2006 Minnesota Statutes

66A.41 MUTUAL COMPANY CONVERSION TO STOCK COMPANY.
    Subdivision 1. Definitions. (a) For the purposes of this section, the terms in this subdivision
have the meanings given them.
(b) "Converting mutual insurer" means a Minnesota domestic mutual insurance company
seeking to reorganize according to this section.
(c) "Converting mutual holding company" means a Minnesota domestic mutual insurance
holding company seeking to reorganize according to this section.
(d) "Converting mutual company" means a converting mutual insurer or a converting mutual
holding company seeking to convert according to this section.
(e) "Reorganized company" means a converting mutual insurer or a converting mutual
holding company, as the case may be, that has reorganized according to this section.
(f) "Eligible member" means:
(1) for converting mutual insurers, a policyholder whose policy is in force as of the record
date. Unless otherwise provided in the plan, a person covered under a group policy is not an
eligible member, except that a person insured under a group life insurance policy is an eligible
member if, on the record date:
(i) the person is insured under a group life policy under which cash value has accumulated
and been allocated to the insured persons; and
(ii) the group policyholder makes no contribution to the premiums for the group policy; and
(2) for converting mutual holding companies, a person who is a member of the converting
mutual holding company, as defined by the converting mutual holding company's articles of
incorporation and bylaws, determined as of the record date.
(g) "Plan of conversion" or "plan" means a plan adopted by a converting mutual company's
board of directors under this section.
(h) "Policy" means a policy or contract of insurance, including an annuity contract, issued by
a converting mutual insurer or issued by a reorganized insurance company subsidiary of a mutual
holding company, but excluding individual noncontributory insurance policies for which the
premiums are paid by a financial institution, association, employer, or other institutional entity.
(i) "Active participating policy" means an individual policy of a converting mutual company
or its subsidiary that: (1) is a participating policy; (2) is among a class of similar policies that
have been credited with policy dividends at any time within the 12 months preceding the effective
date of the conversion or that will, under the then current dividend scale, be credited with policy
dividends if in force on a future policy anniversary; (3) gives rise to membership interests in the
converting mutual company; and (4) is in force on the effective date or some other reasonable
date identified in the plan.
(j) "Commissioner" means the commissioner of commerce.
(k) "Effective date of a conversion" means the date determined according to subdivision 6.
(l) "Record date" means the date that the converting mutual company's board of directors
adopts a plan of conversion, unless another date is specified in the plan of conversion and
approved by the commissioner.
(m) "Membership interests" means all rights as members of the converting mutual company,
including, but not limited to, the rights to vote and to participate in any distributions of
distributable net worth, whether or not incident to the company's liquidation.
(n) "Distributable net worth" means the value of the converting mutual company as of the
record date of the conversion, or other date approved by the commissioner, determined as set
forth in the plan and approved by the commissioner. The commissioner may approve a valuation
method based on any of the following: (1) the surplus as regards policyholders of a converting
mutual insurer determined according to statutory accounting principles, which may be adjusted to
reflect the current market values of assets and liabilities, together with any other adjustments that
are appropriate in the circumstances; (2) the net equity of a converting mutual holding company
or a converting mutual insurer determined according to generally accepted accounting principles,
which may be adjusted to reflect the current market values of assets and liabilities, together
with any other adjustments that are appropriate in the circumstances; (3) the fair market value
of the converting mutual company determined by an independent, qualified person; or (4) any
other reasonable valuation method.
(o) "Permitted issuer" means: (1) a corporation organized and owned by the converting
mutual company or by any other insurance company or insurance holding company for the
purpose of purchasing and holding securities representing a majority of voting control of the
reorganized company; (2) a stock insurance company owned by the converting mutual company
or by any other insurance company or insurance holding company into which the converting
mutual company will be merged; or (3) any other corporation approved by the commissioner.
