMAC Insurance Holdings, Inc., which is a wholly owned subsidiary
of General Motors Acceptance Corporation (GMAC).
Under this Retrocession Agreement, MIC will retrocede to the
Company, when business commences a portion (the "Retrocession
Percentage") of MIC's risk in respect of certain property and
casualty insurance policies that are reinsured by MIC. The amount
of the Company's liability for any loss paid on a policy is equal
to the Retrocession Percentage multiplied by the amount of the
loss. The Retrocession Percentage, which can be either 20%, 30%,
40% or 50%, is established for each Integon Account with respect
to which a series of participating shares are issued, outstanding
and in good standing. In return for the Company assuming the risk
retroceded to the Company by MIC under the Retrocession
Agreement, MIC pays the Company an amount equal to the
Retrocession Percentage multiplied by the gross premiums MIC
receives with respect to the retroceded business, after
cancellations, reduced by:
(i) a ceding commission which is equal to the amount of such
premiums multiplied by 26.5%, reduced by the amount of
certain service fees paid to MIC;
(ii) any related agents' or brokers' commissions; and
(iii) any U.S. premium excise tax imposed on such premiums.
The Retrocession Agreement may be terminated as of the beginning
of any month by either party upon not less than 30 days written
notice.
The company believes that the Retrocession Agreement contains
terms that are no less favorable to the company than would be
obtained in an arms-length transaction. The Retrocession
Agreement provides that business will be ceded to the company by
MIC on a proportional basis subject to ceding commission of 26.5%
which the company believes is commercially reasonable. The
components of the ceding fee are the following:
(i) 3.5% for premium taxes;
(ii) 11.9% for loss adjustment expenses;
(iii) 10.0% for other operating expenses;
(iv) 1.1% for cash flow adjustment.
43
INTEGON RE (BARBADOS), LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD MARCH 20 (COMMENCEMENT
OF OPERATIONS) TO DECEMBER 31, 2000
(Expressed in United States Dollars)
Note 5. SIGNIFICANT AGREEMENTS (CONTINUED)
Investment Management Agreement
The Company has entered into an investment management agreement with
BlackRock International, Ltd. ("BlackRock"). The management agreement
provides that BlackRock will charge a management fee calculated as a
percentage of the net asset value of the Company's portfolio managed
by BlackRock with the applicable percentage based on the aggregate
amount of assets managed by BlackRock on behalf of the Company and
certain other related entities. The applicable percentage is tiered on
the first $50 million of aggregate assets under management and lower
on all assets in excess of $50 million.
Insurance Management Agreement
The Company has entered into an Insurance Management Agreement (the
"Management Agreement") with Aon Insurance Managers (Barbados) Ltd.
(the "Manager").
Under the Management Agreement, the Manager collects and disburses
funds on the Company's behalf, provides accounting, clerical,
telephone, facsimile, information management and other services for
the Company and advises and consults with the Company about all
aspects of the Company's reinsurance activities. Under the terms of
the Management Agreement, the Company will pay the Manager a fixed
annual fee of $70,000 and a variable monthly fee of approximately $44
per series of Shares outstanding. The Manager is responsible for the
payment of salaries of its officers and employees and all office and
staff overhead and other costs attributable to its services on the
Company's behalf. However, the Company will pay all
out-of-pocket-expenses, such as telephone, facsimile, postage, travel
and other items on an expense reimbursement basis. The Management
Agreement may be terminated by either party upon 90 days advance
written notice.
44
INTEGON RE (BARBADOS) LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD MARCH 20, 2000 (COMMENCEMENT
OF OPERATIONS) TO DECEMBER 31, 2000
(Expressed in United States Dollars)
Note 6. TAXATION
The Company has received an undertaking from the Barbados Government
exempting it from all local income, profits and capital taxes for a
period of fifteen (15) years from the date of incorporation.
Thereafter, for a further (15) years, the Company will be subject to
tax at a rate of 2% on its taxable income, but the amount of such tax
will not exceed $2,500 per annum.
45
COMPANIES ACT OF BARBADOS APPENDIX A
(Section 5)
ARTICLES OF INCORPORATION FORM 1
1. Name of Company Integon Re (Barbados), Limited
2. THE CLASSES AND ANY MAXIMUM NUMBER OF SHARES THAT THE COMPANY IS
AUTHORIZED TO ISSUE
The annexed Schedule A is incorporated in this form.
3. RESTRICTION IF ANY ON SHARE TRANSFERS
The annexed Schedule B is incorporated in this form.
4. NUMBER (OR MINIMUM AND MAXIMUM NUMBER) OF DIRECTORS
There shall be a minimum of 5 and a maximum of 6 directors.
5. RESTRICTIONS IF ANY ON BUSINESS THE COMPANY MAY CARRY ON
The principal object and activity of the Company is to engage in Exempt
Insurance business within the meaning of the Exempt Insurance Act Cap. 308A of
Barbados and the business of the Company shall be restricted accordingly.
6. OTHER PROVISIONS IF ANY
The annexed Schedule C is incorporated in this form.
7. Date Signatures Title
, 2000 Peter Evelyn Director
FOR MINISTRY USE ONLY
COMPANY NO. FILED
46
THE COMPANIES ACT OF BARBADOS
SCHEDULE TO ARTICLES OF INCORPORATION
SCHEDULE A
2. The classes and any maximum number of shares that the Company is
authorized to issue:
The Company is authorized to issue:
(a) an unlimited number of shares of one class without nominal or par value
to be designated Common shares; and
(b) 30,000 shares of one class without nominal or par value to be
designated Participating shares which shall be divided into 300 series and
issued in series of 100 shares, numbered consecutively from 1 to 300, and
referred to collectively as the 300 Series.
