-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L3CMjIgbk9gysqIEE+BMGg0JYJBIh236X08nJcjJLVq90oJtEraa+Ej6yILpHzM2 cd+fP4zQ6t7DKg/jmArt4A== 0001030798-97-000028.txt : 19970409 0001030798-97-000028.hdr.sgml : 19970409 ACCESSION NUMBER: 0001030798-97-000028 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19970408 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: STONEVILLE INSURANCE CO CENTRAL INDEX KEY: 0001036506 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 721341156 STATE OF INCORPORATION: MS FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-24739 FILM NUMBER: 97576368 BUSINESS ADDRESS: STREET 1: 633 NORTH STATE ST STE 200 CITY: JACKSON STATE: MS ZIP: 39202-7817 BUSINESS PHONE: 6013527817 MAIL ADDRESS: STREET 1: STONEVILLE INSURANCE CO STREET 2: 633 NORTH STATE ST STE 200 CITY: JACKSON STATE: MS ZIP: 39202-7817 S-4 1 FORM S-4 STONEVILLE INSURANCE COMPANY 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 EX-3.1 2 EXHIBIT 3.1 ARTICLES OF THE COMPANY ARTICLES OF ASSOCIATION OF STONEVILLE INSURANCE COMPANY We, the undersigned residents of the State of Mississippi, having associated ourselves together for the purpose of forming a corporation under and by virtue of Chapter 19, Title 83, Mississippi Code of 1972, as amended, hereby adopt the following Articles of Association: ARTICLE I NAME The name of the corporation shall be Stoneville Insurance Company. ARTICLE II DURATION The period of its duration shall be ninety-nine (99) years. ARTICLE III PURPOSES The purposes for which the corporation shall be organized, and the powers of the corporation, shall be as follows: 1. To insure houses, buildings, vehicles, and all other kinds of property against direct or consequential loss or damage by fire, lightning, theft, explosion, or storm; to insure against loss or damage to any goods or premises by water, arising from the breakage or leakage of sprinklers or water pipes; and to make any and all kinds of insurance against loss or damage to goods, merchandise, or other property caused by fire, risks of inland transportation or navigation, the action of the elements, or adverse manifestations of nature, as well as all and every risk or peril to property or interest in property or which may arise from the ownership, maintenance, or use of property to which the subject of insurance may be exposed, against which it is not contrary to public policy to insure, including every insurable interest therein or in the use thereof, or profit or income therefrom, or legal liability therefor, but not to include injury to the person. 2. To insure vessels, craft, cars, aircraft, automobiles and other vehicles, whether operated on or under water or land or in the air, in any place or situation, and whether complete, or in process of, or awaiting construction; also all goods, freights, cargoes, merchandise, effects, disbursements, profits, money, bullion, precious stones, securities, chooses in action, evidences of debt, including money loaned on bottomry or respondentia, valuable papers, and all other kinds of property and interest therein, including liabilities and liens of every description, in respect to any and all risks and perils while in course of navigation, transit, travel or transportation on or under any seas or other waters, on land, in the air, or while in preparation for or while awaiting the same, or during any delays, storage, transshipment or reshipment incident thereto, including builders' risks, war risks, and for loss of or damage to property or injury or death of any person, whether legal liability results therefrom or not, during, awaiting, or arising out of navigation, transit, travel, transportation, or the construction or repair of vessels. 3. To guarantee the fidelity of persons in positions of trusts, private or public, and to act as surety on official bonds and for the performance of other obligations, and to insure against loss through wrongful conversion, concealment, and disposal of personal property. 4. To insure against loss or damage to property of the assured, or loss or damage to the life, person, or property of another for which the assured is liable, caused by the explosion of steam boilers. 5. To insure any person against bodily injury or death by accident, or any person, firm, or corporation against loss or damage on account of the bodily injury or death by accident of any person for which loss or damage said person, firm, or corporation is responsible. 6. To insure against the breakage of plate glass, local or in transit. 7. To insure against loss or damage by water or steam to any goods or premises, arising from leakage of sprinklers and water pipes, plumbing, leaking roofs, heating systems, and other similar causes. 8. To insure against loss or damage to property arising from accidents to elevators, bicycles, and vehicles, including aircraft, except rolling stock of railways. 9. To carry on the business commonly known as credit insurance or guaranty, either by agreeing to purchase uncollectible debts or otherwise to insure against loss or damage from the failure of persons indebted to the assured to meet their liabilities. 10. To carry on the business commonly known as health insurance. 11. To insure against loss or damage by bombardment, invasion, insurrection, riot, civil war, or commotion, military, or usurped power. 12. To insure against loss or damage by insects or disease to farm crops or products, and loss of rental value of land producing such crops or products. 13. To insure against loss or damage of personal property, local or in transit. 14. To provide any and all other types of insurance permitted by law. 15. To enter into reinsurance agreements of all kinds with other insurance companies, to reinsure its own insurance risks of all types with other insurance companies and to reinsure the insurance risks of other insurance companies. 16. To provide coverage for an employer's liability for injuries, disability or death to persons in their employment, without regard to fault, as prescribed by state workers' compensation laws. 17. Without limiting the generality of the foregoing powers and purposes, to do every other thing or act permitted by law. ARTICLE IV AUTHORIZED STOCK The authorized amount of capital stock of the corporation shall be one hundred million (100,000,000) shares of common stock of the par value of One Dollar ($1.00) per share. ARTICLE V REQUIRED CAPITAL No insurance policies shall be issued until the corporation shall have met capital and surplus statutory requirements and shall have obtained a license to engage in business issued by the Commissioner of Insurance of the State of Mississippi. ARTICLE VI LIMITATION OF LIABILITY No director shall be liable to the corporation or its shareholders for money damages for any action taken, or any failure to take any action, as a director, except liability for: (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) A violation of Section 79-4-8.33 of the Mississippi Code of 1972, as amended, or any successor section thereto; or (iv) An intentional violation of criminal law. ARTICLE VII REGISTERED OFFICE AND AGENT The address of the corporation's initial registered office is 633 North State Street, Jackson, Mississippi 39202, and the name of its initial registered agent at such address is David L. Martin. The home office of the corporation shall be located in Jackson, Hinds County, Mississippi. ARTICLE VIII NAMES OF CORPORATORS The name and address of each proposed incorporator is: NAME ADDRESS S. H. Barret, Jr. P. O. Box 718 Belzoni, MS 39038 Bruce J. Brumfield P. O. Box 165 Inverness, MS 38753 William L. Kennedy P. O. Box 264 Inverness, MS 38753 David L. Martin P. O. Box 427 Jackson, MS 39205 Chip Morgan P. O. Box 257 Stoneville, MS 38776 Merlin Richardson P. O. Box 220 Rolling Fork, MS 39159 W. T. Robertson P. O. Box 95 Holly Ridge, MS 38749 Harry E. Vickery P. O. Box 5037 Greenville, MS 38704 David R. White P. O. Drawer 14067 Jackson, MS 39236 Aven Whittington Rt. 3, Box 65 Greenwood, MS 38930 William F. Winter P. O. Box 427 Jackson, MS 39205 IN WITNESS WHEREOF, we hereunto affix our signatures as of the 2nd day of December, 1996. /S/ /S/ S. H. Barret, Jr. W. T. Robertson /S/ /S/ Bruce J. Brumfield Harry E. Vickery /S/ /S/ William L. Kennedy David R. White /S/ /S/ David L. Martin Aven Whittington, Jr. /S/ /S/ Chip Morgan William F. Winter /S/ Merlin Richardson EX-5 3 OPINION OF WATKINS LUDLAM & STENNIS, P.A. EXHIBIT 5 OPINION OF WATKINS LUDLAM & STENNIS, P.A. REGARDING LEGALITY TO BE GIVEN AT CLOSING , 1997 Board of Directors Stoneville Insurance Company 633 North State Street, Suite 200 Jackson, Mississippi 39202 Gentlemen: We have acted as counsel to Stoneville Insurance Company in connection with the preparation of its Registration Statement on Form S-4 for registration of a maximum of 650,000 shares of Common Stock, $1.00 par value, under the Securities Act of 1933. Such shares are to be issued pursuant to the Plan and Agreement of Reorganization and Conversion of Delta Agricultural and Industrial Trust (the "Plan"), dated as of March 20, 1997. We have examined the Plan, the Articles of Incorporation and the amendments thereto of Stoneville Insurance Company, and such other documents as we deemed relevant. Based on the foregoing, it is our opinion that the maximum of 650,000 shares of Common Stock of Stoneville Insurance Company to be registered under the Securities Act of 1933 (i) when issued pursuant to the Plan will be legally issued, fully paid and non-assessable shares of Common Stock of Stoneville Insurance Company; and (ii) such shares which are not issued pursuant to the Plan, when duly delivered against payment therefor as contemplated by the Prospectus comprising Part I of the Registration Statement, will be validly issued, fully paid, and nonassessable. We consent to the filing of this opinion as an exhibit to the Registration Statement 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. Sincerely, WATKINS LUDLAM & STENNIS, P.A. EX-8 4 OPINION OF WATKINS LUDLAM & STENNIS, P.A. EXHIBIT 8 OPINION OF WATKINS LUDLAM & STENNIS, P.A. REGARDING TAX MATTERS FORM OF TAX OPINION TO BE GIVEN AT CLOSING 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 633 North State Street, Suite 200 Industial Trust Jackson, Mississippi 39202 833 Washington Avenue 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. 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: 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 transferred(1); 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 354 (2) . . . 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)). 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. Very truly yours, WATKINS LUDLAM & STENNIS, P.A. - ------------------------------ (1) The 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). (2) Code 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). CERTIFICATE OF DELTA AGRICULTURAL AND INDUSTRIAL TRUST RELATING TO SECTION 368 OPINION ON THE PLAN OF REORGANIZATION AND CONVERSION This Certificate has been requested by the law firm of Watkins Ludlam & Stennis, P.A. in connection with the rendering of its opinion as to certain federal income tax consequences relating to the conversion of Delta Agricultural and Industrial Trust (the "Trust") into Stoneville Insurance Company (the "Company") (the "Conversion") as such transaction is described in that certain Plan and Agreement of Reorganization and Conversion of Delta Agricultural and Industrial Trust dated as of March 20, 1997 (the "Plan"). Watkins Ludlam & Stennis, P. A. will rely on the representations stated hereinafter, as well as on other facts, assumptions, and representations described in its opinion letter dated , 1997 (date of closing) (the "WL&S Tax Opinion") in opining on the federal income tax issues stated therein. Accordingly, this Certificate is an integral part of the WL&S Tax Opinion. Unless otherwise noted, all defined or capitalized terms used in this Certificate have the same meaning ascribed to such terms in the Plan or in the WL&S Tax Opinion. The following representations are being made in connection with the Plan: 1. The Trust is classified as a corporation for federal income tax purposes. 2. The Trust will distribute the Company Stock it receives in the transaction in pursuance to the Plan. 3. The fair market value of the Company Stock and other consideration received by each Former Member will be approximately equal to the fair market value of the Trust Units surrendered in the exchange. 4. There is no plan or intention by the Former Members who own one percent (1%) or more of the Trust Units, and to the best of the knowledge of the management of the Trust, there is no plan or intention on the part of the nondissenting Former Members to sell, exchange, or otherwise dispose of a number of shares of Company Stock received in the transaction that would reduce the Former Members' ownership of Company Stock to a number of shares having a value, as of the date of the transaction, of less than fifty percent (50%) of the value of all of the formerly outstanding Trust Units of the Trust as of the same date. For purposes of this representation, the Trust Units exchanged for cash, surrendered by dissenters, will be treated as outstanding Trust Units on the date of the transaction. Moreover, Trust Units and Company Stock held by Former Members and otherwise sold, redeemed, or disposed of prior or subsequent to the transaction will be considered in making this representation. 5. The Company will acquire at least ninety percent (90%) of the fair market value of the net assets and at least seventy percent (70%) of the fair market value of the gross assets held by the Trust immediately prior to the transaction. For purposes of this representation, amounts paid by the Trust to dissenters, amounts paid by the Trust to Former Members who receive cash or other property, amounts used by the Trust to pay its reorganization expenses, and all redemptions and distributions (except for regular, normal dividends) made by the Trust immediately preceding the transfer will be included as assets of the Trust held immediately prior to the transaction. 6. After the transaction, the Former Members of the Trust will own at least eighty percent (80%) of the issued and outstanding Company Stock. 7. The liabilities of the Trust assumed by the Company, if any, plus the liabilities, if any, to which the transferred assets are subject were incurred by the Trust in the ordinary course of its business and are associated with the assets transferred. 8. The Trust, the Company and the Former Members will pay their respective expenses, if any, incurred in connection with the transaction. 9. There is no intercorporate indebtedness existing between the Trust and the Company that was issued, acquired, or will be settled at a discount. 10. The Trust is not an investment company as defined in Code section 368(a)(2)(F)(iii) and (iv). 11. The fair market value of the assets of the Trust transferred to the Company will equal or exceed the sum of the liabilities assumed by the Company, if any, plus the amount of liabilities, if any, to which the transferred assets are subject. 12. The total adjusted basis of the assets of the Trust transferred to the Company will equal or exceed the sum of the liabilities to be assumed by the Company, if any, plus the amount of liabilities, if any, to which the transferred assets are subject. 13. The Trust is not under the jurisdiction of a court in a Title 11 or similar case within the meaning of Code section 368(a)(3)(A). The Trust hereby certifies that the officer of the Trust executing this Certificate has knowledge of the pertinent information set forth herein and that he has examined the foregoing representations and, to the best of such officer's knowledge and belief, the representations made are true, complete and correct as of the date, , 1997, of this Certificate, and he further certifies that he is duly authorized and empowered to execute and deliver this Certificate. DELTA AGRICULTURAL AND INDUSTRIAL TRUST By: Title: CERTIFICATE OF STONEVILLE INSURANCE COMPANY RELATING TO SECTION 368 OPINION ON THE PLAN OF REORGANIZATION AND CONVERSION This Certificate has been requested by the law firm of Watkins Ludlam & Stennis, P.A. in connection with the rendering of its opinion as to certain federal income tax consequences relating to the conversion of Delta Agricultural and Industrial Trust (the "Trust") into Stoneville Insurance Company (the "Company") (the "Conversion") as such transaction is described in that certain Plan and Agreement of Reorganization and Conversion of Delta Agricultural and Industrial Trust dated as of March 20, 1997 (the "Plan"). Watkins Ludlam & Stennis, P.A. will rely on the representations stated hereinafter, as well as on other facts, assumptions, and representations described in its opinion letter dated , 1997 (date of closing) (the "WL&S Tax Opinion") in opining on the federal income tax issues stated therein. Accordingly, this Certificate is an integral part of the WL&S Tax Opinion. Unless otherwise noted, all defined or capitalized terms used in this Certificate have the same meaning ascribed to such terms in the Plan or in the WL&S Tax Opinion. The following representations are being made in connection with the Plan: 1. The Company does not own, directly or indirectly, nor has it owned during the past five years, directly or indirectly, any equity of the Trust. 