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EXHIBIT 8(b)
April 24, 1998
Physicians Protective Trust Fund
0000 Xxxxx xx Xxxx Xxxxxxxxx
Xxxxx Xxxxxx, XX 00000
Re: First Amended and Restated Agreement and Plan of Merger
dated as of October 3, 1997, as amended by a First Amendment
to First Amended and Restated Agreement and Plan of Merger
dated as of April 13, 1998, by and among Professionals
Insurance Company Management Group, a Michigan business
corporation ("Professionals Group"), PICOM Insurance
Company, a Michigan stock insurance company ("PICOM") and
Physicians Protective Trust Fund, a medical malpractice
self-insurance trust fund organized under Florida Statutes
Section 627.357 ("PPTF")
Gentlemen:
We have acted as counsel to PPTF in connection with (i)
the merger of PPTF with and into PPTF Merger Insurance Company, a Florida stock
insurance company ("XXXXX"), a wholly owned subsidiary of Professionals Group,
(the "XXXXX Merger") and (ii) the merger of XXXXX into PICOM, a wholly owned
subsidiary of Professionals Group, (the "PICOM Merger", and, collectively, with
the XXXXX Merger, the "Mergers") all pursuant to the First Amended and Restated
Agreement and Plan of Merger dated as of October 3, 1997 (the "Agreement"), as
amended on April 13, 1998, by and among Professionals Group, PICOM and PPTF.
We are delivering this opinion pursuant to Section 7.1(g) of the Agreement. All
of the capitalized terms not defined herein have the same meanings as in the
Agreement.
FACTS
PPTF is a self-insurance trust fund organized to provide medical
malpractice insurance to its members. Members are current policyholders of PPTF.
Policyholders are entitled to dividends, if any, and are entitled to vote for
the election of trustees. PPTF Members are assessable for a deficiency in the
event that PPTF is unable to meet its obligations fully. PPTF has never made an
assessment on its Members. We have been advised that PPTF is taxable as a
corporation for federal income tax purposes and is subject to Section 831 of the
Internal Revenue Code of 1986, as amended (the "Code"), which is applicable to
mutual insurance companies.
Pursuant to the Agreement, PPTF will merge with and into XXXXX
pursuant to Section 628.451 and Chapter 607 of the Florida Statutes. As part
of the XXXXX Merger, all Membership Rights will
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be converted into shares of Professionals Group Common Stock. The number
of shares of Professionals Group Common Stock issued will be determined in the
manner described in the Agreement. Each Member will be allocated a portion of
the Aggregate Merger Shares determined in accordance with an allocation formula
that has been approved by the appropriate State of Florida Department of
Insurance. Members of PPTF will cease having any obligations for assessments
to meet any obligations of PPTF.
Immediately thereafter, and as part of a single plan, XXXXX will merge,
in accordance with the Michigan Insurance Code and the Florida Insurance Code,
with and into PICOM. As a consequence of the PICOM Merger, each share of common
stock of XXXXX issued and outstanding will be converted into an equal number of
shares of common stock of PICOM.
We have assumed, with your consent:
1. The Mergers will be effected in accordance with the Agreement.
2. The fair market value of the Professionals Group Common Stock received
by the Members of PPTF will be approximately equal to the fair market
value of each Member's Membership Right surrendered in the exchange.
3. Professionals Group, XXXXX and PICOM have no plan or intention to
acquire any of the Professionals Group Common Stock issued in the
transaction.
4. No parties to the Mergers are investment companies as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
5. No stock of XXXXX or PICOM will be issued to Members in the Mergers.
6. Prior to the Mergers, Professionals Group will be in control of both
PICOM and XXXXX within the meaning of Section 368(c) of the Code.
7. Following the Mergers, neither XXXXX nor PICOM will issue additional
shares of its stock that will result in Professionals Group's losing
control of either XXXXX or PICOM within the meaning of Section 368(c)
of the Code.
8. Professionals Group has no plan or intention to liquidate XXXXX or
PICOM, to merge XXXXX or PICOM with and into another corporation, other
than the merger of XXXXX into PICOM pursuant to the PICOM Merger, to
sell or otherwise dispose of the stock of PICOM, or to cause
PICOM to sell or
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otherwise dispose of any of the assets of PPTF acquired in the
transaction, except for dispositions made in the ordinary course of
business.