The rights, preferences and limitations of the said classes of shares are as
follows:
DEFINITIONS
In these Articles and any amendment thereto and in the Company's By-Laws the
following terms shall mean:
Average Cash Balance -- For any fiscal quarter, the sum of the beginning cash
balance in a Subsidiary Capital Account and the ending cash balance in such
account, excluding the allocation of any investment income for the quarter then
ending, divided by two. The cash balance in a Subsidiary Capital Account at any
time is equal to the sum of the capital and surplus allocated to such account
increased by the outstanding loss reserves in respect of losses incurred that
have been allocated to the account, outstanding unearned premiums in respect of
written premiums that have been allocated to the account, and any other
outstanding liability that has been charged to the account and reduced by any
expenditures allocable to the account that have been capitalized.
Board -- The Company's Board of Directors.
Business -- The business retroceded to the Company under the Retrocession
Agreement.
Combined Ratio -- The sum of losses incurred, commission expense, ceding fee and
United States premium excise taxes divided by earned premium, each as
attributable to the Retrocession Agreement for the relevant accounting period.
Company -- Integon Re (Barbados), Limited.
Integon - Integon Corporation, a Delaware corporation with administrative
offices in Winston-Salem, North Carolina.
Integon Agency Account -- The separate business record maintained by Integon or
any of its subsidiaries to track volume, experience, and commissions with
respect to insurance business related to any one or more particular individuals
or entities selling insurance policies.
MIC -- Motors Insurance Corporation, a Michigan corporation with its
administrative offices in Detroit, Michigan.
47
Retrocession Agreement -- The Personal Lines Retrocession Agreement between MIC
and the Company.
Shares -- Shares of one of the 300 Series.
Stock Purchase Agreement -- The agreement entered into between the Company and
the purchaser of Shares, in the form approved by the Board.
Subsidiary Capital Account -- The subsidiary bookkeeping record established by
the Company for a particular series or class of shares and maintained for the
purpose of accounting for items of income and expense, gains and losses, capital
contributions, and shareholder distributions which are allocated to the
particular series or class of shares.
300 Series -- The 300 series of Participating shares authorized by these
Articles.
(1) ALLOCATIONS TO SUBSIDIARY CAPITAL ACCOUNTS
The Company will establish a Subsidiary Capital Account with respect to the
Common shares as a class, and to each series of Shares at the time a series of
Shares is issued.
The consideration received by the Company for a particular series of Shares and
the Common shares as a class will be allocated to the Subsidiary Capital Account
for that series of Shares or class. Unless otherwise indicated in these
Articles, items of income and expense, and losses, attributable to insurance
underwriting activities shall be determined as of the end of each calendar
quarter and shall be allocated to the Subsidiary Capital Accounts as of the end
of the fiscal quarter of the Company in which the respective calendar quarter
ends. Investment experience, and other items of income and expense, gains and
losses and distributions with respect to shares of the Company will be
determined and allocated to the Subsidiary Capital Accounts as of the end of
each fiscal quarter of the Company. All such accounting determinations shall be
made using United States generally accepted accounting principles, unless
otherwise required by these Articles. For purposes of such allocations, items
shall be "related" to a Subsidiary Capital Account which is identified with the
same Integon Agency Account to which such items can be attributed.
(1) Items of income and expense, and losses, attributable to insurance
underwriting activities shall be allocated to the Subsidiary Capital Accounts in
accordance with the following paragraphs:
(a) With respect to premiums ceded to the Company, 100% shall be allocated
to the related Subsidiary Capital Account.
(b) With respect to any agents' or brokers' commissions, ceding fees and
commissions, any commissions recaptured, unearned premiums, reinsurance
premiums ceded by the Company, and any United States excise tax, 100% shall
be allocated to the related Subsidiary Capital Account.
(c) With respect to losses incurred (after taking into account any recovery
or offset for losses retained by a ceding company pursuant to its
reinsurance or retrocession agreement with the Company), and any amount of
losses recovered through salvage, subrogation, reinsurance recoveries,
reimbursement or otherwise, 100% shall be allocated to the related
Subsidiary Capital Account. For purposes of these Articles, losses incurred
includes both paid and unpaid (reported and unreported) losses.
48
(d) With respect to return premiums, 100% shall be allocated to the related
Subsidiary Capital Account.
(e) With respect to any recapture premium or any termination premium the
Company pays to a ceding company upon partial or complete termination of
the reinsurance between the Company and the ceding company, and with
respect to any fees, expenses, or losses recaptured in connection
therewith, 100% shall be allocated to the related Subsidiary Capital
Account.
