EXHIBIT 8
OPINION OF WATKINS LUDLAM & STENNIS, P.A. REGARDING TAX MATTERS
FORM OF TAX OPINION
The tax opinion will contain the following individual opinions (or opinions
substantially similar thereto):
____________, 1997
Board of Directors Board of Trustees
Stoneville Insurance Company Delta Agricultural and Industial Trust
633 North State Street, Suite 200 833 Washington Avenue
Jackson, Mississippi 39202 Greenville, Mississippi 38704-5037
Re: The Federal Income Tax Consequences of Certain Matters Arising
Under the Corporate Reorganization Provisions of the Internal Revenue
Code of 1986, as amended.
Gentlemen:
We have acted as special counsel to Delta Agricultural and Industrial
Trust, a Mississippi workers' compensation self insurance trust (the "Trust"),
and Stoneville Insurance Company, a Mississippi corporation (the "Company"), in
connection with certain federal income tax matters relating to the transactions
described in the Plan and Agreement of Reorganization and Conversion of Delta
Agricultural and Industrial Trust (the "Plan"), dated as of March 20, 1997. This
opinion is furnished to you pursuant to Section 11(ii) of the Plan. Except as
otherwise defined herein, all capitalized terms herein have the meanings set
forth in the Plan.
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
the Registration Statement on Form S-4, the Plan and such other documents as we
have deemed necessary or appropriate in order to enable us to render the opinion
below. In our examination, we have assumed the genuineness of all signatures,
the legal capacity of all natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents submitted to
us as certified, conformed or photostatic copies and the authenticity of the
originals of such copies. In rendering the opinion set forth below, we have
relied upon certain written representations and covenants of the parties to the
Plan set forth in the Certificates which are attached hereto as Exhibits "A" and
"B." In rendering our opinion, we have considered the applicable provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, pertinent judicial authorities, interpretive rulings of the
Internal Revenue Service (the "Service") and such other authorities as we have
considered relevant.
8.1
I. DESCRIPTION OF PROPOSED PLAN OF REORGANIZATION
AND CONVERSION
The proposed Plan will be structured in accordance with the laws of the
State of Mississippi, the statements and representations of the parties to the
transaction, and the following descriptions:
(1) Former Members of the Trust may dissent from the Plan upon perfection
of dissenters' rights. Former Members as a group holding not more than
twenty percent (20%) of the Trust Units may perfect dissenters' rights.
(2) On the Effective Date, the following events shall be deemed to have
occurred simultaneously.
(a) The Trust will transfer substantially all its assets, less an
amount sufficient to pay the Trust's remaining costs and expenses
including amounts required to consummate the Reinsurance Agreement and
amounts due to dissenters, to the Company in exchange for Company
Stock. After this exchange, the Trust will own all the issued and
outstanding shares of stock of the Company.
(b) The Trust will distribute to Former Members perfecting dissenters'
rights, if any, four dollars ($4.00) in cash in redemption of each
Trust Unit held by such Former Members up to an aggregate amount
payable to all Former Members perfecting dissenters' rights not to
exceed two hundred thousand dollars ($200,000.00).
(c) The Trust will be liquidated and will distribute to Former Members
all the Company stock at one (1) share of Company Stock for each Trust
Unit allocable to such Former Member at December 31, 1996, except for
those Trust Units with respect to which rights of dissent have been
exercised.
(d) In the event that Former Members as a group perfect dissenters'
rights resulting in an obligation to redeem Trust Units with a value in
excess of two hundred thousand dollars ($200,000.00) at the redemption
rate of four dollars ($4.00) for each Trust Unit, the excess amount due
to such Former Members perfecting dissenters' rights will be paid to
such Former Members by the Company. Such payments, if any, paid by the
Company to such Former Members perfecting dissenters rights shall be
paid from operating funds of the Company and not out of assets
transferred to the Company from the Trust pursuant to the Plan.
(3) Subsequent to the liquidation of the Trust, any amounts remaining with
the Trust not needed to pay expenses or dissenters, if any, shall be
contributed to the Company as an additional contribution to capital.
(4) After the reorganization and conversion, the Company will continue the
historical business of the Trust in a substantially unchanged manner.
II. DISCUSSION OF APPLICABLE REORGANIZATION PROVISIONS
The parties intend that the Plan will satisfy the requirements for
nonrecognition (i.e., treatment as a tax free reorganization) under section
368(a)(1)(D) of the Code. This Code section describes a non-divisive or
acquisitive Type "D" reorganization under which the transferor corporation (the
Trust) transfers substantially all of its assets to a controlled corporation
(the Company), the stock of which the transferor corporation distributes to its
shareholders in pursuance to the plan of reorganization. The Code describes a
Type "D" reoganization involving the transfer of assets to a controlled
corporation as follows:
8.2
1. A transfer by a corporation, of all or part of its assets to another
corporation if immediately after the transfer the transferor, or one or more
of its shareholders (including persons who were shareholders immediately
before the transfer) or any combination thereof, is in control of the
corporation to which the assets are transferred1; but only if, in pursuance of
the plan, stock or securities of the corporation to which the assets are
transferred are distributed in a transaction which qualifies under section
3542 . . . or 356, and
2. In effect, a complete liquidation of the transferor corporation. (Although
Code section 354(b) does not explicitly require a complete liquidation of the
transferor, the requisite distribution of all of the transferor's properties
will have the effect of a complete liquidation).
