<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 25, 1999
REGISTRATION NO. 333-41497
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 6
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MERCER INSURANCE GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
PENNSYLVANIA 6331 23-2934601
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
10 NORTH HIGHWAY 31
PENNINGTON, NEW JERSEY 08534
(609) 737-0426
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
WILLIAM C. HART
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MERCER INSURANCE GROUP, INC.
10 NORTH HIGHWAY 31
P.O. BOX 278
PENNINGTON, NEW JERSEY 08534
(609) 737-0426
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
JEFFREY P. WALDRON, ESQUIRE JOHN S. CHAPMAN, ESQUIRE
EDWARD C. HOGAN, ESQUIRE RICHARD A. HEMMINGS, ESQUIRE
STEVENS & LEE LORD, BISSELL & BROOK
ONE GLENHARDIE CORPORATE CENTER 115 SOUTH LASALLE STREET
1275 DRUMMERS LANE CHICAGO, ILLINOIS 60603
P.O. BOX 236 (312) 443-0700
WAYNE, PENNSYLVANIA 19087
(610) 478-2000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 of the Securities Act of
1933, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
PROPOSED
MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE PRICE(1) REGISTRATION FEES
- ------------------------------------------- -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Common Stock, no par value per share....... 3,769,444 shares(2) $10.00 $37,694,440 $11,120
- -------------------------------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(d) and based on the maximum of the appraisal
valuation range of Mercer Mutual Insurance Company (to be acquired by the
registrant in connection with this offering), as determined by an
independent appraiser, plus 10% of the shares sold in the offering,
reflecting a possible purchase of shares of the Common Stock by the
registrant's employee stock ownership plan.
(2) Represents maximum number of shares to be issued in the transactions
contemplated by this Registration Statement.
------------------------
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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSE OF ISSUANCE AND DISTRIBUTION.
The Company anticipates the following expenses:
<TABLE>
<S> <C>
SEC registration fee........................................ $ 11,120
Printing, postage, and mailing*............................. $ 350,000
Legal fees and expenses*.................................... $ 500,000
Accounting fees and expenses*............................... $ 220,000
Appraisal fees and expenses................................. $ 250,000
Blue sky fees and expenses (including counsel fees)*........ $ 25,000
Transfer and conversion agent fees and expenses*............ $ 100,000
Miscellaneous*.............................................. $ 124,880
----------
Total..................................................... $1,581,000
==========
</TABLE>
- ---------------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pennsylvania law provides that a Pennsylvania corporation may indemnify
directors, officers, employees, and agents of the corporation against
liabilities they may incur in such capacities for any action taken or any
failure to act, whether or not the corporation would have the power to indemnify
the person under any provision of law, unless such action or failure to act is
determined by a court to have constituted recklessness or willful misconduct.
Pennsylvania law also permits the adoption of a Bylaw amendment, approved by
shareholders, providing for the elimination of a director's liability for
monetary damages for any action taken or any failure to taken any action unless
(1) the director has breached or failed to perform the duties of his/ her
office; and (2) the breach or failure to perform constitutes self-dealing,
willful misconduct or recklessness.
The Bylaws of the Company provide for (1) indemnification of directors,
officers, employees, and agents of the Company and its subsidiaries; and (2) the
elimination of a director's liability for monetary damages, each to the fullest
extent permitted by Pennsylvania law.