2. The fair market value of the Company Stock and other consideration received by each Former Member will be approximately equal to the fair market value of the Trust Units surrendered in the exchange. 3. There is no plan or intention by the Former Members who own one percent (1%) or more of the Trust Units, and to the best of the knowledge of the management of the Company, there is no plan or intention on the part of the nondissenting Former Members to sell, exchange, or otherwise dispose of a number of shares of Company Stock received in the transaction that would reduce the Former Members' ownership of Company Stock to a number of shares having a value, as of the date of the transaction, of less than fifty percent (50%) of the value of all of the formerly outstanding Trust Units of the Trust as of the same date. For purposes of this representation, the Trust Units exchanged for cash, surrendered by dissenters, will be treated as outstanding Trust Units on the date of the transaction. Moreover, Trust Units and Company Stock held by Former Members and otherwise sold, redeemed, or disposed of prior or subsequent to the transaction will be considered in making this representation. 4. The Company will acquire at least ninety percent (90%) of the fair market value of the net assets and at least seventy percent (70%) of the fair market value of the gross assets held by the Trust immediately prior to the transaction. For purposes of this representation, amounts paid by the Trust to dissenters, amounts paid by the Trust to Former Members who receive cash or other property, amounts used by the Trust to pay its reorganization expenses, and all redemptions and distributions (except for regular, normal dividends) made by the Trust immediately preceding the transfer will be included as assets of the Trust held immediately prior to the transaction. 5. After the transaction, the Former Members of the Trust will own at least eighty percent (80%) of the issued and outstanding Company Stock. 6. The Company has no plan or intention to reacquire any of its stock issued in the Conversion. 7. The Company has no plan or intention to sell or otherwise dispose of any of the assets of the Trust acquired in the transaction, except for dispostions made in the ordinary course of business. 8. The liabilities of the Trust assumed by the Company, if any, plus the liabilities, if any, to which the transferred assets are subject were incurred by the Trust in the ordinary course of its business and are associated with the assets transferred. 9. Following the Conversion, the Company will continue the historic business of the Trust or use a significant portion of the Trust's historic business assets in a business. 10. At the time of the Conversion, the Company will not have outstanding any warrants, options, convertible securities, or any other type of right pursuant to which any person could acquire Company Stock that, if exercised or converted, would affect the Former Members' acquisition or retention of at least eighty percent (80%) of the issued and outstanding Company Stock. 11. The Company, the Trust, and the Former Members will pay their respective expenses, if any, incurred in connection with the transaction. 12. There is no intercorporate indebtedness existing between the Trust and the Company that was issued, acquired, or will be settled at a discount. 13. The Company is not an investment company as defined in Code section 368(a)(2)(F)(iii) and (iv). 14. The fair market value of the assets of the Trust transferred to the Company will equal or exceed the sum of the liabilities assumed by the Company, if any, plus the amount of liabilities, if any, to which the transferred assets are subject. 15. The Company is not under the jurisdiction of a court in a Title 11 or similar case within the meaning of Code section 368(a)(3)(A). The Company hereby certifies that the officer of the Company executing this Certificate has knowledge of the pertinent information set forth herein and that he has examined the foregoing representations and, to the best of such officer's knowledge and belief, the representations made are true, complete and correct as of the date, , 1997, of this Certificate, and he further certifies that he is duly authorized and empowered to execute and deliver this Certificate. STONEVILLE INSURANCE COMPANY By: Title: EX-10 5 ASSUMPTION REINSURANCE AGREEMENT EXHIBIT 10(a) ASSUMPTION REINSURANCE AGREEMENT DATED AS OF MARCH 20, 1997 BETWEEN THE TRUST, CONTINENTAL AND THE COMPANY ASSUMPTION REINSURANCE AGREEMENT THIS ASSUMPTION REINSURANCE AGREEMENT (the "Agreement") is made and entered into as of this 2oth day of March, 1997, by and between Delta Agricultural and Industrial Trust, a Mississippi workers' compensation self insured trust (the "Trust"); Stoneville Insurance Company, a Mississippi stock insurance company ("Stoneville"); and Continental Casualty Company, an Illinois stock insurance company ("Continental"). ARTICLE 1 WITNESSETH WHEREAS, the Trust desires to cede to, and Continental desires to assume, all rights and obligations pertaining to workers' compensation insurance issued by the Trust as specified on Exhibit A (the "Policies") and the joint and several liability of each insured of the Trust one to the other arising out of the membership of the insureds in the Trust in accordance with the terms and conditions hereinafter set forth; and WHEREAS, subsequent to such cession, the Trust shall be liquidated and Stoneville shall be the Trust's successor in interest and be the assignee of the Trust's rights hereunder; and WHEREAS, Stoneville and Continental desire to create a relationship whereby Stoneville may reinsure the obligations Continental previously assumed from the Trust in accordance with the terms of this Agreement. NOW, THEREFORE, in consideration of the foregoing premises and the covenants, provisions and agreements set forth herein, the parties agree as follows: ARTICLE 2 DEFINITIONS 2.1 "Affiliate" means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For purposes of this definition, "control" (including with correlative meanings, the terms "controlling," "controlled by," and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise. 2.2 "Claims" means Reported Claims and Unreported Claims. 2.3 "Continental Expense" means the sum of Two Hundred Thousand Dollars ($200,000) which the Trust shall pay the Continental as a part of the Premium. 2.4 "Covered Obligations" means (i) the Claims and the Liabilities calculated on, or attributable to, the Claims; and (ii) the joint and several liability of each insured of the Trust one to the other arising out of the membership of the insureds in the Trust. Covered Obligations shall not include (i) any dividends payable to members of the Trust, (ii) any obligations regarding commission payments related to insurance issued by the Trust; (iii) obligations for premium taxes attributable to insurance issued by the Trust; or (iv) any assessments made against the Trust by the Mississippi Workers' Compensation Self-Insurer Guaranty Association. 2.5 "Effective Date" means 12:01 a.m., Central Standard Time, January 1, 1997. This Agreement shall become effective only upon the satisfaction of the conditions precedent as set forth in Article 9 hereof. 2.6 "Experience Account" means accounting entries which shall be created and maintained by Continental which shall detail the amount of Reserves allocable to each Fund Year. 2.7 "Fund Year" means an accounting year of the Trust. The months composing each Fund Year of the Trust are attached as Exhibit B. 2.8 "Liability" shall mean all liability, including but not limited to, Loss Expenses incurred by Continental related to the Covered Obligations, but not including office expenses or salaries or other compensation and expenses of employees of Continental or its Affiliates. 2.9 "Loss Expenses" shall mean expenditures by or on behalf of Continental in the defense, investigation or settlement of Claims and allocated to an individual Claim or loss including investigation, appraisal, adjustment, negotiation and legal expenses, court costs, costs of award or judgment paid by or on behalf of Continental, statutory penalties, prejudgment interest and interest on any judgment or award, but not including office expenses or salaries or other compensation and expenses of employees of Continental or its Affiliates. 2.10 "Person" means any individual, corporation, partnership, joint venture, association, or other form of organization, in each case whether or not having a separate legal identity. 2.11 "Premium" means the Reserves and Continental Expense to be paid to Continental in return for Continental's assumption of the Covered Obligations. 2.12 "Reported Claims" means the claims made by persons under the Policies, and all rights and obligations and prerogatives associated therewith, including but not limited to reserves, premiums paid or payable, unearned premiums and all Liabilities associated therewith, as set forth on Exhibit C attached hereto and made a part hereof. Exhibit C will be amended from time to time by Continental to reflect the filing of any claims on the Policies issued by the Trust reported subsequent to the date hereof which were categorized as Unreported Claims as of the date hereof. 2.13 "Reserves" means as of the date hereof the sum of Two Million Two Hundred Thousand Dollars ($2,200,000), less claims amounts which have been paid between the Effective Date and the date the Premium is paid to Continental by the Trust, which sum the Trust will transfer to Continental as a part of the Premium for payment of Covered Obligations. The Reserves shall consist of funds allocated specifically to Reported Claims as well as funds allocated to Unreported Claims. 2.14 "Stoneville Reinsurance" means the cession by Continental to Stoneville of the Covered Obligations for any Fund Year for the provision of reinsurance by Stoneville to Continental for such Covered Obligations in accordance with a Reinsurance Agreement acceptable to Continental with such acceptability criteria to be based on customary industry practice and with such acceptance by Continental not to be unreasonably withheld. 2.15 "Unreported Claims" means claims which may have been incurred but not yet reported under workers' compensation insurance Policies issued by the Trust and all rights and obligations and prerogatives associated therewith, including but not limited to reserves, premiums paid or payable, unearned premiums and all liabilities associated therewith. ARTICLE 3 CESSION AND ASSUMPTION REINSURANCE 3.1 Cession and Assumption. As of the Effective Date, the Trust shall cede to Continental, and as of such date Continental shall assume as direct obligations, 100% of the Covered Obligations. 3.2 Subrogation. Continental shall accept and assume the Covered Obligations and shall have the benefit of any and all rights of action, defenses, recoupments, setoffs and counterclaims to which the Trust would be entitled with respect to such Covered Obligations, it being expressly understood and agreed by the parties hereto that no such defenses, recoupments, setoffs or counterclaims are waived by the execution of this Agreement or the consummation of the transactions contemplated hereunder and that, on and after the Effective Date, Continental shall be fully subrogated to all such defenses, recoupments, setoffs and counterclaims. 3.3 Liability. The liability of Continental under this Agreement begins on the Effective Date. ARTICLE 4 ASSUMPTION CERTIFICATE 4.1 Certificate. Within thirty (30) days after the Effective Date, the Trust shall issue and send by first-class mail an Assumption Certificate in the form as set forth on Exhibit D to each of the Trust's insureds as shown on the books and records of the Trust. ARTICLE 5 USE OF RESERVES AND ADDITIONAL COLLATERAL 5.1 Additional Collateral. Stoneville shall provide to Continental collateral in the amount of One Million Five Hundred Thousand Dollars ($1,500,000) for payment of the Covered Obligations (the "Additional Collateral"). Stoneville, at its option, may provide the Additional Collateral either through (i) an irrevocable letter of credit with a financial institution acceptable to Continental in a form acceptable to Continental; or (ii) cash or securities placed in a trust account, the terms and Trustee of which are acceptable to Continental and Stoneville. 5.2 Use. The Reserves and Additional Collateral shall be used by Continental only for payment of Covered Obligations. ARTICLE 6 PREMIUM 6.1 Payment. The Trust shall pay to Continental the Premium which shall be the sole payment due from the Trust for Continental's assumption of the Covered Obligations. ARTICLE 7 CLAIMS AND ADMINISTRATION 7.1 Third Party Claims Administrator. The parties agree that Sedgwick James of Mississippi, Inc. ("Sedgwick") shall be appointed as third party claims administrator to handle Claims arising out of the Covered Obligations. The Trust shall have Sedgwick perform such administration at no cost to Continental pursuant to that certain Continuation of Service Agreement dated as of May 9, 1996 (the "Service Agreement") between the Trust and Sedgwick which rights to administration at no cost shall be assigned to Continental. The Trust agrees to transfer to Continental all files related to the Covered Obligations and to cooperate with Continental with respect to servicing of the Claims. 7.2 Claims. Continental will notify Sedgwick and Stoneville promptly after the receipt of any information on a Claim involving the Covered Obligations. Continental will furnish to Sedgwick and Stoneville copies of notifications and claim papers as soon as possible following Continental's receipt of such documents. Continental agrees to allow Stoneville to advise and assist Continental in determination of Claims and the best procedure to follow with respect to a Claim of doubtful validity and decisions on handling such claims shall be made jointly. Payments of Claims shall be made directly to the beneficiary. Stoneville may, but is not required to, participate with Continental to contest, compromise, or litigate a Claim, with such participation to be at Stoneville's expense. ARTICLE 8 STONEVILLE REINSURANCE 8.1 Reinsurance. Stoneville shall have the right to cause Continental to cede to Stoneville all or a portion of the Covered Obligations for any Fund Year for the purpose of providing reinsurance to Continental pursuant to Stoneville Reinsurance. No consideration shall be paid or due to or from either Stoneville or Continental for Stoneville Reinsurance. 8.2 Notice of Reinsurance. Stoneville may exercise Stoneville Reinsurance on January 1 or July 1 of any year beginning with July 1, 1997, by providing sixty (60) days' written notice to Continental prior to such exercise date. Such notice shall contain the amount of reinsurance Stoneville desires to provide and the portions of the Covered Obligations it desires to reinsure. Prior to the effective date of any Stoneville Reinsurance, Continental and Stoneville shall enter into a Reinsurance Agreement in a form acceptable to Continental with such acceptability criteria to be based on customary industry practice and with such acceptance by Continental not to be unreasonably withheld. 8.3 Effect of Stoneville Reinsurance on Reserves. (1) Upon Stoneville Reinsurance: (i) Continental shall transfer to Stoneville the amounts of Reserves entered in the Experience Account which are allocable to the Covered Obligations for the Fund Year which Stoneville desires to reinsure; and (ii) the Additional Collateral shall be reduced by a percent equal to the quotient of the following formula: reduction of Reserves in Experience Accounts attributable to Stoneville Reinsurance divided by amount of Reserves in all Experience Accounts for all Fund Years immediately prior to Stoneville Reinsurance. (2) Upon Stoneville Reinsurance, Stoneville agrees to place the amounts of Reserves in the Experience Account for the Fund Year incident to such Stoneville Reinsurance received from Continental in a trust account with a financial institution acceptable to Continental and Stoneville with the terms and conditions of such trust to comply with the law of Continental's state of domicile such that Continental shall receive financial statement credit for such reinsurance. ARTICLE 9 STONEVILLE RECAPTURE 9.1 Stoneville Recapture. (1) Stoneville shall have the right to cause Continental to cede to Stoneville the (i) Reserves allocable to Reported Claims which have been settled for less than the amount of Reserves allocated to such Reported Claims ("Reported Claim Recapture"); and (ii) Reserves which are allocated for Unreported Claims and other contingencies which, in the opinion of Wexford Actuarial & Consulting Services or such other consulting actuarial firm mutually agreed to by Stoneville and Continental (the "Actuary"), are not actuarially needed ("IBNR Recapture"). The Reported Claim Recapture and IBNR Recapture shall be collectively referred to as "Stoneville Recapture." Actuarial expenses incurred in connection with IBNR Recapture with respect to this Section 8.1(a) shall be paid by Stoneville. No consideration shall be paid or due to or from either Stoneville or Continental for Stoneville Recapture. (2) In the event Continental disagrees with the actuarial review of IBNR Recapture as set forth in Section 8.1(a), Continental, at its sole expense, may also appoint an actuary or appraiser to investigate, determine and capitalize Reserves allocated to Unreported Claims. If both parties then agree, Continental shall release to Stoneville the amount of Reserves not actuarially needed. (3) If the parties, subsequent to the procedures in Sections 8.1(a) and 8.1(b) above, fail to agree on the amount of Reserves not actuarially needed regarding IBNR Recapture, the parties agree to settle any difference using a panel of three actuaries, one to be chosen by each party and the third by the two so chosen. If either party refused or neglects to appoint an actuary within thirty days, the other party may appoint two actuaries. If the two actuaries fail to agree on the selection of a third actuary within thirty days of their appointment, each of them shall name two, of whom the other shall decline one and the decision shall be made by drawing lots. All the actuaries shall be regularly engaged in the valuation of insurance or reinsurance claims and shall be Fellows of the Casualty Actuarial Society or of the American Academy of Actuaries. All of the actuaries shall be disinterested, not under the control of either party to this Agreement, nor have any conflict of interest. Each party shall submit its case to its actuary within thirty days of the appointment of the third actuary. The decision in writing of any two actuaries, when filed with the parties hereto, shall be final and binding on both parties. The expense of the actuaries shall be equally divided between the two parties. 