Filed with the SEC on , 1997 Registration No.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
STONEVILLE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
MISSISSIPPI 6331 72-1341156
(State or other juris- (Primary Standard (IRS Employer
diction of incorporation Industrial Classifica- Identifica-
or organization) tion Code Number) tion Number)
HARRY E. VICKERY HARRY E. VICKERY
STONEVILLE INSURANCE COMPANY DELTA AGRICULTURAL AND
633 NORTH STATE STREET, SUITE 200 INDUSTRIAL TRUST
JACKSON, MISSISSIPPI 39202-7817 833 WASHINGTON AVENUE
(601) 352-7817 GREENVILLE, MISSISSIPPI
(Address, including zip code, 38704-5037
and telephone number, including (601) 378-8005
area code of registrant's (Name, address, including
principal executive offices) zip code, and telephone
number, including area code,
of agent for service)
Copies to:
David L. Martin, Esq.
Stephen M. Roberts, Esq.
Watkins Ludlam & Stennis, P.A.
633 North State Street
P. O. Box 427
Jackson, Mississippi 39205-0427
Telephone Number: (601)949-4900
Approximate date of commencement of proposed sale of securities
to the public: As soon as practicable after the effective date of
this Registration Statement and the liquidation of Delta
Agricultural and Industrial Trust and capitalization of
Stoneville Insurance Company have been consummated pursuant to
the Plan and Agreement of Reorganization and Conversion described
in this Prospectus.
If the securities being registered on this form are being offered
in conjunction with the formation of a holding company and there
is compliance with General Instruction G, check the following
box. / /
CALCULATION OF REGISTRATION FEE
===========================================================================
Proposed Proposed
Maximum Maximum
Title of Each Class Amount Offering Aggregate Amount of
of Securities to be to be Price Offering Registration
Registered Registered Per Unit Price(2) Fee
- ---------------------------------------------------------------------------
Common Stock,
par value $1.00 650,000 N/A $2,600,000 $787.88
===========================================================================
(1) Represents the maximum number of shares of Stoneville
Insurance Company common stock to be issued in accordance with
the Plan and Agreement of Reorganization and Conversion included
as Exhibit A to the attached Prospectus.
(2) Estimated in accordance with Rule 457(f)(2) solely for
the purpose of calculating the registration fee on the basis of
the book value of the trust equity of Delta Agricultural and
Industrial Trust as of December 31, 1996.
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 THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SECTION 8(A), MAY DETERMINE.
STONEVILLE INSURANCE COMPANY
CROSS REFERENCE SHEET
Caption or Location
Items in Form S-4 in Prospectus
A. Information About the Transaction
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus....................... Cover Page of
Registration
Statement; Cross
Reference Sheet;
Cover Page of the
Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus........ Available
Information;
Incorporation of
Certain Documents by
Reference; Table of
Contents
3. Risk Factors, Ratio of Earnings
to Fixed Charges and Other
Information...................... Summary; Risk
Factors; Selected
Financial Data of the
Trust; Pro Forma
Condensed Balance
Sheet-Statutory Basis
(Unaudited) of the
Company
4. Terms of the Transaction......... Summary; The
Conversion; The Plan;
Description of
Company Stock;
Comparison of Rights
of Former Members of
the Trust and
Shareholders of the
Company; Plan of
Distribution of
Excess Stock
5. Pro Forma Financial Information. Pro Forma Condensed
Balance Sheet-
Statutory Basis
(Unaudited) of the
Company
6. Material Contacts with the
Company Being Acquired........... Not Applicable
7. Additional Information Required
for Reoffering by Persons and
Parties Deemed to be Under-
writers.......................... Not Applicable
8. Interest of Named Experts and
Counsel.......................... Legal Opinion;
Experts
9. Disclosure of Commission
Position on Indemnification
for Securities Act Liabilities... Comparison of
Rights of Former
Members of the
Trust and
Shareholders of the
Company
B. Information About the Registrant
10. Information with Respect to
S-3 Registrants.................. Not Applicable
11 Incorporation of Certain Infor-
mation by Reference.............. Not Applicable
12. Information with Respect to S-2
or S-3 Registrants............... Not Applicable
13. Incorporation of Certain Infor-
mation by Reference.............. Not Applicable
14. Information with Respect to
Registrants Other Than S-3 or
S-2 Registrants.................. Summary; The
Conversion;
Business of the
Company; Financial
Statements; Pro
Forma Condensed
Balance Sheet-Statutory Basis
(Unaudited) of the
Company
C. Information About the Company Being Acquired
15. Information with Respect to S-3
Companies........................ Not Applicable
16. Information with Respect to S-2
or S-3 Companies................. Not Applicable
17. Information with Respect to
Companies Other Than S-3 or
S-2 Companies.................... Summary; The
Conversion;
Business of the
Trust; Financial
Statements;
Selected Financial
Data of the Trust;
Trust Management's
Discussion and
Analysis of
Financial
Conditions and
Results of
Operations
D. Voting and Management Information
18. Information if Proxies, Consents
or Authorizations Are to be
Solicited........................ Not Applicable
19. Information if Proxies, Consents
or Authorizations Are Not to be
Solicited or in an Exchange
Offer............................ Cover Page of
Prospectus;
Summary; The
Special Meeting;
The Plan; Business
of the Company;
Certain
Transactions of
Relationships
, 1997
To Our Former Members:
As you are aware, since the Delta Agricultural and Industrial
Trust (the "Trust") was started by the Delta Council in 1991, the
purpose of the Trust has been to provide reasonably priced
insurance for its insureds. Due to fundamental changes in the
workers' compensation market, a key part of the Trust's strategy has
been to move gradually toward the formation of a stock insurance
company while providing continuity of coverage to its insureds. In
December, 1996, Stoneville Insurance Company (the "Company") was
formed to become the successor of the Trust. The Board of Trustees
believes that the creation of the Company will allow the
continuation of the Trust's original mission as well as allow the
flexibility to provide services the Trust could not offer, such as
property and casualty insurance.
The Board of Trustees of the Trust recently took the next step
to make the Company an operating entity by voting to approve and
adopt a plan and Agreement of Reorganization and Conversion of the
Trust (the "Plan").
Pursuant to the Plan, the Trust will transfer substantially
all of its assets to the Company in exchange for common stock
("Stock") of the Company, the Trust will be dissolved, and Former
Members (as defined in the Plan) of the Trust will receive Stock of
the Company on the terms and subject to the conditions set forth in
the Plan, all as more fully described in the attached Prospectus
(the "Conversion"). Upon completion of the actions set forth in the
Plan, the Company will have succeeded to substantially all of the
assets and liabilities of the Trust (other than insurance
liabilities) and the Company will apply for, and anticipates being
licensed as, a Mississippi stock insurance company eligible to
write workers' compensation insurance. Simultaneously with
implementation of the Plan, Continental Casualty Company (a member
of the CNA Insurance Group) will assume direct responsibility for
the insurance liabilities of the Trust, which will relieve the
Former Members of the Trust from their joint and several liability
with respect to the insurance liabilities of the Trust. The terms
of the Conversion are described in detail in the enclosed
Prospectus.
The Board of Trustees of the Trust has unanimously approved
the Plan and believes the Conversion is in the best interests of
the Trust and its Former Members. No approval by Former Members is
necessary for the consummation of the Conversion; however, all
Former Members should carefully read the enclosed Prospectus to
understand the Conversion and their rights under the Plan.
The Board of Trustees believes that the creation of the
Company will best continue the Trust's original mission while
providing Former Members the opportunity to participate in the
Company's growth.
By Order of the Board of Trustees
William L. Kennedy
Chairman of the Board of Trustees
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration
Statement") with the Securities and Exchange Commission (the
"Commission") pursuant to the Securities Act of 1933, as amended
(the "Securities Act") of which this Prospectus is a part with
respect to the shares of Stock to be issued in connection with the
Conversion. This Prospectus does not contain all the information
set forth in the Registration Statement, certain portions of which
have been omitted pursuant to the Rules and Regulations of the
Commission. Such additional information may be obtained from the
Commission's principal office in Washington, D.C. Statements
contained in this Prospectus or in any document incorporated by
reference referred to herein or therein are not necessarily
complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the
Registration Statement or attached as an annex hereto or such other
document, each such statement being qualified in all respects by
such reference.
Prior to the issuance of the shares of Stock of the Company
and registration thereof pursuant to the Registration Statement,
neither the Company nor the Trust have been subject to any
informational requirements of the Securities Exchange Act of 1934.
Subsequent to the registration of the Company's Stock, the Company
will be subject to certain informational requirements of the
Securities Exchange Act of 1934.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH
DOCUMENTS, OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT
SPECIFICALLY INCORPORATED BY REFERENCE HEREIN, ARE AVAILABLE
WITHOUT CHARGE, UPON THE WRITTEN OR ORAL REQUEST OF ANY FORMER
MEMBER OF THE TRUST TO WHOM THIS PROSPECTUS IS DELIVERED. IN ORDER
TO ENSURE TIMELY DELIVERY OF SUCH DOCUMENTS, ANY REQUEST SHOULD BE
MADE BY , 1997 [DATE AT LEAST 10 DAYS AFTER MAILING
DATE], AND SUCH REQUESTS SHOULD BE DIRECTED TO THE COMPANY'S
OFFICES AT 633 NORTH STATE STREET, SUITE 200, JACKSON, MISSISSIPPI
39202; TELEPHONE (601) 352-7817, ATTENTION: HARRY E. VICKERY,
PRESIDENT.
PROSPECTUS
[INSERT LOGO HERE]
DELTA AGRICULTURAL AND STONEVILLE INSURANCE COMPANY
INDUSTRIAL TRUST Maximum of 650,000 Shares of Common Stock,
$1.00 par value
This Prospectus is being furnished to former members of Delta
Agricultural and Industrial Trust, a Mississippi workers'
compensation self insurance trust (the "Trust") in connection with
the Plan and Agreement of Reorganization and Conversion of the
Trust (the "Plan") and the transactions contemplated thereby, which
was adopted and approved by the Trust's Board of Trustees on March
20, 1997. A conformed copy of the Plan is attached as Exhibit A.
Pursuant to the Plan: (i) the Trust will transfer substantially all
its assets to Stoneville Insurance Company (the "Company"); (ii) in
exchange for the contribution of such assets by the Trust to the
Company, the Company will issue shares of its common stock, $1.00
par value (the "Stock") to the Trust; and (iii) the Trust will
dissolve and distribute its assets (Stock of the Company) in a
liquidating distribution to former members of the Trust ("Former
Members") in accordance with the formula set forth in the Plan and
described in this Prospectus (the foregoing transaction is referred
to as the "Conversion").
No vote of Former Members is required for the approval or
consummation of the Conversion. However, all Former Members should
carefully read this Prospectus to understand the Conversion and
their rights under the Plan. Consummation of the Conversion is
subject to various conditions as set forth in the Plan and
described in the Prospectus.
THIS PROSPECTUS, WHICH IS BEING FURNISHED TO FORMER MEMBERS OF
THE TRUST TO ADVISE THEM OF THE TERMS OF THE CONVERSION, ALSO
CONSTITUTES THE PROSPECTUS OF THE COMPANY WITH RESPECT TO A MAXIMUM
OF 650,000 SHARES OF COMPANY STOCK TO BE ISSUED IN CONNECTION WITH
THE CONVERSION.
IN THE EVENT THAT THE MAXIMUM NUMBER OF SHARES OF STOCK
REGISTERED HEREUNDER ARE NOT DISTRIBUTED PURSUANT TO THE PLAN, THE
COMPANY MAY SELL THE BALANCE OF SUCH STOCK TO PERSONS OTHER THAN
FORMER MEMBERS. SUCH SALES SHALL BE MADE ONLY THROUGH OFFICERS AND
DIRECTORS OF THE COMPANY AND NO COMMISSIONS WILL BE CHARGED.
No person is authorized to give any information or to make any
representation concerning the Conversion not contained in this
Prospectus and, if given or made, such information or
representation should not be relied upon as having been authorized
by the Company or the Trust. This Prospectus does not constitute
an offer to sell, or a solicitation of an offer to purchase, the
securities offered by this Prospectus in any jurisdiction, to or
from any person to whom it is unlawful to make such offer or
solicitation of an offer in such jurisdiction. Neither the delivery
of this Prospectus nor any distribution of the securities made
under this Prospectus shall, under any circumstances, create any
implication that there has been no change in the information set
forth herein since the date of this Prospectus.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED CAREFULLY BY FORMER MEMBERS OF THE TRUST IN
CONSIDERING THEIR RIGHTS REGARDING THE CONVERSION. THIS STOCK IS
PURELY SPECULATIVE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION, THE
MISSISSIPPI DEPARTMENT OF INSURANCE OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus is being first mailed to Former Members of the
Trust on or about , 1997.
The date of this Prospectus is , 1997.
TABLE OF CONTENTS
PAGE
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . .1
The Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Definition of Former Members of the Trust. . . . . . . . . . . .1
Description of Plan. . . . . . . . . . . . . . . . . . . . . . .2
Adoption of Plan . . . . . . . . . . . . . . . . . . . . . . . .2
Reasons for Conversion . . . . . . . . . . . . . . . . . . . . .2
Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . .2
Effective Date . . . . . . . . . . . . . . . . . . . . . . . . .2
Conditions and Termination . . . . . . . . . . . . . . . . . . .3
Assumption Reinsurance Agreement . . . . . . . . . . . . . . . .3
Termination of Self Insurer Status . . . . . . . . . . . . . . .3
Management of the Company. . . . . . . . . . . . . . . . . . . .4
Regulation of the Company. . . . . . . . . . . . . . . . . . . .4
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . .4
Certain Federal Income Tax Consequences. . . . . . . . . . . . .4
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . .4
Required Regulatory Approvals. . . . . . . . . . . . . . . . . .4
Comparison of Rights of Former Members of the Trust and
Shareholders of the Company. . . . . . . . . . . . . . . . . . .5
Sale of Excess Stock . . . . . . . . . . . . . . . . . . . . . .5
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . .5
History of Operations. . . . . . . . . . . . . . . . . . . . . .5
Limited Operations . . . . . . . . . . . . . . . . . . . . . . .5
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . .5
Reliance on Certain Persons. . . . . . . . . . . . . . . . . . .6
Variability of Operating Results . . . . . . . . . . . . . . . .6
Adequacy of Loss Reserves. . . . . . . . . . . . . . . . . . . .6
Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Competition. . . . . . . . . . . . . . . . . . . . . . . . . . .7
Reinsurance Considerations . . . . . . . . . . . . . . . . . . .7
Ratings. . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Licensure. . . . . . . . . . . . . . . . . . . . . . . . . . . .7
THE CONVERSION . . . . . . . . . . . . . . . . . . . . . . . . .8
Background . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Reasons for Conversion . . . . . . . . . . . . . . . . . . . . .8
Recommendation of the Trust's Board of Trustees. . . . . . . . 10
Assumption Reinsurance Agreement . . . . . . . . . . . . . . . 10
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . 11
Resales of Company Stock . . . . . . . . . . . . . . . . . . . 11
Certain Federal Income Tax Consequences. . . . . . . . . . . . 11
Consequences to Former Members . . . . . . . . . . . . . . . . 11
Consequences to the Trust and the Company. . . . . . . . . . . 12
Anticipated Accounting Treatment . . . . . . . . . . . . . . . 12
THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Effective Date . . . . . . . . . . . . . . . . . . . . . . . . 13
Terms of the Plan . . . . . . . . . . . . . . . . . . . . . . 13
Dissemination of Liquidating Distribution. . . . . . . . . . . 14
Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Termination. . . . . . . . . . . . . . . . . . . . . . . . . . 14
PRO FORMA CONDENSED BALANCE SHEET (UNAUDITED) OF THE COMPANY . 14
THE WORKERS' COMPENSATION INSURANCE SYSTEM . . . . . . . . . . 18
BUSINESS OF THE TRUST. . . . . . . . . . . . . . . . . . . . . 19
History of the Trust . . . . . . . . . . . . . . . . . . . . . 19
Operations of the Trust. . . . . . . . . . . . . . . . . . . . 19
The Commercial Program . . . . . . . . . . . . . . . . . . . . 19
Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 20
SELECTED FINANCIAL DATA OF THE TRUST . . . . . . . . . . . . . 21
TRUST MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATION. . . . . . . . . . . . . . 23
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Results of Operations. . . . . . . . . . . . . . . . . . . . . 23
Earned Premium . . . . . . . . . . . . . . . . . . . . . . . . 23
Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Other Expenses . . . . . . . . . . . . . . . . . . . . . . . . 24
Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 24
Investment Income. . . . . . . . . . . . . . . . . . . . . . . 25
Liquidity and Capital Resources. . . . . . . . . . . . . . . . 25
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Liquidity Requirements . . . . . . . . . . . . . . . . . . . . 26
Admitted Assets. . . . . . . . . . . . . . . . . . . . . . . . 27
Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . 27
BUSINESS OF THE COMPANY. . . . . . . . . . . . . . . . . . . . 27
Organization and Purpose . . . . . . . . . . . . . . . . . . . 27
Company Management's Plan of Operation . . . . . . . . . . . . 27
Continuation of Commercial Program . . . . . . . . . . . . . . 27
Recapture of Reserves. . . . . . . . . . . . . . . . . . . . . 28
Provision of Reinsurance . . . . . . . . . . . . . . . . . . . 28
Provision of Other Property and Casualty Insurance . . . . . . 28
General Operations . . . . . . . . . . . . . . . . . . . . . . 28
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . 29
Government Regulation. . . . . . . . . . . . . . . . . . . . . 33
Assumption of Trust Contracts. . . . . . . . . . . . . . . . . 34
Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Management of the Company. . . . . . . . . . . . . . . . . . . 34
Executive Compensation . . . . . . . . . . . . . . . . . . . . 35
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 36
DESCRIPTION OF COMPANY STOCK . . . . . . . . . . . . . . . . . 36
COMPARISON OF RIGHTS OF FORMER MEMBERS OF THE TRUST
AND SHAREHOLDERS OF THE COMPANY . . . . . . . . . . . . . . .. 36
Governance . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Resale . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Indemnification of Officers and Directors of the Company . . . 37
Indemnification of Trustees of the Trust . . . . . . . . . . . 38
Preemptive Rights. . . . . . . . . . . . . . . . . . . . . . . 39
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . 39
PLAN OF DISTRIBUTION OF EXCESS STOCK . . . . . . . . . . . . . 36
CERTAIN TRANSACTIONS AND RELATIONSHIPS . . . . . . . . . . . . 40
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . 40
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
INDEX TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . .F-1
EXHIBIT A -- PLAN AND AGREEMENT OF REORGANIZATION AND
CONVERSION . . . . . . . . . . . . . . . . . .A-1
SUMMARY
The following is a brief summary of certain information
contained elsewhere in this Prospectus and the documents
incorporated herein by reference. This summary does not contain a
complete statement of all material information relating to the
Conversion and is subject to and qualified in its entirety by
reference to the more detailed information and financial statements
contained elsewhere in this Prospectus, including any Exhibits and
the documents incorporated in this Prospectus by reference.