Directors and officers are also insured against certain liabilities for
their actions as such by an insurance policy obtained by the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Not applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<S> <C>
(a) Exhibits:
1.1 Form of Agency Agreement among the Company, Mercer Mutual
and Sandler O'Neill**
2.1 Plan of Conversion, dated as of October 17, 1997, as amended
and restated on May 13, 1998, of Mercer Mutual Insurance
Company**
3.1.1 Articles of Incorporation of Mercer Insurance Group, Inc.**
3.1.2 Articles of Amendment to Articles of Incorporation of Mercer
Insurance Group, Inc.**
3.2 Bylaws of Mercer Insurance Group, Inc.**
4.1 Form of certificate evidencing shares of Mercer Insurance
Group, Inc.**
</TABLE>
II-1
<PAGE> 3
<TABLE>
<S> <C>
5.1 Opinion of Stevens & Lee re: Legality**
8.1 Internal Revenue Service Private Letter Ruling
10.1 Mercer Insurance Group, Inc. Employee Stock Ownership Plan**
10.2 Employment Agreement, dated as of October 1, 1997, among Mercer Insurance Group, Inc., Mercer Mutual
Insurance Company and William C. Hart**
10.3 Employment Agreement, dated as of October 1, 1997, among Mercer Insurance Group, Inc., Mercer Mutual
Insurance Company and Andrew R. Speaker**
10.4 Consultant's Agreement, dated April 1, 1994, among Mercer Mutual Insurance Company, Mercer Insurance
Company and Roland D. Boehm**
10.5 Mercer Mutual Insurance Company Benefit Agreement dated December 11, 1989, as amended.**
10.6 Mercer Mutual Insurance Company Corporate Director Deferred Compensation Plan dated April 1, 1986, as
amended**
10.7 Employment Agreement, dated as of October 1, 1998, among Mercer Insurance Group, Inc., Mercer Mutual
Insurance Company and Paul D. Ehrhardt.**
23.1 Consent of KPMG LLP and Report on Schedules (contained in Schedules)
23.2 Consent of Alex Sheshunoff & Company**
23.3 Consent of Stevens & Lee (contained in Exhibit 5)
24.1 Power of Attorney**
27.1 Financial Data Schedule**
99.1.1 Conversion Valuation Report, as amended through June 4, 1998, prepared for Mercer Mutual Insurance Company
by Alex Sheshunoff & Company**
99.1.2 Conversion Valuation Update Report dated August 19, 1998, prepared for Mercer Mutual Insurance Company by
Alex Sheshunoff & Company**
99.1.3 Conversion Valuation Update Report dated December 28, 1998, prepared for Mercer Mutual Insurance Company
by Alex Sheshunoff & Company**
99.2 Stock Order Form**
99.3 Question and Answer Brochures**
99.4 Letters to prospective purchasers**
99.5 Mercer Mutual Insurance Company Policyholder Information Statement**
</TABLE>
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** Previously Filed
(b) Financial Statement Schedules:
Independent Auditor's Consent and Report on Schedules
<TABLE>
<S> <C>
Schedule I -- Summary of Investments -- Other than Investments in
Related Parties.
Schedule II -- Condensed Financial Information of Registrant (Not
Applicable).
Schedule IV -- Reinsurance.
Schedule VI -- Supplemental Information Concerning Property -- Casualty
Insurance
Operations.