9.2 Notice of Recapture. Stoneville may exercise Stoneville Recapture on January 1 or July 1 of any year beginning with July 1, 1997 by providing sixty (60) days' written notice to Continental prior to such exercise date. In the event of a Reported Claim Recapture, such notice shall identify the Reported Claims subject to the Stoneville Recapture and the amount of Reserves allocable thereto to be recaptured. In the event of an IBNR Recapture, the notice shall state the amount of Reserves to be recaptured and include a copy of the Actuary's report analyzing such IBNR Recapture. 9.3 Effect of Stoneville Recapture on Reserves. Upon Stoneville Recapture (i) the Reserves shall be lessened by the amount of Stoneville Recapture; and (ii) the Additional Collateral shall be reduced by a percent equal to the quotient of the following formula: reduction in Reserves attributable to Stoneville Recapture divided by amount of all Reserves immediately prior to Stoneville Recapture. ARTICLE 10 CONDITIONS PRECEDENT 10.1 Conditions. This Agreement shall become effective upon satisfaction of the following conditions: (i) the rights to no cost administration of the Claims arising out of the Covered Obligations under the Service Agreement have been assigned to Continental; and (ii) payment to Continental of the Premium and the funding of the Additional Collateral. ARTICLE 11 TERM 11.1 Term. Subject to the satisfaction of the conditions precedent as set forth in Article 9 hereof, this Agreement shall commence as of the Effective Date. In the event that the conditions precedent set forth in Article 9 have not been satisfied or waived by all parties prior to December 31, 1997, this Agreement shall terminate with no further obligation of any party to the other. ARTICLE 12 REPRESENTATIONS AND WARRANTIES 12.1 Continental Representations. (1) Continental warrants that it is a corporation duly organized as a capital stock insurance company, validly existing and in good standing under the laws of the State of Illinois with the power and authority to conduct the business in which it is engaged, and has complete and unrestricted power to enter into and consummate this Agreement. Continental has full power and authority to enter into this Agreement and carry out the transactions contemplated hereby and all necessary corporate action has been taken by Continental to authorize the execution and delivery of this Agreement and the performance of the transactions contemplated hereby. (2) Continental has all licenses, permits and registrations necessary under the laws of State of Mississippi to perform the transactions contemplated herein and is and shall remain in compliance with all federal and state laws, regulations, and policies pertaining to the provision of reinsurance and there are no outstanding, pending or threatened orders, writs, injunctions, or decrees of any court, governmental agency, or other tribunal affecting the ability of Continental to enter into this Agreement or provide the services described herein or relating to the solvency of Continental. 12.2 Trust Representations. (1) The Trust warrants that it is a duly organized Mississippi workers' compensation self insurance trust, validly existing and in good standing under the laws of the State of Mississippi with the power and authority to conduct the business in which it is engaged, and has complete and unrestricted power to enter into and consummate this Agreement. The Trust has full power and authority to enter into this Agreement and carry out the transactions contemplated hereby and all necessary trust action has been taken by the Trust to authorize the execution and delivery of this Agreement and the performance of the transactions contemplated hereby. (2) The Trust has all licenses, permits and registrations necessary under the laws of State of Mississippi to perform the transactions contemplated herein and there are no outstanding, pending or threatened orders, writs, injunctions, or decrees of any court, governmental agency, or other tribunal affecting the ability of the Trust to enter into this Agreement or provide the services described herein or relating to the solvency of the Trust. The fair market value of the Trust's assets exceeds the Trust's liabilities, and the Trust is currently paying its debts when due. The Trust is not a party to any insolvency or bankruptcy proceeding, nor is currently making an arrangement for the benefit of creditors. 12.3 Stoneville Representations. (1) Stoneville warrants that it is a corporation duly organized, validly existing and in good standing under the laws of the State of Mississippi with the power and authority to conduct the business in which it is engaged, and has complete and unrestricted power to enter into this Agreement. All necessary corporate action has been taken by Stoneville to authorize the execution and delivery of this Agreement. (2) There are no outstanding, pending or threatened orders, writs, injunctions, or decrees of any court, governmental agency, or other tribunal affecting the ability of Stoneville to enter into this Agreement. Prior to Stoneville Reinsurance, Stoneville shall be licensed as an insurance company qualified to write workers' compensation insurance in the State of Mississippi. 12.4 Information. To the best of their respective knowledge, the Trust and Stoneville warrant that all information provided by the Trust and Stoneville to Continental in connection with this Agreement, including financial and actuarial statements, is accurate and complete. ARTICLE 13 MISCELLANEOUS 13.1 Notices. Any notices required or permitted to be given hereunder shall be deemed to be given if delivered by hand or if mailed by certified mail, postage prepaid, return receipt requested or by postal or a commercial express document delivery service which issues an individual delivery or receipt, or by facsimile with reasonable evidence of receipt, to the following addresses: If to Continental: Continental Casualty Company 180 Maiden Lane New York, New York 10038 Attn: Scott Keller Facsimile: (212) 440-3476 with copy to: Continental Casualty Company CNA Plaza Chicago, Illinois 60685 Attn: Dennis Norton, Esq. Facsimile: (312) 822-1186 If to Trust: Delta Agricultural and Industrial Trust 633 North State Street, Suite 200 Jackson, Mississippi 39202 Attn: Harry Vickery Facsimile: (601) 355-7822 If to Stoneville: Stoneville Insurance Company 633 North State Street, Suite 200 Jackson, Mississippi 39202 Attn: Harry Vickery Facsimile: (601) 355-7822 13.2 Expenses. All expenses of the preparation of this Agreement shall be borne by the respective parties incurring such expense. 13.3 Entire Agreement. This Agreement and the Exhibits delivered pursuant hereto, constitute the entire contract between the parties hereto pertaining to the subject matter hereof and supersede all prior and contemporaneous agreements, understandings, negotiations and discussions, whether written or oral, of the parties. 13.4 Governing Law. The validity and construction of this Agreement shall be governed by the laws of the State of Mississippi. 13.5 Section Headings. The section headings are for reference only and shall not limit or control the meaning of any provision of this Agreement. 13.6 Waiver. No delay or omission on the part of any party hereto in exercising any right hereunder shall operate as a waiver of such right or any other right under this Agreement. 13.7 Amendments. This Agreement may be amended, but only in writing, signed by the parties hereto. 13.8 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall compromise one and the same instrument. 13.9 Attorneys' Fees. If legal action is commenced to enforce this Agreement, the prevailing party in such action shall be entitled to recover its costs and reasonable attorneys' fees in addition to any other relief granted. 13.10 Successor and Assigns. Continental shall not assign its rights hereunder or transfer or otherwise reinsure the Covered Obligations to or with other persons without the express written consent of Stoneville. Continental hereby acknowledges and agrees that it is aware of the Trust's intent to liquidate, and that upon such liquidation, Continental understands and agrees that the Trust's rights hereunder shall automatically be assigned to Stoneville with no further action by any party required, and Stoneville hereby accepts such assignment. 13.11 Arbitration. In the event of any dispute hereunder, such dispute shall be settled by arbitration in accordance with the commercial arbitration rules of the American Arbitration Association then in effect. Upon the occurrence of a dispute, the parties shall choose a panel of three arbitrators in the following manner: one of the arbitrators shall be appointed by Stoneville, the second by Continental and the third is to be selected by those two arbitrators before the beginning of the arbitration. Should one of the parties decline to appoint an arbitrator for a period of thirty (30) days after being requested to do so by the other party, or should the two arbitrators be unable to agree upon the choice of a third, within thirty (30) days after their appointment, the appointment shall be made by the American Arbitration Association. The arbitrators shall decide by a majority of votes and the award of such arbitrators shall be final and may be entered in any court of competent jurisdiction. All costs and expenses of such arbitration, including legal expenses, shall be paid solely by the party against whom the award is directed, or as directed by the arbitrators. The arbitration proceedings shall convene and be held in the City of Jackson, Mississippi, or such other city mutually agreed upon by the parties. All such arbitrators shall be distinterested, not under the control of any party to this Agreement, and shall not have any conflict of interest. The parties have duly executed this Agreement as of the day and year first above written. CONTINENTAL: TRUST: CONTINENTAL CASUALTY COMPANY DELTA AGRICULTURAL AND INDUSTRIAL TRUST By: /s/ Scott Keller By: /s/ Harry E. Vickery Name/Title: Vice President Name/Title:Administrator STONEVILLE: STONEVILLE INSURANCE COMPANY By:/s/ Harry E. Vickery Name/Title:/s/ President EXHIBIT A LIST OF POLICIES [Exhibit not included] EXHIBIT B 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 EXHIBIT C LIST OF REPORTED CLAIMS [Exhibit not included] EXHIBIT D ASSUMPTION CERTIFICATE [Letterhead of Delta Agricultural and Industrial Trust] , 1997 Policy No.: Dear Insured: Continental Casualty Company ("Continental"), pursuant to that certain Assumption Reinsurance Agreement between Continental, Delta Agricultural and Industrial Trust (the "Trust") and Stoneville Insurance Company dated as of March 20, 1997, has assumed as of 12:01 a.m., Central Standard Time, January 1, 1997, the contractual liability of the Trust under the worker's compensation insurance policy showing you as insured and the joint and several liability of each insured of the Trust one to the other arising out of the membership of the insureds in the Trust. Continental is a member of the CNA Insurance Group. The CNA Insurance Group has a rating by the A.M. Best Company of "A" (Excellent). Continental will have direct responsibility to you for the payment of all claims and policy obligations under the workers' compensation insurance coverage previously provided to you by the Trust. To confirm Continental's (i) assumption of the contractual liability of the Trust for insurance obligations; and (ii) assumption of and relief from the joint and several liability of the insureds as set forth above, please sign below and return this letter to the Trust in the enclosed prepaid, pre-addressed envelope. If you have any questions, please contact the undersigned at (601) 352-7817. DELTA AGRICULTURAL AND INDUSTRIAL TRUST Harry E. Vickery, Administrator TO CONFIRM ASSUMPTION BY CONTINENTAL, THE INSURED SHOULD SIGN BELOW: ACCEPTED AND AGREED: Name of Insured Authorized Signature Date: EX-10 6 INSURANCE PLACEMENT AGREEMENT EXHIBIT 10(b) INSURANCE PLACEMENT AGREEMENT DATED AS OF JUNE 10, 1996 BETWEEN THE TRUST, TIG AND AND TIG REINSURANCE COMPANY INSURANCE PLACEMENT AGREEMENT THIS INSURANCE PLACEMENT AGREEMENT (the "Agreement") is made as of this 10th day of June, 1996, by and between Delta Agricultural and Industrial Trust, or its assignee or successor in interest (collectively, the "Trust"), TIG Insurance Company ("TIG") and TIG Reinsurance Company ("TIG Re"). WITNESSETH WHEREAS, the Trust is a self-insured workers' compensation trust and TIG and TIG Re are capital stock insurance companies; and WHEREAS, the Trust desires to refer its workers' compensation clients to TIG, and TIG desires to write such insurance as hereinafter set forth; and WHEREAS, TIG Re desires to reinsure the insurance written by TIG and may become a reinsured of a commercial insurance company to be organized by the Trust. NOW, THEREFORE, in consideration of the foregoing premises and the covenants, promises, and agreements set forth herein, TIG, TIG Re and the Trust agree as follows: ARTICLE 14 DEFINITIONS 14.1 "Affiliate" means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For purposes of this definition, "control" (including with correlative meanings, the terms "controlling," "controlled by," and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise. 14.2 "Effective Date" means 12:01 a.m., Central Standard Time, July 1, 1996. 14.3 "Existing Clients" means Persons covered by workers' compensation policies written by the Trust prior to the Effective Date which shall be offered workers' compensation insurance through TIG after the termination of their policies by the Trust as of the Effective Date. 14.4 "Person" means any individual, corporation, partnership, joint venture, association, or other form of organization, in each case whether or not having a separate legal identity. 14.5 "Potential Clients" means those Persons which request or are offered workers' compensation insurance through the Trust or an agent or representative thereof, but not including Existing Clients. 14.6 "Program" shall mean the marketing and provision of TIG's workers' compensation insurance to Existing Clients and Potential Clients in accordance with the terms of this Agreement. 14.7 "Program Business" shall mean policies of insurance written by TIG covering Program Clients. 14.8 "Program Clients" means all (i) Existing Clients who are provided with workers' compensation insurance by TIG; (ii) and Potential Clients who are provided with workers' compensation insurance products by TIG under this Agreement. 14.9 "Reinsurance" shall mean the entering into of a reinsurance relationship between the Trust through a commercial insurance company formed by or on behalf of the Trust and TIG or, at TIG's sole option, TIG Re, such that the Trust, through the commercial insurance company, shall act as a reinsurer of Program Business. 14.10 "Trust" means the Delta Agricultural and Industrial Trust, or its assignee or successor in interest. As used herein, the term "Trust" shall also mean a commercial insurance company formed by or on behalf of the Trust where the use of the term in such context is appropriate. ARTICLE 15 PLACEMENT OF INSURANCE 15.1 Existing Clients. As of the Effective Date, the Trust shall terminate its existing workers' compensation policies as to the Existing Clients, and TIG shall offer to all Existing Clients workers' compensation insurance written by TIG. The parties acknowledge that the Existing Clients are under no obligation to accept workers' compensation insurance coverage from TIG, but TIG is obligated to offer such coverage to all Existing Clients. 