§ 10-3-604 — Procedure for exchange

Colorado § 10-3-604

• Jurisdiction: Colorado
• Title 10: Insurance
• Art.: Regulation of Insurance Companies

Text

(1) Any domestic company may adopt a
plan of exchange with any acquiring corporation providing for the exchange of the
outstanding stock of the domestic company for shares of stock or other securities
issued by the acquiring corporation, or cash, or other consideration, or any
combination thereof, in the following manner:

(a) The boards of directors of the domestic company and of the acquiring
corporation, by resolutions approved by a majority of the whole of each such board,
shall adopt a plan of exchange which shall set forth the terms and conditions of the
exchange and the mode of carrying the same into effect and such other provisions
with respect to the exchange as may be deemed necessary or desirable.

(b) The domestic company and the acquiring corporation shall submit to the
commissioner three copies of the plan of exchange certified by an officer of each
as having been adopted in accordance with paragraph (a) of this subsection (1).
Such copies of the plan of exchange shall be accompanied by:

(I) The annual statement of the domestic company for its last preceding
calendar year prepared pursuant to section 10-3-208;

(II) Fully audited financial information as to the earnings and financial
condition of the acquiring corporation for the preceding five fiscal years of each
such acquiring corporation, or for lesser period as such acquiring corporation and
any predecessors thereof have been in existence, and similar unaudited information
as of a date not earlier than ninety days prior to the date of filing the statement;

(III) A pro forma financial statement of each acquiring corporation based on
the assumption that the plan of exchange was effective as proposed at the end of
the last preceding calendar year of the domestic company;

(IV) An estimate of expenses already incurred and expenses expected to be
incurred in connection with the proposed plan of exchange;

(V) A written statement which sets forth for each corporation the proposed
changes, if any, in management policies and the identity of officers and directors of
the domestic company and of the acquiring corporation which are initially
contemplated should the plan of exchange be effective as proposed; and

(VI) If the plan of exchange is submitted to the commissioner after March 31
of any year, a balance sheet of the domestic company, as of a date within ninety
days prior to the date the plan is submitted, a summary of operations of the
domestic company for the period between the preceding December 31 and the date
of such balance sheet, and financial statements of each acquiring corporation
based on the assumption that the plan of exchange was effective as proposed on
the date of such balance sheet.

(c) The commissioner shall hold a hearing upon the fairness of: The terms,
conditions, and provisions of the plan of exchange; and the proposed exchange of
stock or other securities of the acquiring corporation, or cash, or other
consideration, or any combination thereof, for the stock of the domestic company,
at which hearing the policyholders and the shareholders of both the domestic
company and the acquiring corporation and any other interested party shall have
the right to appear and to become party to the proceeding. The commissioner shall
require the domestic company and the acquiring corporation to produce such
evidence as he deems necessary to establish the fairness to be ascertained at the
hearing, including in any event evidence concerning the valuation of the respective
companies and the method utilized by the management of each corporation to
accomplish such valuation, inclusive of the value established with respect to the
stock of the domestic company which is proposed to be exchanged, as well as the
value of the stock, securities, and consideration, other than cash, to be offered by
the acquiring corporation in such exchange.

(d) Such hearing shall be commenced not less than twenty days after the
date on which the plan of exchange is presented to the commissioner. The hearing
shall be held in the city and county of Denver at such place, date, and time as the
commissioner specifies. Notice of the hearing shall be published in a newspaper of
general circulation in the city wherein is located the principal office of the domestic
company and of the acquiring corporation, and in the city and county of Denver,
once a week for two successive weeks. Written notice of the hearing shall be
mailed at least ten days prior to the hearing by the domestic company and by the
acquiring corporation to all of their respective shareholders. All expenses of
publication shall be borne by the domestic company or the acquiring corporation, or
both, as specified in the plan of exchange. The hearing shall be conducted in
accordance with the provisions of section 24-4-105, C.R.S.