(f) Notwithstanding the foregoing, for any calendar year for which a
Subsidiary Capital Account has any earned premium, the amount of losses
incurred on the Business otherwise allocable to the Subsidiary Capital
Account in accordance with the preceding paragraphs for such calendar year
shall be allocated, or reallocated, to other Subsidiary Capital Accounts in
accordance with the terms of this paragraph so as to prevent the Combined
Ratio for such Subsidiary Capital Account for such year from exceeding
108%. For purposes of this provision, if the Retrocession Agreement is
terminated, the period between January 1 of the year of termination and the
effective date of termination shall be treated as a calendar year. Any
losses incurred on the Business allocable to a Subsidiary Capital Account
for a calendar year above a 108% Combined Ratio shall be allocated, or
reallocated, to other Subsidiary Capital Accounts, pro rata, based upon the
relative earned premiums of each Subsidiary Capital Account for the
calendar year; provided, however, that only those Subsidiary Capital
Accounts for the Shares that have a Combined Ratio of less than 108% for
the year without regard to this paragraph will be taken into account for
this purpose. If, as a result of an allocation or reallocation of losses
incurred on the Business as described in the preceding sentence, a Combined
Ratio in excess of 108% otherwise would be created in one or more
Subsidiary Capital Accounts, then the losses incurred on the Business above
a 108% Combined Ratio will be reallocated in the manner provided in the
preceding sentence until all losses incurred on the Business for the year
have been allocated to Subsidiary Capital Accounts for the Shares or until
each Subsidiary Capital Account for the Shares has a Combined Ratio for the
year of 108%. In the event that the Combined Ratio of each Subsidiary
Capital for the Shares is 108% after the application of the preceding
sentences of this paragraph, the losses incurred on the Business for the
calendar year above a Combined Ratio of 108% for the Company shall be
allocated or reallocated to the Subsidiary Capital Account of the Common
shares. No adjustments will be made to the Subsidiary Capital Accounts
rendered for prior quarters during the calendar year to reflect any
reallocation of losses required pursuant to this provision, and any such
reallocation shall be taken into account solely through entries to the
Subsidiary Capital Accounts for the final quarter of the calendar year.
(2) Any expenses or liabilities attributable to ordinary day-to-day Company
operations, excluding any United States Federal income taxes, shall be allocated
among all Subsidiary Capital Accounts for the Shares pro rata in accordance with
the relative earned premiums allocated to such Accounts for the fiscal quarter
in which the expense or liability is incurred, provided that for purposes of
such allocation, series of Shares issued at any time during the twelve calendar
months preceding the end of the fiscal quarter in which the expense or liability
is incurred, and series of Shares with respect to which the unearned premium is
zero as of such fiscal quarter end, shall be excluded.
(3) Any United States Federal income tax liability (and any interest thereon or
any penalties related thereto) incurred by the Company shall be allocated among
the Subsidiary Capital Accounts based upon the relative contribution of
49
each of those accounts to the taxable income of the Company upon which the tax
(and any interest or penalties) is imposed.
(4) Any expenses or liabilities attributable to the organization of the Company
or to the offer, sale or issuance of Shares, including but not limited to the
costs of compliance with regulations and requirements of the United States
Securities and Exchange Commission and the various states and other
jurisdictions of the United States as they pertain thereto, shall be allocated
to the Subsidiary Capital Account for the Common shares, to the extent not borne
by Integon.
(5) Any expenses or liabilities of the Company not allocable in the manner
described in paragraphs (2) through (4) above shall be allocated among the
Subsidiary Capital Accounts on the basis of the relative balances of such
accounts as of the end of the fiscal quarter preceding the date on which the
expense or liability is incurred, provided that for purposes of such allocation,
Subsidiary Capital Accounts with balances that are less than zero shall be
excluded.
(6) (a) Investment income, net of any direct investment expense, shall be
allocated among the Subsidiary Capital Accounts pro rata based upon the
relative Investment Asset Balances (as defined in subparagraph (b) below),
provided that for purposes of such allocation, Subsidiary Capital Accounts
with Investment Asset Balances that are less than zero shall be excluded.
For these purposes, net investment income will include realized (but not
unrealized) gains and losses.
(b) The Investment Asset Balance of each Subsidiary Capital Account shall
be equal to the Average Cash Balance allocated to such account for the
fiscal quarter for which the investment income is being allocated.
(7) (a) Dividends, payments upon redemption or liquidation (described below),
and any other distributions with respect to shares of the Company will be
allocated to the Subsidiary Capital Account for the class or series of
Shares with respect to which the dividend, payment or distribution was
made.
(b) Where all shares of a series of Shares are repurchased by the Company
pursuant to Section 3 below, or redeemed in accordance with the Company's
procedures for redemption set forth in Section 2(6) below, the Subsidiary
Capital Account for such series of Shares shall be terminated as of the
Repurchase Date or Redemption Date (as those terms are defined in Sections
3 and 2(6), respectively).
The allocations to the Subsidiary Capital Accounts described above shall be
approved by the Board, and when finally so approved all calculations,
allocations and determinations shall be final and conclusive and shall be
binding on all holders of shares of the Company for all purposes, including
without limitation any redemption of Shares of the Company pursuant to the
Company's procedures for redemption. The Board is authorized to interpret and
apply the provisions of these Articles and to promulgate such additional rules
and guidelines as the Board deems appropriate to carry out the intent of these
Articles and such interpretations, rules and guidelines shall be binding on all
shareholders.
(2) PARTICIPATING SHARES
(a) If any Share shall be redeemed, repurchased or otherwise retired, it
shall return to the status of an authorized but unissued Share of such
class.
50
(b) A series of Shares shall be issued with respect to a specific Integon
Agency Account. Only one series of Shares shall be issued with respect to
an Integon Agency Account. A series of Shares shall be issued only to
persons or entities acceptable to the Board and certified by the persons or
entities to which the Integon Agency Account relates. Certification will be
effected in accordance with procedures adopted by the Board from time to
time. No Share of any particular series of Shares shall be issued unless
all Shares of such series are issued.
(c) Each outstanding Share shall entitle the registered holder of record of
such Share to dividends in accordance with the rules set forth in Section
2(5) of these Articles.
(d) The holders of Shares shall among them have the right to elect one
director of the Company and shall otherwise have only such voting rights as
are specifically provided herein. On all such matters each share shall
entitle the registered holder thereof to one vote.