Certain capitalized terms used in this summary are defined
elsewhere in this Prospectus.
THE COMPANY
The Company is a Mississippi corporation, with its principal
office located 633 North State Street, Suite 200, Jackson,
Mississippi 39202, telephone number (601) 352-7817. The Company
was incorporated on December 13, 1996. Subsequent to the
Conversion, the Company will apply for, and anticipates completing
licensure as a Mississippi stock insurance company eligible to
provide workers' compensation insurance within the State of
Mississippi. See "Business of the Company -- Organization and
Purpose."
THE TRUST
The Trust is a Mississippi workers' compensation self insurance
trust with its principal office located 833 Washington Avenue, P.
O. Box 5037, Greenville, Mississippi, 38704-5037, telephone number
(601) 378-5005. The Trust was formed under a Trust Agreement dated
August 1, 1991 (the "Trust Agreement"), to provide workers'
compensation insurance to its participants. See "Business of the
Trust -- History of the Trust; Operations of the Trust."
DEFINITION OF FORMER MEMBERS OF THE TRUST
Since July 1, 1996, the date of the inception of the Trust's
program of workers' compensation insurance coverage provided through
TIG Insurance Company (the "Commercial Program"), no employer has
paid a premium to the Trust for workers' compensation insurance nor
has the Trust issued such insurance. Because the Trust Agreement
governing operations of the Trust defines members as those who
purchase insurance through the Trust, as a result of the creation
of the Commercial Program the Trust ceased having members as
contemplated by the provisions of the Trust Agreement. To clarify
the rights of Former Members regarding the terms of the Conversion,
the Board of Trustees of the Trust adopted a resolution to clarify
and define those who are Former Members of the Trust. Pursuant to
the resolution, Former Members of the Trust are those employers who
at any time had workers' compensation insurance coverage provided
by the Trust for one or more full Fund Years, which Fund Years
resulted in positive net income for the Trust.
DESCRIPTION OF PLAN
The Company has been formed to become the successor of the
Trust. Pursuant to the Plan: (i) the Trust will transfer
substantially all its assets to the Company; (ii) in exchange for
the contribution of the such assets by the Trust to the Company,
the Company will issue Stock to the Trust; and (iii) the Trust will
be liquidated and will distribute to Former Members of the Trust
one (1) share of Company Stock for each $4.00 of value of Trust
equity (a "Trust Unit") allocable to such Former Member, except for
those Trust Units with respect to which rights of dissent have been
exercised (collectively, the "Liquidating Distribution"). The total
number of Trust Units shall be computed based upon the value of the
equity of the Trust as of December 31, 1996, reduced by all
expenses incurred between such date and the effective date of the
Plan, including amounts reserved to pay estimated expenses of the
Trust, but excluding amounts reserved to pay dissenters. The
assets of the Trust to be transferred to the Company will be
substantially all the assets of the Trust less an amount sufficient
to pay the Trust's remaining costs and expenses and amounts due to
dissenters. See "The Plan -- General; Terms of the Plan;
Dissemination of Liquidating Distribution" and "Description of
Company of Stock."
ADOPTION OF PLAN
The Trust's Board of Trustees approved and adopted the Plan on
March 20, 1997. No vote of Former Members is required to approve
or adopt the Plan or consummate the Conversion.
REASONS FOR CONVERSION
Formation of the Company is intended to provide a locally
controlled, long term source of dependable and reasonably priced
insurance without the joint and several liability associated with
workers' compensation self-insured pools such as the Trust. As a
Mississippi stock insurance company, the Company is permitted by
law to expand into a broader range of insurance activities and to
have more flexibility in financing activities and other matters
than is currently permitted to the Trust as a Mississippi workers'
compensation self-insured pool. Formation of the Company also is
intended to facilitate the development of an active market in the
Company's Stock. See "The Conversion -- Reasons for Conversion;
Resales of Company Stock" and "Business of the Company -- Company
Management's Plan of Operation."
DISSENTERS' RIGHTS
Former Members of the Trust have the right to dissent from the
Plan and receive $4.00 in cash for each of their Trust Units. See
"The Plan -- General; Terms of the Plan."
EFFECTIVE DATE
The effective date of the Plan at which time the Company will
be capitalized and the Trust liquidated and dissolved (the
"Effective Date") is expected to be the close of business on the
last day of the month after which all of the conditions to the Plan
have been satisfied or waived. See "The Plan -- Effective Date;
Conditions; Termination."
CONDITIONS AND TERMINATION
The Plan may be terminated and abandoned at any time prior to
the Effective Date by vote of the Trust's Board of Trustees. In
addition, the Plan is subject to certain conditions, which, if not
met, also constitute grounds for termination. Such conditions
include: (i) receipt of an opinion from Watkins Ludlam & Stennis,
P.A., to the effect that the Conversion will be treated, for
federal income tax purposes, as a tax-free transaction as to the
Trust, the Company, and to those Former Members who receive Stock
of the Company; (ii) effectiveness of the Assumption Reinsurance
Agreement described elsewhere herein; and (iii) dissenters' rights
shall not be perfected by holders of more than twenty percent (20%)
of the Trust Units. See "The Plan -- Conditions; Termination."
ASSUMPTION REINSURANCE AGREEMENT
The Trust and the Company have entered into an Assumption
Reinsurance Agreement (the "Assumption Reinsurance Agreement") with
Continental Casualty Company ("Continental"), a member of the CNA
Insurance Group.
The Assumption Reinsurance Agreement provides that Continental
will assume the Trust's insurance liabilities and the joint and
several liability of any employers to whom the Trust provided
insurance and that such employers will be able to look directly to
Continental for coverage and claims payments without the necessity
of making a claim against the Trust.
Under the terms of the Assumption Reinsurance Agreement, the
Company has the option to reinsure part or all of the Trust's former
insurance which Continental directly assumed as well as recapture
certain reserves transferred to Continental. The Assumption
Reinsurance Agreement is expected to provide significant net income
to the Company. See "The Conversion -- Assumption Reinsurance
Agreement" and "Business of the Company -- Company Management's Plan
of Operation."
TERMINATION OF SELF INSURER STATUS
Upon consummation of the Assumption Reinsurance Agreement, the
Trust will surrender its Certificate of Authority to the
Mississippi Workers' Compensation Commission (the "Workers'
Compensation Commission"). See "The Conversion -- Regulatory
Approvals."
MANAGEMENT OF THE COMPANY
The officers and directors of the Company are William L.
Kennedy (Director and Chairman of the Board), Harry E. Vickery
(Director and President) and David R. White (Director, Secretary,
Treasurer and Vice President). See "Business of the Company --
Management of the Company; Executive Compensation."
REGULATION OF THE COMPANY
The Company will be subject to the regulation of the
Mississippi Department of Insurance (the "Department of Insurance").
See "The Conversion -- Regulatory Approvals"; "The Workers'
Compensation Insurance System"; and "Business of the Company --
Government Regulation."
DIVIDEND POLICY
The payment of dividends by the Company is subject to
regulatory restrictions. See "Comparison to the Rights of Members
of the Trust and Shareholders of the Company -- Dividends."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Where a Former Member exercises the right to dissent and
receives cash in exchange for Trust Units, such cash will be
treated as having been received by the Former Member as a
distribution in redemption of the Trust Units subject to the
provisions and limitations of Section 302 of the Internal Revenue
Code of 1986, as amended (the "Code"). Where a Former Member
receives shares of Company Stock in exchange for Trust Units, no
gain or loss will be recognized by the Former Member on the Company
Stock received. No gain or loss will be recognized by the Trust or
the Company with respect to the Conversion. See "The Conversion --
Certain Federal Income Tax Consequences."
ACCOUNTING TREATMENT
The Conversion is intended to qualify as a pooling of
interests for accounting and financial reporting purposes. The
qualification of the Conversion as a pooling of interests is not a
condition to the Conversion. See "The Conversion -- Anticipated
Accounting Treatment."
REQUIRED REGULATORY APPROVALS
The Assumption Reinsurance Agreement and the Plan have been
approved by the Workers' Compensation Commission. No other
regulatory approvals are required. See "The Conversion --
Regulatory Approvals."
COMPARISON OF RIGHTS OF FORMER MEMBERS OF THE TRUST AND
SHAREHOLDERS OF THE COMPANY
See "Comparison of Rights of Former Members of the Trust and
Rights of Shareholders of the Company" for a summary of the
material differences between rights of Former Members of the Trust
and rights of shareholders of the Company.
SALE OF EXCESS STOCK
In the event that the maximum number of shares of Stock
registered hereunder are not distributed pursuant to the Plan, the
Company may sell the balance of such stock to persons other than
Former Members. The sale price of such Stock shall be $4.00 per
share. Such sales shall be made only through officers and
directors of the Company and no commissions will be charged. See
"Plan of Distribution of Excess Stock."
RISK FACTORS
The following risk factors should be considered carefully by
Former Members in evaluating whether to become holders of Company
Stock. These factors should be considered in conjunction with
other information included and incorporated by reference in this
Prospectus.
HISTORY OF OPERATIONS
The Company is a newly formed Mississippi corporation and has
no history of operations. Although the Company will be the
successor in interest to the Trust and plans to capitalize on
relationships between the Trust and its present and former
insureds, there can be no assurance that the Company will succeed
or meet its objectives. See "Business of the Company --
Organization and Purpose; Company Management's Plan of Operation."
LIMITED OPERATIONS
The Company's operations will initially be limited. The
Company anticipates that its sole sources of revenue will initially
consist of investment income and premiums generated from the
provision of reinsurance and recapture of reserves under the
Assumption Reinsurance Agreement. See "The Conversion --
Assumption Reinsurance Agreement" and "Business of the Company --
Company Management's Plan of Operations."
CAPITALIZATION
Although the Company anticipates it will exceed the statutory
minimum capital and surplus requirements of the Department of
Insurance for property and casualty insurance companies (the
classification which includes workers' compensation insurance), it
will be thinly capitalized. In the early years, the Company may
incur losses. Losses in excess of those anticipated by management
during the initial years of the Company's operations or otherwise
could result in the Company failing to meet the statutory minimum
capital and surplus requirements. In that event, the Company could
be placed under certain operating and other restrictions by the
Department of Insurance or supervision by the Department of
Insurance or the Department of Insurance could seek to appoint a
receiver or liquidator for the Company. See "Business of the
Company -- Company Management's Plan of Operations; Government
Regulation."
RELIANCE ON CERTAIN PERSONS
The success of the Company will be substantially dependent on
the services of Harry E. Vickery (Director, President of the
Company) and David R. White (Director, Secretary, Treasurer, and
Vice President). The loss of the services of one or both persons
could have an adverse impact on the Company's ability to reach its
objectives. See "Business of the Company -- Management of the
Company" and "Certain Transactions and Relationships."
VARIABILITY OF OPERATING RESULTS
Historically, the workers' compensation industry has been
cyclical, generally characterized by periods of overcapacity which
result in lower premium rates followed by periods of scarcity
resulting in higher rates. Premium rates, and thus profitability,
can be affected significantly by many factors including
competition, the severity and frequency of claims, interest rates,
regulations, court decisions, the judicial climate, and general
economic conditions and trends, all of which are outside of the
Company's control. These factors could contribute to significant
variation of results of operations from year to year. Changes in
economic conditions can lead to reduced premium levels due to lower
payrolls as well as increased claims due to the tendency of workers
who are laid off to submit worker's compensation claims.
Legislative and regulatory changes can also contribute to variable
operating results for worker's compensation insurance businesses.
See "The Conversion -- Reasons for Conversion" and "The Workers'
Compensation Insurance System."
ADEQUACY OF LOSS RESERVES
The Company will be required to maintain reserves to cover its
estimated ultimate liability for losses with respect to reported
and unreported claims incurred as of the end of each accounting
period. These reserves do not represent an exact calculation of
liabilities but rather are estimates involving actuarial
projections at a given time of what the Company expects the
ultimate settlement and administration of claims will cost based on
facts and circumstances then known, predictions of future events,
estimates of future trends in claims frequency and severity. See
"Business of the Company -- Government Regulation."
In light of present facts and current legal interpretations,
management of the Company believes that adequate provisions will
have been made for loss reserves upon the Conversion. In making
this determination, management has considered the claims experience
with the Trust, loss development history for prior accident years
for the Trust, estimates of future trends of claims frequency and
severity and the proposed underwriting activities of the Company.
However, establishment of appropriate reserves is an inherently
uncertain process, and there can be no certainty that currently
established reserves will prove adequate in light of subsequent
actual experience. Subsequent actual experience could result in
loss reserves being too high or too low. Future loss development
could require reserves for prior periods to be increased, which
would adversely impact earnings in future periods.
REGULATION
The Company's worker's compensation insurance operations will
initially be conducted only in Mississippi and will be subject to
supervision and regulation by the Department of Insurance. Such
supervision and regulation relate to numerous aspects of an
insurance company's business and financial condition. The primary
purpose of such supervision and regulation is the protection of
policyholders rather than investors or stockholders of an issuer.
See "Business of the Company -- Government Regulation."
COMPETITION
The insurance industry is characterized by competition
primarily on the basis of price. However, availability and quality
of products, quality and speed of service (including claims
service), financial strength, distribution systems and technical
expertise are also important elements of competition. Many of the
Company's competitors are larger and have greater resources than
the Company. See "Business of the Company -- Company Management's
Plan of Operations."