    Subd. 2. Authorization. In accordance with a plan of conversion established and approved
in the manner provided by this section: (1) a mutual insurance company may become a stock
insurance company; and (2) a mutual insurance holding company may: (i) become a corporation
organized under chapter 302A; (ii) reorganize according to a plan in which a majority or all of
the common stock of the reorganized company is acquired by another institution, which may
include a subsidiary of the converting mutual holding company; (iii) reorganize as a part of a
liquidation or dissolution of the converting mutual holding company; or (iv) undertake any other
reorganization or combination of the foregoing approved by the commissioner.
    Subd. 3. Adoption of plan of conversion by board of directors. (a) A converting mutual
company shall, by the affirmative vote of a majority of its board of directors, adopt a plan of
conversion consistent with the requirements of this section.
(b) The converting mutual company, by the affirmative vote of a majority of its board of
directors, may amend the plan at any time before approval of the plan by the commissioner and
may withdraw the plan at any time before the effective date of the plan.
(c) The duties of the board of directors of a converting mutual company, in considering or
acting upon a proposed plan of conversion or related transaction, shall be as set forth in section
302A.251 and, to the extent not inconsistent with that section, the converting mutual company's
articles of incorporation and bylaws.
    Subd. 4. Filing of plan of conversion with commissioner. (a) Documents to be filed. The
converting mutual company shall file with the commissioner an application for approval of, and
permission to reorganize according to, the plan of conversion. The application must include
the following:
(1) the plan of conversion;
(2) the form of notice of meeting for eligible members to vote on the plan;
(3) the form of any proxies to be solicited from eligible members;
(4) the proposed articles of incorporation and bylaws of the converted stock company;
(5) information required under chapter 60D if the plan results in a change of control of the
converting mutual company;
(6) a basis for determining the converting mutual company's distributable net worth for use
in the plan of conversion;
(7) if required by the commissioner, an independent evaluation of the estimated distributable
net worth and of the estimated value of any shares to be issued;
(8) if required by the commissioner, an independent actuarial opinion on matters affecting
the structure or fairness of the plan; and
(9) other information or documentation requested by the commissioner or required by rule.
(b) Determination of completeness. The commissioner shall determine, within 30 days of
submission of the application, whether the application is complete.
(c) Consultants. The commissioner may retain, at the converting mutual company's expense,
qualified experts not otherwise a part of the commissioner's staff to assist in reviewing the plan
and supplemental materials and valuations.
(d) Hearing. The commissioner may, but need not, conduct a public hearing regarding the
proposed plan of conversion. If a hearing is to be held, the commissioner shall designate a date for
the public hearing promptly upon determining that the application is complete and that the forms
of notice are adequate. The public hearing must be held on one or more days, the first beginning
within 90 days after the date on which the commissioner determines the application is complete,
unless the converting mutual company requests, and the commissioner agrees to, a longer period
for the purpose of preparing and distributing the notices required by this paragraph and by
subdivision 5, paragraph (b). The hearing must be in the nature of a legislative hearing and must
not constitute or be considered a contested case under chapter 14. The hearing may be conducted
by the commissioner or by a person designated by the commissioner, which designee may be an
administrative law judge. The converting mutual company shall provide its eligible members with
at least 45 days' notice of the hearing, the notice to be in the form, and provided in a manner,
approved by the commissioner. The purpose of the hearing is to receive comments and information
for the purpose of aiding the commissioner in making a decision on the plan of conversion.
Persons wishing to make comments and submit information may submit written statements
before the public hearing and may appear and be heard at the hearing. The commissioner's order
or determination must be issued within 45 days after the closing of the record of the hearing by
the commissioner or the hearing officer, as applicable, which record must not be closed until the
record includes certification of the vote on the plan of reorganization by the eligible members by
the converting mutual company. The commissioner shall issue a written decision detailing the
reasons why the converting mutual company's plan of conversion is approved or disapproved.
(e) The commissioner shall approve the application and permit the reorganization according
to the plan of conversion if the commissioner finds that: (1) the provisions of this section have
been fully met; and (2) the plan is not unfair or inequitable to the members of the converting
mutual company. The commissioner's order approving or disapproving a plan of conversion is a
final agency decision subject to appeal according to sections 14.63 to 14.68.
