§ 26.1-12.2-03 — Required provisions of plan of conversion

North Dakota § 26.1-12.2-03

• Jurisdiction: North Dakota
• Title 26.1: Insurance
• Ch. 26.1-12.2: Mutual Property and Casualty Insurance Company Conversion

Text

1. The following provisions must be included in the plan of conversion:
a. The reasons for proposed conversion.
b. The effect of conversion on existing policies, including all of the following:
(1) A provision that all policies in force on the effective date of conversion
continue to remain in force under the terms of the policies, except that the
following rights, to the extent the rights existed in the converting mutual
company, must be extinguished on the effective date of the conversion:
(a) Any voting rights of the policyholders provided under the policies.
(b) Except as provided under paragraph 2, any right to share in the
surplus of the converting mutual company, unless such right is
expressly provided for under the provisions of the existing policy.
(c) Any assessment provisions provided for under certain types of
policies.
(2) A provision that holders of participating policies in effect on the date of
conversion continue to have a right to receive dividends as provided in the
participating policies, if any.
c. The grant of subscription rights to eligible members.
(1) For purposes of any plan, the transfer of subscription rights from any of the
following may not be deemed an unpermitted transfer for purposes of this
chapter:
(a) An individual to such individual and the individual's spouse or children
or to a trust or other estate or wealth planning entity established for
the benefit of such individual or the individual's spouse or children;

(b) An individual to such individual's individual or joint individual
retirement account or other tax-qualified retirement plan;
(c) An entity to the shareholders, partners, or members of such entity; or
(d) The holder of such rights back to the converting mutual company, its
proposed subsidiary holding company, or an unaffiliated corporation or
entity that will purchase the stock of the converted stock company as
provided in item 3 of subparagraph a of paragraph 2 of subdivision c
of subsection 1.
(2) The grant of subscription rights to eligible members must include:
(a) A provision that each eligible member is to receive, without payment,
nontransferable subscription rights to purchase the capital stock of the
converted stock company and that, in the aggregate, all eligible
members have the right, before the right of any other party, to
purchase one hundred percent of the capital stock of the converted
stock company, exclusive of any shares of capital stock required to be
sold or distributed to the holders of surplus notes, if any, and any
capital stock purchased by the company's tax-qualified employee
stock benefit plan which is in excess of the pro forma market value of
the capital stock established under subsection 4, as permitted by
subsection 3 of section 26.1-12.2-04. As an alternative to subscription
rights in the converting mutual company, the plan of conversion may
provide each eligible member is to receive, without payment,
nontransferable subscription rights to purchase a portion of the capital
stock of one of the following:
[1] A corporation or entity organized for the purpose of becoming a
holding company for the converted stock company;
[2] A stock insurance company owned by the mutual company into
which the mutual company will be merged; or
[3] An unaffiliated stock insurer or other corporation or entity that will
purchase the stock of the converted stock company.
(b) A provision that subscription rights must be allocated in whole shares
among the eligible members using a fair and equitable formula. The
formula need not allocate subscription rights to eligible members on a
pro rata basis based on premium payments or contributions to
surplus, but may take into account how the different classes of policies
of the eligible members contributed to the surplus of the mutual
company or any other factors that may be fair or equitable. Allocation
of subscription rights on a per capita basis are entitled to a
presumption that such method is fair, subject to a rebuttal of fairness
by clear and convincing evidence. In accordance with subsection 5 of
section 26.1-12.2-02, the commissioner may retain an independent
consultant to assist in the determination that the allocation of
subscription rights is fair and equitable.
2. The plan must provide a fair and equitable means for allocating shares of capital stock
in the event of an oversubscription to shares by eligible members exercising
subscription rights received under subdivision c of subsection 1.
3. The plan must provide any shares of capital stock not subscribed to by eligible
members exercising subscription rights received under subdivision c of subsection 1 or
any other individuals or entities granted subscription rights pursuant to section
26.1-12.2-04 must be sold:
a. In a public offering; however, if the number of shares of capital stock not
subscribed by eligible members is so small in number or other factors exist that
do not warrant the time or expense of a public offering, the plan of conversion
may provide for sale of the unsubscribed shares through a private placement or
other alternative method approved by the commissioner which is fair and
equitable to eligible members; or