15.2 Potential Clients. From and after the Effective Date, TIG shall make its policies of workers' compensation insurance available to all Potential Clients in accordance with TIG's underwriting criteria for the Program as attached hereto as Exhibit A and any amendments thereto (the "Underwriting Criteria"). TIG may change the Underwriting Criteria by providing notice thereof to the Trust at least sixty (60) days prior to the date the revised Underwriting Criteria are to become effective. 15.3 Premium Rates. From and after the Effective Date, premium rates charged by TIG to Program Clients shall not exceed those premium rates filed by TIG which were approved by the Commissioner of Insurance of the State of Mississippi on April 11, 1996, to be effective June 1, 1996 (the "Rates"). TIG may change the Rates by providing notice thereof to the Trust at least sixty (60) days prior to the date the revised Rates are to become effective. 15.4 Renewals. The renewal by TIG of any policy of workers' compensation insurance issued by TIG to a Program Client shall be subject to TIG's Underwriting Criteria for the Program and TIG shall not be obligated to renew any policy of workers' compensation insurance issued to a Program Client by TIG that does not satisfy the Underwriting Criteria. ARTICLE 16 LIABILITY 16.1 Duration. The duties and obligations of TIG hereunder with regard to the Program Business shall begin on the Effective Date. 16.2 Reciprocal Indemnity. (1) TIG shall not be responsible for any act or omission of the Trust occurring prior to the Effective Date with respect to workers' compensation policies issued by the Trust prior to the Effective Date and the Trust agrees to save, defend, indemnify and hold harmless TIG (including payment of reasonable attorney's fees) from any and all suits, claims, hearings, actions, damages of any kind, liability, fines or penalties arising out of any act or omission with regard to such workers' compensation policies. (2) The Trust shall not be responsible for any act or omission of TIG occurring on or after the Effective Date with respect to workers' compensation policies issued by TIG on or after the Effective Date and TIG agrees to save, defend, indemnify and hold harmless the Trust (including payment of reasonable attorney's fees) from any and all suits, claims, hearings, actions, damages of any kind, liability, fines or penalties arising out of any act or omission with regard to such workers' compensation policies. ARTICLE 17 GENERAL AGENT 17.1 Appointment and Duties. TIG shall appoint Mississippi Risk Management, Inc. as its general agent (the "GA") to oversee the sales and marketing of the Program on behalf of TIG. The duties of the GA shall be set forth in a separate agreement; provided, however, that such duties shall include the authority of the GA to solicit, underwrite, quote, bind and rate policies of workers' compensation on TIG's behalf in accordance with the Underwriting Criteria. Mississippi Risk Management, Inc. shall continue as the GA so long as it is in compliance with (i) all applicable laws and regulations of the states in which the GA conducts business on behalf of TIG with regard to the Program Business; and (ii) the terms of the agreement to be entered into between TIG and the GA. 17.2 Approval. The Trust shall have the right to approve in advance the GA as well as any subsequent GA appointed by TIG in substitution for the GA. The Trust shall have the right to review and approve the agreement between the GA and TIG and any amendments or revisions thereto prior to the GA and TIG entering into such agreement and any amendments or revisions thereto. ARTICLE 18 REPORTS AND INFORMATION 18.1 Reports. TIG shall provide to the Trust upon request all reports and information produced by or on behalf of TIG dealing with the Program, including but not limited to reports of third party administrators retained by TIG. 18.2 Access. Upon ten (10) days prior written notice, the Trust shall at all times have full and free access during business hours at the office of TIG to all books, records and files of TIG relating to Program Business and the transactions covered by this Agreement. ARTICLE 19 ADMINISTRATION 19.1 Administration. From and after the Effective Date, TIG shall have the sole responsibility and expense for all matters relating to the administration of Program Business, including, without limitation, defense, settlement, and payment of all claims arising under Program Business. TIG shall pay all state taxes, licenses, fees and assessments which may be or become due in connection with the premiums received by TIG in connection with Program Business and the operations of TIG as an insurer writing workers' compensation insurance. 19.2 Third Party Claims Administrator (1) To assist TIG in the administration of Program Business as set forth in Section 6.1 above, the parties agree that Sedgwick James of Mississippi, Inc. shall be appointed as the third party claims administrator of the Program Business (the "Administrator") on such terms and conditions as TIG and the Administrator shall agree upon, subject to the approval of the Trust. Sedgwick James of Mississippi, Inc. shall continue as the Program Administrator so long as it is in compliance with (i) all applicable laws and regulations of the states in which the Program Administrator conducts operations on behalf of TIG with regard to the Program Business; and (ii) the terms of the agreement to be entered into between TIG and the Program Administrator. (2) Payment for all services rendered by the Administrator and those expenses of the Program to be paid by the Administrator shall be made in accordance with the terms of the agreement to be entered into between the Administrator and TIG. ARTICLE 20 REPRESENTATIONS AND WARRANTIES 20.1 Power and Authority. TIG and TIG Re warrant that they are corporations duly organized as capital stock insurance companies, validly existing and in good standing under, respectively, the laws of the States of California and Connecticut with power and authority to conduct the business in which they are engaged, and have complete and unrestricted power to enter into and consummate this Agreement. TIG and TIG Re have full power and authority to enter into this Agreement and carry out the transactions contemplated hereby and all the necessary corporate action has been taken by TIG and TIG Re to authorize the execution and delivery of this Agreement and the performance of the transactions contemplated hereby. 20.2 Compliance. (a) TIG has all licenses, permits and registrations necessary under the laws of State of Mississippi to write workers' compensation and property and casualty insurance and perform the transactions contemplated hereby and is and shall remain in compliance with all federal and state laws, regulations, and policies pertaining to the provision of such insurance and there are no outstanding, pending or threatened orders, writs, injunctions, or decrees of any court, governmental agency, or other tribunal affecting the ability of TIG to enter into this Agreement or provide insurance in accordance with this Agreement or relating to the solvency of TIG. (b) TIG Re has all licenses, permits and registrations necessary under the laws of the State of Mississippi to reinsure workers' compensation and property and casualty insurance and perform the transactions contemplated hereby and is and shall remain in compliance with all federal and state laws, regulations, and policies pertaining to the provision of such reinsurance and there are no outstanding, pending or threatened orders, writs, injunctions, or decrees of any court, governmental agency, or other tribunal affecting the ability of TIG Re to enter into this Agreement or provide reinsurance in accordance with this Agreement or relating to the solvency of TIG Re. ARTICLE 21 TERM 21.1 Term. This Agreement shall commence as of the date hereof, and continue until December 31, 1997 (the "Initial Term") and shall be automatically renewed for one year periods thereafter (an "Extension Term") unless either party shall have given the other notice of its intent to terminate this Agreement at least ninety (90) days in advance of the end of the Initial Term or any Extension Term. 21.2 Automatic Termination. Notwithstanding Section 8.1 hereof, this Agreement shall automatically terminate with no notice required, upon (i) the violation by TIG or TIG Re of their respective representations and warranties set forth herein and TIG or TIG Re fails to cure such violation within ten (10) days of receipt of notice of such violation; or (ii) the insolvency, rehabilitation, bankruptcy, receivership, assignment for the benefit of the creditors or similar action of TIG, TIG Re or any Affiliate thereof or the commencement or filing of any such proceedings by or against TIG, TIG Re or any Affiliate thereof. 21.3 Termination on Thirty (30) Days Notice. Notwithstanding Section 8.1 hereof, this Agreement may be terminated by (i) TIG upon thirty (30) days notice to the Trust in the event TIG determines that due to any referendum, judicial, legislative or regulatory acts, the Program Business is not economically feasible; or (ii) the Trust upon thirty (30) days notice to TIG in the event that the Trust determines that revisions to the Rates charged by TIG to Program Clients as set forth in Section 2.3 or revisions to the Underwriting Criteria as set forth in Section 2.2 will result in the Program not being a competitive provider of workers' compensation insurance to Program Clients. 21.4 Acts Subsequent to Termination. In the event of the termination of this Agreement by TIG or by the Trust pursuant to Section 8.3(ii) above, the Program Business shall be transferred by TIG to the Trust or to the Trust's designee upon the termination of the policies of workers' compensation insurance issued to the Program Clients. The transfer of such business by TIG to the Trust or its designee shall be in accordance with and subject to the laws governing the cancellation and nonrenewal of policies of workers' compensation insurance in the states in which the policies were issued to the Program Clients. ARTICLE 22 REINSURANCE 22.1 Reinsurance. Subject to Section 9.2 hereof, if at any time during or after the term of this Agreement the Trust, through a commercial insurance company formed by the Trust, elects to provide Reinsurance to TIG or, at TIG's sole option, TIG Re, with respect to the Program Business, the parties agree to negotiate in good faith to enter into an agreement for Reinsurance by the Trust through such commercial insurance company which Reinsurance, at the Trust's option, may be up to the limit allowable under applicable law for it to reinsure and up to the limit allowable under applicable law for TIG, or TIG Re, to reinsure. 22.2 Cooperation. TIG and TIG Re agree to fully cooperate with the Trust in establishing a reinsurance relationship between TIG or, at TIG's sole option, TIG Re and any commercial insurance company organized by the Trust to reinsure the Program Business. As a condition precedent to TIG or TIG Re entering into such reinsurance relationship, the commercial insurance company organized by the Trust must be authorized or accredited to reinsure the Program Business in accordance with the insurance laws and regulations of: (i) the states in which the Program Business is written; and (ii) TIG's or, as the case may be, TIG Re's state of domicile. In the event the commercial insurance company is not so authorized or accredited in any of the states in which the Program Business is written and/or in TIG's or TIG Re's state of domicile, the commercial insurance company shall comply with such requirements and shall provide such security to TIG or TIG Re as may be reasonably necessary in order to permit TIG or TIG Re to take statutory statement credit for the reinsurance provided by the commercial insurance company. ARTICLE 23 MISCELLANEOUS 23.1 Noncompetition. (1) During the Term of this Agreement, TIG and its Affiliates shall not, directly or indirectly, provide workers' compensation insurance to Persons in the agricultural sector in Mississippi except in accordance with the terms of this Agreement. The term "agricultural sector" shall mean those Persons whose governing class code of business falls within the class code and classification description in Exhibit B, attached hereto. (2) The provisions of paragraph (a), above, shall automatically terminate: (i) upon the termination of this Agreement; or (ii) at the end of the Initial Term or at the end of any subsequent Extension Term in the event the gross written premium with regard to the Program Business is less than $6,000,000 at the end of the Initial Term or at the end of any subsequent Extension Term. (3) The provisions of Section 10.1(a) shall not apply to workers compensation insurance provided by TIG or its Affiliates to Persons in the agricultural sector in Mississippi that is produced through Ross & Yerger, Inc. or Sedgwick James of Atlanta, Inc. During the term of this Agreement, TIG and its Affiliates agree that they will not accept submissions from Ross & Yerger, Inc. or Sedgwick James of Atlanta, Inc. to provide workers compensation insurance to Persons in the agricultural sector in Mississippi that are Program Clients unless the provisions of paragraph (a), above, automatically terminate pursuant to paragraph (b)(ii), above. 23.2 Nondisclosure. Except as may be required by law or any governmental agency, during the Term of this Agreement and at all times thereafter, TIG and its Affiliates shall not directly or indirectly reveal, report, publish, disclose or transfer any Confidential Information to any Person or utilize any Confidential Information for TIG's and/or its Affiliates own benefit or for the benefit of any other Person. As used herein, the term "Confidential Information" means documentary information and all information, ideas, analyses and compilations provided in writing to TIG by the Trust during the course of this Agreement regarding the Trust and/or the business of the Trust including customer lists, marketing plans and techniques, products and services, prices, sales, strategic plans and finances. As used herein, the term "Confidential Information" shall not include any information: (i) which is already known to TIG and/or its Affiliates; or (ii) which is independently developed by TIG and/or its Affiliates; or (iii) which is or becomes available to the public through no breach of this Agreement by TIG. 23.3 Notices. Any notices required or permitted to be given hereunder shall be deemed to be given if delivered by hand or if mailed by certified mail, postage prepaid, return receipt requested or by postal or a commercial express document delivery service which issues an individual delivery or receipt, or by facsimile with reasonable evidence of receipt, to the following addresses: If to TIG: TIG Insurance Company c/o TIG Reinsurance Company 300 First Stamford Place Stamford, Connecticut 06902 Attn: John Coppinger Facsimile: 203-356-0196 If to TIG Re: TIG Reinsurance Company 300 First Stamford Place Stamford, Connecticut 06902 Attn: John Coppinger Facsimile: 203-356-0196 If to Trust: Delta Agricultural and Industrial Trust P. O. Box 5037 Greenville, Mississippi 38704-5037 Attn: Harry Vickery Facsimile: 601-378-3366 23.4 Expenses. All expenses of the preparation of this Agreement shall be borne by the respective parties incurring such expense. 23.5 Entire Agreement. This Agreement constitutes the entire contract between the parties hereto pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions, whether written or oral, of the parties. 23.6 Governing Law. The validity and construction of this Agreement shall be governed by the laws of the State of Mississippi. 23.7 Section Headings. The section headings are for reference only and shall not limit or control the meaning of any provision of this Agreement. 23.8 Waiver. No delay or omission on the part of any party hereto in exercising any right hereunder shall operate as a waiver of such right or any other right under this Agreement. 23.9 Amendments. This Agreement may be amended, but only in writing, signed by the parties hereto. 23.10 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall compromise one and the same instrument. 23.11 Attorneys' Fees. If legal action is commenced to enforce this Agreement, the prevailing party in such action shall be entitled to recover its costs and reasonable attorneys' fees in addition to any other relief granted. 