REINSURANCE CONSIDERATIONS
In the event the Company begins to write insurance on a direct
basis (i.e., assuming insurance risk), it anticipates that it will
limit the amount of risk retained under policies written by
entering into reinsurance agreements. The availability and cost of
reinsurance are subject to prevailing market conditions, both in
terms of price and available capacity, which would affect the
Company's business volume and profitability. The Company also is
subject to credit risk with respect to its ability to recover
amounts due from reinsurers, since unlike the absolute assumption
by Continental of the obligations of the Trust via notification and
consent of the insureds, the ceding of risk to reinsurers does not
relieve the Company of liability to its insureds. In the event the
Company begins to write insurance on a direct basis, there can be
no assurance that the Company's reinsurance programs will
effectively limit its overall exposure for policy claims. See
"Business of the Company -- Company Management's Plan of
Operations."
RATINGS
In the event the Company elects to write insurance on a direct
basis, the absence of ratings will make the Company's products less
attractive to insureds. Rating organizations review the financial
performance and condition of insurers. The Company will initially
not be rated as a result of having less than five consecutive years
of operating experience.
LICENSURE
Upon completion of the Conversion, the Company expects to be
licensed by the Department of Insurance as a provider of workers'
compensation insurance. Although the Company believes it will meet
all requirements for licensure and has undertaken discussions with
the Department of Insurance to that effect, the Department of
Insurance is not required to grant such licensure. In the event
that the Company desires to engage in the business of insurance in
other states, the Company must be licensed in each such state by
that state's insurance regulatory authority. Although the Company
believes it will be eligible for such licensure, there is no
guarantee that such licenses will be issued.
THE CONVERSION
BACKGROUND
During late 1995, management of the Trust began discussing the
best method of continuing to fulfill the Trust's mission of ensuring
long term availability of reasonably priced workers' compensation
insurance to its core agricultural and industrial clients. Due to
fundamental changes in the workers' compensation insurance market,
management of the Trust determined that the conversion of the Trust
into a commercial stock company would best suit the needs of the
Trust's insureds. See "The Workers' Compensation Insurance System."
On March 20, 1997, the Trustees of the Trust voted to approve
and adopt the Plan. The Company approved and adopted the Plan and
the sale of its stock to the Trust and related transactions on the
same date.
REASONS FOR CONVERSION
THE CHANGING WORKERS COMPENSATION MARKET
At the time the Trust was organized, workers' compensation
insurance written by commercial insurers in Mississippi was
becoming difficult and expensive to obtain as a result of losses
experienced by commercial insurers. Mississippi's experience
paralleled a national trend of limited availability of workers'
compensation insurance which prompted the formation of self insured
pools across the United States. See "The Workers' Compensation
Insurance System."
However, as a result of structural changes in the workers'
compensation market, such as tort reform and better loss analysis,
premiums charged by commercial workers' compensation carriers have
lessened while availability of insurance has increased. As a
result, self insured pools such as the Trust have found it
difficult to compete with commercial insurance companies on a cost
of premium basis because commercial insurers, due to different
regulatory requirements, can change their pricing strategy much
more rapidly than can the self insured pools. See "Business of the
Trust -- Regulation" and "Trust Management's Discussion and Analysis
of Financial Conditions and Operation." Although availability of
workers' compensation insurance has increased, the industry remains
highly cyclical, which could result in periods of scarcity and high
premiums in the future.
As a result of the changing nature of the workers' compensation
market, effective July 1, 1996 the Trust ceased writing workers'
compensation insurance and created the Commercial Program with TIG
Insurance Company ("TIG") and TIG Reinsurance Company. Under the
Commercial Program, TIG (an "A" (excellent) rated commercial
insurance company according to A. M. Best Company), provides
workers' compensation to Former Members and other persons through
the Trust's network of agents.
The Trust created the Commercial Program in order to maintain
coverage of its insureds at reasonable rates as the Trust planned
for the Conversion. The Trust continues to operate, primarily to
service and "run off" its existing claims.
NO JOINT AND SEVERAL LIABILITY
In a self insurance pool such as the Trust, all insureds are
jointly and severally liable for the loss obligations of one
another. Upon the effectiveness of the Assumption Reinsurance
Agreement which is a condition precedent of the Plan, Continental
will assume the joint and several liability obligations of all the
insureds of the Trust. The shareholders of the Company will not be
jointly and severally liable for any obligations arising out of
policies written by the Company. See "Comparison of the Rights of
Former Members of the Trust and Shareholders of the Company --
Liability; Assessment."
ABILITY TO WRITE OTHER LINES OF BUSINESS
Mississippi law prohibits self insured workers' compensation
trusts from writing any type of insurance other than workers'
compensation insurance. As a commercial insurer, assuming
appropriate licensure and financial strength, the Company could
write other lines of business in addition to workers' compensation.
ABILITY TO WRITE INSURANCE IN OTHER STATES
Self insurers such as the Trust cannot write workers'
compensation insurance outside of Mississippi. As a commercial
insurer, assuming appropriate licensure and financial strength, the
Company could write insurance in other states, including adjacent
areas of Louisiana and Arkansas.
ABILITY TO RAISE ADDITIONAL CAPITAL
If self insured workers' compensation trusts require additional
capital, their principal options would be to either increase
premiums or assess their members jointly and severally. As a
commercial insuror, the Company's shareholders are not liable to
assessment and capital needs may be met through the sale of stock.
See "Comparison of the Rights of Members of the Trust and
Shareholders of the Company -- Liability; Assessment" and "Business
of the Company -- Government Regulation."
RECOMMENDATION OF THE TRUST'S BOARD OF TRUSTEES.
THE BOARD OF TRUSTEES OF THE TRUST HAS UNANIMOUSLY VOTED FOR
APPROVAL AND ADOPTION OF THE PLAN AND BELIEVES THAT THE
CONVERSION IS IN THE BEST INTERESTS OF THE TRUST AND THE
FORMER MEMBERS.
ASSUMPTION REINSURANCE AGREEMENT
The Trust and the Company have entered into the Assumption
Reinsurance Agreement to be effective as of January 1, 1997, with
Continental, a member of the CNA Insurance Group. The CNA
Insurance Group has a rating by the A. M. Best Company of "A"
(Excellent). This rating applies to the group's nine-member
intercompany pool which includes Continental.
The Assumption Reinsurance Agreement provides that Continental
will assume the Trust's insurance liabilities and the joint and
several liability of any employers to whom the Trust provided
insurance from the inception of the Trust and that such employers
will be able to look directly to Continental for coverage and
claims payments without the necessity of making a claim against the
Trust. Each Former Member of the Trust which accepts a Liquidating
Distribution will be deemed to have agreed to look solely to
Continental for coverage, to release the Trust from further
insurance obligations, and to release the Former Members of the
Trust from joint and several liability. In addition, all Former
Members will be required to sign and return an Assumption
Certificate evidencing their agreement to the assumption by
Continental as a condition to receiving the Liquidating
Distribution applicable to such Former Member.
The Assumption Reinsurance Agreement provides that the Trust
will pay to Continental a total premium not to exceed $2,400,000
composed of $2,200,000 in reserves to be transferred to Continental
for use in paying claims made against the Trust (which amount may
be adjusted downward depending on claims settled), and $200,000 as
a fee to Continental for the provision of coverage. The Company
will be required to provide additional security in the amount of
$1,500,000 through placement of cash and/or marketable securities
in a trust account such that if the reserves are exhausted,
Continental may draw upon the additional security. See "Risk
Factors -- Capitalization;" "Business of the Company -- Government
Regulation;" and "Trust Management's Discussion and Analysis of
Financial Conditions and Results of Operation."
Under the terms of the Assumption Reinsurance Agreement, the
Company has the option to reinsure part or all of the Trust's former
insurance which Continental directly assumed ("Stoneville
Reinsurance"). As Stoneville Reinsurance is provided, reserves
allocable to such risk reinsured by the Company will be transferred
to the Company, thus allowing the Company to invest those funds and
generate income. In addition, the Assumption Reinsurance Agreement
will allow the Company to recapture portions of the reserves and
funds held in trust by Continental as described above which may not
be actuarially required due to settlement of claims ("Stoneville
Recapture"). As Stoneville Recapture proceeds and such amounts are
transferred from Continental to the Company, the Company will have
the opportunity to invest those funds and generate income. See
"Business of the Company -- Company Management's Plan of
Operations."
REGULATORY APPROVALS
The Assumption Reinsurance Agreement and the Plan have been
approved by the Workers' Compensation Commission. No regulatory
approvals are required in order for the Trust to consummate the
Conversion. However, the Company must be licensed as an insurance
company by the Department of Insurance prior to commencing
operations as a workers' compensation insurer. The Company believes
such licensure will be granted upon the consummation of the
Conversion. See "Business of the Company -- Government
Regulations."
Immediately prior to the consummation of the Conversion, the
Trust will surrender its Certificate of Authority to the Workers'
Compensation Commission.
RESALES OF COMPANY STOCK
All shares of Company Stock received by Former Members of the
Trust in the Conversion will be freely transferable, except that
shares of Company Stock received by persons who are deemed to be
"affiliates" (as such term is defined under the Securities Act) of
the Trust before the Conversion may be resold by them only in
transactions permitted by the resale provisions of Rule 145
promulgated under the Securities Act (or Rule 144 in the case of
such persons who become affiliates of the Company), or as otherwise
permitted under the Securities Act. Persons who may be deemed to
be affiliates of the Trust or the Company generally include
individuals or entities that control, are controlled by, or are
under common control with, such party and may include certain
officers and directors of such party as well as principal
shareholders of such party in the case of the Company, or certain
Trustees or Former Members in the case of the Trust. See
"Comparison of the Rights of Former Members of the Trust and
Shareholders of the Company -- Resale."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of certain federal income tax
consequences of the Conversion is based on provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), the
regulations thereunder, judicial authority, and administrative
rulings and practice as of the date hereof.
CONSEQUENCES TO FORMER MEMBERS
Former Members receiving cash as a result of the Conversion
will be treated as having received cash as a distribution in
redemption of the Trust Units. Such distribution will be taxable,
subject to the provisions and limitations of Code Section 302. No
gain or loss will be recognized by the Former Members upon their
receipt of Company Stock solely in exchange for their Trust Units
by virtue of Code Section 354(a)(1). The basis of the Company
Stock to be received by the Former Members will be the same as the
Former Members' basis in the Trust Units allocable to such Former
Members, under Code Section 358(a)(1).
The holding period of the Company Stock received by the Former
Members will include, in each instance, the period during which the
Former Members had an interest in the equity of the Trust as
determined under the Plan, provided that such Trust equity
constituted a capital asset on the date of the exchange, pursuant
to Code Section 1223(1).
CONSEQUENCES TO THE TRUST AND THE COMPANY
No gain or loss will be recognized by the Trust or the Company
as a result of the Conversion under Code Sections 361(a) and
1032(a). The basis of the assets of the Trust in the hands of the
Company will be the same as the basis of those assets in the hands
of the Trust immediately prior to the transfer under Code Section
362(b). The holding period of the assets of the Trust in the hands
of the Company will include the period during which such assets
were held by the Trust under Code Section 1223(2).
EACH FORMER MEMBER IS URGED TO CONSULT HIS OR HER OWN TAX
ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH FORMER
MEMBER OF THE CONVERSION, INCLUDING THE APPLICABILITY AND EFFECT OF
STATE, FOREIGN AND OTHER TAX LAWS. THE FOREGOING CONSTITUTES ONLY
A GENERAL DESCRIPTION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF
THE CONVERSION WITHOUT REGARD TO THE PARTICULAR FACTS AND
CIRCUMSTANCES OF EACH FORMER MEMBER OF THE TRUST.
ANTICIPATED ACCOUNTING TREATMENT
The Conversion is intended to qualify as a pooling of
interests for accounting and financial reporting purposes. Under
this method of accounting, the recorded assets of the Trust will be
carried forward to the Company at their recorded amounts, income of
the Company will include income of the Trust for the entire fiscal
year in which the Conversion occurs and the reported income of the
Trust for prior periods will be combined with and included as
income of the Company.
THE PLAN
GENERAL
The terms of the Conversion are contained in the Plan, a copy
of which is attached to the Prospectus as Exhibit A. The
statements in this Prospectus are qualified entirely by reference
to the Plan.
Upon the satisfaction or waiver of the conditions to the
effectiveness of the Plan: (i) the Trust will transfer
substantially all its assets to the Company; (ii) in exchange for
the contribution of such assets by the Trust to the Company, the
Company will issue shares of its Stock to the Trust; and (iii) the
Trust will dissolve and distribute its assets (stock of the
Company) to Former Members of the Trust, with the exception of
Former Members who elect to dissent from the transaction, who will
receive $4.00 for each share of Stock to which they would have been
entitled to under the Plan.
EFFECTIVE DATE
The Plan is dated as of March 20, 1997, but will become
effective as of the Effective Date, which is the close of business
on the last day of the month during which all conditions to the
Plan have been satisfied or waived. The capitalization of the
Company and the liquidation and dissolution of the Trust shall be
deemed to have occurred simultaneously and completely as of the
Effective Date.
TERMS OF THE PLAN
As of the Effective Date, the Trust will transfer to the
Company substantially all of the assets of the Trust (i.e. all
assets of the Trust other than amounts required to consummate the
Assumption Reinsurance Agreement and an amount reserved for
expenses of the liquidation and payment of dissenters) in return
for the number of shares of Stock of the Company equal to the Trust
equity transferred by the Trust to the Company measured by $4.00 of
Trust equity (one Trust Unit) per share of Company Stock. At that
point, the Trust will own all the issued and outstanding shares of
Stock of the Company. Immediately thereafter, the Trust will be
liquidated.
Upon liquidation of the Trust, each Former Member shall
receive its Liquidating Distribution of one share of Company Stock
for each Trust Unit allocable to such Former member, except
dissenters, who shall receive $4.00 in cash for each Trust Unit
allocable to such dissenter. The total number of Trust Units
shall be computed based upon the value of the equity of the Trust
as of December 31, 1996 reduced by all expenses incurred between
such date and the Effective Date of the Plan including amounts
reserved to pay estimated expenses of the Trust, but excluding
amounts reserved to pay dissenters. For purposes of computing the
number of shares of Stock (or in the case of dissenters, cash)
distributable to each Former Member, each Former Member of the
Trust will have allocated to it a number of Trust Units determined
by multiplying the total number of Trust Units by the Proportionate
Earned Premium of each Former Member.
The Proportionate Earned Premium is the percentage computed by
dividing (i) the net earned premium derived by the Trust from each
Former Member for all Fund Years during which the Trust has
positive net income since inception of the Trust through December
31, 1996 by (ii) the total net earned premium of the Trust derived
from Former Members for all Fund Years during which the Trust had
positive net income from the inception of the Trust through
December 31, 1996.
Former Members may dissent from the Plan and receive $4.00 in
cash for each Trust Unit allocable to such persons upon perfection
of dissenters' rights. Payments to dissenters shall be paid by the
Trust up to an aggregate amount not to exceed $200,000. In the
event that Former Members as a group perfect dissenters' rights
resulting in an obligation to pay dissenters an amount in excess of
$200,000, the excess over that amount due to dissenters shall be
paid by the Company out of operating funds and not out of assets
transferred to the Company from the Trust pursuant to the Plan.
In order to perfect dissenters' rights, a Former Member wishing
to dissent must deliver to the Trust's office at 833 Washington
Avenue, Greenville, Mississippi 38704-5037, before
, 1997, written notice of such Former Member's
intent to demand payment.
As of the Effective Date, following the Liquidating
Distribution, the Trust shall be dissolved. Subsequent to the
dissolution of the Trust, any amounts remaining not needed to pay
expenses or dissenters, if any, shall be transferred to the
Company.
DISSEMINATION OF LIQUIDATING DISTRIBUTION
Promptly after the Effective Date, each Former Member will
receive an Assumption Certificate which will evidence Continental's
assumption of the insurance liabilities of the Trust, including the
joint and several liability obligations of each of the Trust's
insureds to the other. Each Former Member must sign and return the
Assumption Certificate to the Trust at which time the Trust will
tender to the Former Member such Former Member's Stock in the
Company or such amount as may be due if such Former Member has
complied with the dissenters' procedures as set forth in the Plan.