In addition to the requirements under the Code which have been
generally described above, nonrecognition for the Plan is subject to several
other nonstatutory rules that have been established through case law and
Treasury Regulations. These requirements involve continuity of proprietary
interest, continuity of business enterprise, and the existence of a valid
business purpose for the transaction. The judicially developed step transaction
doctrine, wherein a series of formally separate steps are considered together as
component parts of an overall plan, must also be considered when evaluating
whether a transaction, in substance, qualifies as a valid reorganization under
Code section 368(a)(1)(D).
III. OPINION
In reliance upon the foregoing facts and representations of the parties
to the Plan transactions, and based upon our review of such documents and
consideration of such legal matters as we have deemed relevant and sufficient to
enable us to render an informed opinion, we are of the opinion that the federal
income tax consequences of the proposed Plan will be as follows:
1. The acquisition by the Company of substantially all the assets of the
Trust in exchange for Company Stock and the liquidation of the Trust
and distribution of the Company Stock to the Former Members will
constitute a reorganization within the meaning of Code section
368(a)(1)(D).
For purposes of this opinion, "substantially all" means at least 90
percent of the fair market value of the net assets and at least 70
percent of the fair maket value of the gross assets of the Trust held
immediately prior to the reorganization and conversion (Rev. Proc.
77-37, 1977-2 C.B. 568, 569 section 3.01). The Trust and the Company
will each be "a party to a reorganization" within the meaning of
section 368(b) of the Code.
2. No gain or loss will be recognized by the Trust upon the transfer of
substantially all of its assets to the Company in exchange for the
Company Stock (all of which will be distributed to the Former Members)
(Code section 361(a).
3. No gain or loss will be recognized by the Company on the receipt by the
Company of substantially all of the assets of the Trust in exchange
for the Company Stock (Code section 1032(a)).
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1The determination of whether a corporation is "controlled" for this
purpose is made using the 50% ownership test of section 304(c) as the "control"
threshold, as mandated by Code section 368(a)(2)(H).
2Code section 354 shall not apply to an exchange in pursuance to a Type
"D" reorganization unless (1) the corporation to which the assets are
transferred acquires substantially all of the assets of the transferor of such
assets; and (2) the stock or other property received by the transferor
corporation, as well as the other properties of such transferor, are distributed
under the plan of reorganization, as mandated by Code section 354(b)(1).
209963.1/07450.98443
8.3
4. No gain or loss will be recognized by the Former Members on the receipt
of Company Stock solely in exchange for their Trust Units (Code section
354(a)(1)).
5. Where a dissenting Former Member receives solely cash in exchange for
all of his or her Trust Units, such cash will be treated as having been
received by the Former Member as a distribution in redemption of his or
her Trust Units subject to the provisions and limitations of Code
section 302.
6. 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 (Code section 358(a)(1)).
7. The holding period of the Company Stock received by the Former Members
will include, in each instance, the period during which the Former
Members held an interest in the equity of the Trust as determined under
the Plan, provided such Trust equity constituted a capital asset on the
date of the exchange (Code section 1223(1)).
8. 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 (Code section 362(b)).
9. 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 (Code section 1223(2)).
We have qualified our opinions by reference to the Code, the Treasury
Regulations promulgated thereunder, and existing judicial and administrative
interpretations thereof. In so opining, we have relied upon the foregoing facts
and representations and have reviewed such documents and have considered such
legal matters as we have deemed relevant and sufficient to enable us to render
an informed opinion. While we have not been requested nor have we undertaken to
make independent investigations to verify the representations and statements
described above or set forth in the Certificates attached as Exhibits "A" and
"B," based upon our discussions with representatives of the parties and our
limited review of certain background material, we believe that it is reasonable
for us to rely on such representations and statements.
Our opinion is limited to the specific opinions expressed above, and no
other opinions are intended nor should they be inferred. An opinion of counsel
has no binding effect upon the Service and no assurances can be given that the
conclusions reached in any opinion will not be contested by the Service, or if
contested, will be sustained by a court.
The opinions we have expressed above are based on the facts and
representations outlined herein being correct in all material respects as of the
dates indicated or at the time of the proposed transactions as the case may be.
In the event that one or more of the facts or representations are incorrect for
any such time, our opinion would likely be substantially different than that
expressed above.
The opinion expressed herein is for the sole benefit of the Trust and
the Company, together with the Former Members for their use in connection with
the proposed Plan of Reorganization and Conversion, and is not to be used,
delivered to or relied upon by any other party for any other purpose, and may
not be circulated, quoted, or otherwise referred to for any other purpose
without our prior written consent.
We consent to the filing of this opinion as an exhibit to the
Registration Statement on Form S-4 which has been filed by the Company and to
the use of our name under the heading "Legal Matters" and other such locations
as it may appear in the Prospectus comprising Part I of the Registration
Statement.
Very truly yours,
WATKINS LUDLAM & STENNIS, P.A.