</TABLE>
II-2
<PAGE> 4
INDEPENDENT AUDITOR'S CONSENT AND REPORT ON SCHEDULES
The Board of Directors
Mercer Mutual Insurance Company:
The audits referred to in our report dated February 18, 1998 included the
related financial statement schedules as of December 31, 1997, and for each of
the years in the three-year period ended December 31, 1997, included in the
registration statement. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statement schedules based on our audits. In our
opinion, such financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
Philadelphia, Pennsylvania
January 8, 1999
II-3
<PAGE> 5
SCHEDULES TO REGISTRATION STATEMENT
MERCER MUTUAL INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE I -- SUMMARY OF INVESTMENTS -- OTHER THAN
INVESTMENTS IN RELATED PARTIES AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COLUMN C COLUMN D
COLUMN A COLUMN B MARKET BALANCE
TYPE OF INVESTMENT COST VALUE SHEET
- ------------------ -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities:
Bonds:
United States Government and government agencies and
authorities............................................ $31,203 $31,031 $31,031
States, municipalities and political subdivisions......... 3,396 3,517 3,517
All other................................................. 548 555 555
------- ------- -------
Total fixed maturities................................. 35,147 35,103 35,103
======= ======= =======
Equity securities:
Common stocks
Public utilities....................................... 102 111 111
Banks, trust and insurance companies................... 842 3,472 3,472
Industrial, miscellaneous and all other................ 5,854 7,113 7,113
------- ------- -------
Total equity securities.............................. 6,798 10,696 10,696
======= ======= =======
Total investments.................................... $41,945 xxxxxx $45,799
======= =======
</TABLE>
II-4
<PAGE> 6
MERCER MUTUAL INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
SCHEDULE IV -- REINSURANCE
<TABLE>
<CAPTION>
COLUMN D COLUMN F
COLUMN C ASSUMED PERCENTAGE
COLUMN B CEDED TO FROM COLUMN E OF AMOUNT
COLUMN A GROSS OTHER OTHER NET ASSUMED
PREMIUMS AMOUNT COMPANIES COMPANIES AMOUNT TO NET
- -------- -------- --------- --------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
For the year ended December 31,
1997............................... 26,858 9,487 598 17,969 3.3%
For the year ended December 31,
1996............................... 24,760 14,412 10,286 20,634 49.8%
For the year ended December 31,
1995............................... 24,700 13,686 9,803 20,817 47.1%
</TABLE>
II-5
<PAGE> 7
MERCER MUTUAL INSURANCE COMPANY AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
SCHEDULE VI -- SUPPLEMENTAL INFORMATION
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G
DEFERRED RESERVE FOR DISCOUNT
POLICY LOSSES AND IF ANY NET NET
AFFILIATION WITH ACQUISITION LOSS ADJ. DEDUCTED IN UNEARNED EARNED INVESTMENT
REGISTRANT COSTS EXPENSES COLUMN C PREMIUMS PREMIUMS INCOME
---------------- ----------- ----------- ----------- -------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Property and
Casualty Entities
For the year ended
December 31, 1997...... 3,019 31,872 0 14,723 17,969 2,350
For the year ended
December 31, 1996...... 2,989 35,221 0 13,179 20,634 2,289
For the year ended
December 31, 1995...... 3,155 36,176 0 18,253 20,817 2,132
</TABLE>
<TABLE>
<CAPTION>
COLUMN I COLUMN K
COLUMN H COLUMN J
LOSSES AND LAE PAID
INCURRED LOSSES AND
------------------ LOSS NET
CURRENT PRIOR AMORTIZATION ADJUSTMENT WRITTEN
YEAR YEAR OF DPAC EXPENSES PREMIUMS
-------- ------ ------------ ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Consolidated Property and Casualty
Entities
For the year ended December 31, 1997... 11,649 (1,055) 4,706 10,817 17,461
For the year ended December 31, 1996... 16,445 (1,644) 5,491 14,084 20,124
For the year ended December 31, 1995... 14,251 (955) 5,944 12,237 21,245
</TABLE>
II-6
<PAGE> 8
ITEM 17. UNDERTAKINGS.
(a) Rule 415 Offering: The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement: (i) to
include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933; (ii) to reflect in the prospectus any fact or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Request for acceleration of effective date: Insofar as indemnification
for liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the registrant pursuant to the
bylaws of the registrant, 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 1933 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.
II-7
<PAGE> 9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Pre-Effective Amendment No. 6 to Registration Statement No.
333-41497 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Borough of Pennington, State of New Jersey, on January 22,
1999.
MERCER INSURANCE GROUP, INC.
By: /s/ ANDREW R. SPEAKER
------------------------------------
Andrew R. Speaker,
Executive Vice President and
Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 6 to Registration Statement No. 333-41497 has been
signed below by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ WILLIAM C. HART* President, Chief Executive January 22, 1999
- ----------------------------------------------------- Officer, and Director
William C. Hart (Principal Executive
Officer)
/s/ ROLAND D. BOEHM* Vice Chairman of the Board of January 22, 1999
- ----------------------------------------------------- Directors
Roland D. Boehm
/s/ JAMES J. FREDA* Director January 22, 1999
- -----------------------------------------------------
James J. Freda
/s/ GEORGE T. HORNYAK, JR.* Director January 22, 1999
- -----------------------------------------------------
George T. Hornyak, Jr.