(e) The rights associated with any Shares of a series of Shares shall be
identical to the rights associated with all other Shares of the same series
of Shares.
(3) COMMON SHARES
(a) Each outstanding Common share shall entitle the registered holder of
such shares to dividends in accordance with the rules set forth in Section
2(5) of these Articles.
(b) Each outstanding Common share shall entitle the registered holder
thereof to one vote per share on all resolutions of the Company other than
as specifically provided herein.
(c) The holders of the Common shares shall be entitled to elect five
directors of the Company, one of whom must be a resident citizen of
Barbados.
(4) LIQUIDATION
The Company may be liquidated upon the vote of the holders of at least 75% of
the Shares. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, after payment of all
liabilities of the Company and after allocation of any deficits in the
Subsidiary Capital Accounts for the Shares as provided for in this Section 2(4),
each holder of Shares of a series of Shares shall be entitled to receive an
amount equal to his share (based on his proportionate ownership of such series)
of the Subsidiary Capital Account balance related to his series of Shares before
any distribution of the assets of the Company shall be made to holders of the
Common shares. If at the time of liquidation, and before any payment in
liquidation is made to any holder of Shares, there exists a deficit in one or
more of the Subsidiary Capital Accounts for the Shares, then each such deficit
shall be allocated to and charged against: (i) first, the Subsidiary Capital
Account for the Common shares, and (ii) then, any remaining unallocated deficit
to the Subsidiary Capital Accounts for the Shares with positive balances, pro
rata, based upon such balances. After payment shall have been made in full to
the holders of the outstanding Shares, or funds necessary for such payment shall
have been set aside in trust for the account of the holders of the outstanding
Shares so as to be available therefor, the holders of the outstanding Shares
shall be entitled to no further participation in the distribution of the assets
of the Company, and the remaining assets of the Company, if any, shall be
divided and distributed among the holders of the Common shares then outstanding
pro rata based on their respective shares. A consolidation or merger of the
Company, or sale or
51
transfer of all or substantially all its assets, or any purchase or redemption
of shares of the Company of any class or series, shall not be regarded as a
"liquidation, dissolution, or winding up" within the meaning of this paragraph.
(5) DIVIDENDS
(a) Subject to the following paragraphs, dividends may be paid at the
discretion of the Board.
(b) Dividends, payable in cash or such other property as the Board may
determine, on a series of Shares or on Common shares, shall be declared and
payable only if the Company shall have, after giving effect to the
dividend, sufficient net assets, without regard to any Letter of Credit or
Guarantee, to meet the general business solvency margin prescribed by the
Exempt Insurance Act and Section 51 of the Act; provided that dividends
with respect to any series of Shares may be paid only out of earned surplus
attributable to the Subsidiary Capital Account identified with those
Shares, and only to the extent that, after giving effect to the dividend,
the capital and surplus identified with that Subsidiary Capital Account
(without regard to any Guarantee or Letter of Credit) would meet its pro
rata share, based on allocable premium income, of the minimum net assets
required of the Company under the Exempt Insurance Act. Subject to the
right of the holders of Shares to receive minimum dividends pursuant to the
following paragraph, to the extent a dividend is declared on the Shares, it
shall be declared and paid subject to the foregoing limitations for each
series of Shares as a percentage of the net income for the preceding
calendar year and/or earned surplus as of the end of the preceding calendar
year, attributable to each series of Shares, provided that such percentage
may vary among series of Shares with the level of net income and/or earned
surplus.
(c) Subject to the preceding paragraph, the holders of the Shares of each
series of Shares shall be entitled to receive minimum annual dividends,
payable annually within the first 120 days of each fiscal year, in cash or
such other property as the Board may determine. The minimum annual dividend
payable on each Share shall be such Share's pro rata portion of an amount
equal to 20% of the net income, if any, for the preceding fiscal year
attributable to the Subsidiary Capital Account associated with the series
of Shares of which that Share is a part. If a holder of Shares receives no
dividend or a limited dividend in any annual period as a result of the
limitations set forth in the preceding paragraph, any unpaid portion of the
minimum dividend otherwise payable pursuant to this paragraph shall not
become payable pursuant to this paragraph in any subsequent year.
(d) In no event shall any dividend whatever be paid upon or declared or set
apart for the Common shares, unless and until all minimum annual dividends
required to be paid on the then outstanding Shares for the then current
period shall have been paid or declared and set apart for payment.
(6) REDEMPTION
The Common shares are non-redeemable. Subject to compliance with any applicable
statute or act, the Company may redeem any of its issued and outstanding Shares
if all Shares of the series of Shares involved are redeemed and the redemption
of such Shares is approved by a majority of the Board, provided that the
Director representing holders of the Shares votes in favor of the redemption. In
addition to the foregoing restrictions, the Company shall not redeem any of its
issued and outstanding Shares if there are reasonable grounds for believing that
(a) the Company is unable to or would,
52
after that payment, be unable to pay its liabilities as they become due, or (b)
the realizable value of the Company's assets would after that payment, be less
than the aggregate of (i) its liabilities, and (ii) the amount that would be
required to pay the holders of Shares that have a right to be paid, on a
redemption or in a liquidation, rateably with or before the holders of the
Shares to be redeemed.
The redemption of Shares shall be effective on the last day of the calendar year
in which the redemption was approved by the Board. Such date is herein called
the "Redemption Date."