23.12 Successor and Assigns. TIG may assign this Agreement and its rights hereunder to an Affiliate of equal or better rating by A. M. Best subject to the express written consent of the Trust which consent shall not be unreasonably withheld. TIG and TIG Re hereby acknowledge and agree that they are aware of the Trust's intent to form a commercial insurance company and that the Trust may assign this Agreement and the rights hereunder to such entity without the consent of TIG or TIG Re. 23.13 Arbitration. In the event of any dispute hereunder, such dispute shall be settled by arbitration in accordance with the commercial arbitration rules of the American Arbitration Association then in effect. Upon the occurrence of a dispute, the parties shall choose a panel of three arbitrators in the following manner: one of the arbitrators shall be appointed by the Trust, the second by TIG and TIG Re and the third is to be selected by those two arbitrators before the beginning of the arbitration. Should one of the parties decline to appoint an arbitrator for a period of thirty (30) days after being requested to do so by the other party, or should the two arbitrators be unable to agree upon the choice of a third, within thirty (30) days after their appointment, the appointment shall be made by the American Arbitration Association. The arbitrators shall decide by a majority of votes and the award of such arbitrators shall be final and may be entered in any court of competent jurisdiction. All costs and expenses of such arbitration, including legal expenses, shall be paid solely by the party against whom the award is directed, or as directed by the arbitrators. The arbitration proceedings shall convene and be held in the City of Dallas, Texas, or such other city mutually agreed upon by the parties. WITNESSED WHEREFORE, the parties have duly executed this Agreement as of the day and year first above written. TRUST: DELTA AGRICULTURAL AND INDUSTRIAL TRUST By:/s/ William F. Kennedy TIG: TIG INSURANCE COMPANY By:/s/ J. Chase TIG RE: TIG REINSURANCE COMPANY By:/s/John Coppinger EXHIBIT A Underwriting Criteria EXHIBIT B CODE CLASSIFICATION DESCRIPTION 0008 Farm: Gardening - Market or Truck - & Drivers 0016 Farm: Orchard & Drivers 0034 Farm: Poultry or Egg Producer & Drivers 0036 Farm: Dairy & Drivers 0037 Farm: Field Crops & Drivers 0042 Landscape Gardening & Drivers 0050 Farm Machinery Operation - by Contractor & Drivers 0079 Farm: Berry or Vineyard & Drivers 0083 Farm: Cattle or Livestock Raising NOC & Drivers 0106 Tree Pruning, Spraying, Repairing, Trimming or Fumigating 0169 Farm: Sheep Raising & Drivers 0170 Farm: Animal Raising & Drivers 0401 Cotton Gin Operation & Local Managers 6217 Excavation & Drivers 7409 Aircraft or Helicopter Operation - Aerial Application, Seeding, Herding 8029 Vegetable Packing & Drivers 8279 Stable or Breeding Farm & Drivers EX-10 7 REPRESENTATIVE AGREEMENT EXHIBIT 10(c) REPRESENTATIVE AGREEMENT DATED AS OF JULY 1, 1996 BETWEEN MISSISSIPPI RISK MANAGEMENT, INC. AND THE TRUST REPRESENTATIVE AGREEMENT THIS REPRESENTATIVE AGREEMENT (the "Agreement") is made as of this 1st day of July, 1996, to be effective as of Effective Date (as defined below) by and between Delta Agricultural and Industrial Trust or its assignee or successor in interest (collectively, the "Trust") and Mississippi Risk Management, Inc. ("Representative"). WITNESSETH WHEREAS, the Trust has entered into that certain Insurance Placement Agreement (the "Placement Agreement") between the Trust and TIG Insurance Company ("TIG") and TIG Reinsurance Company ("TIG Re") pursuant to which TIG agrees to provide workers' compensation insurance pursuant to a program created by TIG and the Trust; and WHEREAS, Representative has entered into that certain General Agency Agreement (the "General Agency Agreement ") with TIG which appoints Representative as the managing general agent for the sale of TIG's workers' compensation insurance; and WHEREAS, the Trust desires that Representative act as its representative to market TIG's workers' compensation insurance as further set forth herein. NOW, THEREFORE, in consideration of the foregoing premises, covenants, and agreements set forth herein, the parties agree as follows: ARTICLE 1 DEFINITIONS 1. "Affiliate" means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For purposes of this definition, "control" (including with correlative meanings, the terms "controlling," "controlled by," and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise. 2. "Effective Date" means 12:01 a.m., Central Standard Time, July 1, 1996. 3. "Existing Clients" means Persons covered by workers' compensation policies written by the Trust prior to the Effective Date which shall be offered workers' compensation insurance through TIG after the termination of their policies by the Trust as of the Effective Date. 4. "Person" means any individual, corporation, partnership, joint venture, association, or other form of organization, in each case whether or not having a separate legal identity. 5. "Potential Clients" means those Persons which request or are offered workers' compensation insurance coverage to or through the Trust or Representative or an agent or representative thereof, but not including Existing Clients. 6. "Program" shall mean the marketing and provision of TIG's workers' compensation insurance to Existing Clients and Potential Clients in accordance with the terms of the Placement Agreement. 7. "Program Business" shall mean all policies of insurance written by TIG covering Program Clients. 8. "Program Clients" means all (i) Existing Clients who are provided with workers' compensation insurance by TIG; (ii) and Potential Clients who are provided with workers' compensation insurance by TIG. 9. "Reinsurance" shall mean the entering into of a reinsurance relationship between the Trust through a commercial insurance agency formed by or on behalf of the Trust and TIG or, at TIG's sole option, TIG Re, such that the Trust, through the commercial insurance company, shall act as a reinsurer of Program Business and TIG such that the Trust shall act as a reinsurer of the Program Business. ARTICLE 2 DUTIES 1. Representative (a) Representative shall market the Program to Existing Clients and shall seek and identify Potential Clients and market the Program to said Persons. Representative shall at all times be and remain in compliance with the General Agency Agreement. (b) The parties agree that of the Collected Premiums received by Representative, Representative shall pay to the following Persons not more than the following percentages of Collected Premiums: Payee Percent of Total Activity Accounts/Actuaries 1% Accounting and Actuarial Services Harry E. Vickery or a 3.5% Sending bills, corporation wholly owned collections, liaison, by him program oversight, and obtaining association endorsements Mississippi Risk 7.8% Sales commissions, Management, Inc. ("MRM") marketing, administration of Program TIG 87.7% Provision of Insurance to Program Clients TOTAL 100% As used herein, the term "Collected Premiums" shall mean all amounts paid as insurance premiums by a Program Client, with no deductions for any fees, assessments or taxes. All amounts paid by Representative to the Persons set forth above ("Payees") shall be subject to the prior approval of the Trust. In the event amounts owed to Accountants/Actuaries are in excess of 1% of Collected Premiums, MRM agrees to pay such excess from its own funds. (c) Representative shall generate bills to Program Clients, and it shall be the responsibility of Harry E. Vickery or a corporation wholly owned by him to review such bills, send them, and collect premiums from Program Clients and remit the same to TIG's premium trust account established for the Program from which the Representative shall draw funds to pay the Payees as set forth above. 2. Trust. The Trust shall provide Representative with information regarding Existing Clients and information regarding Potential Clients to assist Representative in marketing the Program to such parties. 3. First Right. Representative and the Trust acknowledge that Representative may serve as a representative or agent for other providers of workers' compensation insurance; however, Representative agrees that Representative will at all times attempt to initially place Persons seeking workers' compensation with TIG such that such Persons shall become Program Clients. ARTICLE 3 COMPENSATION 1. Compensation. The parties agree that the compensation to be received by Representative and its Affiliates in connection with the Program shall be (i) commissions not to exceed 7.8% of Collected Premiums earned by the Representative from TIG for Program Business; (ii) $140 per policy issued to a Program Client, which shall be paid to Representative by TIG; and (iii) commissions to be paid to Representative or its Affiliates which have been fully disclosed to the Trust in connection with (1) excess reinsurance coverage provided by Wexford Underwriting Managers, Inc., and (2) provision of director and officer liability coverage for the Trust. Representative agrees that it and its Affiliates will receive no other compensation related to the Program other than that set forth above without the prior approval of the Trust. ARTICLE 4 REPORTS AND INFORMATION 1. Reports. On or before the 15th day of each month following the Effective Date, Representative shall submit to the Trust (i) a list of the names and addresses and payroll by classification of all Persons to which Representative and/or its agents has made a quotation regarding the Program; and (ii) a copy of the declaration page of each policy issued regarding the Program. In addition, Representative shall provide the Trust with all reports or information provided to Representative produced by or on behalf of TIG or Representative concerning the Program. ARTICLE 5 TERM 1. Term. This Agreement shall commence as of the date hereof, and continue for the term of the Placement Agreement unless earlier terminated as provided herein. 2. Automatic Termination. This Agreement shall automatically terminate with no notice required upon (i) the bankruptcy, receivership, assignment for the benefit of creditors or similar action of Representative or the commencement of any such proceedings by or against Representative; (ii) the termination of the General Agency Agreement between TIG and Representative; or (iii) the termination of the Placement Agreement between TIG and the Trust for any reason. ARTICLE 6 MISCELLANEOUS 1. Approval of General Agency Agreement. The Trust shall have the right to review and approve the General Agency Agreement and any amendments or revisions thereto and any subagency or similar agreement between Representative and other Persons related to the Program and such review and approval shall be a condition precedent to the initial and continuing effectiveness of this Agreement. 2. Noncompetition. During the term of this Agreement, Representative and its Affiliates shall not, directly or indirectly, act as a general agent or in any other capacity to provide workers' compensation insurance to Persons in the agricultural sector in Mississippi except in accordance with the terms of this Agreement. The term "agricultural sector" shall have the meaning as set forth in the Placement Agreement. 3. Nondisclosure. Except as may be required by law or any governmental agency, during the Term of this Agreement and at all times thereafter, Representative and its Affiliates shall not directly or indirectly reveal, report, publish, disclose or transfer any Confidential Information to any Person or utilize any Confidential Information for Representative's and/or its Affiliates own benefit or for the benefit of any other Person. As used herein, the term "Confidential Information" means documentary information and all information, ideas, analyses and compilations provided in writing to Representative by the Trust during the course of this Agreement regarding the Trust and/or the business of the Trust including customer lists, marketing plans and techniques, products and services, prices, sales, strategic plans and finances. As used herein, the term "Confidential Information" shall not include any information: (i) which is already known to Representative and/or its Affiliates; or (ii) which is independently developed by Representative and/or its Affiliates; or (iii) which is or becomes available to the public through no breach of this Agreement by Representative. 4. Notices. Any notices required or permitted to be given hereunder shall be deemed to be given if delivered by hand or if mailed by certified mail, postage prepaid, return receipt requested or by postal or a commercial express document delivery service which issues an individual delivery or receipt, or by facsimile with reasonable evidence of receipt, to the following addresses: If to Representative: Mississippi Risk Management, Inc. 407 Briarwood Drive, Suite 201 P. O. Box 14067 Jackson, Mississippi 39236 Attn: David R. White Facsimile: (601) 957-6838 If to Trust: Delta Agricultural and Industrial Trust P. O. Box 5037 Greenville, Mississippi 38704-5037 Attn: Harry Vickery Facsimile: 601-378-3366 5. Expenses. All expenses of the preparation of this Agreement shall be borne by the respective parties incurring such expense. 6. Entire Agreement. This Agreement constitutes the entire contract between the parties hereto pertaining to the subject matter hereof and supersede all prior and contemporaneous agreements, understandings, negotiations and discussions, whether written or oral, of the parties. 7. Governing Law. The validity and construction of this Agreement shall be governed by the laws of the State of Mississippi. 8. Section Headings. The section headings are for reference only and shall not limit or control the meaning of any provision of this Agreement. 9. Waiver. No delay or omission on the part of any party hereto in exercising any right hereunder shall operate as a waiver of such right or any other right under this Agreement. 10. Amendments. This Agreement may be amended, but only in writing, signed by the parties hereto. 11. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall compromise one and the same instrument. 12. Attorneys' Fees. If legal action is commenced to enforce this Agreement, the prevailing party in such action shall be entitled to recover its costs and reasonable attorneys' fees in addition to any other relief granted. 13. Successor and Assigns. Representative shall not assign its rights hereunder without the express written consent of the Trust, which consent shall not be unreasonably withheld. Representative hereby acknowledges and agrees that it is aware of the Trust's intent to form a commercial insurance company and that the Trust may assign this Agreement and the rights hereunder to such entity without the consent of Representative. 14. Relationship of the Parties. Representative is an independent contractor of the Trust. This Agreement does not constitute or create a general agency, joint venture, partnership or employment relationship. WITNESSED WHEREFORE, the parties have duly executed this Agreement as of the day and year first above written. REPRESENTATIVE: TRUST: MISSISSIPPI RISK MANAGEMENT, INC. DELTA AGRICULTURAL AND INDUSTRIAL TRUST By:/s/ David R. White By:/s/ William L. Kennedy EX-10 8 ASSIGNMENT AND ASSUMPTION AGREEMENT EXHIBIT 10(d) ASSIGNMENT AND ASSUMPTION AGREEMENT DATED AS OF MARCH 20, 1997 BETWEEN THE TRUST AND THE COMPANY ASSIGNMENT AND ASSUMPTION AGREEMENT This ASSIGNMENT AND ASSUMPTION AGREEMENT (the "Agreement") is made as of the 20th day of March, 1997, by and between Delta Agricultural and Industrial Trust, a Mississippi workers' compensation self insurance trust (the "Trust") and Stoneville Insurance Company, a Mississippi corporation (the "Company"). WHEREAS, the Board of Trustees of the Trust has approved and adopted that certain Plan of Reorganization and Conversion of the Trust (the "Plan") which provides that the Trust will transfer substantially all its assets to the Company in return for stock of the Company and that the Trust will thereupon immediately dissolve and distribute its assets (stock of the Company) to Former Members of the Trust (as defined in the Plan) all as described in the Plan; and WHEREAS, the Trust is a party to certain agreements and the holder of certain rights which it desires to transfer to the Company, and which the Company desires to obtain; 1. Effective Date. This Agreement shall become effective as of the Effective Date of the Plan as defined therein (the "Effective Date"). 2. Assumption of Specific Agreements. As of the Effective Date, the Trust hereby assigns, transfers, conveys and delivers to the Company all of its right, title and interest in and to the agreements listed on Exhibit A attached hereto (the "Specific Agreements") and the Company accepts the foregoing assignment and assumes and agrees to perform all of the duties and obligations of the Specific Agreements. 3. Other Agreements. As of the Effective Date, the Trust hereby offers to transfer to the Company all of its right, title and interest in and to all agreements other than the Specific Agreements, and the Company, at its option, may assume such agreements by providing written consent on an agreement-by-agreement basis. 4. Assignment of Causes of Action. As of the Effective Date, the Trust hereby assigns to the Company, and the Company hereby accepts, all rights of the Trust as a plaintiff in any cause of action, claim, suit, proceeding, or arbitration, including but not limited to those involving Bear, Stearns Securities Corp., Axiom Capital Management, Inc., and/or persons employed by or affiliated therewith. 5. No Assumption of Other Liability. Other than the assumption of certain agreements and rights of the Trust as specifically set forth herein, the Company assumes no liabilities of the Trust, including but not limited to liabilities arising out of workers' compensation insurance issued by the Trust, or any claims, assessments, or proceedings arising thereunder. 6. Successors and Assigns. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto without the prior written consent of the other party. 