/s/ RICHARD U. NIEDT* Director January 22, 1999
- -----------------------------------------------------
Richard U. Niedt
/s/ RICHARD G. VAN NOY* Chairman of the Board of January 22, 1999
- ----------------------------------------------------- Directors
Richard G. Van Noy
</TABLE>
II-8
<PAGE> 10
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ ANDREW R. SPEAKER Executive Vice President, January 22, 1999
- ----------------------------------------------------- Chief Operating Officer,
Andrew R. Speaker Chief Financial Officer,
Treasurer and Director
(Principal Financial and
Accounting Officer)
*By /s/ ANDREW R. SPEAKER
-------------------------------------------------
Andrew R. Speaker
Attorney-in-fact
</TABLE>
II-9
<PAGE> 11
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER TITLE
- ------ -----
<C> <S>
1.1 Form of Agency Agreement among the Company, Mercer Mutual
and Sandler O'Neill**
2.1 Plan of Conversion, dated as of October 17, 1997, as amended
and restated on May 13, 1998, of Mercer Mutual Insurance
Company**
3.1.1 Articles of Incorporation of Mercer Insurance Group, Inc.**
3.1.2 Articles of Amendment to Articles of Incorporation of Mercer
Insurance Group, Inc.**
3.2 Bylaws of Mercer Insurance Group, Inc.**
4.1 Form of certificate evidencing shares of Mercer Insurance
Group, Inc.**
5.1 Opinion of Stevens & Lee re: Legality**
8.1 Internal Revenue Service Private Letter Ruling
10.1 Mercer Insurance Group, Inc. -- Employee Stock Ownership
Plan**
10.2 Employment Agreement, dated as of October 1, 1997, among
Mercer Insurance Group, Inc., Mercer Mutual Insurance
Company and William C. Hart**
10.3 Employment Agreement, dated as of October 1, 1997, among
Mercer Insurance Group, Inc., Mercer Mutual Insurance
Company and Andrew R. Speaker**
10.4 Consultant's Agreement, dated April 1, 1994, among Mercer
Mutual Insurance Company, Mercer Insurance Company and
Roland D. Boehm**
10.5 Mercer Mutual Insurance Company Benefit Agreement dated
December 11, 1989, as amended.**
10.6 Mercer Mutual Insurance Company Corporate Director Deferred
Compensation Plan dated April 1, 1986, as amended.**
10.7 Employment Agreement, dated as of October 1, 1998, among
Mercer Insurance Group, Inc., Mercer Mutual Insurance
Company and Paul D. Ehrhardt.**
23.1 Consent of KPMG LLP and Report on Schedules (contained in
Schedules)
23.2 Consent of Alex Sheshunoff & Company**
23.3 Consent of Stevens & Lee (contained in Exhibit 5)
24.1 Power of Attorney**
27.1 Financial Data Schedule**
99.1.1 Conversion Valuation Report, as amended through June 4,
1998, prepared for Mercer Mutual Insurance Company by Alex
Sheshunoff & Company**
99.1.2 Conversion Valuation Update Report dated August 19, 1998,
prepared for Mercer Mutual Insurance Company by Alex
Sheshunoff & Company**
99.1.3 Conversion Valuation Update Report dated December 28, 1998,
prepared for Mercer Mutual Insurance Company by Alex
Sheshunoff & Company**
99.2 Stock Order Form**
99.3 Question and Answer Brochures**
99.4 Letters to prospective purchasers**
99.5 Mercer Mutual Insurance Company Policyholder Information
Statement**
</TABLE>
- ---------------
** Previously Filed
II-10
<PAGE> 1
INTERNAL REVENUE SERVICE DEPARTMENT OF TREASURY
Index Number: 368.05-00 Washington, DC 20224
Joseph Potts, III Person to Contact:
Stevens & Lee WILLIAM F. BARRY, IV
One Penn Square Telephone Number:
P.O. Box 1594 202-622-7770
Lancaster, PA 17608-1594 Refer Reply To:
CC:DOM:CORP:B2:PLR-121096-97
Date:
Jeffrey P. Waldron September 24, 1998
Stevens & Lee
One Glenhardie Corporate Center
1275 Drummers Lane
P.O. Box 236
Wayne, PA 19087-0236
In re: Mercer Mutual Insurance
Company
Insurance Company = Mercer Mutual Insurance
Company
EIN: 21-0512950