The consideration payable to the holders of redeemed Shares shall be the
Subsidiary Capital Account balance for the series of such Shares as of the
Redemption Date, as adjusted by the Board to reflect (i) an appropriate share of
any deficits in other Subsidiary Capital Accounts as of the Redemption Date,
(ii) unrealized gains and losses on investments held by the Company, and (iii)
any contingent liabilities allocable to such account. Such consideration shall
be paid within 5 months of the Redemption Date, provided that the holder(s) of
the redeemed Shares shall have delivered to the Company, certificates
representing the Shares being redeemed duly endorsed and accompanied by such
other documents as the Company may require. Such consideration shall bear
interest from the Redemption Date until the earlier of the date of payment or
the date that is 5 months from the Redemption Date, at a rate equal to the rate
of interest paid on 26-week United States Treasury Bills for the issue following
the Redemption Date.
If the balance as of the Redemption Date of the Subsidiary Capital Account for
the redeemed series of Shares is less than zero, then such deficit shall be
allocated (i) first to the Subsidiary Capital Account for the Common shares, and
(ii) then, any remaining unallocated deficit to the Subsidiary Capital Accounts
for the Shares with positive balances, pro rata, based upon such balances.
Upon redemption of the Shares as aforesaid, the holder(s) thereof shall cease to
have any further interest in the shares being redeemed. Shares redeemed pursuant
to this Section 2(6) shall return to the status of authorized but unissued
Shares.
SCHEDULE B
3. Restrictions, if any, on share transfers:
(a) Subject to the exceptions listed below, Shares (whether owned by the
original or any subsequent holder thereof) shall not be transferred in any
manner unless the holder(s) has received a bona fide written offer to
purchase such Shares effective as of the end of a calendar year, a copy of
which has been furnished to the Company, and the Company is thereafter
offered the opportunity to purchase such Shares as of such date (the
"Repurchase Date"). The Company shall have 60 days during which to exercise
the rights conferred upon it by this paragraph. If the Company accepts such
offer, the price will be the lesser of the balance of the Subsidiary
Capital Account related to such series of Shares as of the Repurchase Date
as adjusted to reflect (i) an appropriate share of any deficits in other
Subsidiary Capital Accounts as of the Repurchase Date, (ii) unrealized
gains and losses on investments held by the Company, and (iii) any
contingent liabilities allocable to such account (or if less than all such
Shares are offered, then the pro rata portion of such account attributable
to the Shares offered), or the bona fide offering price. Payment by the
Company may be deferred until the end of the fiscal quarter following the
Repurchase Date. Shares purchased by the Company pursuant to this paragraph
shall return to the status of authorized but unissued shares of such class.
53
If the Company does not elect to purchase the Shares pursuant to this
paragraph, they may be sold in accordance with the bona fide written offer
referred to above within the 60 days following the Repurchase Date, subject
to the requirements of the following paragraphs. After such 60 days, any
attempted sale or transfer of the Shares shall be subject to all the
requirements of this paragraph.
(b) In addition to the requirements of the preceding paragraph and except
as provided in paragraph (d) below, transfers of less than all Shares of a
series of Shares shall not be made unless the holder(s) has received the
written consent of the Company thereto. A request for such consent must be
made in writing and set forth the name(s) and address(es) of the intended
transferee(s), the desired date of the transfer, and the consideration to
be paid. The Company shall have 60 days from receipt of such request to
grant or withhold its consent to the intended transfer. If the Company
fails to give its written consent, any subsequent transfer shall be void
and of no effect.
(c) Shares may not be transferred unless and until the Board has received
such assurances of compliance with all applicable laws and regulations as
it may deem necessary and the transferee has agreed to abide by the
requirements set forth in the Stock Purchase Agreement entered into by the
transferor. Certificates representing shares of any class of the Company's
shares shall bear a legend substantially to the effect of this Section 3 of
these Articles.
(d) A sale, gift, assignment, pledge or other transfer of Shares shall be
exempt from the requirements of paragraphs (a) and (b) of this Section 3 if
the Board determines that the transferee or assignee of the shares is: (i)
a member of the transferring shareholder's immediate family; (ii) a trust
for the benefit of the transferring shareholder, or for the benefit of
other exempted transferees described in this paragraph; (iii) if the
transferor is a corporation, any shareholder of the transferor; (iv) if the
transferor is a partnership, any of its partners; (v) a corporation which
is controlled by or under common control with the transferor; (vi) the
estate of a deceased shareholder or legatees and heirs of such deceased
shareholder; (vii) a charitable or other qualifying organization described
in Section 170(c)(2) of the United States Internal Revenue Code of 1986;
(viii) in the case of a transfer of less than all of the Shares of a series
of Shares, a person who immediately prior to such transfer is a holder of
Shares of that series of Shares; or (ix) a key employee with respect to any
business with respect to which the Shares held by the transferor were
issued.
SCHEDULE C
6. Other provisions if any:
(1) Preferential/Preemptive Rights
No holder of shares of the Company of any class, now or hereafter
authorized, shall have any preferential or preemptive right to subscribe
for, purchase or receive any shares of the Company of any class, now or
hereafter authorized, or any options or warrants for such shares, or any
rights to subscribe for or purchase such shares, or any securities
convertible into or exchangeable for such shares, which may at any time be
issued, sold or offered for sale by the Company.
(2) Amendment of Articles and By-Laws
54
The Company's Articles and By-Laws shall not be altered, amended or
repealed and no provision inconsistent therewith shall be adopted, without
the affirmative vote of the holders of a majority of the Common shares and
of the Shares present; provided that the rights associated with any series
of Shares shall not be varied, unless the rights associated with all other
series of Shares are similarly changed, without the affirmative vote of the
holders of a majority of the Shares of each series of Shares present.
