40-4003a. Plan of conversion; terms and conditions.
40-4003a
40-4003a. Plan of conversion; terms andconditions.The plan of conversion shall comply with the terms andconditions set forth in subsection (a), (b), (c) or (d) as follows:
(a) Plan of conversion in which policyholders exchangetheir membership interests for cash, securities, policycredits, dividends, subscription rights or otherconsideration, or some combination thereof.A mutual insurer seeking to convert pursuant to thissubsection may do so by:
(1) Filing a plan of conversion containing:
(A) A description of the structure, forms andallocation of the proposed consideration to thepolicyholders, the projected range of the number ofshares of capital stock, if any, to be issued by thenew stock insurer or parent company of the new stockinsurer, or any other company, and such other proposedconditions and provisions as determined by the mutualinsurer not to be inconsistent with this act.As used in this act, "parent company" means anycompany which on or after the effective date of theconversion owns, directly or indirectly,51% or more of the capital stock of the newstock insurer;
(B) a description of any amendments to the insurer'sarticles of incorporation;
(C) provisions establishing the method by which theinitial board of directors of the stock insurer will beselected; and
(D) any other additional information as thecommissioner of insurance may reasonably request.
(2) providing consideration to the policyholders entitledthereto in the form of cash, stock, policy credits,dividends, subscription rights, a combination thereof orsuch other valuable consideration as the commissionermay approve. With the approval of thecommissioner, such consideration may be paidinto a trust or other account or entity existing for thebenefit of policyholders, which is established by thecompany for the purpose of effecting the conversion.
(b) Plan of conversion in which policyholders exchange theirmembership interests solely for subscription rights.A mutual insurer seeking to convert to a stock insurerpursuant to this subsection may do so by:
(1) Filing a plan of conversion containing:
(A) A provision that each policyholder is to receive,without payment, nontransferable subscription rights topurchase a portion of the capital stock of theconverted stock company and that, in the aggregate, allpolicyholders shall have the right, prior to the rightof any other party, to purchase100% of the capital stock of the converted company.As an alternative to subscription rights in theconverted stock company, the plan may provide that eacheligible member is to receive, without payment,nontransferable subscription rights to purchase aportion of the capital stock of one of the following:
(i) A corporation organized for the purpose ofpurchasing and holding the stock of the convertedstock company;
(ii) a stock insurance company owned by the mutualcompany into which the mutual company will bemerged; or
(iii) an unaffiliated stock insurance company orother corporation that will purchase the stock ofthe converted stock company;
(B) a provision that the subscription rights shall beallocated in whole shares among the policyholders usinga fair and equitable formula. This formula may, butneed not, take into account how the different classesof policies of the policyholders contributed to thesurplus of the mutual company or any other factors thatmay be fair and equitable;
(C) a fair and equitable means for allocating shares ofcapital stock in the event of an oversubscription toshares by policyholders exercising subscription rightsreceived under this section;
(D) at the option of the converting company, aprovision that any shares of capital stock notsubscribed to by policyholders exercising subscriptionrights received under this section may be sold in apublic offering or through a private placement or otheralternative method approved by the commissionerthat is fair and equitable to policyholders.The offering to others ofshares not purchased by policyholders exercising suchsubscription rights shall be at a price not less thanthe offering price to such policyholders;
(E) a provision which sets the total price of thecapital stock equal to the estimated pro forma marketvalue of the converted stock company based upon anindependent evaluation by one or more qualifiedexperts. This pro forma market value may be the valuethat is estimated to be necessary to attract fullsubscription for the shares, as indicated by theindependent evaluation and may be stated as a range ofpro forma market value;
(F) a provision which sets the purchase price pershare of capital stock equal to any reasonable amount;
(G) a provision that any person or group of personsacting in concert shall not acquire, in the publicoffering or pursuant to the exercise of subscriptionrights, more than 5% of the capitalstock of the converted stock company, except with theapproval of the commissioner. Thislimitation does not apply to any entity that is topurchase 100% of the capitalstock of the converted company as part of the plan ofconversion approved by the commissioner;and
(H) a provision that the rights of a holder of asurplus note to participate in the conversion, if any,shall be governed by the terms of the surplus note; and
(2) providing subscription rights to the policyholdersentitled thereto in accordance with the provisions of theplan of conversion as described in paragraph (1).With the approval of the commissioner, stockthat will be issued pursuant to such subscription rightsmay be provided to a trust or other account or entityexisting for the benefit of policyholders which isestablished by the company for the purpose of effectingthe conversion.