(e) The commissioner shall issue an order approving the plan of exchange as
delivered to him by the domestic company and the acquiring corporation and such
modifications therein as a majority of the whole board of directors of each such
corporation approves if he finds: That the plan, including all such modifications, if
effected, will not tend adversely to affect the financial stability or management of
the domestic company or the general capacity or intention to continue the safe and
prudent transaction of the insurance business of the domestic company or of the
acquiring corporation if it is a domestic insurance company; that the interests of the
policyholders and shareholders of the domestic company and, if the acquiring
corporation is a domestic insurance company, the policyholders of the acquiring
corporation are adequately protected; that the fulfillment of the plan will not affect
either the contractual obligations of the domestic company and of the acquiring
corporation, if it is a domestic insurance company, to its policyholders or the ability
and tendency of either to render service to its policyholders in the future; that the
effect of the merger or other acquisition of control would not substantially lessen
competition in the business of providing insurance in this state or tend to create a
monopoly therein; that all plans or proposals which the acquiring corporation has to
liquidate the domestic company or to sell its assets, consolidate or merge it with
any person, or make any other material change in its business or corporate
structure or management have been fully disclosed and are not unfair or
unreasonable to policyholders of the domestic company and are in the public
interest; that the competence, experience, and integrity of those persons who
would control the operation of the insurer are such that it would be in the interest of
the policyholders of the domestic company and of the public to permit the merger
or other acquisition of control; and that the terms and conditions of the plan of
exchange and the proposed issuance and exchange are otherwise fair and
reasonable.

(f) The order of the commissioner approving or disapproving the plan of
exchange shall be filed in his office within sixty days after the date the plan of
exchange is presented to him. Upon filing such order, the commissioner shall send a
copy thereof to each party to the proceeding, such copy to be sent to each such
party by certified mail directed to such party at the address of such party as shown
by the record of the hearing. Any final order of the commissioner approving or
disapproving a plan of exchange pursuant to this section shall be subject to judicial
review by the court of appeals pursuant to section 24-4-106 (11), C.R.S.

(g) The plan of exchange as approved by the commissioner shall be
submitted to a vote of the shareholders of the domestic company at an annual or
special meeting of the shareholders. Notice of the submission of the plan to the
shareholders shall be included in the notice of the meeting. The plan shall be
approved by the shareholders of the domestic company upon receiving the
affirmative votes of the holders of shares of the domestic company having at least
two-thirds of the total voting power of the outstanding shares of the domestic
company. Notwithstanding shareholder approval of the plan of exchange, and at
any time prior to the filing of the certificate setting forth the plan of exchange by
the commissioner pursuant to section 10-3-605, the plan of exchange may be
abandoned pursuant to a provision for such abandonment, if any, contained in the
plan of exchange.

(h) Within ten days after the plan of exchange is approved by the
shareholders of the domestic company, a written notice of the approval of the plan
of exchange shall be mailed or delivered personally to each shareholder of record
of such company who was entitled to vote thereon. The domestic company shall
thereafter file with the commissioner an affidavit of the secretary or an assistant
secretary of such company, or of an officer of the transfer agent of such company,
that such notice was given.

(i) Any shareholder of the domestic company owning shares not voted in
favor of such plan at the meeting at which the plan was approved by the
shareholders of the domestic company may object in writing to the plan and
demand payment, should the plan become effective, of the fair value of any of such
shares, as of the day on which the plan of exchange was approved by the
shareholders of the domestic company pursuant to paragraph (g) of this subsection
(1). Such objection and demand shall be received, together with the certificate
representing the shares with respect to which objection and demand have been
made, for notation thereon that such objection and demand have been made, by the
domestic company or its transfer agent within thirty days after the date of said
meeting of shareholders. No such objection and demand shall pertain to any shares
which were voted in favor of the plan. No such objection and demand may be
withdrawn unless the domestic company, by a duly authorized officer, consents
thereto in writing.