CONDITIONS
The obligation of the Trust to consummate the Plan is subject
to the following conditions: (i) the Assumption Reinsurance
Agreement being in effect; (ii) receipt of an opinion from Watkins
Ludlam & Stennis, P.A. to the effect that the Conversion will be
treated as a tax-free transaction as to the Trust, the Company, and
to those Former Members who receive Stock of the Company; and (iv)
dissenter's rights shall not be perfected by holders of more than
twenty percent (20%) of the Trust Units.
TERMINATION
The Plan may be terminated at any time by vote of the Trustees
of the Trust or if all conditions to the Plan have not been
satisfied or waived by December 31, 1997.
PRO FORMA CONDENSED BALANCE SHEET-STATUTORY BASIS (UNAUDITED) OF
THE COMPANY
The following unaudited pro forma condensed balance sheet-statutory
basis as of January 1, 1997, give effect to the Conversion as if the
Conversion had been in place effective January 1, 1997. The pro forma
information is based on historical financial statements of the Trust giving
effect to the transactions under the pooling of interests method of
accounting and the assumptions and adjustments described in the accompanying
notes to the unaudited pro forma financial statements.
The unaudited pro forma condensed balance sheet-statutory
basis has been prepared by the management of the Company based upon
financial statements of the Trust and the Company which are
included elsewhere herein. This pro forma balance sheet-statutory
basis may not be indicative of the financial condition that would
have existed if the Conversion had become effective on January 1,
1997. The pro forma condensed balance sheet-statutory basis should
be read in conjunction with the financial statements and related
notes of the Company and the Trust contained elsewhere herein.
STONEVILLE INSURANCE COMPANY
PRO FORMA BALANCE SHEET
STATUTORY BASIS
JANUARY 1, 1997
ADMITTED ASSETS
Cash and Cash Equivalents $401,346
Invested assets 1,184,388
Accrued interest receivable 52,410
----------
Total Admitted Assets $1,918,144
==========
LIABILITIES, CAPITAL AND SURPLUS
LIABILITIES $280,000
Notes Payable ----------
Total Liabilities $280,000
Capital and Surplus
Common Stock 400,000 shares
issued and outstanding;
$1 par value 400,000
Surplus 1,238,144
----------
Total and Capital and Surplus 1,638,144
----------
Total Liabilities, Capital and
Surplus $1,918,144
==========
STONEVILLE INSURANCE COMPANY
PRO FORMA BALANCE SHEET
STATUTORY BASIS
SUMMARY OF SIGNIFICANT ASSUMPTIONS
JANUARY 1, 1997
GENERAL ASSUMPTIONS
The accompanying pro forma statutory balance sheet of Stoneville
Insurance Company is presented as though the Plan became effective
as of January 1, 1997.
The balance sheet is prepared on the statutory basis of accounting
which differs from generally accepted accounting principles in
several respects. However, for purposes of the proforma balance
sheet as of January 1, 1997, there is only one difference. Under
the statutory basis, only highly liquid assets qualify as admitted
assets. All other non-liquid assets are classified as non-admitted
assets and reduce stockholders' equity. Non-admitted assets for
purposes of this pro forma balance sheet total $125,750.
ASSUMPTION REINSURANCE AGREEMENT CONSUMMATED
The pro forma balance sheet assumes a payment has been made to
Continental in the amount of $2,373,234 as a premium for the
assumption of all the claims liabilities of the Trust as of
December 31, 1996. The payment of this premium eliminates the
outstanding claims liability of the Trust as of December 31, 1996
in the amount of $2,173,234.
PAYMENTS TO DISSENTERS
It is estimated that Former Members representing approximately
twenty percent (20%) of the equity of the Trust at December 31,
1996 ($480,000) will perfect dissenters rights under the Plan. It
is assumed that payments totaling $200,000 have been made by the
Trust with the balance of $280,000 having been paid by the Company
with funds borrowed for that purpose.
LIQUIDATION OF NON-ADMITTED INVESTMENTS
At December 31, 1996, the Trust's investment portfolio included an
investment in a mutual fund which did not qualify as an admitted
asset under Mississippi statute. It is assumed that the Trust
liquidated this investment as of the pro forma balance sheet date.
RECEIVABLES
It is assumed that accrued interest on investments in the amount of
$52,410 and an income tax refund receivable in the amount of
$152,862 as of December 31, 1996 were received as of the pro forma
balance sheet date.
PAYMENT OF LIABILITIES
It is assumed that the reserve for premium adjustments in the
amount of $384,863 and accounts payable in the amount of $60,328 as
of December 31, 1996 were paid by the pro forma balance sheet date.
STOCK ISSUANCE
It is assumed that 400,000 shares of common stock in the Company
with a par value of $1.00 per share were issued to Former Members
of the Trust as of the sheet date.
THE WORKERS' COMPENSATION INSURANCE SYSTEM
Workers' compensation is a legal system designed to provide
financial protection to employees in the event they are injured
while working. Each state has its own workers' compensation law
which governs the benefit structure and the administration of the
system. The intent of workers' compensation is to provide financial
security for employees, normally for a limited time period but, in
certain cases, for the remainder of an employee's natural life. In
Mississippi, employers which employ five or more employees must
obtain workers' compensation insurance coverage.
Oversight with regard to commercial insurors is generally
under the purview of the Department of Insurance, although control
over the delivery of benefits is handled by the Workers'
Compensation Commission.
Throughout the years, the determination of base rates for
workers' compensation premiums for commercial insurors has been in
most cases handled by the National Council on Compensation
Insurance ("NCCI"), which recommends base premium rate changes to
the insurance departments for over thirty states. Based on the
NCCI recommendations, the insurance departments typically adopt the
base rates with any revisions they deem necessary.
In addition to commercial insurers, self insured workers'
compensation pools (such as the Trust) also exist. The pools,
usually formed as trusts, allow employers to pay premiums into the
pool and claims are deducted from the amount of funds available.
The participants in pools are typically jointly and severally
liable for any funding shortfall.
The workers' compensation market is cyclical. In the late
1980's and early 1990's, commercial workers' compensation carriers
were losing money across the United States due to an imbalance
between claims costs and premium revenues. The result was a
scarcity of competitively priced workers' compensation insurance
coverage in a number of states, including Mississippi. As a
response, self insured pools such as the Trust were formed in order
to ensure that employers could obtain workers' compensation
insurance.
Due to structural changes in the workers' compensation market
such as tort reform and better loss analysis, commercial workers'
compensation carriers have become active in Mississippi once again.
The result has been increased competition by carriers to write
workers' compensation insurance for employers with low loss
histories. Premium rates have also begun to decrease. With a view
to increasing competition, a recent trend has been for a number of
states to legislate open rating for commercial insurance companies,
which means premium rates are subject to the open market. The
Department of Insurance has moved to the open rating concept by
adopting the "loss costs" system which became effective as of March
1, 1996.
The "loss costs" methodology reflects a change in philosophy;
the Department of Insurance previously set a blanket premium rate
from which commercial insurers could deviate or otherwise lower
their rates. As a result, many insurers clustered around the set
rate. Under the "loss costs" system, insurers are free to set
their rates at any level, subject only to Department of Insurance
approval. This is in contrast with premium setting by pools, the
rates of which must be analyzed and approved by the Workers'
Compensation Commission. See "Reasons for Conversion -- The
Changing Workers' Compensation Market."
BUSINESS OF THE TRUST
HISTORY OF THE TRUST
The Trust was formed under a Trust Agreement dated August 1,
1991, by members of the Delta Council of Stoneville, Mississippi,
as a response to the unavailability of workers' compensation
insurance at reasonable prices. The Trust was originally organized
to provide workers' compensation insurance to cotton gin owners, but
has since expanded its workers' compensation insurance activities.
See " Summary -- The Trust."
OPERATIONS OF THE TRUST
From the beginning of the Trust through June 30, 1996, the
Trust sold its workers' compensation insurance through a
nonexclusive network of agents. With the inception of the
Commercial Program (described below), the Trust ceased providing
direct insurance coverage and arranged for the Trust's agent network
to place its insureds with a commercial insurer in accordance with
a program jointly designed by the Trust and the commercial insurer.
THE COMMERCIAL PROGRAM
Effective July 1, 1996, pursuant to that certain Insurance
Placement Agreement by and between the Trust, TIG and TIG
Reinsurance Company (the "Insurance Placement Agreement") the Trust
ceased writing workers' compensation insurance directly and moved
the persons who wished to maintain their affiliation with the Trust
to the Trust's Commercial Program. Under the Commercial Program,
TIG (an "A" (Excellent) rated commercial insurance company according
to the A.M. Best Company), provides workers' compensation insurance
primarily to Former Members of the Trust and other persons through
the Trust's network of agents.
The Trust created the Commercial Program in order to allow its
insureds to take advantage of the lower rates being offered by
commercial insurers while preparing the Trust for conversion to a
Mississippi domestic stock insurance company, which the Board of
Trustees believes will best assure long term availability of
reasonably priced workers' compensation insurance. The Insurance
Placement Agreement provides that the Trust (or the Company as the
Trust's successor) may provide reinsurance with respect to policies
issued by TIG under the Commercial Program.
As part of the creation of the Commercial Program, the Trust
also entered into a Representative Agreement (the "Representative
Agreement") with Mississippi Risk Management, Inc. ("MRM") by which
MRM acts as the Trust's representative for marketing the Commercial
Program and allocates to Delta Administration, Inc. certain amounts
for oversight and administration of the Commercial Program and the
Trust's operations. See "Business of the Trust -- Employees" and
"Certain Transactions and Relationships."
REGULATION
The operations of the Trust are regulated by the Workers'
Compensation Commission. Any changes in premium rates must be
approved by the Workers' Compensation Commission, and operations of
the Trust are subject to the oversight of the Workers' Compensation
Commission.
EMPLOYEES
The Trust has no employees. From its inception, the
activities of the Trust have been managed by third parties. The
Administrator of the Trust, Harry E. Vickery, has managed the
activities of the Trust since October 1, 1993, through Delta
Administration, a sole proprietorship, which was incorporated as
Delta Administration, Inc. in 1996 (collectively, "Delta
Administration"). Delta Administration has two employees. From the
inception of the Trust until October 1, 1993, Harry E. Vickery
served as Chairman of the Board of Trustees of the Trust. When Mr.
Vickery assumed his current duties as Administrator of the Trust
effective October 1, 1993, he resigned from the Board of Trustees
of the Trust.
Under the Commercial Program, pursuant to the Representative
Agreement, Delta Administration is paid 3.5% of the collected
premiums generated by the Commercial Program to manage the
activities of the Trust. From the percentage of collected premiums
paid to Delta Administration under the Representative Agreement,
Delta administration pays the office expenses of the Trust
including rent, salaries of its employees who administer the Trust,
and sponsor fees. See "Certain Transactions and Relationships."
LEGAL PROCEEDINGS
There are no material legal proceedings pending, nor are any
material legal proceedings known by the Trust to be contemplated by
governmental authorities or other parties to which the Trust is or
might become a party. The Trust continually engages in defending
workers' compensation insurance claims, which is an ordinary part
of its business. Management does not believe that any such claims
will materially impact the Trust's liquidity or results of
operations.
SELECTED FINANCIAL DATA OF THE TRUST
The following selected financial data reflect the operations
of the Trust since January, 1995. Such data has been derived from
financial statements examined by Richard L. Eaton, independent
certified public accountant whose report with respect thereto
appears elsewhere in this Prospectus. See "Trust Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
SELECTED FINANCIAL DATA OF THE TRUST
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
REVENUE 1996 1995
------------------------------------
EARNED PREMIUM $2,077,351 $5,659,925
NET INVESTMENT INCOME 297,076 328,027
REALIZED INVESTMENT GAINS
(LOSSES) (37,286) (159,557)
OTHER (422,850) 0
---------- ----------
Total $1,914,291 $5,828,395
========== ==========
Excess Revenue over Expense
Before Income Tax Provision $129,010 $1,948,286
========== ==========
Excess Revenue over Expense $30,242 $1,304,626
========== ==========
Total Assets $5,072,319 $7,448,211
========== ==========
Total Liabilities $2,618,425 $5,082,483
========== ==========
TRUST MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATION
OVERVIEW
The Trust is a taxable trust and is subject to both Federal
and Mississippi income tax.
The Trust operates under a Certificate of Authority granted by
the Workers' Compensation Commission. The Workers' Compensation
Commission regulates the establishment of rates charged by
self-insured groups, the payment of claims, the payment of refunds
to members, investments and other areas that may fall within their
purview. See "Business of the Trust -- Regulation."
Effective March 1, 1996, the Department of Insurance moved to
an open rating concept by adopting the "loss costs" system. This
has resulted in a major change in the method of calculating premium
rates a commercial insurance carrier charges employers for worker's
compensation insurance. This change resulted in Mississippi
worker's compensation commercial insurance rates dropping
significantly in 1996. However, since the rates charged by
self-funded worker's compensation trusts in Mississippi are regulated by
the Workers' Compensation Commission, neither the Trust nor any of
the other self-funded groups in Mississippi were able to reduce
rates in a timely manner to the level of the commercial carriers.
As a result of this disparity in rates, management of the Trust
sought an alternative arrangement that would allow its members to
benefit from lower market rates and still remain its base of
insureds. See "The Workers' Compensation Insurance System."
In conjunction with TIG and TIG Reinsurance Company, the Trust
created the Commercial Program, under which effective as of July 1,
1996, the Trust ceased writing workers' compensation insurance
directly and moved the persons who wished to maintain their
affiliation with the Trust to the Trust's Commercial Program.
Consequently, the Trust had no underwriting income or expense from
July 1, 1996 through December 31, 1996. See "Business of the Trust
- -- The Commercial Program." The Trust continues to service the
claims.
RESULTS OF OPERATIONS
EARNED PREMIUM
Net earned premium for the year ended December 31, 1996 was
$2,077,351 compared to $5,659,925 for the year ended December 31,
1995, a decrease of $3,582,574. This decrease was due to the fact
that, pursuant to the Commercial Program, the insureds of the Trust
who wished to maintain their affiliation with the Trust were
transferred to TIG effective July 1, 1996 and the Trust
consequently had no earned premium during the last six months of
1996. Historically, the Trust has earned a larger portion of its
premium during the last six months of each calendar year.
LOSSES
Losses and loss adjustment expenses are generally a function
of the amount of payroll expended by Trust members. Consequently,
as a result of having only six months of payroll used in
calculating earned premium in 1996, loss and loss adjustment
expenses decreased to $916,592 in 1996 from $2,448,722 in 1995.
Loss and loss adjustment expenses are determined actuarially each
year and adjustments to previous years' estimates included in
current year loss expenses. After such adjustments in 1996 and
1995, loss and loss adjustment expense as a percentage of earned
premium were forty-three percent (43%) and forty-four percent (44%)
respectively.
Losses and loss adjustment expenses determined without regard
to adjustments for previous years' estimates were 47% and 51% for
the years ended December 31, 1996 and 1995 respectively.
OTHER EXPENSES
Other expenses that are directly related to members' payroll
expense levels and consequently premium income are service company
fees and excess insurance premiums. Service company fees, the fees
paid to an outside claims administrator, decreased from $626,332 in
1995 to $299,322 in 1996 as a result of a decrease premium income
together with a rate decrease negotiated with the servicing
company. Excess insurance premiums decreased from $335,973 in 1995
to $89,860 as a result of decreased premium income and a decrease
in the rate charged for such coverage.
Regulatory fees were virtually unchanged, decreasing from
$30,858 in 1995 to $28,548 in 1996. These fees are levied by the
Workers' Compensation Commission and are based on the medical and
indemnity payments paid to claimants during the previous calendar
year. Consequently, the level of premium income does not have a
direct effect on these expenses.
General expenses increased from $438,224 in 1995 to $450,959
in 1996. The increase was due primarily to the expense involved in
the structuring and implementation of the Commercial Program and in
the analysis and planning of the dissolution of the Trust in
conjunction with the formation of the Company.
INCOME TAXES
The current tax provision of the Trust decreased to $98,768 in
1996 from $643,660 in 1995 as a result of decreased taxable income.
In 1996, the tax provision represents a large percentage of the net
income before tax because for tax purposes, the Trust can only
deduct capital losses up to the amount of its gains. Since the
Trust could not deduct the net loss from the sale of its securities
in 1996, its taxable income was significantly higher than financial
statement net income, thus creating a large tax provision in
comparison to net income before tax.