9. The liabilities of PPTF assumed in the Mergers and the liabilities to
which the transferred assets of PPTF were subject were incurred by PPTF
in the ordinary course of its business.
10. Following the Mergers, PICOM will continue the historic business of
PPTF or use a significant portion of PPTF's business assets in a
business.
11. Professionals Group, PICOM, XXXXX, PPTF and Members will pay their
respective expenses, if any, incurred in connection with the Mergers.
12. The Members hold all of the proprietary interests in PPTF.
13. There is no plan or intention by the Members who own 5% or
more of the Membership Rights of PPTF (if any), and, to the
best knowledge of the management of PPTF, there is no plan or
intention on the part of the remaining Members to sell,
exchange or otherwise dispose of a number of shares of
Professionals Group Common Stock received in the transaction
that would reduce the Members' ownership of Professionals
Group Common Stock received in the transaction to a number of
shares having a value as of the Closing Date of less than 50%
of the value of all of the formerly outstanding Membership
Rights of PPTF as of the same date. For purposes of this
assumption, Membership Rights exchanged for cash or other
property surrendered by dissenters or exchanged for cash in
lieu of fractional shares of Professionals Group will be
treated as outstanding Membership Rights on the Closing Date.
Moreover, Membership Rights otherwise sold, redeemed or
disposed of prior or subsequent to the Mergers and cash
distributed to Members of PPTF as part of the transaction are
considered in making this assumption.
14. XXXXX, and, in turn, PICOM, will acquire at least 90% of the
fair market value of the net assets and at least 70% of the
fair market value of the gross assets held by PPTF immediately
prior to the Mergers. For purposes of this assumption,
amounts paid by PPTF to dissenters, and all redemptions and
distributions (except for regular, normal dividends) made by
PPTF immediately preceding the transfer will be included as
assets of PPTF held immediately prior to the Mergers.
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15. There is no intercorporate indebtedness existing between Professionals
Group, XXXXX, PICOM and PPTF that was issued, acquired or will be
settled at a discount.
16. PPTF is not under the jurisdiction of a court under Title XI or similar
proceeding within the meaning of Section 368(a)(3)(A) of the Code.
17. The fair market value of the assets of PPTF transferred to XXXXX and,
in turn, to PICOM, will be equal to or in excess of the sum of the
liabilities assumed by XXXXX and, in turn, PICOM, plus the amount of
liabilities, if any, to which the transferred assets are subject.
18. The consideration paid to Members by Professionals Group, if any, for
services is equal to the fair market value of such services.
19. The assumption by PICOM of the obligation of a Member for assessments
to meet the obligations of PPTF has no value.
DISCUSSION
The Mergers are intended to qualify as reorganizations described in
Sections 368(a)(1)(A) and 368(a)(2)(D) of the Code. In order to qualify under
those Code provisions, among other things, (i) the transactions must constitute
"mergers" for purposes of the relevant state laws and (ii) the "shareholders" of
the target corporation must receive stock in the parent of the acquiring
corporation representing a sufficient continuity of interest in the parent of
the surviving corporation. Section 354 of the Code provides, in part, that if
stock in a corporation a party to a reorganization is exchanged solely for stock
in another corporation that is a party to the reorganization, no gain or loss is
recognized as a result of the receipt of the stock.
With respect to the PICOM Merger, and with your permission, we have
relied on the opinion of Miller, Canfield, Paddock and Stone, P.L.C. that the
merger of XXXXX into PICOM constitutes a statutory merger under the applicable
laws of the State of Michigan.
Generally, for purposes of federal income taxes, a transitory step that
has no independent economic significance is ignored for federal income tax
purposes. See Revenue Ruling 67-448, 1967-2 C.B. 144. In Revenue Ruling 67-448,
the Internal Revenue Service concluded that the formation of a subsidiary by an
acquiring corporation and the merger of that subsidiary into the target
corporation where the target was the surviving entity, constituted an
acquisition of the stock of the target corporation by the parent
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corporation for federal income tax purposes. The Ruling states that the
transitory existence of the acquiring corporation subsidiary would be
disregarded. In Revenue Ruling 72-405, 1972-2 C.B. 217, the formation of a
subsidiary solely to acquire the assets of another corporation, immediately
followed by the liquidation of the subsidiary, was treated as an acquisition of
assets by the parent corporation. The acquisition of assets by the subsidiary
was ignored for federal income tax purposes because it was merely one step in an
overall plan.