    Subd. 5. Approval of plan by eligible members. (a) Notice. Within 90 days following the
date of the public hearing, if any, or the date the commissioner determines the application is
complete if no hearing is held, the converting mutual company shall give all eligible members
notice of a regular or special meeting of the members called for the purpose of considering
the plan and any corporate actions that are a part of, or are reasonably attendant to, the
accomplishment of the plan.
(b) Notice requirements. A copy of the plan or a summary of the plan must accompany the
notice. The notice must be mailed to each eligible member's last known address, as shown on the
converting mutual company's records, not less than 45 days before the date of the meeting, unless
the commissioner directs a later date for mailing. If the meeting to vote upon the plan is held
coincident with the converting mutual company's annual meeting of members, only one combined
notice of meeting is required. The notice of the meeting of eligible members may be combined
with the notice of hearing described in subdivision 4, paragraph (d).
(c) Failure to give notice. If the converting mutual company complies substantially and
in good faith with the notice requirements of this section, the converting mutual company's
failure to give any member or members any required notice does not impair the validity of any
action taken under this section.
(d) Voting. (1) The plan must be adopted upon receiving the affirmative vote of a majority of
the votes cast by eligible members.
(2) Eligible members may vote in person or by proxy. The form of any proxy must be
filed with and approved by the commissioner.
(3) The number of votes each eligible member may cast shall be determined by the
converting mutual company's bylaws. If the bylaws are silent, or if the commissioner determines
that the voting requirements under the bylaws would be unfair or would prejudice the rights of
the eligible members, each eligible member may cast one vote.
    Subd. 6. Conversion. Following approval by the eligible members, the converting mutual
company shall file a copy of the company's amended or restated articles of incorporation with
the commissioner, together with a certified copy of the minutes of the meeting at which the plan
was adopted and a certified copy of the plan. The commissioner shall review and, if appropriate,
approve the amended or restated articles. After approval by the commissioner, a converting
mutual company shall file the articles with the secretary of state as provided by section 60A.07,
subdivision 1d , and chapter 302A.
    Subd. 7. Plan not unfair or inequitable. A plan of conversion shall not be unfair or
inequitable to members. A plan of conversion is not unfair or inequitable if it satisfies the
conditions of subdivision 8 or 9. The commissioner may determine that a plan proposed under
subdivision 10 or that any other plan proposed under subdivision 12 is not unfair or inequitable to
members.
    Subd. 8. Share conversion. A plan of conversion under this subdivision shall provide
for exchange of membership interests in return for shares in the reorganized company or a
permitted issuer, according to paragraphs (a) to (c), and shall provide for the reasonable dividend
expectations of policyholders of active participating policies as set forth in subdivision 16a.
(a) The membership interests of the eligible members shall be exchanged, for all of the
common shares of the reorganized company or a permitted issuer, or for a combination of the
common shares of the reorganized company or a permitted issuer, or for a combination of: (1)
common shares of the reorganized company or a permitted issuer; and (2) consideration equal to
the proceeds of the public sale in the market of the common shares by the issuer or by a trust
established according to subdivision 11. The consideration must be allocated among the eligible
members in a manner that takes into account the estimated proportionate contribution of each
class of eligible members to the aggregate consideration being given.
(b) Unless the anticipated issuance within a shorter period is disclosed in the plan of
conversion, the issuer of common shares shall not, within two years after the effective date of
reorganization, issue either of the following:
(1) any of its common shares or any securities convertible with or without consideration into
the common shares or carrying any warrant to subscribe to or purchase common shares; and
(2) any warrant, right, or option to subscribe to or purchase the common shares or other
securities described in paragraph (a), except for the issue of common shares to or for the benefit of
eligible members according to the plan of conversion and the issue of nontransferable subscription
rights for the purchase of common shares being granted to officers, directors, or a tax qualified
employee benefit plan of the reorganized company or its parent company, if any, or a permitted
issuer, according to subdivision 11.