(c) Plan of conversion in which policyholders exchangetheir membership interests for membership interests in amutual holding company.
(1) A plan of conversion adopted pursuant to thissubsection shall provide that the mutual insurer will becomea stock insurer and that the owners of policies of theconverted insurer that are in force on the effective dateof the plan of conversion or thereafter will becomemembers of a mutual holding company organized pursuant toparagraph (2) for as long as theirpolicies remain in force;
(2) a mutual insurer seeking to convert to a stockinsurer pursuant to this subsection may do so by:
(A) Forming a mutual holding company and continuingthe corporate existence of the insurer as a stockinsurance company that is a wholly-owned subsidiary(except to the extent qualifying shares are required tobe held by directors of an insurance company admittedand authorized to do business in Kansas pursuant toK.S.A. 40-305 and amendments thereto) of a stock holding company of which atleast 51% of the voting stock isheld by the mutual holding company;
(B) forming a mutual holding company and continuingthe corporate existence of the insurer as a stockinsurance company of which at least51% of the voting stock is held by the mutual holdingcompany; or
(C) forming a mutual holding company and continuingthe corporate existence of the insurer as a stockinsurance company with another ownership structure thatis approved by the commissionerwith at least 51% of the voting stock ofthe stock insurance company is ultimately held by themutual holding company.
(3) a mutual holding company is not an insurer forpurposes of this act, but the provisions of thisact with regard to corporate organization andprocedure of mutual insurers and the election ofdirectors by mutual insurers, and those provisions ofchapter 17 of the Kansas Statutes Annotated and amendments thereto that areapplicable to mutual insurers, shallapply to the mutual holding company;
(4) a mutual holding company and any stock holdingcompany shall each be deemed to be a "holding company" ofthe insurer within the meaning of article 33 of chapter 40 of the KansasStatutes Annotated and amendments thereto. Approval of the plan of conversionby thecommissioner pursuant to this act shallconstitute approval of the acquisition of control by themutual holding company and stock holding company, ifapplicable, under K.S.A. 40-3304 and amendments thereto, without any separatefilings or other action;
(5) a mutual holding company shall not dissolve,liquidate or wind-up and dissolve except throughproceedings under article 36 of chapter 40 of the Kansas Statutes Annotated andamendments thereto for theliquidation or dissolution of the converted insurer or asthe commissioner of insurance may otherwise approve. Amutual holding company may, however, convert to a stockcorporation in accordance with the terms of this articleand a plan of conversion approved by the commissioner ofinsurance to be fair and equitable after a hearing uponnotice to the company's members;
(6) the charter of the mutual holding company shall befiled with the commissioner and shallcontain the matters required to be contained in thecharter of a mutual insurer by article 5 or article 12 of chapter 40 of theKansas Statutes Annotated and amendments thereto,as applicable, except that the name of themutual holding company shall contain the word "mutual"and shall not contain the word "insurance" and thecompany's powers shall not include doing an insurance business;
(7) the commissioner of insurance may, by adoption of rules and regulations,require a mutual holding company to file annualstatements with the commissioner in suchform as the commissioner prescribes;
(8) any subsidiaries of the company that have beenreorganized pursuant to this act and amendments thereto may remain assubsidiaries of such company or become subsidiaries ofthe mutual or stock holding company provided that if suchsubsidiaries shall become subsidiaries of a stock holdingcompany, then the reorganized company shall be reimbursedthe value of its holdings in such subsidiaries, asreflected on the company's most recently filed financialstatements, in the event shares of the stock holdingcompany are or have been issued to other than the mutualholding company;
(9) with the written approval of the commissioner,and subject to conditions that thecommissioner may impose, a mutual holdingcompany may:
(A) Merge or consolidate with, or acquire the assetsof, a mutual holding company;
(B) together with its converted insurer subsidiary,merge or consolidate with or acquire the assets of anyother insurer; or
(C) engage in any other merger, consolidation oracquisition transaction which may be approved by thecommissioner;
(10) a member of a mutual holding company is not, as amember, personally liable for the acts, debts,liabilities or obligations of such company. Noassessment of any kind may be imposed upon the members ofa mutual holding company by the board of directors,members or creditors of such company or because of anyliability of any company owned or controlled by themutual holding company or because of any act, debt orliability of the mutual holding company;
(11) a membership interest in a mutual holding companyshall not constitute a security under the laws of thisstate; and
(12) the commissioner shall retainjurisdiction over any mutual holding company or stockholding company organized pursuant to this section toassure that policyholder interests are protected; and
(13) as used in this section, "at least 51% of the voting stock" means sharesof the capital stock which carry the right to cast a majority of the votesentitled to be cast by all of the outstanding shares of capital stock of thecompany for the election of directors and on all other matters submitted to avote of the shareholders of the company.