7. Amendment. This Agreement may be amended only by an instrument in writing duly executed by each of the parties hereto. 8. Further Assurances. Consistent with the terms and conditions hereof, each party hereto will execute and deliver such instruments, certificates and other documents and take such other action as any other party hereto may reasonably require in order to carry out this Agreement and the transactions contemplated hereby. 9. Governing Law. This Agreement shall be governed by the laws of the State of Mississippi as to all matters, including, but not limited to, matters of validity, construction, effect and performance. 10. Waiver. Any waiver by any party hereto of any breach of, or failure to comply with, any provision of this Agreement by any other party hereto shall not be construed as, or constitute, a continuing waiver of such provision, or a waiver of any other breach of, or failure to comply with, any other provision of this Agreement. 11. Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement and each of which shall be deemed an original. 12. Entire Agreement. This Agreement constitutes the sole and entire agreement between the parties hereto with respect to the subject matter hereof and thereof, and supersedes all prior arrangements or understandings with respect thereto; and there are no restrictions, agreements, promises, representations, warranties, covenants or undertakings other than those expressly set forth herein or therein. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed by its duly authorized officers as of the day and year first above written. TRUST: COMPANY: DELTA AGRICULTURAL AND STONEVILLE INSURANCE COMPANY INDUSTRIAL TRUST By: By: Name: Name: Title: Title: Exhibit A List of Specific Agreements Assumed 1. Insurance Placement Agreement dated as of June 10, 1996 between Delta Agricultural and Industrial Trust, TIG Insurance Company, and TIG Reinsurance Company 2. Service Agreement for Administration of a Workers' Compensation Self Insurance Program dated as of August 1, 1991 between Delta Agricultural and Industrial Trust and Sedgwick James of Mississippi, Inc. as amended by the Extension of Service Agreement for an Additional Period dated May 31, 1995, as amended by that Continuation of Service Agreement dated May 9, 1996 3. Representation Agreement dated as of July 1, 1996 between Delta Agricultural and Industrial Trust and Mississippi Risk Management, Inc. 4. Agreement between Delta Agricultural and Industrial Trust and Delta Administration, Inc. regarding administration (oral) 5. Assumption Reinsurance Agreement between Delta Agricultural and Industrial Trust, Continental Insurance Company, and Stoneville Insurance Company EX-23 9 CONSENT OF ACCOUNTANT EXHIBIT 23(a) CONSENT OF RICHARD L. EATON, CPA, INDEPENDENT ACCOUNTANT Independent Auditors' Consent The Board of Directors Stoneville Insurance Company We consent to the use of our audit reports dated (i) January 29, 1997 on the financial statements of Delta Agricultural and Industrial Trust as of December 31, 1995 and 1996; and (ii) March 6, 1997 on the financial statements for the year ending December 31, 1996, for Stoneville Insurance Company, all of the foregoing being incorporated herein by reference. We consent to the use of our name under the heading "Experts" and other such locations as it may appear in the Prospectus comprising Part I of the Registration Statement. RICHARD L. EATON, CPA Jackson, Mississippi , 1997 EX-3 10 EXHIBIT 3(B) BYLAWS OF THE COMPANY EXHIBIT 3(b) BYLAWS OF STONEVILLE INSURANCE COMPANY ARTICLE I PRINCIPAL OFFICE The principal office of the corporation in the State of Mississippi and the home office of the corporation shall be located in Jackson, Hinds County, Mississippi. ARTICLE II SHAREHOLDERS SECTION 1. Annual Meeting. The annual meeting of the shareholders shall be held on the first Tuesday in the month of May, in each year at the hour of 10:00 o'clock, A.M., or such other time and date as may be determined by the directors, for the purpose of electing directors and for the transaction of such other business as may properly come before the meeting. If the day fixed for the annual meeting shall be a legal holiday in the State of Mississippi, such meeting shall be held on the next succeeding business day. If the election of directors shall not be held on the day designated herein for any annual meeting of the shareholders, or at any adjournment thereof, the Board of Directors shall cause the election to be held at a special meeting of the shareholders as soon thereafter as conveniently may be. SECTION 2. Special Meetings. The corporation shall hold a special meeting of shareholders (1) on call of its Board of Directors, the Chairman thereof, or the President; or (2) unless the Articles of Association provide otherwise, if the holders of at least ten percent (10%) of all the votes entitled to be cast on any issue proposed to be considered at the proposed special meeting sign, date and deliver to the corporation's Secretary one or more written demands for the meeting describing the purpose or purposes for which it is to be held. If not otherwise fixed under applicable law, the record date for determining shareholders entitled to demand a special meeting shall be the date the first shareholder signs the demand. SECTION 3. Place of Meeting. The Board of Directors may designate any place, either within or without the State of Mississippi, for any annual meeting or for any special meeting of shareholders. A valid waiver of notice signed by all shareholders entitled to notice may designate any place, either within or without the State of Mississippi, as the place for any annual meeting or for any special meeting of shareholders. Unless the notice of the meeting states otherwise, shareholders' meetings shall be held at the corporation's principal office. SECTION 4. Notice of Meeting. The corporation shall notify shareholders of the date, time and place of each annual and special shareholders' meeting no fewer than ten (10) nor more than sixty (60) days before the meeting date. Unless applicable law or the Articles of Association require otherwise, the corporation shall give notice only to shareholders entitled to vote at the meeting. Unless applicable law or the Articles of Association require otherwise, notice of an annual meeting need not include a description of the purpose or purposes for which the meeting is called. Notice of a special meeting must include a description of the purpose or purposes for which the meeting shall be called. Only business within the purpose or purposes described in the meeting notice may be conducted at a special shareholders' meeting. Unless these Bylaws require otherwise, if an annual or special shareholders' meeting is adjourned to a different date, time or place, notice need not be given of the new date, time or place if the new date, time or place is announced at the meeting before adjournment. If a new record date for the adjourned meeting is or must be fixed under applicable law or Article II, Section 5 of these Bylaws, however, notice of the adjourned meeting must be given under this section to persons who are shareholders as of the new record date. SECTION 5. Closing of Transfer Books or Fixing of Record Date. The Board of Directors of the corporation may fix the record date for one or more voting groups in order to determine shareholders entitled to notice of a shareholders' meeting, to demand a special meeting, to vote or to take any other action. A record date may not be more than seventy (70) days before the meeting or action requiring a determination of shareholders. If not otherwise fixed by law, the record date for determining shareholders entitled to notice of and to vote at an annual or special shareholders' meeting shall be the day before the first notice is delivered to shareholders. If the Board of Directors does not fix the record date for determining shareholders entitled to a distribution (other than one involving a purchase, redemption or other acquisition of the corporation's shares), it shall be the date the Board of Directors authorizes the distribution. A determination of shareholders entitled to notice of or to vote at a shareholders' meeting shall be effective for any adjournment of the meeting unless the Board of Directors fixes a new record date, which it must do if the meeting is adjourned to a date more than one hundred twenty (120) days after the date fixed for the original meeting. SECTION 6. Voting Lists. After fixing a record date for a meeting, the corporation shall prepare an alphabetical list of the names of all its shareholders who are entitled to notice of a shareholders' meeting. The list must be arranged by voting group (and within each voting group by class or series of shares) and show the address of and number of shares held by each shareholder. The shareholders' list must be available for inspection by any shareholder beginning two (2) business days after notice of the meeting is given for which the list was prepared and continuing through the meeting, at the corporation's principal office or at a place identified in the meeting notice in the city where the meeting will be held. A shareholder, his agent or attorney shall be entitled on written demand to inspect and, subject to the requirements of applicable law, to copy the list during regular business hours and at his expense, during the period it shall be available for inspection. The corporation shall make the shareholders' list available at the meeting, and any shareholder, his agent or attorney shall be entitled to inspect the list at any time during the meeting or any adjournment. SECTION 7. Quorum. Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. Unless the Articles of Association or applicable law impose other quorum requirements, a majority of the votes entitled to be cast on the matter by a voting group, represented in person or by proxy, shall constitute a quorum of that voting group for action on that matter. If less than a majority of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice except as may be required by Article II, Section 4 of these Bylaws or by applicable law. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. Once a share is represented for any purpose at a meeting, it shall be deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting. SECTION 8. Proxies. A shareholder may appoint a proxy to vote or otherwise act for him by signing an appointment form, either personally or by his attorney-in-fact. An appointment of a proxy shall be effective when received by the Secretary or other officer or agent authorized to tabulate votes of the corporation. An appointment shall be valid for eleven (11) months unless a longer period is expressly provided in the appointment form. An appointment of a proxy shall be revocable by the shareholder unless the appointment form conspicuously states that it is irrevocable and the appointment shall be coupled with an interest. Appointments coupled with an interest include the appointment of (1) a pledgee; (2) a person who purchased or agreed to purchase the shares; (3) a creditor of the corporation who extended it credit under terms requiring the appointment; (4) an employee of the corporation whose employment contract requires the appointment; or (5) a party to a voting agreement created under applicable law. The death or incapacity of the shareholder appointing a proxy does not affect the right of the corporation to accept the proxy's authority unless notice of the death or incapacity shall be received by the Secretary or other officer or agent authorized to tabulate votes before the proxy exercises his authority under the appointment. An appointment made irrevocable because it is coupled with an interest shall be revoked when the interest with which it is coupled is extinguished. A transferee for value of shares subject to an irrevocable appointment may revoke the appointment if he did not know of its existence when he acquired the shares and the existence of the irrevocable appointment was not noted conspicuously on the certificate representing the shares or on the information statement for shares without certificates. Subject to applicable law and to any express limitation on the proxy's authority appearing on the face of the appointment form, the corporation shall be entitled to accept the proxy's vote or other action as that of the shareholder making the appointment. SECTION 9. Voting of Shares. Except as provided below or unless the Articles of Association provide otherwise, and subject to the provisions of Section 12 of this Article II, each outstanding share, regardless of class, shall be entitled to one (1) vote on each matter voted on at a shareholders' meeting. If a quorum exists, action on a matter (other than the election of directors) by a voting group shall be approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless the Articles of Association or applicable law require a greater number of affirmative votes. Unless otherwise provided in the Articles of Association, directors shall be elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present. SECTION 10. Voting of Shares by Certain Holders. Shares standing in the name of another corporation may be voted by such officer, agent or proxy as the Bylaws of such corporation may prescribe, or, in the absence of such provision, as the Board of Directors of such corporation may determine. Absent special circumstances, shares of this corporation shall not be entitled to vote if they are owned, directly or indirectly, by a second corporation, domestic or foreign, and this corporation owns, directly or indirectly, a majority of the shares of the second corporation entitled to vote for the directors of the second corporation. This does not limit the power of this corporation to vote any shares, including its own shares, held by it in a fiduciary capacity. Shares held by an administrator, executor, guardian or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority so to do be contained in an appropriate order of the court by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. SECTION 11. Informal Action by Shareholders. Action required or permitted by applicable law to be taken at a shareholders' meeting may be taken without a meeting if the action is taken by all the shareholders entitled to vote on the action. The action must be evidenced by one or more written consents describing the action taken, signed by all the shareholders entitled to vote on the action, and delivered to the corporation for inclusion in the minutes or filing with the corporate records. If not otherwise determined under applicable law, the record date for determining shareholders entitled to take action without a meeting shall be the date the first shareholder signs such consent. A consent signed under this section has the effect of a meeting vote and may be described as such in any document. If applicable law requires that notice of proposed action be given to nonvoting shareholders and the action is to be taken by unanimous consent of the voting shareholders, the corporation must give its nonvoting shareholders written notice of the proposed action at least ten (10) days before the action is taken. The notice must contain or be accompanied by the same material that, under applicable law, would have been required to be sent to nonvoting shareholders in a notice of meeting at which the proposed action would have been submitted to the shareholders for action. SECTION 12. Cumulative Voting. Shareholders shall have the right to cumulate their votes for directors unless the Articles of Association provide otherwise, and the shareholders shall be entitled to multiply the number of votes they are entitled to cast by the number of directors for whom they are entitled to vote and cast the product for a single candidate or distribute the product among two (2) or more candidates. SECTION 13. Shares Held by Nominees. The corporation may establish a procedure by which the beneficial owner of shares that are registered in the name of a nominee shall be recognized by the corporation as the shareholder. The extent of this recognition may be determined in the procedure. The procedure may set forth: (1) the types of nominees to which it applies; (2) the rights or privileges that the corporation recognizes in a beneficial owner; (3) the manner in which the procedure shall be selected by the nominee; (4) the information that must be provided when the procedure is selected; (5) the period for which selection of the procedure shall be effective; and (6) other aspects of the rights and duties created. SECTION 14. Corporation's Acceptance of Votes. If the name signed on a vote, consent, waiver or proxy appointment corresponds to the name of the shareholder, the corporation, if acting in good faith, shall be entitled to accept the vote, consent, waiver or proxy appointment and give it effect as the act of the shareholder. If the name signed on a vote, consent, waiver or proxy appointment does not correspond to the name of its shareholder, the corporation, if acting in good faith, shall nevertheless be entitled to accept the vote, consent, waiver or proxy appointment and give it effect as the act of the shareholder if: (1) the shareholder is an entity and the name signed purports to be that of an officer or agent of the entity; (2) the name signed purports to be that of an administrator, executor, guardian or conservator representing the shareholder and, if the corporation requests, evidence of fiduciary status acceptable to the corporation has been presented with respect to the vote, consent, waiver or proxy appointment; (3) the name signed purports to be that of a receiver or trustee in bankruptcy of the shareholder and, if the corporation requests, evidence of this status acceptable to the corporation has been presented with respect to the vote, consent, waiver or proxy appointment; (4) the name signed purports to be that of a pledgee, beneficial owner or attorney-in-fact of the shareholder and, if the corporation requests, evidence acceptable to the corporation of the signatory's authority to sign for the shareholder has been presented with respect to the vote, consent, waiver or proxy appointment; (5) two (2) or more persons are the shareholders as cotenants or fiduciaries and the name signed purports to be the name of at least one (1) of the co-owners and the person signing appears to be acting on behalf of all the co-owners. The corporation shall be entitled to reject a vote, consent, waiver or proxy appointment if the Secretary or other officer or agent authorized to tabulate votes, acting in good faith, has reasonable basis for doubt about the validity of the signature on it or about the signatory's authority to sign for the shareholder. ARTICLE III BOARD OF DIRECTORS SECTION 1. General Powers. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation managed under the direction of, its Board of Directors, subject to any limitation set forth in the Articles of Association. SECTION 2. Number, Election, Tenure and Qualifications. The number of directors of the corporation shall be not fewer than three (3) nor more than seven (7), the exact number to be established at the time of the election of directors. Directors are elected at the first annual shareholders' meeting and at each annual meeting thereafter unless their terms are staggered in the Articles of Association. The terms of the initial directors of the corporation expire at the first shareholders' meeting at which directors shall be elected. The terms of all other directors expire at the next annual shareholders' meeting following their election unless their terms shall be staggered in the Articles of Association. A decrease in the number of directors does not shorten an incumbent director's term. The term of a director elected to fill a vacancy expires at the next shareholders' meeting at which directors shall be elected. Despite the expiration of a director's term, he continues to serve until his successor shall be elected and qualifies or until there shall be a decrease in the number of directors. A director need not be a resident of this state or a shareholder of the corporation. SECTION 3. Resignation of Directors; Removal of Directors by Shareholders. (a) A director may resign at any time by delivering written notice to the Board of Directors, to its Chairman or to the corporation. A resignation shall be effective when the notice is delivered unless the notice specifies a later effective date. (b) The shareholders may remove one or more directors with or without cause unless the Articles of Association provide that directors may be removed only for cause. If a director is elected by a voting group of shareholders, only the shareholders of that voting group may participate in the vote to remove him. If cumulative voting is authorized, a director may not be removed if the number of votes sufficient to elect him under cumulative voting is voted against his removal. If cumulative voting is not authorized, a director may be removed only if the number of votes cast to remove him exceeds the number of votes cast not to remove him. A director may be removed by the shareholders only at a meeting called for the purpose of removing him and the meeting notice must state that the purpose, or one () of the purposes, of the meeting shall be removal of the director. SECTION 4. Regular Meetings. Unless the Articles of Association or these Bylaws provide otherwise, a regular meeting of the Board of Directors shall be held without other notice than this bylaw immediately after, and at the same place as, the annual meeting of shareholders. SECTION 5. Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board of Directors, the President or a majority of the directors. Unless the Articles of Association or these Bylaws provide for a longer or shorter period, special meetings of the Board of Directors must be preceded by at least two (2) days' notice of the date, time and place of the meeting. If no place for the meeting has been designated in the notice, the meeting shall be held at the principal office of the corporation. The notice need not describe the purpose of the special meeting unless required by the Articles of Association or these Bylaws. SECTION 6. Place of Meetings. The Board of Directors may hold regular or special meetings in or out of this state. SECTION 7. Quorum. Unless the Articles of Association or these Bylaws require a greater number, a quorum of the Board of Directors consists of a majority of the number of directors fixed by Article III, Section 2, or a majority of the number of directors prescribed, or if no number is prescribed, the number in office immediately before the meeting begins, if the corporation has a variable-range size board. If less than such number necessary for a quorum shall be present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. SECTION 8. Manner of Acting. If a quorum is present when a vote is taken, the affirmative vote of a majority of directors present is the act of the Board of Directors unless the Articles of Association or Bylaws require the vote of a greater number of directors. SECTION 9. Action Without A Meeting. Unless the Articles of Association or Bylaws provide otherwise, action required or permitted to be taken at a Board of Directors' meeting may be taken without a meeting if the action is taken by all members of the board. The action must be evidenced by one or more written consents describing the action taken, signed by each director, and included in the minutes or filed with the corporate records reflecting the action taken. Action taken under this section shall be effective when the last director signs the consent, unless the consent specifies a different effective date. Such a consent has the effect of a meeting vote and may be described as such in any document. SECTION 10. Vacancies. Unless the Articles of Association provide otherwise, if a vacancy occurs on the Board of Directors, including a vacancy resulting from an increase in the number of directors, (i) the shareholders may fill the vacancy, (ii) the Board of Directors may fill the vacancy, or (iii) if the directors remaining in office constitute fewer than a quorum of the board, they may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office. If the vacant office was held by a director elected by a voting group of shareholders, only the holders of shares of that voting group shall be entitled to fill the vacancy if it is filled by the shareholders. A vacancy that will occur at a specific later date (by reason of a resignation effective at a later date or otherwise) may be filled before the vacancy occurs, but the new director may not take office until the vacancy occurs. SECTION 11. Compensation. Unless the Articles of Association or these Bylaws provide otherwise, the Board of Directors may fix the compensation of directors. By resolution of the Board of Directors, each director may be paid his expenses, if any, of attendance at each meeting of the Board of Directors, and may be paid a stated salary as a director or a fixed sum for attendance at each meeting of the Board of Directors or both. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. SECTION 12. Executive and Other Committees. Unless the Articles of Association or Bylaws provide otherwise, the Board of Directors may create an executive committee and one or more other committees and appoint members of the Board of Directors to serve on them. Each committee must have two (2) or more members, who serve at the pleasure of the Board of Directors. The creation of a committee and appointment of members to it must be approved by the greater of (1) a majority of all the directors in office when the action is taken or (2) the number of directors required by the Articles of Association or Bylaws to take action. To the extent specified by the Board of Directors or in the Articles of Association or Bylaws, each committee may exercise the authority of the Board of Directors. A committee may not, however, authorize distributions; approve or propose to shareholders action required by applicable law to be approved by shareholders; fill vacancies on the Board of Directors or on any of its committees; amend Articles of Association pursuant to applicable law authorizing amendment by the Board of Directors; adopt, amend, or repeal Bylaws; approve a plan of merger not requiring shareholder approval; authorize or approve the reacquisition of shares, except according to a formula or method prescribed by the Board of Directors; or authorize or approve the issuance or sale or contract for sale of shares, or determine the designation and relative rights, preferences and limitations of a class or series of shares, except that the Board of Directors may authorize a committee (or a senior executive officer of the corporation) to do so within limits specifically prescribed by the Board of Directors. Provisions of these Bylaws governing meetings, action without meetings, notice and waiver of notice, and quorum and voting requirements of the Board of Directors, apply to committees and their members as well. SECTION 13. Participation by Telephonic or Other Means. Unless the Articles of Association or these Bylaws provide otherwise, the Board of Directors may permit any or all directors to participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other during the meeting. A director participating in a meeting by this means shall be deemed to be present in person at the meeting. SECTION 14. Advisory Board. The Board of Directors of the corporation from time to time may elect not more than twenty-four (24) individuals who may, but need not, be officers or employees of the corporation to serve as members of an Advisory Board of Directors of the corporation. At any time when there are less than twenty-four (24) members elected to and acting on the Advisory Board, the Board of Directors may at any regular or special meeting elect to the Advisory Board such additional members as they desire, provided that the total membership of such Advisory Board shall at no time exceed twenty-four (24) members. The members of such Advisory Board of Directors shall meet with the Board of Directors at such times as the Board of Directors, the Chairman thereof, or the President may direct. The term of office of any member of the Advisory Board of Directors shall be at the pleasure of the Board of Directors and shall expire immediately after the annual meeting of shareholders of the corporation following the election of the Advisory Board member, regardless of when elected. The function of any such Advisory Board of Directors shall be to advise the Board of Directors with respect to the affairs of the corporation. ARTICLE IV OFFICERS SECTION 1. Number. The officers of the corporation shall be a Chairman of the board, a President, one or more Vice Presidents, a Secretary and a Treasurer, each of whom shall be elected by the Board of Directors. Such other officers, assistant officers and agents as may be deemed necessary may be elected or appointed by the Board of Directors. Any two or more offices may be held by the same person. SECTION 2. Election and Term of Officers. The officers of the corporation to be elected by the Board of Directors shall be elected annually by the Board of Directors at the regular meeting of the Board of Directors immediately following the annual meeting of the shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Each officer shall continue to serve until his successor is elected and qualifies or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. SECTION 3. Resignation or Removal of Officers and Agents. (a) An officer or agent may resign at any time by delivering written notice to the Board of Directors, to its Chairman or to the corporation. A resignation shall be effective when the notice is delivered unless the notice specifies a later effective date. (b) Any officer or agent may be removed by the Board of Directors whenever in its judgment, the best interests of the corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. SECTION 4. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the Board of Directors for the unexpired portion of the term. SECTION 5. Chairman of the Board. The Chairman of the board must be a member of the Board of Directors at the time of election to such office. When present he shall preside at all meetings of the shareholders and of the Board of Directors. He may sign, with the President and Secretary or any other proper officer of the corporation thereunto authorized by the Board of Directors, any deeds, mortgages, bonds, contracts or other instruments which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed; and in general shall perform all duties incident to the office of Chairman of the board and such other duties as may be prescribed by the Board of Directors from time to time. SECTION 6. President. The President shall be the principal executive officer of the corporation and, subject to the control of the Chairman and the Board of Directors, shall have general supervision and control of the business and affairs of the corporation. In the absence of the Chairman of the Board of Directors, he shall, when present, preside at all meetings of the shareholders and of the Board of Directors. He may sign, with the Secretary or any other proper officer of the corporation thereunto authorized by the Board of Directors, certificates for shares of the corporation, any deeds, mortgages, bonds, contracts, or other instruments which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed; and in general shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time. SECTION 7. Vice President. In the absence of the President or in the event of his death, inability or refusal to act, the Vice President, or if there shall be more than one (1) Vice President of the corporation, a Vice President specially designated by the Board of Directors for such purpose, shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Otherwise, Vice Presidents shall perform only such duties as from time to time may be assigned to him by the President or by the Board of Directors. SECTION 8. Secretary. The Secretary shall (a) prepare and keep the minutes of the directors' and shareholders' meetings in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) be custodian of the corporate records and of the seal of the corporation and see that the seal of the corporation is affixed to all documents the execution of which on behalf of the corporation under its seal is duly authorized; (d) authenticate records of the corporation; (e) keep a register of the post office address of each shareholder which shall be furnished to the Secretary by such shareholder; (f) sign with the President, certificates for shares of the corporation, the issuance of which shall have been authorized by resolutions of the Board of Directors; (g) have general charge of the stock transfer books of the corporation; (h) in general perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the President or by the Board of Directors. SECTION 9. Treasurer. The Treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation; (b) receive and give receipts for monies due and payable to the corporation from any source whatsoever, and deposit all such monies in the name of the corporation in such banks, trust companies or other depositories as shall be selected in accordance with these Bylaws; and (c) in general perform all of the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the President or by the Board of Directors. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors shall determine. SECTION 10. Compensation. The Board of Directors may fix the compensation of the officers. No such payment shall preclude any officer from serving the corporation in any other capacity and receiving compensation therefor. ARTICLE V CONTRACTS, LOANS, CHECKS AND DEPOSITS SECTION 1. Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. SECTION 2. Loans. No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances. SECTION 3. Checks, Drafts, Etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. SECTION 4. Deposits. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, companies or other depositories as the Board of Directors may select. ARTICLE VI CERTIFICATES FOR SHARES AND THEIR TRANSFER SECTION 1. Certificates for Shares. Shares shall be represented by certificates. Certificates representing shares of the corporation shall be in such form as shall be determined by the Board of Directors. At a minimum, each share certificate must state on its face (1) the name of the corporation and that the corporation is organized under the law of the State of Mississippi; (2) the name of the person to whom issued; and (3) the number and class of shares and the designation of the series, if any, the certificate represents. If the corporation is authorized to issue different classes of shares or different series within a class, the designations, relative rights, preferences and limitations applicable to each class and the variations in rights, preferences and limitations determined for each series (and the authority of the Board of Directors to determine variations for future series) must be summarized on the front or back of each certificate or the corporation must furnish the shareholder this information on request in writing and without charge. Each share certificate must be signed (either manually or in facsimile) by the President or a Vice President and by the Secretary or an assistant Secretary or by such other officers designated in the Bylaws or by the Board of Directors so to do, and may be sealed with the corporate seal. If the person who signed (either manually or in facsimile) a share certificate no longer holds office when the certificate is issued, the certificate is nevertheless valid. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the corporation. All certificates surrendered to the corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in the case of a lost, destroyed, or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the corporation as the Board of Directors may prescribe. SECTION 2. Transfer of Shares. Transfer of shares of the corporation shall be made only on the stock transfer books of the corporation by the holder of record thereof or by his legal representative, who shall furnish proper evidence of authority to transfer, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation, and on surrender for cancellation of the certificate for such shares. ARTICLE VII INDEMNIFICATION SECTION 1. Definitions. In this article: (1) "Corporation" includes this corporation and any domestic or foreign predecessor entity of the corporation in a merger or other transaction in which the predecessor's existence ceased upon consummation of the transaction. (2) "Director" means an individual who is or was a director of the corporation or an individual who, while a director of the corporation, is or was serving at the corporation's request 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. A director shall be considered to be serving an employee benefit plan at the corporation's request if his duties to the corporation also impose duties on, or otherwise involve services by, him to the plan or to participants in or beneficiaries of the plan. "Director" includes, unless the context requires otherwise, the estate or personal representative of a director. (3) "Expenses" include counsel fees. (4) "Liability" means the obligation to pay a judgment, settlement, penalty, fine (including an excise tax assessed with respect to an employee benefit plan), or reasonable expenses incurred with respect to a proceeding. (5) "Official capacity" means: (i) when used with respect to a director, the office of director in the corporation; and (ii) when used with respect to an individual other than a director as contemplated in Article VII, Section 7, the office in the corporation held by the officer or the employment or agency relationship undertaken by the employee or agent on behalf of the corporation. "Official capacity" does not include service for any other foreign or domestic corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise. (6) "Party" includes an individual who was, is, or is threatened to be made a named defendant or respondent in a proceeding. (7) "Proceeding" means any threatened, pending, or completed action, suit or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal. SECTION 2. Authority to Indemnify. (a) Except as provided in subsection (d), the corporation shall indemnify any individual made a party to a proceeding because he is or was a director against liability incurred in the proceeding if: (1) He conducted himself in good faith; and (2) He reasonably believed: (i) In the case of conduct in his official capacity with the corporation, that his conduct was in its best interests; and (ii) In all other cases, that his conduct was at least not opposed to its best interests; and (3) In the case of any criminal proceeding, he had no reasonable cause to believe his conduct was unlawful. (b) A director's conduct with respect to an employee benefit plan for a purpose he reasonably believed to be in the interest of the participants in and beneficiaries of the plan is conduct that satisfies the requirement of subsection (a)(2)(ii). (c) 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 described in this section. (d) The corporation may not indemnify a director under this section: (1) In connection with a proceeding by or in the right of the corporation in which the director was adjudged liable to the corporation; or (2) 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. (e) Indemnification permitted under this section in connection with a proceeding by or in the right of the corporation shall be limited to reasonable expenses incurred in connection with the proceeding. SECTION 3. Mandatory Indemnification. Unless limited by the Articles of Association, the corporation shall indemnify a director who was wholly successful, on the merits or otherwise, in the defense of any proceeding to which he was a party because he is or was a director of the corporation against reasonable expenses incurred by him in connection with the proceeding. SECTION 4. Advance for Expenses. (a) The corporation shall 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: (1) The director furnishes the corporation a written affirmation of his good faith belief that he has met the standard of conduct described in Article VII, Section 2; (2) The director furnishes the corporation 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 (3) A determination shall be made that the facts then known to those making the determination would not preclude indemnification under this Article. (b) The undertaking required by subsection (a) (2) 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. (c) Determination and authorizations of payments under this section shall be made in the manner specified in Article VII, Section 6. SECTION 5. Court Ordered Indemnification. Unless the corporation's Articles of Association provide otherwise, a director of the corporation who is a party to a proceeding may apply for indemnification to the court conducting the proceeding or to another court of competent jurisdiction. SECTION 6. Determination and Authorization of Indemnification. (a) The corporation may not indemnify a director under Article VII, Section 2 unless authorized in the specific case after a determination has been made that indemnification of the director shall be permissible in the circumstances because he has met the standard of conduct set forth in Article VII, Section 2. (b) The determination shall be made: (1) By the Board of Directors by majority vote of a quorum consisting of directors not at the time parties to the proceeding; (2) If a quorum cannot be obtained under subsection (b)(1), by majority vote of a committee duly designated by the Board of Directors (in which designation directors who are parties may participate), consisting solely of two (2) or more directors not at the time parties to the proceeding; (3) By special legal counsel: (i) Selected by the Board of Directors or its committee in the manner prescribed in subsection (b)(1) or (b)(2); or (ii) If a quorum of the Board of Directors cannot be obtained under subsection (b)(1) and a committee cannot be designated under subsection (b)(2), selected by a majority vote of the full Board of Directors (in which selection directors who are parties may participate); or (4) By the shareholders, but shares owned by or voted under the control of directors who are at the time parties to the proceeding may not be voted on the determination. (c) Authorization of indemnification and evaluation as to reasonableness of expenses shall be made in the same manner as the determination that indemnification shall be permissible, except that if the determination shall be made by special legal counsel, authorization of indemnification and evaluation as to reasonableness of expenses shall be made by those entitled under subsection (b)(3) to select counsel. (d) The corporation agrees to submit requests for indemnification or advancement of expenses to the Board of Directors of the corporation or to the shareholders of the corporation, as applicable, within a reasonable time after the director requests in writing that the corporation indemnify the director or advance expenses to him. SECTION 7. Indemnification of Officers, Employees and Agents. Unless the corporation's Articles of Association provide otherwise: (1) An officer of the corporation who is not a director shall be entitled to mandatory indemnification under Article VII, Section 3, and shall be entitled to apply for court-ordered indemnification under Article VII, Section 5, in each case to the same extent as a director; (2) The corporation shall indemnify and advance expenses under this article to an officer, employee or agent of the corporation who is not a director to the same extent as to a director; and (3) The corporation shall also indemnify and advance expenses to an officer, employee or agent who is not a director to the extent, consistent with public policy, that may be provided by the Articles of Association, Bylaws, general or specific action of the Board of Directors or contract. SECTION 8. Right of Corporation to Insure. The corporation may purchase and maintain insurance on behalf of an individual who is or was a director, officer, employee or agent of the corporation or who, while a director, officer, employee or agent of the corporation, is or was serving at the request of the corporation 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 corporation would have power to indemnify him against such liability under Article VII, Sections 2 or 3 or applicable law. SECTION 9. Application of Article. (a) Unless the Articles of Association or these Bylaws provide otherwise, any authorization of indemnification in the Articles of Association or these Bylaws shall not be deemed to prevent the corporation from providing the indemnity permitted or mandated by applicable law. (b) The corporation shall 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 corporation. SECTION 10. Right to Bring Action to Enforce. The rights to indemnification and to the advancement of expenses conferred under this article shall be contract rights. If a claim under this article is not paid in full by the corporation within 90 days after a written claim has been received by the corporation, the director making such claim may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the director shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action that the director has not met the standards of conduct which make it permissible under this article or the laws of the State of Mississippi for the corporation to indemnify the director for the amounts claimed, but the burden of proving such defense shall be on the corporation. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the director shall be proper in the circumstances because he has met the applicable standard of conduct set forth under the laws of the State of Mississippi or under this Agreement, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel, or its shareholders) that the director had not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the director had not met the applicable standard of conduct. ARTICLE VIII NOTICE Notice shall be in writing unless oral notice is reasonable under the circumstances. Notice may be communicated in person; by telephone, telegraph, teletype or other form of wire or wireless communication; or by mail or private carrier. If these forms of personal notice shall be impracticable, notice may be communicated by a newspaper of general circulation in the area where published; or by radio, television or other form of public broadcast communication. Written notice to shareholders, if in a comprehensible form, shall be effective when mailed, if mailed postpaid and correctly addressed to the shareholder's address shown in the corporation's current record of shareholders. Except as provided above with respect to notice to shareholders, written notice, if in a comprehensible form, shall be effective at the earliest of the following: (a) When received; (b) Five (5) days after its deposit in the United States mail, as evidenced by the postmark, if mailed postpaid and correctly addressed; (c) On the date shown on the return receipt, if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee. Oral notice shall be effective when communicated if communicated in a comprehensible manner. If applicable law prescribes notice requirements for particular circumstances, those requirements govern. If the Articles of Association or these Bylaws prescribe notice requirements, not inconsistent with this section or other provisions of applicable law, those requirements govern. ARTICLE IX WAIVER OF NOTICE; ASSENT TO ACTIONS Unless otherwise provided by law, a shareholder or director of the corporation may waive any notice required by applicable law, the Articles of Association or these Bylaws, before or after the date and time stated in the notice. Except as provided below, the waiver must be in writing, be signed by the shareholder or director entitled to the notice, and delivered to the corporation for inclusion in the minutes or filing with the corporate records. A director's attendance at or participation in a meeting waives any required notice to him of the meeting unless the director at the beginning of the meeting (or promptly upon his arrival) objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting. A shareholder's attendance at a meeting (i) waives objection to lack of notice or defective notice of the meeting unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting, and (ii) waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented. A director who is present at a meeting of the Board of Directors or a committee of the Board of Directors when corporate action is taken shall be deemed to have assented to the action taken unless: (1) he objects at the beginning of the meeting (or promptly upon his arrival) to holding it or transacting business at the meeting; (2) his dissent or abstention from the action taken shall be entered in the minutes of the meeting; or (3) he delivers written notice of his dissent or abstention to the presiding officer of the meeting before its adjournment or to the corporation immediately after adjournment of the meeting. The right of dissent or abstention shall not be available to a director who votes in favor of the action taken. ARTICLE X FISCAL YEAR The fiscal year of the corporation shall begin on January 1 and end on December 31 in each year. ARTICLE XI DISTRIBUTIONS The Board of Directors may authorize and the corporation may make distributions to its shareholders, subject to restriction by the Articles of Association and applicable law. ARTICLE XII CORPORATE SEAL The Board of Directors shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the corporation and the state of incorporation and the words "Corporate Seal". ARTICLE XIII AMENDMENTS The provisions of Article VII and this Article XIII of these Bylaws may be amended or repealed only by a majority vote of the shareholders. Otherwise, unless the Articles of Association, applicable law or a resolution of the shareholders reserves this power exclusively to the shareholders in whole or part, the corporation's Board of Directors may amend or repeal these Bylaws and adopt new Bylaws at any regular or special meeting of the Board of Directors. Accepted as of the 2nd day of December, 1996. BY: /s/ David R. White TITLE: SECRETARY As of January 9, 1997, the following amendment was adopted by written unanimous consent of the directors: Authorize Amendments to Bylaws RESOLVED that, pursuant to Article XIII of the Bylaws of the corporation which govern amendments to the Bylaws of the Corporation, Article III, Section 12 of the Bylaws of the Corporation is hereby amended to add the following provisions: A nominating committee shall be one of the standing committees of the Board of Directors. The nominating committee shall recommend to the Board of Directors prior to the annual shareholder's meeting each year: (a) the appropriate size and composition of the Board of Directors; (b) a proxy statement and form of proxy; (c) policies and practices on shareholder voting; (d) plans for the annual shareholders' meeting; and (e) nominees: (i) for election to the Board of Directors for whom the Corporation should solicit proxies; (ii) to serve as proxies in connection with the annual shareholders' meeting; and (iii) for election as corporate officers and chairperson and chief executive officers of the Corporation's business groups. The nominating committee shall seek suggestions for nominees from the Delta Council, from the Board of Directors, and from the shareholders of the Corporation. -----END PRIVACY-ENHANCED MESSAGE-----