(c) Unless the common shares have a public market when issued, the issuer shall use its best
efforts to encourage and assist in the establishment of a public market for the common shares
within two years of the effective date of the conversion or a longer period as disclosed in the plan
of conversion. Within one year after any offering of stock other than the initial distribution, but
no later than six years after the effective date of the conversion, the reorganized company shall
offer to make available to eligible members who received and retained shares of common stock or
securities described in paragraph (b), clause (1), a procedure to dispose of those shares of stock at
market value without brokerage commissions or similar fees.
    Subd. 9. Distribution of distributable net worth. A plan of conversion under this
subdivision shall provide for the exchange of the membership interests of the eligible members
in return for a distribution of the converting mutual company's distributable net worth and shall
provide for the issuance of new shares of the reorganized company or a permitted issuer, and
shall provide for the reasonable expectations of policyholders of active participating policies as
set forth in subdivision 16a.
(a) Distributions by the converting mutual company under this subdivision shall be
distributed to eligible members in a form or forms selected by the converting mutual company.
The form of distribution may consist of cash, securities of the reorganized company, securities
of another institution, a certificate of contribution, additional life insurance, annuity benefits,
increased dividends, reduced premiums, or other equitable consideration or any combination of
forms of consideration. The consideration, if any, given to a class or category of eligible members
may differ from the consideration given to another class or category of eligible members. A
certificate of contribution must be repayable in ten years, be equal to 100 percent of the value
of the eligible members' membership interest, and bear interest at the highest rate charged by
the reorganized company or its insurance company subsidiary for policy loans on the effective
date of the conversion.
(b) The consideration must be allocated among the eligible members in a manner that is fair
and equitable and that takes into account the estimated proportionate contribution of each class of
eligible members to the aggregate consideration being given.
(c) The reorganized company or its parent corporation shall issue and sell shares of one or
more classes having a total price equal to the estimated value in the market of the shares on the
initial offering date. The estimated value must take into account all of the following:
(1) the pro forma fair market value of the reorganized company;
(2) the consideration to be given to policyholders according to paragraph (a);
(3) the proceeds of the sale of the shares; and
(4) any additional value attributable to the shares as a result of a purchaser or a group of
purchasers who acted in concert to obtain shares in the initial offering, attaining, through such
purchase, control of the reorganized company or its parent corporation.
(d) If a purchaser or a group of purchasers acting in concert is to attain control in the initial
offering, the converting mutual company shall not, directly or indirectly, pay for any of the costs
or expenses of conversion of the converting mutual company, whether or not the conversion is
effected, except with permission of the commissioner.
    Subd. 10. Subscription rights. A plan of conversion under this subdivision shall provide
for exchange of the eligible members' membership interests in return for the protection of the
reasonable dividend expectations of the policyholders of active participating policies, for the
creation of a liquidation account to protect the interests of eligible members, for the issuance
of subscription rights to eligible members, and shall provide for the issuance of shares by the
reorganized company, each according to paragraphs (a) to (j).
(a) The plan of conversion shall provide for the protection of the reasonable dividend
expectations of policyholders of active participating policies as provided in subdivision 16a.
(b) The reorganized company or its parent corporation or a permitted issuer shall issue and
sell shares of one or more classes having a total price equal to the estimated value of the shares in
the market on the initial offering date taking into account the proceeds of the sale of shares and
the consideration given to eligible members.
(c) The eligible members shall receive nontransferable preemptive subscription rights to
purchase all of the common shares of the issuer according to paragraph (b).
(d) The preemptive subscription rights to purchase the common shares must be allocated
among the eligible members in whole shares in a fair and equitable manner and as provided in
the plan, taking into account the estimated proportionate contribution of each class of eligible
members to the total amount of the eligible members' consideration. The plan must provide a fair
and equitable means for the allocation of shares in the event of an oversubscription. The plan
must further provide that any shares of capital stock not subscribed by eligible members may
be sold in a public offering through an underwriter, unless the number of shares unsubscribed is
so small in number so as not to warrant the expense of a public offering, in which case the plan
may provide for the purchase of the unsubscribed shares by private placement or through any fair
and equitable alternative means approved by the commissioner.