(d) Plan of conversion in which policyholders exchange their membershipinterests for an option to purchase a proportionate amount of stock in theconverted company.
A mutual insurer seeking to convert pursuant to this subsection may do so byfiling a plan of conversion containing:
(1) A description of any amendments to the insurer's articles ofincorporation to effect a conversion from a mutual corporation into a stockcorporation. Any other amendments proposed for the articles of incorporationshall be set forth in the plan.
(2) The establishment of a conversion value, as of the calendar quarterending immediately preceding the date of the adoption of the resolutionspecified in subsection (a) of K.S.A. 40-4002, and amendments thereto. Theconversion value shall be equal to the company's policyholders' surplus,determined in accordance with the statutory method of accounting used inpreparing the last annual statement filed with the commissioner of insurance. The insurer shall submit a list of qualified disinterested appraisers, fromwhich the commissioner shallappoint one or more such appraisers, who shall establish the conversion valuein accordance with the above procedure.
(3) The procedure by which each policyholder shall receive a proportionateamount of the conversion value in the manner prescribed herein and in paragraph(4). Such amount shall be based upon net premium paid to the general accountof the insurer within three years prior to the date on which the board ofdirectors approved the plan.
(4) Provisions whereby the insurer or any holding company of the insurershall distribute such proportionate conversion value, in the following method:
(A) Each policyholder will be issued an option to purchase stock in theconverted company;
(B) the total stated value of the stock to be issued shall be equal to theconversion value as determined in paragraph (2);
(C) the stock option shall provide that the policyholders may purchase thestock at its stated value;
(D) the maximum amount of stock that may be purchased by each policyholdershall be in proportion to the policyholder's share of the conversion value,with the number of shares rounded to the nearest whole number, plus any sharespurchased pursuant to purchased stock options, subject to the limitationsprovided in subparagraph (J);
(E) policyholders not exercising their option to purchase the stock shall beentitled to sell such option to any person or corporation, including the parentcorporation;
(F) the sale of any such stock option shall transfer to the purchaser allrights in and conditions to the option;
(G) all stock options shall be exercised within 60 days from the date suchoptions are distributed to the policyholders and the options shall expire atthe end of such sixty-day period;
(H) the converted company or the parent corporation shall purchase, at aprice not less than the amount set forth in the plan, all stock options thathave not been exercised within 60 days from the date such options aredistributed to the policyholders;
(I) the converted company or the parent corporation shall purchase, at thestated value, all stock not purchased pursuant to the stock options and suchpurchase must be made within 60 days from the date the stock options expire;
(J) notwithstanding the provisions of subparagraph (D), ownership of thevoting stock of the insurer is subject to the provisions of K.S.A. 40-4008and amendments thereto.
The above distribution method shall constitute full payment and discharge ofthe policyholder's proportionate conversion value, but this provision shallnot be held to prohibit the converted company or the parent corporationfrom including in the plan provisions for the distribution of any othervaluable consideration to policyholders. Notwithstanding any other provisionof law, the policyholders shall have no other rights resulting from membershipin a mutual insurance company with respect to the insurer.
(5) A statement as to the number of shares to be authorized for the insurerand their value. The paid-in capital and surplus of the converted capitalstock insurer shall be in an amount not less than two times the minimum initialpaid-in capital and surplus required of a domestic stock insurer doing businessas of the same date as the converted company, to transact like kinds ofinsurance.
(6) Provisions establishing the method by which the initial board ofdirectors of the stock insurer will be selected.
History: L. 1997, ch. 107, § 3;L. 1999, ch. 77, § 1; Apr. 15.