For temporary differences between the tax basis of assets and
liabilities, a deferred tax liability or asset account is
established. At December 31, 1995 a deferred tax asset existed as
a result of the future tax benefit the Trust would receive from the
sale of securities in which the Trust had current unrealized
losses. During 1996, it became apparent that the Trust may not be
able to fully realize a significant tax benefit from the eventual
sale of such securities at a loss unless the Trust was likely to
have future capital gains to offset such losses. Since only minimal
capital gains were likely due to a change in the investment
portfolio of the Trust, the deferred tax asset was eliminated in
1996 to reflect the net expected tax benefit from the sale of
securities at a loss.
INVESTMENT INCOME
Investment income decreased from $328,027 in 1995 to $297,076
in 1996. This decrease was a result of having less cash available
for investment in 1996. Cash and investments at December 31, 1996
and 1995 were $4,721,297 and $5,957,135 respectively. This decrease
was a result of the discontinuance of premium income effective July
1, 1996 coupled with the Trust's continuing obligation to pay
existing claims. Numerous claims were settled below reserved
amounts during the last six months of 1996, further reducing cash
available for investment.
The Statements of Revenue and Expenses for the years ended
December 31, 1996 and 1995 reflect net realized losses from the
sale of securities available-for-sale $37,286 and 159,557
respectively. Additionally, a 1996 loss on the sale of "trading
securities" in the amount of $422,850 is presented as "Other"on the
statement in accordance with generally accepted accounting
principals. The losses in 1995 were primarily the result of a
decline in the value of certain foreign currency based securities.
With respect to the 1996 losses, the Trust is in the process of
initiating arbitration proceedings against the brokerage firm to
recover its losses. As of December 31, 1996, the Trust had
liquidated virtually all of its equity security holdings with this
firm.
The Trust has engaged the services of Investek Capital
Management, Inc. ("Investek") to assist in the management of the
Trust's investment portfolio. Investek has substantial experience
in the management of insurance company investment portfolios.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
The liquidity and capital requirements for a workers'
compensation carrier is significantly different from other property
and casualty carriers. Workers' Compensation carriers generally
have use of premium dollars for investment purposes for longer
periods of time because claims may be paid over a fifteen year or
longer period. Because of this long payment period, investment
income becomes a major source of revenue for most carriers.
Consequently, discounting the liability for future claims payments
for the present value of investment income that will be earned on
the funds available for future expected payments becomes a
significant factor in estimating a carrier's claims liability.
LIQUIDITY REQUIREMENTS
The Trust and its successors have entered into the Assumption
Reinsurance Agreement whereby Continental will assume all of the
claims liabilities of the Trust as of January 1, 1997. The Trust
will pay Continental an amount not to exceed $2,400,000 consisting
of $2,200,000 in reserves required to pay claims liabilities (which
amount may be adjusted downward depending on claims settled) plus
a fee of $200,000 for handling claims. The Company, on behalf of
the Trust, will be required to provide additional security in the
amount of $1,500,000 through placement of cash and/or marketable
securities in a trust account such that if the reserves are
exhausted, Continental may draw upon the additional security.
Under the Assumption Reinsurance Agreement, the Company has
the right at certain intervals to provide reinsurance to
Continental pertaining to the claims liabilities assumed by
Continental pursuant to the Assumption Reinsurance Agreement. The
Company plans to reinsure all claims that are three years old or
greater at the first available opportunity. As such reinsurance is
put in place, the assets the Trust transferred to Continental will
be transferred back to the Company along with any associated
liability.
The Company also has the right under the Assumption
Reinsurance Agreement at certain intervals to have transferred to
reserves allocable to reported claims which have been settled for
less than the amount of reserves which was allocated to such
reported claim.
The Trust has allocated up to $200,000 to pay dissenters that
may perfect their rights under the Plan. In the event that Former
Members as a group perfect dissenters' rights resulting in an
obligation to pay an amount in excess of $200,000, the excess over
that amount due to dissenters shall be paid by the Company.
After payments have been made pursuant to the Assumption
Reinsurance Agreement and assuming a maximum of $200,000 paid to
dissenters and all existing liabilities of the Trust have been
paid, it is anticipated that the Trust will have approximately
$1,918,144 in cash, investments and accrued interest with which to
capitalize the Company. The $1,500,000 of additional security to be
held in trust for Continental pursuant to the Assumption
Reinsurance Agreement is a part of the $1,918,144 but will not be
considered a liability unless the reserve for claims liability
determined actuarially exceeds the amount established.
In order to be licensed by the Department of Insurance, the
Company must maintain $400,000 in capital and $600,000 in surplus
on a statutory basis. The Company will have in excess of the
minimum required capital and surplus.
ADMITTED ASSETS
The Company will be required to maintain its books on the
statutory basis of accounting. Currently the Trust maintains its
books on a GAAP (generally accepted accounting principals) basis.
As far as the Company is concerned, the major difference in the
statutory and GAAP basis of accounting lies in the classification
of assets as admitted or non-admitted. Under the statutory basis,
only admitted assets will be permitted to be included as assets on
the Company's balance sheet. At December 31, 1996 the Trust owned
certain investments that are not considered admitted assets for
statutory accounting purposes. In January, 1997, the Trust sold the
major portion of these non-admitted investment assets for cash in
order to qualify them as admitted assets upon transfer to the
Company. Other non-admitted assets totaling $125,750 are fixed
assets of $13,517, prepaid expenses of $21,798 and receivables and
other assets totaling $90,435.
COMMITMENTS
Both the Trust and the Company, as successor to the Trust,
have ongoing commitments for administrative services to Delta
Administration in the approximate amount of $3,800 per month as
well as other normal operating expenses. See "Certain Transactions
and Relationships."
BUSINESS OF THE COMPANY
ORGANIZATION AND PURPOSE
The Company was organized on December 13, 1996, as a
Mississippi business corporation with the purpose of succeeding to
the assets of the Trust pursuant to the Conversion and thereafter
functioning as a commercial stock insurance company licensed to
write workers' compensation insurance in the State of Mississippi.
Until the Effective Date of the Plan, the Company will have no
material assets or liabilities. Because the Company has no material
assets as of the date hereof, selected financial data of the
Company is not included in this Prospectus; for financial
statements of the Company, see "Index to Financial Statements."
Upon the completion of the Conversion, the Company expects to be
licensed as a workers' compensation insurer by the Department of
Insurance.
COMPANY MANAGEMENT'S PLAN OF OPERATION
CONTINUATION OF COMMERCIAL PROGRAM
The Company plans to continue with the Commercial Program
begun by the Trust. Based on the current highly competitive state
of price competition in the workers' compensation market, the
Company believes its target market is currently best served by
workers' compensation insurance provided through the Commercial
Program.
RECAPTURE OF RESERVES
The Company anticipates recapturing reserve amounts on an
annual basis to be determined based on amounts actually needed to
provide for claims assumed by Continental under the Assumption
Reinsurance Agreement.
PROVISION OF REINSURANCE
The Company anticipates providing reinsurance to Continental
in accordance with the Assumption Reinsurance Agreement as well as
providing reinsurance to TIG in accordance with the Insurance
Placement Agreement.
The Company believes that provision of reinsurance will be
more advantageous to the Company because statutory reserve
requirements will allow the writing of reinsurance without
requiring the same level of statutory surplus as compared to if the
Company were directly writing insurance. See "The Company --
Government Regulation."
PROVISION OF OTHER PROPERTY AND CASUALTY INSURANCE
Upon the Conversion and issuance of its insurance license by
the Department of Insurance, the Company will be eligible to
provide all forms of property and casualty insurance (the property
and casualty insurance category includes a number of different
insurance products in addition to workers' compensation insurance).
The Company has been approached by several large property and
casualty insurors wanting to create a property and casualty
insurance program which would be operated in a fashion similar to
that of the Commercial Program (the "Casualty Program"). The
Company believes that an attractive opportunity exists to package
the Casualty Program with the workers' compensation insurance
currently being provided to insureds through the Commercial
Program. It is anticipated that the Company would have the option
to provide reinsurance to the Casualty Program, thereby generating
income on a basis similar to that conducted under the Commercial
Program. See "Business of the Trust -- the Commercial Program."
GENERAL OPERATIONS
The Company plans to position itself to begin directly writing
insurance at the time management believes the Company has the
appropriate financial strength to do so. Management of the Company
believes that it will not engage in the direct writing of insurance
for the first several years after the Conversion. See "The Company
- -- Government Regulation."
Assuming operation as set forth above, management of the
Company believes that the Company's business activities should allow
the Company to satisfy its cash needs without seeking additional
financing for the next twelve months. However, in the event that
operations do not meet projected targets, the Company will be
required to obtain financing for shortfall amounts.
INVESTMENTS
Management of the Company's portfolio of investments will be
a significant part of the Company's business. The Company's
investments are limited by statutes and other regulations which
restrict a large portion of such investments to specific
categories. The Company is expected to invest in securities and
other investments authorized by applicable state laws and
regulations and receive income from such investments in the form of
interest, dividends and capital gains. The Company expects to
follow an investment policy designed to maximize yield to the
extent consistent with liquidity requirements and preservation of
assets. The Company has retained Investek Capital Management, Inc.
as its investment advisor. Investek currently manages over $1.1
billion and has substantial experience in investing funds of
insurance companies.
GOVERNMENT REGULATION
The Company will be subject to regulation by the Department of
Insurance although control over the delivery of benefits is
generally under the purview of the Workers' Compensation Commission.
The primary purpose of regulation by the Department of Insurance is
to provide safeguards for policyholders rather than to protect the
interests of shareholders. The Department of Insurance has broad
administrative powers relating to the licensing of insurers and
their agents, the regulation of trade practices, transactions with
affiliates, investments, deposits of securities, the form and
content of financial statements, accounting practices, reporting
requirements, sales literature, insurance policy forms and the
maintenance of specified reserves and capital and surplus.
In order to be issued a license the Company must at all times
meet and maintain a minimum capital and surplus level of $400,000
and $600,000, respectively. As of the Effective Date of the
Conversion, the Company anticipates that it will have a combined
capital and surplus in excess of statutory requirements.
Property and casualty insurance companies (which include
worker's compensation insurers such as the Company) must maintain
reasonable ratios between net written premiums and statutory
surplus in order to be consistent with sound underwriting practices
and requirements of insurance regulators and rating agencies.
Accordingly, a property and casualty insurance company's volume of
net written premiums is limited by the amount of its statutory
surplus. As the premium volume of the Company grows, its statutory
surplus must also increase so that the ratio of net written
premiums to statutory surplus does not become too high. The
Company's objective will be to maintain the ratio of net written
premiums to statutory surplus within the maximum guidelines of the
NAIC.
Insurance companies are required by law to maintain reserves
for claims. These reserves are intended to cover the probable
ultimate cost of settling all claims incurred and unpaid, including
those not yet reported. Reserves will be determined by the Company
in accordance with applicable law. Reserves will be monitored by
the Company using a variety of techniques for analyzing claim cost
and frequency data and other economic factors. Among other
techniques, the Company expects to periodically compare estimated
and actual expenses for settled claims and adjust its reserve
estimates, if necessary, on the basis of such comparisons. Claim
reserves are estimates only, and it is possible that ultimate
liability may exceed or be less than such estimates.
Under Mississippi law, workers' compensation insurers must
maintain a reserve for losses as well as a reserve for unearned
premiums. The assets constituting the unearned premium reserve
must be withdrawn from use by the Company for its general purposes
and are gradually released over the life of the policy.
Upon being licensed by the Department of Insurance, the
Company will automatically become a member of the Mississippi
Insurance Guaranty Association (the "Guaranty Association"). The
purpose of the Guaranty Association is to provide a mechanism for
the payment of claims made by insureds against an insolvent
insurer. The Association may assess insurers to pay the
obligations of the Association in accordance with a statutory
formula based on net direct premiums written.
Upon being authorized by the Department of Insurance to write
workers' compensation insurance in Mississippi, the Company will be
required to be a member of the Mississippi Workers' Compensation
Assigned Risk Pool ("the "Pool") and to participate in the
Mississippi Workers' Compensation Assigned Risk Plan (the "Plan").
The purpose of the Pool is to be a reinsurance mechanism for the
Plan. The Pool may assess insures to pay the obligation of the
Pool in proportion to the insurers' direct net workers' compensation
premium writings in Mississippi. So long as the Company does not
directly write workers' compensation insurance, it will not be
subject to assessment by the Pool.
In a stock insurance company structure such as the Company's,
there is no personal liability of the shareholders in the event the
insurer becomes insolvent and is not able to pay claims. The
claims are assumed by the Guaranty Association. This is in
contrast to the joint and several liability of members of group
self insurers such as the Trust.
ASSUMPTION OF TRUST CONTRACTS
The Company and the Trust have entered into an Assignment and
Assumption Agreement dated as of March 20, 1997, which provides
that upon the Conversion, the Trust will assign, and the Company
will assume, the Trust's rights under the Insurance Placement
Agreement, the Representative Agreement, agreements relating to
claims administration, and certain other agreements and rights of
the Trust.
EMPLOYEES
The Company will initially have no employees. The Company will
be administered by Delta Administration on the same financial and
operational basis as the Trust. See "The Trust -- Employees" and
"Certain Transactions and Relationships."
The Company anticipates that it will continue to utilize the
services of Mr. Vickery through Delta Administration to manage the
day to day operations of the Company.
MANAGEMENT OF THE COMPANY
The names of the executive officers and directors of the
Company and their respective ages and positions with the Company
are set forth as follows:
Name Age Position
William L. Kennedy 46 Chairman of the Board
of Directors, Chief
Executive Officer
Harry E. Vickery 62 President, Director
David R. White 47 Secretary, Treasurer,
Vice President,
Director
William L. Kennedy resides in Inverness, Mississippi. He
holds a BS degree in Entomology from Mississippi State University.
He has worked with Duncan Gin, Inc. since 1972 and currently serves
as President and Chief Operating Officer of Duncan Gin, Inc.
Duncan Gin, Inc. is a multiline agricultural marketing entity and
is the largest cotton ginning operation in Mississippi. He has
served from inception on the Board of Trustees of the Delta
Agricultural & Industrial Trust and is presently Chairman of the
Trust.
Harry Vickery resides in Jackson, Mississippi. From 1962-1993,
Mr. Vickery was involved in the automobile business in
Greenville, Mississippi. Mr. Vickery was one of the original
members of the Board of Trustees of the Trust from inception until
1993 when he became Administrator. Mr. Vickery was President and
a director of Vickery Chevrolet Oldsmobile Co., Inc. which filed a
Chapter 11 bankruptcy petition in 1993. All assets of Vickery
Chevrolet Oldsmobile Co., Inc. were sold and the bankruptcy case
was subsequently dismissed.
David R. White resides in Jackson, Mississippi. He holds a BS
degree from the University of Mississippi in Accounting and
Business Administration. He has been involved in the insurance
business since 1987 and has served as President and Chief Operating
Officer of Mississippi Risk Management, Inc. since that date. He
holds a number of awards in the insurance field and has served as
president of insurance associations both on the local and state
level.
All directors hold office until the next annual meeting of
shareholders of the Company or until their successors have been
elected and qualified. Unless changed by the action of the Board
of Directors, the number of directors shall be no fewer than three
(3) nor more than seven (7) Officers serve at the discretion of the
Board of Directors. There are no family relationships between the
directors and officers.
EXECUTIVE COMPENSATION
With the exception of amounts paid to Harry E. Vickery through
Delta Administration, no compensation will be paid to officers or
directors other than for (i) attendance at meetings; and (ii)
activities undertaken on behalf of the Company with approval by the
board of directors. See "The Trust -- Employees"; "The Company --
Employees"; and "Certain Transactions and Relationships."
LEGAL PROCEEDINGS
The Company is not involved in any pending legal proceeding
nor are any material legal proceedings known by the Company to be
contemplated by governmental authorities other parties, to which
the Company is or might become a party.
DESCRIPTION OF COMPANY STOCK
The Company is authorized to issue 100,000,000 shares of
common stock, $1.00 par value, of which up to 650,000 will be
issued and outstanding upon the Effective Date of the Plan. When
issued, the Stock will be fully paid and nonassessable. The
Company's Stock does not have preemptive rights. Holders of shares
of the Company's Stock are entitled to one vote per share in all
matters to be voted on by shareholders, except that holders are
entitled to cumulate their votes in the election of directors. See
"Comparison of Rights of Former Members of the Trust and
Shareholders of the Company."