(j) Upon the plan of exchange becoming effective, the holder of any shares,
with respect to which such objection and demand have been made and certificates
for which have been delivered to the domestic company or its transfer agent for
notation, or any transferee thereof, shall cease to be a shareholder of the domestic
company with respect to such shares and shall have no rights with respect to such
shares, except the right to receive payment therefor in accordance with the
provisions of paragraph (k) of this subsection (1). Every shareholder failing to make
objection and demand accompanied by certificates representing the shares with
respect to which such objection and demand have been made or withdrawing such
objection and demand as provided in paragraph (i) of this subsection (1) shall be
conclusively presumed to have assented to, and to have agreed to be bound by, the
plan of exchange in accordance with its terms.

(k) Within forty-five days after the date of the meeting of shareholders of the
domestic company at which the plan of exchange was approved by such
shareholders, the domestic company, or, if the plan of exchange so specifies, the
acquiring corporation, shall mail a written offer to each holder of record of shares
with respect to which an objection and demand have been made, as provided in
paragraph (i) of this subsection (1), to pay for such shares a price per share deemed
by such corporation to be the fair value thereof as of the date of such meeting. The
form of written offer to be used, including the price per share, shall first be
submitted to and approved by the commissioner. If such offer is accepted in writing
by such holder, such corporation shall pay such holder, within forty-five days after
the date of the plan of exchange becoming effective, such price upon the surrender
of the certificate representing such shares.

(l) If, within thirty days after the date of the mailing of such written offer, the
domestic company or the acquiring corporation, as the case may be, and a
shareholder do not agree on the price, such corporation or the shareholder may,
within ninety days after the date of the mailing of such written offer, file a petition
in any court of competent jurisdiction in the county where the registered office of
the domestic company is located asking for a finding and determination of the fair
value of such shares as of the date of the meeting of shareholders of the domestic
company at which the plan of exchange was approved by such shareholders; and
payment of the fair value thereof shall be made by the domestic company or, if the
plan of exchange so specifies, the acquiring corporation within sixty days after the
entry of the judgment or order determining such fair value, upon the surrender of
the certificate representing such shares.

(m) All shares acquired by the domestic company, upon payment of the value
therefor, shall be canceled by the board of directors of the domestic company, upon
the plan of exchange becoming effective, or at any time thereafter in the manner
provided in section 7-106-302 (2)(b), C.R.S., and any statement of cancellation made
pursuant to said section shall first be filed with the commissioner prior to filing
thereof with the secretary of state. If the commissioner finds such statement of
cancellation to have been lawfully executed, and to be in due legal form and not in
conflict with the provisions of law governing the domestic company, such
statement of cancellation shall be filed with the secretary of state.

(n) If the plan of exchange does not become effective, the right of
shareholders or transferees to be paid the fair value of their shares under this
subsection (1) shall cease, and their status shall be the same as that of
shareholders who voted in favor of the plan. If a shareholder or his transferee, with
respect to any share for which objection and demand have been made: Withdraws
such objection and demand in the manner provided by this subsection (1), or fails to
submit a certificate at the time and in the manner required by this subsection (1), or
does not file a petition for the determination of fair value within the time and in the
manner provided in this subsection (1) and neither the domestic company nor the
acquiring corporation files a petition for such determination, or is adjudged by a
court of competent jurisdiction not to be entitled to the relief provided by this
subsection (1), then the right of the shareholder or his transferee to be paid the fair
value of such share shall cease, and his status with respect to such share shall be
the same as that of a shareholder who voted in favor of the plan.

Legislative History

Source: L. 69: p. 529, � 4. C.R.S. 1963: � 72-27-4. L. 77: (1)(b) R&RE, p. 508, � 1, and (1)(e) amended, p. 509, � 2, effective June 3. L. 92: (1)(f) amended, p. 1553, � 49, effective May 20. L. 93: (1)(m) amended, p. 859, � 22, effective July 1, 1994.