§ 3503. Contents of plan of conversion.
(a) Contents.--The following provisions shall be included in a plan of conversion:
(1) The reasons for proposed conversion.
(2) The effect of conversion on existing policies, including a provision that the 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 they existed in the reciprocal insurer, shall be extinguished on the effective date of the conversion:
(i) The voting rights of the subscribers provided under the policies.
(ii) The right to share in the surplus of the reciprocal insurer provided for under the policies.
(iii) The assessment provisions provided for under the policies.
(3) The grant of subscription rights to eligible subscribers, including all of the following:
(i) A provision that each eligible subscriber is to receive, without payment, nontransferable subscription rights to purchase a portion of the capital stock of the stock company and that, in the aggregate, the eligible subscribers may, prior to the right of any other party, purchase 100% of the capital stock of the stock company, exclusive of the shares of capital stock required to be sold or distributed to the holders of surplus notes or the shares of capital stock required to be sold or distributed to subscribers under the reciprocal insurer's constituent documents.
(ii) As an alternative to subscription rights in the stock company, the plan may provide that each eligible subscriber is to receive, without payment, nontransferable subscription rights to purchase a portion of the capital stock of one of the following:
(A) the attorney or a holding company that will act as the holding company for the stock company and, in either case, will hold the stock of the stock company; or
(B) an insurance company or other corporation that will purchase all the stock of or otherwise acquire the stock company.
(iii) A provision that the subscription rights shall be allocated in whole shares among the eligible subscribers using a fair and equitable formula. This formula may, but need not, take into account how the different classes of policies of the eligible subscribers contributed to the surplus of the reciprocal insurer or any other factors that may be fair or equitable.
(b) Oversubscription.--The plan shall provide a fair and equitable means for allocating shares of capital stock in the event of an oversubscription to shares by eligible subscribers exercising subscription rights received under subsection (a)(3).
(c) Shares not subscribed.--The plan shall provide that a share of capital stock not subscribed to by an eligible subscriber exercising subscription rights received under subsection (a)(3) shall be sold in a public offering through an underwriter or in another transaction approved by the commissioner. If the number of shares of capital stock not subscribed by eligible subscribers 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 that is fair and equitable to eligible subscribers.
(d) Market value of capital stock.--The following shall apply:
(1) The plan shall set the price of the capital stock equal to the estimated pro forma market value of the stock company as successor to the reciprocal insurer based upon an independent evaluation by a qualified expert.
(2) The pro forma market value may be the value that is estimated to be necessary to attract full subscription for the shares, as indicated by the independent evaluation and may be stated as a range of pro forma market value.
(3) If the attorney is a party to the conversion either as the entity that grants subscription rights to subscribers or the attorney is simultaneously acquired by the stock company in connection with the conversion, the incremental value of the attorney shall be included in the estimate of pro forma market value of the stock company as successor to the reciprocal insurer.
(4) The qualified expert shall consider the effect on the pro forma market value of a right of subscribers to a return of capital contained in the subscriber agreement or other operative document of the reciprocal insurer.
(e) Purchase price of capital stock and minimum subscription amount.--The plan shall set the purchase price per share of capital stock equal to a reasonable amount. The minimum subscription amount required of an eligible subscriber, however, cannot exceed $500, but the plan may provide that the minimum number of shares a person may purchase under the plan is 25 shares.
(f) Limitation on amount of capital stock purchase.--The plan shall provide that a person or group of persons acting in concert may not acquire, in the public offering or under the exercise of subscription rights, more than 5% of the capital stock of the stock company or the stock of another corporation that is participating in the conversion plan, as provided in subsection (a)(3)(i), except with the approval of the commissioner. The limitation does not apply to an entity that is to purchase 100% of the capital stock of the converted company as part of the plan of conversion approved by the commissioner.
(g) Limitation on directors and officers.--The plan shall provide that a director or officer or person acting in concert with a director or officer of the reciprocal insurer or the attorney may not acquire capital stock of the stock company or the stock of another corporation that is participating in the conversion plan, as provided in subsection (a)(3)(i), for three years after the effective date of the plan, except through a broker-dealer, without the permission of the commissioner. This subsection does not prohibit the directors and officers from making a block purchase of 1% or more of the outstanding common stock:
(1) other than through a broker-dealer if approved in writing by the department;
(2) through the exercise of subscription rights received under the plan; or
(3) from participation in a stock benefit plan approved by shareholders under section 3509(b) (relating to conflict of interest).
(h) Sale of stock by directors and officers.--The plan shall provide that a director or officer may not sell stock purchased under this section or section 3504(a) (relating to optional provisions of plan of conversion) within one year after the effective date of the conversion.
(i) Holders of surplus notes.--The plan shall provide that the rights of a holder of a surplus note to participate in the conversion shall be governed by the terms of the surplus note and the rights of subscribers to a return of capital shall be governed by the subscriber agreement or other operative document of the reciprocal insurer.
(j) Repurchase of capital stock.--The plan shall provide that, without the prior approval of the commissioner, a stock company, or a corporation participating in the conversion plan under subsection (a)(3)(i), may not for a period of three years from the date of the completion of the conversion repurchase any of its capital stock from a person. The restriction under this subsection shall not apply to either:
(1) a repurchase on a pro rata basis under an offer made to the shareholders of the stock company or a corporation participating in the conversion plan under subsection (a)(3)(i); or
(2) a purchase in the open market by a tax-qualified or nontax-qualified employee stock benefit plan in an amount reasonable and appropriate to fund the plan.
Cross References. Section 3503 is referred to in sections 3502, 3504, 3505, 3509, 3517 of this title.
Section: Previous 3501 3502 3503 3504 3505 3506 3507 3508 3509 3510 3511 3512 3513 3514 NextLast modified: October 8, 2016