COMPARISON OF RIGHTS OF FORMER MEMBERS OF THE TRUST AND
SHAREHOLDERS OF THE COMPANY
There are important differences between the rights of
shareholders of the Company ("Shareholders") and Former Members of
the Trust.
GOVERNANCE
The Company will be subject to the Mississippi Business
Corporation Act ("MBCA") and not to general trust law.
Shareholders of the Company will elect a Board of Directors who
will oversee governance of the Company. Former Members of the
Trust have no voting or governance rights.
LIABILITY
Former Members of the Trust are jointly and severally liable
for the obligations of the Trust which were incurred during such
Former Member's period of membership. Shareholders of the Company
will not be liable for the obligations of the Company or their
fellow shareholders except to the extent of their investment in the
Stock.
ASSESSMENT
Former Members of the Trust are assessable in the event the
Trust is unable to adequately discharge its financial obligations
which were incurred during such Former Member's period of
membership. The Stock of the Company is nonassessable.
VOTING
Former Members of the Trust have no voting rights.
Shareholders of the Company will be entitled to one vote for each
share held on each matter submitted to a vote at a meeting of the
Shareholders, with the exception that Shareholders may cumulate
their votes for directors.
RESALE
Former Members of the Trust may not sell or transfer their
interest in the Trust. Shareholders in the Company may freely sell
or transfer their shares, subject to applicable securities laws.
See "The Conversion -- Resales of Company Stock."
INDEMNIFICATION OF OFFICERS AND DIRECTORS OF THE COMPANY
Subject to the terms and conditions of the Bylaws of the
Company, the Company is required to indemnify any person who was or
is a party or is threatened to be made a party to a threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative because he is or was
serving as an officer or director of the Company, or while serving
as a director of the Company, is or was serving at the request of
the Company as a director, officer, partner, trustee, employee or
agent of another foreign or domestic corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise.
Indemnification is available for an obligation to pay a judgment,
settlement, penalty, fine (including an excise tax assessed with
respect to an employee benefit plan) or reasonable expenses
(including counsel fees) incurred with respect to such proceeding.
Indemnification permitted in connection with a proceeding by or in
the right of the Company shall be limited to reasonable expenses
incurred in connection with the proceeding.
Under the Bylaws, the Company may not indemnify a director
unless the person indemnified shall have conducted himself in good
faith and reasonably believed, in the case of conduct in his
official capacity with the Company, that his conduct was in its
best interests, and in all other cases, that his conduct was at
least not opposed to its best interests, and in the case of any
criminal proceeding, that he had no reasonable cause to believe his
conduct was unlawful. Such a determination shall be made by the
Board of Directors by majority vote of a quorum consisting of
disinterested directors, or if a quorum cannot be obtained, by
majority vote of a committee duly designated by the Board of
Directors, by special legal counsel, by the shareholders of the
Company, or by a court of competent jurisdiction. The termination
of a proceeding by judgment, order, settlement, conviction or upon
a plea of nolo contendere or its equivalent is not, of itself,
determinative that the director did not meet the standard of
conduct. The Company may not indemnify a director in connection
with a proceeding by or in the right of the Company in which the
director was adjudged liable to the Company or in connection with
any other proceeding charging improper personal benefit to him,
whether or not involving action in his official capacity, in which
he was adjudged liable on the basis that personal benefit was
improperly received by him.
The Company must pay for or reimburse the reasonable expenses
incurred by a director who is a party to a proceeding in advance of
final disposition of the proceeding if the director furnishes the
Company a written affirmation of his good faith belief that he has
met the applicable standard of conduct if the director furnishes
the Company a written undertaking, executed personally or on his
behalf, to repay the advance if it shall be ultimately determined
that he did not meet the standard of conduct and a determination is
made that the facts then known to those making the determination
would not preclude indemnification. The undertaking to repay must
be an unlimited general obligation of the director but need not be
secured and may be accepted without reference to financial ability
to make repayment.
The Bylaws authorize the Company to purchase and maintain
insurance on behalf of an individual who is or was a director,
officer, employee or agent of the Company or who, while a director,
officer, employee or agent of the Company, is or was serving at the
request of the Company as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan or other
enterprise, against liability asserted against or incurred by him
in that capacity or arising from his status as a director, officer,
employee or agent, whether or not the Company would have power to
indemnify him against such liability.
The Bylaws authorize the Board of Directors of the Company to
make any further indemnity, including advance of expenses, to and
to enter contracts of indemnity with any director, officer,
employee or agent, except an indemnity against his gross negligence
or willful misconduct.
The Company must pay or reimburse expenses incurred by a
director in connection with his appearance as a witness in a
proceeding at a time when he has not been made a named defendant or
respondent to the proceeding when his appearance as a witness is in
connection with his serving as a director of the Company.
The Company's Articles of Association include a provision
limiting the personal liability of a director to the Company or its
shareholders for monetary damages with the exception of liability
arising out of (i) the amount of a financial benefit received by a
director to which he is not entitled, (ii) an intentional
infliction of harm on the corporation or the shareholders, (iii)
violation of certain provisions of the MBCA, or (iv) an intentional
violation of criminal law.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 or under the securities laws of various
states may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the Securities and
Exchange Commission and certain state securities commissioners such
indemnification is against public policy and is therefore
unenforceable.
INDEMNIFICATION OF TRUSTEES OF THE TRUST
The Trust Agreement of the Trust (the "Trust Agreement")
provides for mandatory indemnification of the Trustees against all
costs and expenses (including attorneys' fees) incurred in
connection with any claim in which a Trustee may be involved by
virtue of his position in the Trust. The indemnification is not
operative with respect to: (i) a person gaining any personal profit
or advantage; (ii) the dishonesty of a person; (iii) a person's
conflict of interest; (iv) willful violation of a statute or
ordinance committed by a person or with the person's knowledge or
consent; or (v) any matter as to which a person shall have been
finally adjudged in such action, suit or proceeding to be liable
for misconduct in the performance of his duties. The Trust
Agreement further provides that the rights of indemnification set
forth therein shall not be deemed exclusive of any rights to which
those indemnified may be entitled and the Board of Trustees, by
vote of disinterested Trustees, may provide any further
indemnification it feels justified.
PREEMPTIVE RIGHTS
Under the MBCA, a shareholder does not have preemptive rights
unless such rights are specifically granted. The Company's Articles
of Association do not provide for preemptive rights. Because the
Trust is an unincorporated entity and issues no shares, preemptive
rights are not applicable.
DIVIDENDS
Under Mississippi law, the Company may pay cash dividends only
from actual net surplus determined on a statutory basis. In
addition, "extraordinary dividends" or "extraordinary distributions"
may not be paid until thirty (30) days after the Commissioner of
Insurance has received notice of the declaration thereof and has
not within such period disapproved such payment, or the
Commissioner has approved such payment within such thirty (30) day
period. Extraordinary dividends or distributions are defined as any
dividend or distribution of cash or other property whose fair
market value together with that of other dividends or distributions
made within the preceding twelve months exceeds the lesser of (i)
ten percent (10%) of the Company's surplus as regards policyholders
as of the December 31 next preceding, or (ii) the net income of
such insurer, not including realized capital gains, for the twelve
month period ending the December 31 next preceding, but shall not
include pro-rata distributions of any class of the insurer's own
securities. In determining whether a dividend or distribution is
extraordinary, an insurer may carry forward net income from the
previous two (2) calendar years that has not already been paid out
as dividends.
Payment of dividends (also called refunds) by the Trust are
restricted to any monies for a Fund Year in excess of the amount
necessary to fund all obligations for that Fund Year which have
been declared to be refundable by the Board of Trustees with the
approval of the Workers' Compensation Commission and which shall be
payable not less than twelve (12) months after the end of the fund
year. The Workers' Compensation Commission will not consider
refunds for a particular Fund Year for approval until financial
statements are available reflecting fund equity for that Fund Year
at the period ending 24 months after the end of that Fund Year.
After approval of a refund for a particular Fund Year: (i) up
to 33% of the equity for that Fund Year could be approved for
distribution as a refund during the period beginning 24 months
after the closing of that Fund Year; (ii) up to 50% of the
remaining equity for that Fund Year could be approved for
distribution as a refund during the period beginning 36 months
after the closing of that Fund Year; (iii) up to 50% of the
remaining equity for that Fund Year could be approved for
distribution as a refund during the period beginning 48 months
after the closing of that Fund Year; and (iv) up to 100% of the
remaining equity for that Fund Year could be approved for
distribution as a refund during the period beginning 60 months
after the closing of that Fund Year. Each refund distribution
requires a separate application and approval after financial
results are available reflecting the Fund Year equity balance at
the relevant time (i.e., 24 months after the close of the Fund
Year; 36 months after the close of the Fund Year, etc.).
PLAN OF DISTRIBUTION OF EXCESS STOCK
In the event that the maximum number of shares of Stock
registered hereunder are not distributed pursuant to the Plan, the
Company may sell the balance of such stock to persons other than
Former Members. The sale price of such Stock shall be $4.00 per
share. Such sales shall be made only through officers and
directors of the Company and no commissions will be charged.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
David R. White is an officer and director of the Company and
controls MRM. Through the Representative Agreement and MRM's
General Agent Agreement with TIG, MRM receives a percentage of the
premiums written through the Commercial Program. It is anticipated
that the Company will become the assignee of the Trust's rights
under the Representative Agreement and that MRM will continue
providing such services to the Company. MRM brokers directors and
officers coverage and excess workers' compensation coverage for the
Trust.
Harry E. Vickery is an officer and director of the Company and
serves as Administrator of the Trust and owns all the issued and
outstanding stock of Delta Administration. Under the
Representative Agreement, Delta Administration is paid 3.5% of the
collected premiums generated by the Commercial Program which is
used by Delta Administration to pay the office expenses of the
Trust, including rent, the salaries of the employees of Delta
Administration (including Mr. Vickery) and sponsor fees. This
arrangement was created because it is unlawful to pay commissions
to a person or entity not licensed as an insurance agent or agency.
Mr. Vickery is licensed by the Department of Insurance as an
individual property and casualty agent and Delta Administration is
licensed by the Department of Insurance as a property and casualty
insurance agency. Mr. Vickery, through Delta Administration, also
acts as an agent for the Commercial Program through MRM. Mr.
Vickery will continue to sell coverage through the Commercial
Program in addition to his management role in the Company.
After payment by Delta Administration of office expenses of
the Trust, Mr. Vickery's gross compensation in 1995 was $87,092 and
$104,451 in 1996. Prior to the commencement of the Commercial
Program, Delta Administration was paid directly by the Trust for
its services. As a part of the Conversion, the Trust's obligations
regarding Delta Administration will be assumed by the Company.
LEGAL MATTERS
The validity of the shares of Stock to be issued in connection
with the Conversion will be passed upon for the Company and the
Trust by Watkins Ludlam & Stennis, P.A., Jackson, Mississippi.
Certain of the tax consequences of the Conversion will be passed
upon by Watkins Ludlam & Stennis, P.A.
EXPERTS
The audited financial statements and financial statement
schedules of the Trust included in this Prospectus and elsewhere in
the Registration Statement have been examined by Richard L. Eaton,
independent certified public accountant, Jackson, Mississippi, for
the periods and to the extent set forth in his reports and are
included herein in reliance upon the reports of such firm, given
upon his authority as an expert in accounting and auditing.
INDEX TO FINANCIAL STATEMENTS
Delta Agricultural and Industrial Trust
Report of Independent Auditor F-2
Balance Sheets as of December 31, 1996 and 1995 F-3
Statements of Revenues and Expenses for Years Ended
December 31, 1996 and 1995 F-4
Statements of Changes in Trust Equity for Years Ended
December 31, 1996 and 1995 F-5
Statements of Cash Flows for Years Ended December 31,
1996 and 1995 F-6
Notes to Financial Statements F-8
Stoneville Insurance Company
Report of Independent Auditor F-18
Balance Sheet as of December 31, 1996 F-19
Statement of Income for Year Ending December 31, 1996 F-20
Statement of Changes in Stockholders' Equity for Year
Ended December 31, 1996 F-21
Statement of Cash Flows for Year Ended
December 31, 1996 F-22
Notes to Financial Statements F-23
RICHARD L. EATON
CERTIFIED PUBLIC ACCOUNTANT
(A PROFESSIONAL CORPORATION)
POST OFFICE BOX 16603
JACKSON, MISSISSIPPI 39236
MEMBER OF:
AMERICAN INSTITUTE OF
TELEPHONE: (601) 956-9751 CERTIFIED PUBLIC
FAX: (601) 956-7415 ACCOUNTANTS
MISSISSIPPI SOCIETY OF
CERTIFIED PUBLIC ACCOUNTANTS
Board of Trustees
Delta Agricultural and Industrial Trust
Jackson, Mississippi
I have audited the accompanying balance sheets of Delta
Agricultural and Industrial Trust as of December 31, 1996 and 1995
and the related statements of revenue and expenses, changes in
trust equity and cash flows for the years then ended. These
financial statements are the responsibility of management. My
responsibility is to express an opinion on these financial
statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. I believe that my audit provides a
reasonable basis for my opinion.
In my opinion, the financial statements present fairly, in all
material respects, the financial position of Delta Agricultural and
Industrial Trust as of December 31, 1996 and 1995, and the results
of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
Richard L. Eaton
Jackson, Mississippi
January 29, 1997
DELTA AGRICULTURAL AND INDUSTRIAL TRUST
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
1996 1995
ASSETS ---------- -------
Investments:
Trading securities $1,696,944 $ 0
Securities available-for-sale 1,141,504 2,469,692
Securities held-to-maturity 522,884 2,247,145
---------- ----------
Total Investments 3,361,332 4,716,837
Cash and Cash Equivalents 1,359,965 1,240,298
Premiums receivable net of
uncollectible amount 0 1,337,030
Notes receivable 20,000 0
Accrued interest receivable 52,410 90,736
Excess insurance premium overpayment 89,860 0
Capital equipment leases at cost
less accumulated depreciation of
$9,775 and 5,759 13,517 16,782
Prepaid expenses 21,798 2,622
Income tax refund receivable 152,862 0
Deferred tax asset 0 43,331
Other assets 575 575
---------- ----------
TOTAL ASSETS $5,072,319 $7,448,211
========== ==========
LIABILITIES AND TRUST EQUITY
LIABILITIES
Reserve for losses and loss
adjustment expenses $2,173,234 $3,005,414
Unearned premiums 0 1,466,279
Reserve for premium adjustment 384,863 0
Accounts payable and accrued
liabilities 56,290 207,762
Income taxes payable 0 394,048
Capital lease obligations 4,038 8,980
---------- ----------
TOTAL LIABILITIES 2,618,425 5,082,483
========== ==========
TRUST EQUITY
Retained earnings 2,463,130 2,432,888
Unrealized decline in market value
of equity securities less
applicable future tax benefit (9,236) 67,160
---------- ----------
TOTAL TRUST EQUITY 2,453,894 2,365,728
---------- ----------
TOTAL LIABILITIES AND TRUST EQUITY $5,072,319 $7,448,211
========== ==========
See accompanying notes to financial statements.
DELTA AGRICULTURAL & INDUSTRIAL TRUST
STATEMENTS OF REVENUE AND EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
REVENUE --------- ----------
Net earned premium $2,077,351 $5,659,925
Investment income 297,076 328,027
Net realized gains and losses on
securities available-for-sale (37,286) (159,557)
Other (422,850) 0
---------- ----------
TOTAL REVENUE 1,914,291 5,828,395
---------- ----------
EXPENSES
Loss and loss adjustment expenses 916,592 2,448,722
Service company fees 299,322 626,332
Excess insurance 89,860 335,973
Regulatory fees 28,548 30,858
General expenses 450,959 438,224
---------- ----------
TOTAL EXPENSES 1,785,281 3,880,109
---------- ----------
EXCESS REVENUE OVER EXPENSES
BEFORE INCOME TAX PROVISION 129,010 1,948,286
Provision for income tax 98,768 643,660
---------- ----------
EXCESS REVENUE OVER EXPENSES $30,242 $1,304,626
========== ==========
See accompanying notes to financial statements.