Similarly, in the instant circumstances, the creation of XXXXX and the
merger of PPTF into XXXXX should be ignored for federal income tax purposes. The
merger of PPTF into XXXXX is merely a step in the overall plan for PPTF to
merge into PICOM and the issuance of Professionals Group Common Stock in
exchange for Membership Rights. Accordingly, the transaction should be treated
for federal income taxes as the merger of PPTF into PICOM and the exchange of
Membership Rights for Professionals Group Common Stock.
Because PPTF is a self-insurance trust fund, it has no shareholders.
Instead, the proprietary interests in PPTF are held by the Members. Revenue
Ruling 71-233, 1971-1 C.B. 113, describes a merger of a mutual life insurance
company into a newly organized stock life insurance company. The policyholders
exchanged their proprietary interests that arose from ownership of insurance
policies for preferred stock of the stock insurance company. The ruling
concluded that the transaction constituted a reorganization described in Section
368(a)(1)(A) of the Code. Revenue Ruling 71-233 treats the proprietary interests
in a mutual life insurance company held by policyholders as stock for purposes
of the reorganization provisions. Revenue Ruling 71-233 concluded that the
exchange of the proprietary interests for stock was controlled by Section 354 of
the Code. Since PPTF is treated as a mutual insurance company for federal income
tax purposes, we assume that the Members will be treated in the same manner as
policyholders of a mutual insurance company for purposes of the reorganization
provisions of the Code. Consequently, the exchange of Membership Rights
held by Members for Professionals Group Common Stock should be treated as an
exchange controlled by Section 354 of the Code.
Generally, the assumption of an obligation of a shareholder of a target
corporation, such as the obligations of Members for assessment, as part of a
reorganization is treated as a distribution of boot to the shareholder. PPTF has
never assessed a policyholder and has substantial reserves for payment of its
obligations. We have therefore assumed that the assumption of the obligation of
Members for assessments by PICOM has no value. In
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the event that it is determined that the assumption of this obligation has value
to the Member, each Member would be deemed to have received a distribution of
money equal to such value as part of the Mergers.
OPINIONS
Based upon the foregoing, upon consummation of the transactions
contemplated by the Agreement, it is our opinion that:
1. The Merger of PPTF into XXXXX and, in turn, XXXXX into PICOM will
constitute a reorganization within the meaning of Section 368(a)(1)(A)
and Section 368(a)(2)(D) of the Code.
2. Members who exchange Membership Rights solely for Professional Group
Common Stock will recognize no gain or loss on the exchange (except
with respect to cash received in lieu of a fractional share of
Professionals Group Common Stock or in satisfaction of dissenters'
rights).
3. No gain or loss will be recognized by PPTF as a result of the Mergers.
4. The tax basis of the Professionals Group Common Stock received by a
Member who exchanges all Membership Rights solely for shares of
Professionals Group Common Stock will be zero.
5. The holding period of the Professionals Group Common Stock received by
a Member will include the period during which the Membership Rights
surrendered in exchange therefor were held (provided that such
Membership Rights were held by such Member as a capital asset at the
effective time of the XXXXX Merger).
Our opinions do not address the tax consequences to particular Members
who may be subject to special treatment under certain federal income tax laws
such as dealers, financial institutions, and non-United States persons. Further,
our opinions do not address the federal income tax consequences to persons who
receive Professionals Group Common Stock as compensation for services. Our
opinions do not address any consequences arising under the laws of the any
state, local or foreign jurisdiction.
The opinions contained in this letter have been obtained on the basis
of facts and representations described herein and such analysis of federal
income tax laws as we have deemed necessary. Our views are based upon existing
federal income tax law, judicial decisions and administrative rulings, all of
which are subject to change or modification at any time and such change may have
retroactive effect. We express no opinion as to any tax consequences of the
Mergers other than those expressly discussed herein.
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This opinion is solely for your benefit and is rendered solely in
connection with the transactions to which it relates. This opinion may be
relied upon only in connection with the Mergers and may not be relied upon by
any other person without our prior written consent in each such instance.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement on Form S-4 of Professionals Group and to the reference
to us under the caption "Certain Federal Income Tax Consequences" in the Joint
Proxy Statement/Prospectus forming a part of such Registration Statement. In
giving such consent we do not hereby admit that we are within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933,
as amended, or the rules or regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
/s/ STEEL XXXXXX & XXXXX LLP