(3) Public Offerings of Shares or Security Interests
(a) Subject to the provisions of Section 2(2)(b), the Company is permitted
to invite applications or offers from the public (outside of Barbados)
to subscribe for or purchase shares, debentures or other security
interests.
(b) It is the intention of the Company to register its shares with the
U.S. Securities and Exchange Commission.
(c) Copies of the prospectuses, statements in lieu of prospectuses and
similar instruments related to the public offering of the Company's
shares or securities shall be filed with the Registrar and deposited
with the Secretary of the Securities and Exchange in accordance with
the Companies Act Cap. 308 and the Securities and Exchange Act Cap.
318A of the laws of Barbados.
55
APPENDIX B
STOCK PURCHASE AGREEMENT
BETWEEN
INTEGON RE (BARBADOS), LIMITED
AND
(Certified Purchaser)
-----------------
(Month/Date/Year)
Integon Re (Barbados), Limited
One Financial Place
Collymore Rock
St Michael, Barbados
Gentlemen:
The undersigned Shareholder (as more fully described below) hereby offers to
purchase certain shares of stock of Integon Re (Barbados), Limited, a Barbados
corporation (the "Company"), upon the terms and conditions set forth herein. The
Shareholder hereby tenders a check in the amount of the Purchase Payment (as
defined herein), to be held in an escrow account with Barclays Bank PLC (the
"Escrow Account"). This offer shall expire on the 120th day after the date
hereof if the Company has not accepted it prior to such expiration date. The
Shareholder acknowledges receipt of a prospectus dated ____ [ ], 2000 with
respect to the stock described herein.
1. DEFINITIONS
1.1. Integon. The term "Integon" means Integon Corporation, a Delaware
corporation.
1.2 Integon Account. The term "Integon Account" means the separate business
record maintained by Integon or any of its subsidiaries or affiliates to track
volume, experience and commissions with respect to Integon private passenger
automobile, commercial auto and/or motorcycle insurance policies sold by:
[insert name of agency or agencies].
1.3 Purchase Payment. The term "Purchase Payment" means the $ ($250(U.S.) x
number of shares) paid hereunder as consideration for the purchase of the
Shares.
1.4 Retrocession Percentage. The term "Retrocession Percentage" means ____%
(enter 20%, 30%, 40% or 50%) of the risk in respect of each insurance policy
sold by the insurance agency identified with the Integon Account and reinsured
by the Company.
1.5 Shareholder. The term "Shareholder" means, taxpayer identification number,
who is a citizen of, or an entity formed under the laws of , and with a
residence or business address at .
1.6 Shares. The term "Shares" means shares (number of shares) of the
authorized shares of a series of the participating stock of the Company,
which series consists of 100 shares, and which is issued in respect of the
Integon Account.
56
1.7 The masculine gender is to be construed to include a female or an entity
where the context of this Agreement so requires.
2. REPRESENTATIONS
2.1 Representation of Shareholder. The Shareholder represents that he has been
duly certified (on the form furnished by the Company and attached hereto) by the
insurance agency or agency with respect to which the Integon Account is
maintained and meets the requirements for this purchase and sale as set forth in
the Articles of Incorporation of the Company (the "Articles"), copies of which
are attached to the prospectus.
2.2 Representation of Company. The Company represents that the issuance and
sale of the Shares pursuant to this Agreement has been duly authorized by the
Board in accordance with the Articles, and is consistent with the applicable
provisions of Barbados law.
3. PURCHASE AND SALE OF SHARES
3.1 Purchase and Sale of Shares. Upon acceptance of this Agreement by the
Company, and subject to the satisfaction of the conditions set forth in Section
3.2 below, the Company agrees to sell and issue to the Shareholder, and the
Shareholder agrees to purchase, the Shares in consideration of the Purchase
Payment.
3.2 Condition of Purchase and Sale. It is a condition of this Agreement that
the Company must sell and issue at least 4 other series of participating stock
contemporaneous with or prior to the sale and issue of the Shares pursuant to
this Agreement. If the condition set forth in the preceding sentence is not
satisfied by June 30, 2002, then this Agreement shall terminate and the Purchase
Payment shall be refunded to the Shareholder in accordance with Section 4 of
this Agreement.
4. ESCROW OF PURCHASE PAYMENT
Subject to the following sentence, the Purchase Payment will remain on deposit
in the Escrow Account until the Shares are issued by the Company. If this
Agreement is not executed by the Company within 120 days of the date hereof, or
if the Shares are not issued by June 30, 2002, 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 Articles. Prior to the date that any shares of participating stock are
issued and outstanding, the Company shall not amend its Articles in a manner
that has any effect on the relative rights of participating stock.
5.2 Series of Participating Stock. No more than 100 shares of the same series
of participating stock as the Shares shall be issued by the Company, and no
other series of such stock shall be issued with respect to the Integon Account.
5.3 Reinsurance Business. The business of the Company shall be limited to the
reinsurance of property and casualty insurance policies, including primarily
automobile and motorcycle insurance policies underwritten by Integon's
subsidiaries or affiliates and identified with the Integon Account
57
and similar Integon accounts maintained with respect to independent insurance
agencies for which series of participating stock of the Company are issued and
outstanding. Notwithstanding the foregoing, the Company will not reinsure any
policies identified with the Integon Account (or any similar Integon account),
if the Company determines, in its sole discretion, that the Shares (or other
shares of the Company's participating stock in the case of other Integon
accounts), are not in good standing.