DELTA AGRICULTURAL AND INDUSTRIAL TRUST
STATEMENTS OF CHANGES IN TRUST EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
--------- --------
TRUST EQUITY - BEGINNING OF YEAR $2,365,728 $1,023,330
Excess Revenue over Expenses 30,242 1,304,626
Change in Unrealized decline in
value of securities available-
for-sale less change
in applicable deferred tax benefit 57,924 37,772
-------- ---------
TRUST EQUITY - END OF YEAR $2,453,894 $2,365,728
========= =========
See accompanying notes to financial statements.
DELTA AGRICULTURAL AND INDUSTRIAL TRUST
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
------ ------
CASH FLOWS FROM OPERATING
ACTIVITIES
Premiums collected $2,688,450 $7,034,172
Losses and loss adjustment
expenses paid (1,748,772) (2,456,050)
Refunds and premium adjustments
paid (449,415) (297,576)
Administrative expenses paid (1,056,948) (1,463,647)
Income taxes paid (625,678) (1,012,930)
Investment income received 335,402 225,407
Interest paid (855) (43,037)
NET CASH PROVIDED BY OPERATING ---------- ----------
ACTIVITIES (857,816) 1,986,339
---------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Proceeds from sale of investments 6,220,769 4,021,484
Purchase of investments (5,237,593) (6,974,793)
Capital expenditures (751) (2,991)
NET CASH PROVIDED BY INVESTING ---------- ----------
ACTIVITIES 982,425 (2,956,300)
---------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Principal payments under capital
lease obligations (4,942) (6,235)
NET CASH USED IN FINANCING ---------- ----------
ACTIVITIES (4,942) (6,235)
---------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 119,667 (976,196)
Cash and Cash Equivalents at
Beginning of Year 1,240,298 2,216,494
---------- ----------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $1,359,965 $1,240,298
========== ==========
RECONCILIATION OF NET INCOME TO
NET CASH PROVIDED
BY OPERATING ACTIVITIES
Net Income $30,242 $1,304,626
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 4,818 3,424
Gain or loss on sale of
investments 460,136 159,557
Decrease in premiums receivable 1,337,030 1,070,626
Decrease (increase) in prepaid
expenses (19,176) 158,981
Decrease (increase) in accrued
interest receivable 38,326 (90,736)
Increase in notes and other
receivables (109,860) 0
Amortization of bond premium
(discount) 12,646 (11,884)
Decrease in upaid losses and
loss adjustment expenses (832,180) (7,328)
Increase (decrease) in unearned
premiums (1,466,279) 134,256
Decrease in accounts payable
and accrued expenses (151,472) (365,914)
Increase in premium adjustment
reserve 384,863 0
Decrease in income tax liability (546,910) (369,269)
---------- ----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES ($857,816) $1,986,339
========== ==========
See accompanying notes to financial statements.
DELTA AGRICULTURAL AND INDUSTRIAL TRUST
Notes to Financial Statements
For the Years Ended December 31, 1996 and 1995
NOTE 1: DESCRIPTION AND OPERATION OF THE TRUST
The Delta Agricultural and Industrial Trust (the "Trust") was formed
under a Trust Agreement, dated August 1, 1991, between the Delta
Council, a Mississippi nonprofit corporation and the Board of
Trustees of Delta Agricultural and Industrial Trust.
The Trust was created to take advantage of Section 71-3-75 (3) of
the Mississippi Code of 1972, as amended, which allows employers to
form a pool for the purpose of self-insuring their liabilities
under the Mississippi Workers' Compensation Law, versus purchasing
insurance coverage from a commercial insurance company. Each
member's contribution of funds to the Trust is computed similarly
to the method employed by commercial insurance companies in
determining premium rates. However, should the Trust be unable to
sufficiently discharge all of its obligations, it would assess the
members amounts needed to make up the deficiency. The members of
the Trust are jointly and severally liable for the obligations of
the trust.
Due to changes in the Mississippi workers compensation market in
early 1996, the Trust determined that the interests of its
members would best be served by converting into a Mississippi
domestic insurance company in which the members of the Trust
could become stockholders. The Trust entered into an arrangement
with a commercial insurance company whereby the Trust would
discontinue writing coverage for its members effective July 1,
1996 and would encourage its members to move their workers'
compensation insurance to the commercial carrier. Consequently,
the Trust had no premium revenue for the period July 1 through
December 31, 1996.
The Trust began the process of forming a stock insurance company
with the objective of allowing the members of the Trust to become
shareholders in the stock company. Under the plan, qualifying
insureds of the Trust would receive stock in the new company with
a book value equivalent to the book value in the Trust at the
date of conversion. The plan also provides for the elimination
of the joint and several liability of the Trust's insureds. As
of the balance sheet date, the process was not complete.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles. The
significant accounting policies used to prepare the financial
statements are summarized below:
TRADING SECURITIES
Bonds, notes, common stocks and mutual fund shares held
principally for resale in the near term are classified as trading
account securities and recorded at their fair values. Realized
and unrealized gains and losses on trading account securities are
included in other income.
SECURITIES HELD-TO-MATURITY
Bonds, notes and certificates of deposit (with maturities of more
than three months) for which the Trust has the intent and ability
to hold to maturity are reported at amortized cost, adjusted for
amortization of premiums or discounts and other than temporary
declines in fair value.
SECURITIES AVAILABLE-FOR-SALE
Bonds, notes, common stock and certificates of deposit (with
maturities of more than three months) not classified as either
trading or held-to-maturity are reported at fair value, adjusted
for other than temporary declines in fair value, with unrealized
gains and losses excluded from losses and reported as a separate
component of trust equity. Realized gains and losses are
determined on the specific identification method.
CASH EQUIVALENTS
For the purpose of presentation in the Trust's statement of cash
flows, cash equivalents are short-term, highly liquid investments
that are both (a) readily convertible to known amounts of cash
and (b) so near to maturity that they present insignificant risk
of changes in value due to changing interest rates.
PREMIUM REVENUE RECOGNITION
Insurance premiums are recognized as revenue on a pro rata basis
over the policy term. The portion of premiums that will be earned
in the future are deferred and reported as unearned premiums.
CAPITAL EQUIPMENT LEASES
Certain assets of the Trust were acquired under capital lease
arrangements. Such assets are recorded at their original cost and
depreciated under the straight-line method over the estimated
useful lives of the respective assets. Depreciation expense is
included in "General Expenses".
INSURANCE LIABILITIES
The liability for losses and loss-adjustment expenses includes an
amount determined from loss reports and individual cases and an
amount, based on past experience, for losses incurred but not
reported. Such liabilities are necessarily based on estimates and,
while management believes that the amount is adequate, the ultimate
liability may be in excess of or less than the amounts provided.
The methods for making such estimates and for establishing the
resulting liability are continually reviewed and any adjustments
are reflected in earnings currently. The reserve for losses and
loss-adjustment expenses is reported net of receivables from
subrogation, excess policies and expected recoveries.
INCOME TAXES
Income tax provisions are based on the asset and liability method.
A deferred tax asset or liability is provided for temporary
differences between the tax basis of assets and liabilities and
their reported amounts in the financial statements. Such
differences are related principally to the unrealized loss in the
market value of available-for-sale securities.
NOTE 3: INVESTMENTS
Major categories of net investment income are summarized as
follows:
1996 1995
------ ------
Fixed Maturities $169,037 $180,645
Equity Securities 105,291 128,638
Short-term Investments 22,748 18,743
--------- ---------
Total $297,096 $328,027
========= =========
The aggregate fair value, gross unrealized holding gains, gross
unrealized holding losses, and amortized cost for available-for-sale and
held-to-maturity securities by major security type at
December 31, 1996 and 1995 are as follows:
AVAILABLE-FOR-SALE SECURITIES AS OF DECEMBER 31, 1996 AND 1995
DECEMBER 31, 1996
-------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------------------------------------------------
Bank certificates of
deposit $524,166 $ 889 $ 2,915 $522,140
Obligations of states
and political
subdivisions 626,574 13 7,223 619,364
-----------------------------------------------------
Total $1,150,740 $ 902 $ 10,138 $1,141,504
=====================================================
DECEMBER 31, 1995
--------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---------------------------------------------------------
Equity securities $ 2,580,183 $ 1,026 $ 111,517 $ 2,469,692
-------------------------------------------------------
Total $ 2,580,183 $ 1,026 $ 111,517 $ 2,469,692
========================================================
HELD-TO-MATURITY SECURITIES AS OF DECEMBER 31, 1996 AND 1995
DECEMBER 31, 1996
-------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---------------------------------------------------------
U.S. Treasury
securities and
obligations of
the U.S.
Government $ 98,966 $ 0 $ 944 $ 98,022
Bank certificates
of deposit 423,918 0 0 423,918
--------------------------------------------------------
Total $ 522,884 $ 0 $ 944 $521,940
=======================================================
DECEMBER 31, 1995
--------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---------------------------------------------------------
U.S. Treasury
securities
and obligations
of the U.S.
Government $ 94,829 $ 0 $ 1,758 $ 93,071
Bank certificates
of deposit 1,973,896 1,210 0 1,975,106
Obligations of states
and political
subdivisions 178,420 256 0 178,676
---------------------------------------------------------
Total $2,247,145 $ 1,758 $ 1,466 $2,246,853
=======================================================
Gross realized gains and losses on sales of available-for-sale securities
were:
1996 1995
--------------------
Gross realized gains:
Fixed maturities $ 2,407 $ 7,481
Equity securities 30,502 14,192
--------------------
Total $32,909 $ 21,673
====================
Gross realized losses:
Bank certificates of deposit $ 6,039 $ 0
Equity securities 64,155 181,231
--------------------
Total $70,194 $181,231
====================
The trust also realized net losses in trading securities in the
amount of $415,929 in 1996. Trading security gains and losses are
included in "Other Income"
NOTE 4: RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
Reserves for losses and loss adjustment expenses at December 31,
1996 and 1995 consisted of the following:
1996 1995
-------------------------
Case-basis reserves $1,392,371 $ 1,675,040
Incurred but unreported
claims 727,763 1,234,374
Service company fees 53,100 6,000
-------------------------
Total Reserves $2,173,234 $ 3,005,414
=========================
NOTE 5: RESERVE FOR PREMIUM ADJUSTMENT
The premium amounts paid by members of the Trust are determined
initially each policy year from member provided estimates of their
annual payroll by worker classification code. The member is then
subject to an audit of their payroll data to determine the accuracy
of their estimate. Any necessary premium adjustments are made
based on audited payroll information. For the period ended June
30, 1996, management elected to audit less than 100% of the Trust
membership. Due to the limited number of audits performed, a
reserve was established for premium adjustments that management
estimates could be due in the event members who were not audited
request such an audit.
NOTE 6: MINIMUM LEASE PAYMENTS
The Trust leases certain business equipment that are treated as
capital leases in accordance with FAS-13. Following are the
present values of the minimum lease payments under these leases as
of December 31, 1996 and 1995.
1996 1995
-----------------------
1996 $6,095
1997 3,172 2,450
1998 1,208 1,174
------- --------
$4,380 $9,719
======= ========
NOTE 7: EXCESS INSURANCE
The Trust acquired excess coverage insurance for accidents
occurring during the period January 1, 1996 through June 30, 1996.
The specific coverage limits the Trust's liability to $350,000 per
claim incurred during this period. The reserve for losses and loss
adjustment expenses is shown net of expected recoveries on this
coverage. For claims incurred prior to January 31, 1992, the claim
retention level was $200,000 with a maximum benefit of $10,000,000.
Claims incurred from February 1, 1992 through July 31, 1992 have a
retention level of $250,000 and a maximum benefit of $10,000,000.
No claims are expected to exceed the maximum benefit.
NOTE 8: INCOME TAXES
The Trust is a taxable entity subject to Internal Revenue Code
Section 831 and related provisions. The provision for federal
income tax for the year ended December 31, 1996 and 1995 is $81,142
and $549,712 respectively. The provision for state income is
$17,626 and $93,948 respectively. Additionally, due to a temporary
unrealized decline in the market value of its equity securities,
the Trust has recorded a deferred tax asset in the amount of
$43,331 for 1995. This amount represents the tax benefit the Trust
would receive if such securities were sold at the current market
value. This amount was also applied to the gross decline in the
market value of investments to arrive at the net unrealized
depreciation of equity securities after income tax effects.
NOTE 9: NOTES RECEIVABLE
At December 31, 1996 the balance sheet of the Trust reflects a note
receivable of $20,000. This note is due on demand from Stoneville
Insurance Company. Under the plan described in Note 1, Stoneville
would be the successor of the Trust in its conversion to a stock
insurance company.
NOTE 10: CONCENTRATION OF CREDIT RISK
At December 31, 1996 the Trust had cash account balances in excess
of the federally insured limit at its primary depository
institution.
NOTE 11: CONTINGENCIES
In the normal course of operations, the Trust is involved in
litigation related to certain claims. In the opinion of management,
the reserve for losses and loss adjustment expenses is sufficient
to cover these claims. Therefore, it believes the disposition of
these matters will not have a material adverse effect on the
Trust's financial position.
STONEVILLE INSURANCE COMPANY
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
RICHARD L. EATON
CERTIFIED PUBLIC ACCOUNTANT
(A PROFESSIONAL CORPORATION)
POST OFFICE BOX 16603
JACKSON, MISSISSIPPI 39236
MEMBER OF:
AMERICAN INSTITUTE OF
TELEPHONE: (601) 956-9751 CERTIFIED PUBLIC
FAX: (601) 956-7415 ACCOUNTANTS
MISSISSIPPI SOCIETY OF
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Stoneville Insurance Company
Jackson, Mississippi
I have audited the accompanying balance sheet of Stoneville
Insurance Company as of December 31, 1996 and the related
statements of income, changes in stockholders' equity and cash
flows for the year then ended. These financial statements are the
responsibility of management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. I believe that my audit provides a
reasonable basis for my opinion.
In my opinion, the financial statements present fairly, in all
material respects, the financial position of Stoneville Insurance
Company as of December 31, 1996 and the results of its operations
and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
Richard L. Eaton
Jackson, Mississippi
March 6, 1997
STONEVILLE INSURANCE COMPANY
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
Cash in Bank $19,970
-------
Total Assets $19,970
=======
Liabilities
Notes Payable $20,000
Accrued Interest Payable 407
-------
Total Liabilities 20,407
-------
Stockholders' Equity
Common Stock 0
Retained Earnings (437)
-------
Total Stockholders' Equity (437)
-------
Total Liabilities and
Stockholders' Equity $19,970
=======
See accompanying notes to financial statements.
STONEVILLE INSURANCE COMPANY
STATEMENT OF INCOME
FOR THE YEAR ENDING DECEMBER 31, 1996
REVENUE $0
------
Expenses
Bank Charges 30
Interest Expense 407
------
Total Expenses 437
------
Net Income ($437)
======
See accompanying notes to financial statements.
STONEVILLE INSURANCE COMPANY
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
Total
Common Retained Stockholders'
Stock Earnings Equity
------------------------------------
Balance at Beginning of
Year $0 $ 0 $ 0
Net Income (Loss) $0 $437 $437
-----------------------------------
Balance at End of Year $0 $437 $437
===================================
See accompanying notes to financial statements.
STONEVILLE INSURANCE COMPANY
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Bank charges paid ($30)
--------
Net Cash Provided by Operating Activities (30)
--------
Cash Flows From Financing Activities
Loan proceeds 20,000
--------
Net Cash Provided by Financing Activities 20,000
--------
Net Increase (Decrease) in Cash and
Cash Equivalents 19,970
Cash and Cash Equivalents at Beginning of Year 0
--------
Cash and Cash Equivalents at End of Year $19,970
========
Reconciliation of Net Income to Cash Flows
Provided by Operating Activities
Net income ($437)
Increase in accrued interest payable 407
--------
Net Cash Provided by Operating Activities ($30)
========
See accompanying notes to financial statements.
STONEVILLE INSURANCE COMPANY
Notes to Financial Statements
For the Year Ended December 31, 1996
NOTE 1: DESCRIPTION AND OPERATION OF THE COMPANY
Stoneville Insurance Company (The Company) is a developmental stage
insurance company formed in August, 1996 to become the successor to
the Delta Agricultural and Industrial Trust, (The Trust), a
Mississippi self-funded workers compensation insurance trust.