b. To a standby investor or to another corporation or entity that is participating in the
plan of conversion, as provided in paragraph 2 of subdivision c of subsection 1.
4. The plan must provide for the preparation of a valuation by a qualified independent
expert which establishes the dollar value of the capital stock for which subscription
rights must be granted pursuant to subdivision c of subsection 1 which must be equal
to the estimated pro forma market value of the converted stock company. The qualified
independent expert may, to the extent feasible, determine the pro forma market value
by reference to a peer group of stock companies and the application of generally
accepted valuation techniques; state the pro forma market value of the converted
stock company as a range of value; and establish the value as the value estimated to
be necessary to attract full subscription for the shares.
5. The dollar value of a subscription right based upon the application of the
Black-Scholes option pricing model or another generally accepted option pricing
model. In connection with the determination of stock price volatility or other valuation
inputs used in option pricing models, the qualified independent expert may assume
that the attributes of the converted stock company will be substantially similar to the
attributes of the stock of the peer companies used to determine the estimated pro
forma market value of the converted stock company. The term of a subscription right is
a minimum of ninety days for the sole purpose of determining the value of a
subscription right.
6. The plan must provide that each eligible member has the right to require the mutual
company to redeem such subscription rights, in lieu of exercising the subscription
rights allocated to each eligible member, at a price equal to the number of subscription
rights allocated to each eligible member multiplied by the dollar value of the
subscription right as determined by the qualified independent expert pursuant to
subsection 4. The obligation of the mutual company to redeem subscription rights
arises only upon the effective date of the plan. The redemption price payable to each
eligible member must be paid to the member within thirty days of the effective date of
the plan. Alternatively, the converted stock company may offer each eligible member
the option of receiving the redemption amount in cash or having the redemption
amount credited against future premium payments. An eligible member that does not
exercise the member's subscription rights, and which also fails to affirmatively request
redemption of the member's subscription rights before the expiration of the
subscription offering, nevertheless is deemed to have requested redemption of the
member's subscription rights and shall receive the redemption amount in cash in the
manner otherwise provided in this subsection.
7. The plan must set the purchase price per share of capital stock equal to any
reasonable amount. However, the minimum subscription amount required of any
eligible member may not exceed five hundred dollars, but the plan may provide that
the minimum number of shares any person may purchase pursuant to the plan is
twenty-five shares. The purchase price per share at which capital stock is offered to
persons that are not eligible members may be greater than but not less than the
purchase price per share at which capital stock is offered to eligible members.
8. The plan must provide that any person or group of persons acting in concert may not
acquire, in the public offering or pursuant to the exercise of subscription rights, more
than five percent of the capital stock of the converted stock company or the stock of
another corporation that is participating in the plan of conversion, as provided in item 3
of subparagraph a of paragraph 2 of subdivision c of subsection 1, except with the
approval of the commissioner. This limitation does not apply to any entity that is to
purchase one hundred percent of the capital stock of the converted stock company as
part of the plan of conversion approved by the commissioner or to any person that acts
as a standby investor for the capital stock of the converted stock company for an
amount equal to ten percent or more of the capital stock of the converted stock
company, if in each case such purchase is approved by the commissioner in
accordance with the provisions of North Dakota law following the filing of an
acquisition of control statement under section 26.1-10-03.

9. The plan must provide that a director or officer or person acting in concert with a
director or officer of the mutual company may not acquire any capital stock of the
converted stock company or the stock of another corporation that is participating in the
plan of conversion, as provided in item 3 of subparagraph a of paragraph 2 of
subdivision c of subsection 1, for three years after the effective date of the plan of
conversion, except through a broker-dealer, without the permission of the
commissioner. This provision does not prohibit the directors and officers from:
a. Making block purchases of one percent or more of the outstanding common stock
other than through a broker-dealer if approved in writing by the insurance
department;
b. Exercising subscription rights received under the plan; or
c. Participating in a stock benefit plan permitted by subsection 3 of section
26.1-12.2-04 or approved by shareholders pursuant to subsection 2 of section