5.4 Retrocession Percentage. The Retrocession Percentage for the Shares shall
be equal to the lesser of (i) the percentage set forth in Section 1.4 of this
Agreement, or (ii) the lowest Retrocession Percentage set forth in any stock
purchase agreement pursuant to which any shares of participating stock are
issued with respect to the Integon Account. Notwithstanding the foregoing, the
Retrocession Percentage may be changed subsequent to the issuance of the Shares,
subject to the agreement of the Company and the holder(s) of the Shares and the
holders of all shares of participating stock issued with respect to the Integon
Account, and provided that the Retrocession Percentage may be changed only in
advance, upon written request received at least 30 days prior to the beginning
of such calender year, and as of the beginning of a calender year and may not be
changed to any percentage other than 20%, 30%, 40% or 50%.
6. LIMITATIONS BASED ON INADEQUATE CAPITAL
The Shareholder and the Company agree that if the Company cannot meet the
minimum margin of solvency requirements under Barbados insurance law, then, to
the extent the net asset value attributable to the Subsidiary Capital Account
(the "Account") for the shares issued pursuant to this Agreement is less than
its pro rata share (based on proportionate earned premium) of the Company's
required net asset value, the Company shall reduce the business attributable to
the Account, on a pro rata basis with such other accounts that are similarly
deficient, by retrocession or some other means acceptable to the Company, to the
extent necessary to permit the Company to meet the Company's required minimum
margin of solvency.
7. RESTRICTIONS ON TRANSFER
The Shareholder agrees to be bound by and shall be subject to all provisions in
the Articles (including without limitation those with respect to the ownership
and transfer of the Shares) that are in effect as of the date of this Agreement
or that may be added in the future, and any amendments to such provisions. It is
understood that the Company may place on the certificate for the Shares a legend
stating in substance:
The sale, transfer, or other disposition of the shares evidenced by this
certificate is restricted pursuant to provisions of the Articles of Integon
Re (Barbados), Limited ("Company"), and the Stock Purchase Agreement
("Agreement") between the Company and the Shareholder, [dated], pursuant to
which the shares were issued. Copies of the Articles and the Agreement may
be examined at the registered office of the Company.
8. MISCELLANEOUS
8.1 Severability. If for any reason any provision of this Agreement shall be
invalid or unenforceable, the validity of any or all of the remaining provisions
shall not be affected thereby; provided, however, that the absence of such
illegal or invalid provisions does not so materially alter the purpose of this
Agreement such that the continuation of the arrangement contemplated by this
Agreement would no longer be mutually beneficial to the Shareholder and the
Company.
58
8.2 No Waiver. The failure of any party to insist upon strict performance of
any obligation hereunder shall not be a waiver of the party's right to demand
strict compliance therewith in the future.
8.3 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of Barbados.
8.4 Counterparts. This Agreement has been executed in multiple copies, each of
which shall for all purposes constitute one Agreement, binding on the parties.
8.5 Assignment. This Agreement is personal to the parties and, except as
contemplated herein and in the Articles, no party shall have any right to assign
any right or to delegate any duty hereunder, either voluntarily or
involuntarily, or by operation of law.
8.6 Term of Agreement. Except as herein expressly provided, this Agreement
shall remain in force as long as the Shares remain outstanding. If not
terminated sooner, this Agreement shall terminate upon the earlier of the
redemption of the Shares or the liquidation of the Company.
8.7 Effect of Transfer. The Shareholder shall be relieved of all restrictions
and obligations and shall not be entitled to any further benefits under this
Agreement upon transfer of all the Shares and upon the agreement of the
transferee to be bound by the terms and conditions of this Agreement.
8.8 Amendment. No change, modification, or amendment to this Agreement shall
be valid or binding upon the parties hereto unless such change, modification,
or amendment shall be in writing signed by all of the parties.
8.9 Integration. This Agreement constitutes the full and complete agreement
between the Shareholder and the Company.
8.10 Captions. Titles or captions of sections, paragraphs or exhibits contained
in or made a part of this Agreement are inserted only as a matter of convenience
and for reference, and in no way define, limit, extend or describe the scope of
this Agreement or the intent of any provision hereof.
8.11 Notices. Any and all notifications permitted or required to be made under
this Agreement shall be in writing, signed by the party giving such
notification, and shall be sent by registered or certified mail, postage prepaid
(1) if to the Shareholder, at the address set forth in Section 1.5 of this
Agreement or at such other address as may have been furnished by the Shareholder
to the Company in writing; or (2) if to the Company, in care of Integon Re
(Barbados), Limited, One Financial Place, Collymore Rock, St. Michael, Barbados,
W.I. For purposes of computing a time period, the date of mailing shall be the
date of notification.
8.12 Survival of Representations and Warranties. All agreements,
representations, and warranties contained herein or made in writing by the
Shareholder or the Company in connection with the transactions contemplated
hereby shall survive the execution and delivery of this Agreement, and the sale
and purchase of the Shares under this Agreement.
8.13 Relationship to Articles. The provisions of the Articles are incorporated
herein to the extent relevant to this Agreement.
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.
59
Very truly yours,
- -------- -------------------------
Date Signature of Shareholder
-------------------------
Print Name of Shareholder
The foregoing Agreement is hereby accepted and agreed to as of the date set
forth below. Series P- is hereby designated for the Shares described in this
Agreement.
INTEGON RE (BARBADOS), LIMITED
By ___________________________ Dated:__________________________
Title ________________________
Note: Upon acceptance by the Company, a duly signed copy of this Agreement
shall be sent to the Shareholder.