Department = Department of Insurance of the
Commonwealth of Pennsylvania
State A = Pennsylvania
State B = New Jersey
Date 1 = October 16, 1997
Date 2 = October 17, 1997
Dear Mr. Potts:
This is in response to a letter dated November 7, 1997, in which rulings
were requested regarding the federal income tax consequences of a proposed
transaction. Additional information was received in subsequent submissions. The
information submitted is summarized below.
Insurance Company is a State A mutual property and casualty insurance
company and the common parent of a consolidated group. Before Date 1, Insurance
Company was a State B mutual insurance company. On Date 1, Insurance Company
became a State A mutual
<PAGE> 2
- 2 -
insurance company by filing Articles of Domestication in compliance with the
applicable provisions of State A law.
Insurance Company, as a mutual property and casualty insurance company,
has no capital stock or shareholders. Instead, the proprietary interests as
they exist under State A law are vested in its members. The members of the
State A mutual insurance company are its policyholders. Under State A law and
the Insurance Company's by-laws, a policyholder, in his capacity as a member
of the Insurance Company, has the right to vote, the right to receive
dividends, if declared, and liquidation rights ("Membership Rights"). Insurance
Company operates under the regulatory supervision of State A's Department.
For what has been represented as valid business reasons, on Date 2, the
board of directors of Insurance Company adopted a plan (the "Plan") to convert
Insurance Company from a mutual company to a stock company (the "Converted
Company") pursuant to State A law. It has been represented that pursuant to the
Plan, a holding company (Holding Company) was formed at the direction of the
Insurance Company by the Incorporator (who was a paralegal employed by the law
firm that the Insurance Company engaged to perform legal services in connection
with the conversion), for the purpose of becoming the parent holding company of
the Converted Company and its subsidiaries after the conversion. Holding
Company is subject to the dominion, will and control of the Insurance Company,
inasmuch as the Incorporator, pursuant to the direction of the Insurance
Company, as communicated to the Incorporator by the law firm, has elected as
the directors of the Holding Company each person who is presently serving as
director on the Board of Directors of the Insurance Company. The directors of
the Holding Company have a fiduciary duty to the Insurance Company to manage
the Holding Company for the benefit of the Insurance Company in accordance with
the Plan. No shares of common stock of the Holding Company will be issued prior
to the Conversion. The Insurance Company has paid all costs incurred to date in
the organization of the Holding Company.
Holding Company will issue, without charge, nontransferable subscription
rights ("Subscription Rights") to purchase shares of its authorized but
unissued no par value common stock ("Conversion Stock") in a subscription
offering (the "Offering") to the following persons (collectively, the
"Participants") and in the following priority:
1. Eligible policyholders, defined by the Plan as persons who are
named insured under a policy issued by the Insurance Company as
of Date 2;
<PAGE> 3
- 3 -
2. The "Tax-Qualified Employee Stock Benefit Plan," defined in the Plan
as the employee stock ownership plan established by the Holding
Company;
3. Directors, officers and employees of the Insurance Company; and
4. If shares of Conversion Stock remain unsold in the Offering, they will
be sold in a public offering or private placement.