The Trust has been in operation since August, 1991 providing
workers compensation insurance coverage initially to agricultural
and industrial concerns in the Mississippi Delta region, and later
to numerous industries throughout Mississippi. The Trust was an
alternative to the high cost of insurance acquired through the
Mississippi assigned risk pool or through commercial carriers.
Each member's contribution of funds to the Trust was computed
similarly to the method employed by commercial insurance companies
in determining premium rates. However, if the Trust was unable to
sufficiently discharge all of its obligations, it would assess
members the amount needed to make up any deficiency. The insureds
of the Trust are jointly and severally liable for the obligations
of the Trust.
Due to changes in the Mississippi workers compensation market in
early 1996, the Trust determined that the interests of its members
would best be served by converting into a Mississippi domestic
insurance company in which the members of the Trust could become
shareholders. The Trust entered into an arrangement with a
commercial insurance company whereby the Trust discontinued
writing coverage for its members effective July 1, 1996 and
encouraged its members to move their workers' compensation insurance
to the recommended commercial carrier. The Trust or any successor
to the Trust has the right to reinsure as much of the business
transferred to the commercial carrier as they deem appropriate.
The Trust began the process of forming a stock insurance company
(Stoneville Insurance Company) with the objective of allowing the
members of the Trust to become shareholders in the stock company.
Under the plan, qualifying insureds of the Trust would receive
stock in the new company with a book value equivalent to the book
value in the Trust at the date of conversion and all remaining
assets and liabilities of Trust would be transferred to Stoneville
Insurance Company. The plan also provides for the elimination of
the joint and several liability of the Trust's insureds. Although
Stoneville has been formed, the conversion process had not been
completed. Upon completion of the conversion process, the Company
is expected to be licensed by the Mississippi Department of
Insurance.
Other than the opening of a checking account with funds borrowed
from the Trust, the Company had no activity during 1996.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles. No
significant accounting policies are described due to the absence of
activity.
NOTE 3: NOTES PAYABLE
At December 31, 1996 the balance sheet of the Company reflects a
note payable of $20,000. This is a demand note due to the Trust
that provides for interest at the applicable federal rate. Accrued
and unpaid interest at December 31, 1996 amount to $407. This note
would be eliminated upon the completion of the plan of conversion
described in Note 1.
EXHIBIT A
PLAN AND AGREEMENT OF REORGANIZATION AND CONVERSION
OF DELTA AGRICULTURAL AND INDUSTRIAL TRUST
This Plan and Agreement of Reorganization and Conversion (the
"Conversion Agreement") is made and entered into as of this 20th day
of March, 1997, by and between Delta Agricultural and Industrial
Trust, a Mississippi workers' compensation self insured trust (the
"Trust") and Stoneville Insurance Company ("Stoneville").
1. DEFINITIONS
a. Board" means the board of directors of Stoneville.
b. "Commercial Program" means the Trust's program of
commercial insurance written through TIG Insurance
Company which commenced on July 1, 1996.
c. "Continental" means Continental Casualty Company, an
Illinois stock insurance company.
d. "Dissenters" means those Former Members who dissent from
the Plan and who have perfected their dissenters' rights
as set forth herein.
e. "Former Members" means those Persons who at any time have
had workers' compensation insurance provided by the Trust
for one or more full Fund Years which Fund Years resulted
in positive net income for the Trust.
f. "Fund Year" means a complete accounting year of the
Trust. A list of Fund Years is set forth on Exhibit A
attached hereto.
g. "Person" means any individual, corporation, partnership,
joint venture, association or other form of organization.
h. "Plan" means this Plan and Agreement of Reorganization
and Conversion of the Trust.
i. "Proportionate Earned Premium" means the percentage
derived by dividing (a) the net earned premium derived by
the Trust from each Former Member for all Fund Years
during which the Trust had positive net income from the
inception of the Trust through December 31, 1996 by (b)
the total net earned premium of the Trust derived from
all Former Members for all Fund Years during which the
Trust had positive net income from the inception of the
Trust through December 31, 1996.
j. "Registration Statement" means the registration statement
for certain shares of Stoneville stock to be filed with
the Securities and Exchange Commission on Form S-4.
k. "Reinsurance Agreement" means that certain Assumption
Reinsurance Agreement by and among the Trust, Stoneville,
and Continental.
l. "Stoneville" means Stoneville Insurance Company, a
Mississippi stock insurance company.
m. "Trust" means Delta Agricultural and Industrial Trust, a
Mississippi workers' compensation self insured trust.
n. "Trustees" shall mean the board of Trustees of the Trust.
o. "Trust Unit" means Four Dollars ($4.00) of equity of the
Trust.
2. EFFECTIVE DATE. The Trust shall begin taking the actions as
set forth herein as of the date hereof. The effective date of
the Plan shall be, and the capitalization of Stoneville and
the liquidation and dissolution of the Trust (Sections 5, 7
and 8) shall be deemed to have occurred simultaneously and
completely as of the close of business on the last day of the
month during which the conditions precedent as set forth in
Section 11 hereof have been satisfied or waived (the
"Effective Date").
3. CERTIFICATE OF AUTHORITY. On or prior to the Effective Date,
the Trust will surrender its Certificate of Authority to serve
as a workers' compensation self insurance trust to the
Mississippi Workers' Compensation Commission.
4. RESERVE FOR EXPENSES. On or prior to the Effective Date, all
known or ascertainable liabilities of the Trust shall be
promptly paid or provided for. There shall also be set aside,
in cash, securities, or other assets, a reserve fund in an
amount of Four Hundred Tweny Four Thousand, One Hundred Sixy
Three Dollars ($424,163) for the payment of estimated
expenses, taxes and payment of Dissenters.
5. CAPITALIZATION OF STONEVILLE. As of the Effective Date, the
Trust will transfer to Stoneville all of the assets of the
Trust other than amounts required to consummate the
Reinsurance Agreement and the reserve for expenses as set
forth in Section 4 hereof in return for that number of shares
of capital stock of Stoneville equal to the Trust equity
transferred by the Trust to Stoneville [measured by Four
Dollars ($4.00) of Trust equity (one Trust Unit) per share of
Stoneville common stock], which shall be all the issued and
outstanding shares of stock of Stoneville.
6. DISSENTER'S RIGHTS. Members and Former Members may dissent
from the Plan and receive Four Dollars ($4.00) in cash for
each Trust Unit allocable to such Persons upon perfection of
dissenters' rights pertaining to such Trust Units allocable to
such Persons. Payments to Dissenters shall be paid by the
Trust up to an aggregate amount not to exceed Two Hundred
Thousand Dollars ($200,000). In the event that Former Members
as a group perfect dissenters' rights resulting in an
obligation to pay dissenters an amount in excess of Two
Hundred Thousand Dollars ($200,000), the excess over that
amount due to Dissenters shall be paid by Stoneville out of
operating funds and not out of assets transferred to
Stoneville from the Trust pursuant to the Plan. In order to
perfect dissenters' rights, a Former Member wishing to dissent
must deliver to the Trust's office at 833 Washington Avenue,
Greenville, Mississippi 38704-5037 written notice of such
Former Member's intent to demand payment within thirty (30)
days after the effective date of Stoneville's Registration
Statement.
7. COMPUTATION AND PAYMENT OF LIQUIDATING DISTRIBUTION. For
purposes of computing the number of shares of Stoneville
common stock (or in the case of Dissenters, cash)
distributable from the Trust to each Former Member, each
Former Member of the Trust will have allocated to it a number
of Trust Units determined by multiplying the total number of
Trust Units by the Proportionate Earned Premium of each Former
Member. Upon liquidation of the Trust, each Former Member
shall thereupon receive one share of Stoneville common stock
for each Trust Unit allocable to such Former Member, except
Dissenters, who shall receive Four Dollars ($4.00) in cash for
each Trust Unit allocable to such Dissenter in accordance with
Section 6 above (collectively, the "Liquidating Distribution").
The Liquidating Distribution shall be disbursed to Former
Members as of the Effective Date.
8. DISSOLUTION. As of the Effective Date, following the
Liquidating Distribution as set forth in Section 7, the Trust
shall be dissolved and shall furnish notice of such
dissolution to the Mississippi Workers' Compensation
Commission and take any other such action as the Trustees
shall deem necessary or appropriate including the completion
of distribution of any remaining funds subsequent to
dissolution.
9. DISTRIBUTION OF REMAINING FUNDS. At such time as the Trustees
of the Trust (as dissolved) may determine that all liabilities
of the Trust have been paid or provided for and there is no
need for the reserve fund established pursuant to Section 4
above, the Trustees of the Trust (as dissolved) shall transfer
any amounts remaining in such fund to Stoneville as an
additional contribution to capital.
10. TERMINATION. This Plan may be terminated and abandoned (i) at
any time by vote of the Trustees or the Board; or (ii) if all
conditions precedent as set forth in Section 11 have not been
satisfied or waived by December 31, 1997.
11. CONDITIONS PRECEDENT. The Plan shall not become effective
until all the following conditions have been either satisfied
or waived by the Trustees: (i) the Reinsurance Agreement is in
effect; (ii) receipt of a favorable opinion from Watkins
Ludlam & Stennis, P.A. to the effect that the consummation of
the Plan will be treated, for federal income tax purposes, as
a tax free transaction as to the Trust, the Company, and to
those Former Members who receive Stock of the Company; and
(iii) dissenters' rights shall not have been perfected by
holders of more than twenty percent (20%) of Trust Units.
12. DISSEMINATION OF SHARE CERTIFICATES AND PAYMENT OF DISSENTERS.
Promptly after the Effective Date, each Person who was insured
by the Trust at any time will be sent an assumption
certificate (the "Assumption Certificate") pursuant to the
Reinsurance Agreement. Each Former Member must sign and
return the Assumption Certificate to the Trust at which time
the Former Member shall receive such Person's liquidating
Distribution.
13. GOVERNING LAW. This Plan shall be governed and construed in
accordance with the laws of Mississippi.
IN WITNESS WHEREOF, the parties have executed this Plan as of
the day and year set forth above.
TRUST: STONEVILLE:
DELTA AGRICULTURAL AND STONEVILLE INSURANCE COMPANY
INDUSTRIAL TRUST
By: /s/ William H. Kennedy By: /s/ Harry E. Vickery
Name/Title: Chairman Name/Title: President
EXHIBIT A
LIST OF FUND YEARS
8/1/91 - 7/31/92
8/1/92 - 7/31/93
8/1/93 - 12/31/94
1/1/95 - 12/31/95
1/1/96 - 12/31/96
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is incorporated under the laws of Mississippi.
Subarticle E of Article 8 of the Mississippi Business Corporation
Act prescribes the conditions under which indemnification may be
obtained by a present or former director or officer of the
Company who incurs expenses or liability as a consequence of
matters arising out of his activities as a director or officer.
Article VII of the Company's Bylaws also provides for
indemnification of officers and directors under certain
circumstances. The Company has purchased a liability policy
which, subject to any limitations set forth in the policy,
indemnifies the Company's directors and officers for damages that
they become legally obligated to pay as a result of any negligent
act, error or omission committed by such person in his capacity
as an officer or director.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits and financial statement schedules are
furnished as a part of this Registration Statement:
Exhibit Number Description
2 Plan and Agreement of Reorganization and
Conversion of the Trust included as
Exhibit A to the Prospectus contained
herein
3.1 Articles of Incorporation of the Company
3.2 Bylaws of the Company
5 Opinion of Watkins Ludlam & Stennis,
P.A. regarding legality of common stock
registered hereby
8 Opinion of Watkins Ludlam & Stennis,
P.A. regarding tax matters
10.1 Assumption Reinsurance Agreement dated
as of March 20, 1997 between the Trust,
Continental, and the Company
10.2 Insurance Placement Agreement dated as
of June 10, 1996 between the Trust, TIG
and TIG Reinsurance Company
10.3 Representative Agreement dated as of
July 1, 1996 between Mississippi Risk
Management, Inc. and the Trust
10.4 Assignment and Assumption Agreement
dated as of March 20, 1997 between the
Trust and the Company
23.1 Consent of Richard L. Eaton, CPA,
independent accountant, with respect to
consolidated financial statements of the
Trust and the Company
23.2 Consent of Watkins Ludlam & Stennis,
P.A. is contained in their opinion filed
as Exhibit 5 to this Registration
Statement
24 Power of attorney included as part of
signature page
27 Financial Data Schedule to be filed by
Amendment
ITEM 22. UNDERTAKINGS
(g) Registration on Form S-4 or Form F-4 of Securities
offered for resale.
(1) The undersigned registrant hereby undertakes as follows:
that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this
registration statement, by any person or party who is deemed to
be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters,
in addition to the information called for by the other Items of
the applicable form.
(2) The registrant hereby undertakes that every prospectus
(i) that is filed pursuant to paragraph (1) immediately
preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Act and issued in connection with an
offering of securities subject to Rule 415, will be filed as a
part of an amendment to the registration statement and will not
be used until such amendment is effective, and that, for purposes
of determining any liability under the Securities Act of 1933,
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.
(h) Request for acceleration of effective date or filing of
registration statement on Form S-8
Insofar as indemnification for liabilities arising under the
Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described
under Item 20 above, 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.
The registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11 or 13 of this Form, within one
business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration
statement through the date of responding to the request.
The registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a
transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration
statement when it became effective.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Company certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-4 and
has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City
of Jackson, State of Mississippi on this the 1st day of April,
1997.
STONEVILLE INSURANCE COMPANY
BY: /s/ William L. Kennedy
William L. Kennedy
Chairman of the Board and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, each person whose signature
appears below constitutes and appoints Harry E. Vickery and David
R. White, and each of them (with full power to act alone), his
true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him and on his behalf and in
his name, place and stead, in any and all capacities, to sign,
execute and affix his name and signature to and file any and all
documents relating to the registration under the Securities Act
of 1933 of shares of Stoneville Insurance Company Common Stock
for issuance to the Members and Former Members of the Trust in
accordance with the Plan, and do hereby grant to said attorneys,
and each of them full power and authority to do and perform each
and every act and thing necessary to be done in and about the
premises in order to effectuate such registration as fully to all
intents and purposes as he might do personally, and do hereby
ratify and confirm all that said attorneys, or any of them, may
lawfully do or cause to be done by virtue hereof. The documents
referred to include a Registration Statement under the Securities
Act of 1933 on Form S-4, and any amendments (including post
effective amendments) thereto, and all documents deemed necessary
or desirable by said attorneys-in-fact to be filed with
departments or agencies of the several states regulating the
qualification or registration of securities under Blue Sky laws
of said states, together with any and all documents and all
exhibits relating to the registration statement, amendments, or
exhibits required to be filed with any administrative or
regulatory agency or authority.
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 date indicated.
NAME TITLE DATE
/s/ William L. Kennedy Chairman of the Board April 1, 1997
William L. Kennedy and Director (Chief
Executive Officer)
/s/ Harry E. Vickery President and Director April 1, 1997
Harry E. Vickery
/s/ David R. White Secretary, Treasurer, April 1, 1997
David R. White Vice President,
Director Officer
INDEX TO EXHIBITS
Exhibit Description
Number
2 Plan and Agreement of Reorganization
and Conversion of the Trust included
as Exhibit A to the Prospectus
contained herein
3.1 Articles of Incorporation
of the Company
3.2 Bylaws of the Company
5 Opinion of Watkins Ludlam & Stennis,
P.A. regarding legality of common
stock registered hereby
8 Opinion of Watkins Ludlam & Stennis,
P.A. regarding tax matters
10.1 Assumption Reinsurance Agreement dated
as of March 20, 1997 between the Trust,
Continental, and the Company
10.2 Insurance Placement Agreement dated as
of June 10, 1996 between the Trust, TIG
and TIG Reinsurance Company
10.3 Representative Agreement dated as of
July 1, 1996 between Mississippi Risk
Management, Inc. and the Trust
10.4 Assignment and Assumption Agreement
dated March 20, 1997 between the Trust
and the Company
23.1 Consent of Richard L. Eaton, CPA,
independent accountant, with respect to
consolidated financial statements of the
Trust and the Company
23.2 Consent of Watkins Ludlam & Stennis, P.A.
is contained in their opinion filed as
Exhibit 5 to this Registration
Statement
24 Power of attorney included as part of
signature page
27 Financial Data Schedule to be filed by
Amendment