60
APPENDIX C
INTEGON RE (BARBADOS), LIMITED
CERTIFICATION FORM
The undersigned, doing business as ______________________ (name of independent
insurance agency) (the "Agency"), with respect to which Integon Account___ is
maintained, hereby designates __________________________ (name of purchaser),
who resides at ____________________________ (address of purchaser)(the
"Purchaser"), to be deemed eligible to purchase shares of a series of the
participating stock of Integon Re (Barbados), Limited (the "Company") pursuant
to the Articles of Incorporation of the Company. The undersigned represents that
(i) all necessary corporate or other actions have been taken by the Agency to
certify Purchase to purchase shares, and (ii) that the person signing this
certification is duly authorized to execute this certification on behalf of the
Agency.
- ------------------------ -----------------------------------
Date Signature
-----------------------------------
Print Name and Title
-----------------------------------
Print Name of Agency
61
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses, all of which were paid by
Integon Corporation, in connection with the initial offering described in the
Registration Statement:
Registration Fee -- Securities
and Exchange Commission ................ $ 1,980
State "Blue Sky" fees ................... $ 25,000
Accountants Fees and Expenses ........... $ 15,600
Legal Fees and Expenses ................. $225,000
Printing and Engraving .................. $ 10,000
Miscellaneous ........................... $ 5,000
--------
Total Expenses ..................... $282,580
--------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Paragraph 10 of Registrant's By-Laws provides for the indemnification of
Registrant's officers and directors (and such persons' heirs, executors and
administrators) against any and all judgments, fines, amounts paid in settlement
and reasonable expenses, including attorneys' fees, incurred by such person in
connection with any claim, action, suit or proceeding, whether civil, criminal,
administrative or investigative by reason of the fact that such person is or was
a director or officer of the Company, or is or was serving at the request of the
Company as a director, officer, employee, fiduciary or member of any other
corporation, partnership, joint venture, trust, enterprise or organization,
except with respect to any matter for which indemnification would be void
pursuant to the Companies Act, 1982 of Barbados (the "Companies Act").
Under the Companies Act, indemnification of Registrant's officers and directors
against any liability which would attach by reason of any contract entered into
or act or thing done or omitted to be done by them in performance of their
office or in any way in the discharge of their duties, if the same happens
through their not acting in good faith and in the best interest of the
Registrant is void.
The position of the Securities and Exchange Commission regarding indemnification
for liabilities arising under the Securities Act of 1933 is set forth under Item
17, paragraph 4 of this Part II.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
A. Exhibits:
62
3 Articles of Incorporation (filed as Appendix A to the
Prospectus).
5 Opinion of Evelyn, Gittens & Farmer.*
10 (a) Retrocession Agreement between Motors Insurance Corporation
and Registrant.*
(b) Specimen Stock Purchase Agreement (filed as Appendix B to
the Prospectus).*
(c) Stock Purchase Agreement between Registrant and Integon
Corporation.*
(d) Insurance Management Agreement between Registrant and Aon
Insurance Managers (Barbados) Ltd.*
(e) Investment Manager Agreement between Registrant and
BlackRock International, Ltd.*
23 (a) Consent of Evelyn, Gittens & Farmer.
(b) Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P.
(c) Consent of Deloitte & Touche, Independent Chartered
Accountants.
99 (a) Certification Form (filed as Appendix C to the Prospectus).
* Previously filed.
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.
63
ITEM 17. UNDERTAKINGS
The Company hereby undertakes:
(1) To file, during any period in which offers or sales of the securities being
registered are being made, a post-effective amendment to this Registration
Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the Securities Act
of 1933 (the "Securities Act"), each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
64
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
March 19, 2001.
INTEGON RE (BARBADOS), LIMITED
By s/Ronald W. Jones
------------------
Ronald W. Jones, Vice-President,
Finance
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
s/Gary Y. Kusumi Chairman and Chief Executive March 8, 2001
- ------------------------ Officer, President and Director
Gary Y. Kusumi Principal Executive Officer)
s/Ronald W. Jones Vice-President, Finance (Principal March 19, 2001
- ------------------------ Financial and Accounting Officer)
Ronald W. Jones
s/Bernard J. Buselmeier Vice-President and Director March 8, 2001
- ------------------------
Bernard J. Buselmeier
s/Kenneth J. Jakubowski Vice-President and Director March 6, 2001
- ------------------------
Kenneth J. Jakubowski
s/Pamela H. Godwin Vice-President and Director March 5, 2001
- ------------------------
Pamela H. Godwin
s/Peter R. P. Evelyn Director March 16, 2001
- -------------------------
Peter R. P. Evelyn
65
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Ronald W.
Jones his/her true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him/her and in his/her name , place and
stead, in any and all capacities, to sign any or all amendments to this
Registration Statement on Form S-1 (Registration No. 333-34088), including post
effective amendments, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do so
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitutes, may lawfully do or cause to be
done by virtue thereof.
SIGNATURE DATE
s/Gary Y. Kusumi March 8, 2001
- -------------------------
Gary Y. Kusumi
s/Bernard J. Buselmeier March 8, 2001
- -------------------------
Bernard J. Buselmeier
s/Kenneth J. Jakubowski March 6, 2001
- -------------------------
Kenneth J. Jakubowski
s/Pamela H. Godwin March 5, 2001
- -------------------------
Pamela H. Godwin
s/Peter R. P. Evelyn March 16, 2001
- --------------------------
Peter R. P. Evelyn
66