All shares of the Conversion Stock to be sold in the Offering will be sold at
the uniform purchase price per share based upon the estimated consolidated
pro-forma market value of the Converted Company as a subsidiary of the Holding
Company, as determined by the Independent Appraiser as of the Effective Date
(the date Articles of Conversion for Insurance Company are filed with the
Department of State of State A or such later date as may be specified in such
Articles).
Upon completion of the Offering, the Insurance Company will convert from
mutual to stock form under State A law. All or a portion of the net proceeds of
the Offering received by the Holding Company will be paid to the Converted
Company, as authorized or required by State A's Department, in exchange for the
issuance to the Holding Company of all of the authorized stock of the Converted
Company.
As a result of the above transactions, the Converted Company will be a
wholly-owned subsidiary of the Holding Company. Each insurance policy issued by
Insurance Company will remain in force as a policy issued by the Converted
Company except that (I) all policyholder voting rights, if any, will be
extinguished, (ii) all policyholder rights to share in the surplus of the
Converted Company (if any) shall be extinguished, and (iii) in the case of
participating policies (i.e., a policy which entitled the policyholder in the
capacity of a policyholder to receive dividends if, as and when declared by a
mutual insurance company), the Converted Company shall have the right on the
renewal date of such policy to issue a nonparticipating policy in substitution
for the participating policy.
The following representations have been made in connection with the
proposed transaction:
a. None of the Conversion Stock will be issued for services rendered to
or for the benefit of the Holding Company or to or for the benefit of
the Insurance Company or Converted Company.
<PAGE> 4
- 4 -
b. None of the Conversion Stock will be issued for indebtedness of the
Holding Company.
c. There is no indebtedness between the Holding Company and the
Participants and there will be no indebtedness created in favor of any
of the Participants as a result of the Conversion and the related
transactions.
d. Eligible Policyholders who transfer, or who are deemed for federal
income tax purposes to have transferred, their voting rights in the
Insurance Company and their rights to share in liquidation surplus of
the Insurance Company to the Holding Company in exchange for
Subscription Rights will not retain any rights in such transferred
Membership Rights, and will not receive any cash or property in the
exchange other than the Subscription Rights.
e. The Subscription Rights issued to Eligible Policyholders and other
Participants in the Subscription Offering are non-transferable,
non-negotiable, personal rights to purchase Conversion Stock in the
Subscription Offering at the uniform purchase price per share payable
by all Subscribers (Participants who purchase Conversion Stock in the
Offering), based upon the estimated consolidated pro-forma market
value of the Converted Company as a subsidiary of the Holding Company,
as determined by the Independent Appraiser as of the Effective Date.
f. In the event a subscriber is also an Eligible Policyholder, (a) each
such Subscriber will be afforded the same consideration as a similarly
situated Eligible Policyholder who is not a Subscriber, (b) such
consideration will be limited to the receipt of Subscription Rights
under the Plan, and (c) each such Subscriber will pay the same
Purchase Price for Conversion Stock as is paid by all other
Subscribers in the Offering.
g. Each Subscriber will receive Conversion Stock having a fair market
value that is approximately equal to the amount of cash paid to the
Holding Company therefor.
h. The Conversion and all related transactions and exchanges will occur
under a plan, adopted and approved before the Effective Date by the
Holding Company, the Insurance Company, the Eligible Policyholders and
the Department, in which the rights of all parties will be defined.
<PAGE> 5
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i. The Conversion and all related transactions and exchanges will occur
on, or as of, approximately the same date.
j. The Holding Company will remain in existence on and after the
Effective Date, and will retain the cash and other property
transferred to it in exchange for Conversion Stock, (a) except for
contributions by the Holding Company to the Converted Company, in
exchange for Converted Company Capital Stock, of (I) Membership
Rights that are transferred, or deemed to be transferred, to the
Holding Company by Eligible Policyholders and (ii) net proceeds from
the sale of Conversion Stock in the Offering, as authorized or
required by the Department, and (b) except for transactions in the
normal course of business operations.
k. Each of the parties to the transaction will pay his, her or its own
expenses, if any, incurred in connection with the proposed
transactions. The Insurance Company (or the Converted Company) and
the Holding Company will pay their expenses out of the net proceeds
from the sale of the Conversion Stock in the Offering.
l. No liabilities of the Participants or the Subscribers will be assumed
by the Holding Company in the Conversion or the related transactions
and exchanges.
m. There is no plan or intention on the part of the Holding Company to
redeem or otherwise reacquire any of the Conversion Stock to be
issued in the Offering.
n. The Converted Company will issue only voting common stock in
connection with its Conversion and all such stock will be issued to
the Holding Company.
o. The Holding Company will contribute to the Converted Company, in
exchange for all of its Converted Company Capital Stock, (a)
Membership Rights in the Insurance Company that are transferred, or
deemed to be transferred, to the Holding Company by Eligible
Policyholders and (b) net proceeds from the sale of Conversion Stock
in the Offering, as authorized or required by the Department.
p. Following its conversion, the Converted Company will be treated under
State A law as the same corporation that existed as a mutual
insurance company prior to the Conversion. There will be no transfers
of assets
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actual or constructive, by or from the Insurance Company to the Converted
Company.
q. Following its Conversion, the Converted Company will continue to conduct
the insurance business it conducted prior to the Conversion.
r. The Conversion of the Insurance Company to a Converted Company is not part
of a plan to increase periodically the proportionate interest of any
Eligible Policyholder of the Insurance Company, or any stockholder of the
Converted Company or of the Holding Company, in the assets or earnings and
profits of the Insurance Company, the Converted Company or the Holding
Company.
s. To the best of the knowledge of the Insurance Company, taking into account
any issuance of additional shares of any Converted Company Capital Stock;
any issuance of any Converted Company Capital Stock for services; the
exercise of any Converted Company Capital Stock rights, warrants, or
subscriptions; a public offering of any Converted Company Capital Stock;
and the sale, exchange, transfer by gift, or other disposition of any
Converted Company Capital Stock to be received by the Holding Company in
the Conversion and related transactions, the Holding Company will be in
"control" of the Converted Company within the meaning of I.R.C. section
368(c) immediately after the proposed transactions.
t. There is no plan or intention on the part of the Converted Company to
redeem or otherwise reacquire any Converted Company Capital Stock to be
issued in the Conversion and the related transactions that would cause the
Holding Company not to be in "control" of the Converted Company within the
meaning of I.R.C. section 368(c) immediately after the proposed
transactions.
u. The Converted Company will not be classified as an investment company
within the meaning of section 351(e)(1) and Treas. Reg. section
1.351-1(c)(1)(ii).
v. The Insurance Company is not under the jurisdiction of a court in a Title
11 or similar case within the meaning of I.R.C. section 368(a)(3)(A).
w. Each policy of insurance issued by the Insurance Company and in force on
the Effective Date will remain in force as a policy issued by the
Converted Company in accordance with the terms of such policy, except
that, as of the Effective Date: (I) all voting rights (if
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any) of the holder of such policy will be extinguished, (ii) all
rights of the holders of such policy to share in the surplus of the
Converted Company (if any) shall be extinguished, and (iii) in the
case of a participating policy, the Converted Company shall have the
right on the renewal date of such policy to issue a nonparticipating
policy in substitution for the participating policy.
x. The Holding Company will not make any election under I.R.C. Section
338 in connection with its acquisition of the stock of the Converted
Company.
Based solely on the information submitted and the representations set
forth above, we conclude as follows:
(1) The conversion of Insurance Company into Converted Company upon
Holding Company's exchange of Membership Rights for stock of the
Converted Company will be a reorganization within the meaning of
I.R.C. Section 368(a)(1)(E). The Converted Company will constitute one
and the same taxable entity as the Insurance Company for Federal
income tax purposes. Rev. Rul. 54-482, 1954-2 C.B. 148. Neither the
Insurance Company nor the Converted Company will recognize gain or
loss as a result of the reorganization.
(2) No gain or loss will be recognized by Holding Company in the exchange
of Membership Rights in the Insurance Company for stock in the
Converted Company. I.R.C. Section 354(a).
(3) The tax attributes of the Insurance Company will remain unchanged as
tax attributes of the Converted Company upon Conversion to a stock
insurance company. Thus, attributes such as asset basis, holding
periods, net operating loss carry over, capital loss carry over,
earnings and profits, and accounting methods will not be changed by
reason of the conversion of the mutual insurance company into a stock
insurance company in the recapitalization.
(4) No gain or loss will be recognized by the Insurance Company or
Converted Company on the receipt of cash proceeds and Membership
Rights in exchange for Converted Company stock. I.R.C. Section
1032(a).
(5) For Federal income tax purposes, the policyholders of Insurance
Company will be treated as transferring their Membership Rights to the
Holding Company in exchange
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for the Subscription Rights to buy Holding Company stock. A
policyholder will recognize gain or loss to the extent that the fair
market value of the Subscription Rights received, if any, differs from
the basis of such policyholder in the rights surrendered therefor.
I.R.C. Section 1001(a). Generally, the basis in such rights is zero.
Rev. Rul. 71-233, 1971-1 C.B. 113; see Rev. Rul. 74-277, 1974-1 C.B.
88.
(6) There is no Federal tax incidence to Holding Company on its granting
of Subscription Rights to policyholders in exchange for their
Membership Rights in the Insurance Company. Rev. Rul. 58-234, 1958-1
C.B. 279. Moreover, Holding Company will recognize no gain or loss on
the lapse of a Subscription Right. I.R.C. Section 1032(a).
(7) A person acquiring a share of Holding Company common stock in the
initial public offering because of the exercise of a Subscription
Right will have a basis in such share equal to the amount of cash paid
therefor plus the basis of such right, if any (taking into account the
tax consequences on receipt of such right (see ruling 5). See Rev.
Rul. 58-234, 1958 I.R. 279. Such person's holding period in such share
will commence on the day the Subscription Right is exercised. I.R.C.
Section 1223(6).
(8) A person acquiring a share of Holding Company common stock other than
through the exercise of a Subscription Right will have a basis in such
share equal to the cash paid therefor. Such person's holding period in
such share will commence on the day after the acquisition. Rev. Rul.
70-598, 1970-2 C.B. 168.
(9) No gain or loss will be recognized by Holding Company on the receipt
of cash or property in the offering in exchange for Holding Company
stock. I.R.C. Section 1032(a).
(10) Holding Company will have a basis in all of the stock of Converted
Company equal to the cash paid therefor and Holding Company's basis in
the Membership Rights. I.R.C. Sections 1012 and 358(a)(1).
(11) The consolidated group of which Insurance Company was the common
parent prior to the proposed transaction will remain in existence
after the proposed transaction, and Holding Company will become the
common parent of such affiliated group. Rev. Rul. 82-152, 1982-2 C.B.
205.
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The rulings contained in this letter are based upon information and
representations submitted by the taxpayer and accompanied by a penalty of
perjury statement executed by an appropriate party. While this office has not
verified any of the material submitted in support of the request for rulings,
it is subject to verification on examination.
A copy of this letter must be attached to any income tax return to which
it is relevant.
This ruling is directed only to the taxpayer(s) requesting it. Section
6110(j)(3) of the Code provides that it may not be used or cited as precedent.
Sincerely yours,
Assistant Chief Counsel (Corporate)
By /s/ Richard L. Osborne
-----------------------------------
Richard L. Osborne
Senior Technician Reviewer, CC:DOM:CORP:2