(e) The number of the common shares that a person, together with any affiliates or group of
persons acting in concert, may subscribe or purchase in the reorganization, must be limited to not
more than five percent of the common shares. For this purpose, neither the members of the board
of directors of the reorganized company nor its parent corporation, if any, are considered to be
affiliates or a group of persons acting in concert solely by reason of their board membership.
(f) Unless the common shares have a public market when issued, officers and directors of the
issuer and their affiliates shall not, for at least three years after the date of conversion, purchase
common shares of the issuer, except with the approval of the commissioner.
(g) Unless the common shares have a public market when issued, the issuer shall use its best
efforts to encourage and assist in the establishment of a public market for the common shares.
(h) The issuer shall not, for at least three years following the conversion, repurchase any
of its common shares except according to a pro rata tender offer to all shareholders, or with
the approval of the commissioner.
(i) A liquidation account must be established for the benefit of eligible members in the
event of a complete liquidation of the reorganized company. The liquidation account must be
equal to the distributable net worth of the converting mutual company as of the effective date
of the conversion. The function of the liquidation account is solely to establish a priority on
liquidation and its existence does not restrict the use or application of the distributable net worth
of the reorganized company except as specified in paragraph (j). The liquidation account must be
allocated equitably as of the effective date of conversion among the then eligible members. The
amount allocated to an eligible member must not increase and must be reduced to zero when the
policy or contract giving rise to the membership interests of the owner terminates. In the event
of a complete liquidation of the reorganized company, the eligible members among which the
liquidation account is allocated are entitled to receive a liquidation distribution in the amount of
the liquidation account before any liquidation distribution is made with respect to shares.
(j) Until the liquidation account has been reduced to zero, the reorganized company shall
not declare or pay a cash dividend on, or repurchase any of, its common shares (i) in case of a
converting mutual insurer, in an amount in excess of its cumulative earned surplus generated after
the conversion determined according to statutory accounting principles, or (ii) in the case of a
converting mutual holding company, in an amount in excess of its retained earnings, if the effect
would be to cause the amount of the distributable net worth of the reorganized company to be
reduced below the then amount of the liquidation account.
    Subd. 11. Optional provisions. A plan under subdivision 8, 9, or 10 may include, with the
approval of the commissioner, any of the provisions in paragraphs (a) and (b).
(a) A plan may provide that any shares of the stock of the reorganized company or its parent
corporation or a permitted issuer included in the eligible members' consideration must be placed
on the effective date of the conversion in a trust or other entity existing for the exclusive benefit of
the eligible members and established solely for the purposes of effecting the reorganization. Under
this option, the shares placed in trust must be sold over a period of not more than 40 years and the
proceeds of the shares must be distributed using the distribution priorities prescribed in the plan.
Eligible members shall have the option to sell their shares at any time following the date specified
in the plan, which date may not be later than two years following the effective date of the plan.
(b) A plan may provide that the directors and officers of the converting mutual company
may receive warrants, options, or nontransferable subscription rights to purchase capital stock
of the reorganized company or its parent or a permitted issuer.
(c) A plan may provide that only eligible members whose policies were in force as of a
specified date are eligible to receive compensation under the plan, which date must be no earlier
than one year before the effective date of the plan.
    Subd. 12. Alternative plan of conversion. In lieu of selecting a plan of conversion provided
for in subdivision 8, 9, or 10, the converting mutual company may convert according to a plan
approved by the commissioner if the commissioner finds that the plan does not prejudice the
interests of the eligible members, is fair and equitable, and is based upon the fair market value
of the converting mutual company, and is a fair and equitable allocation of any consideration to
be given eligible members. The commissioner may retain, at the converting mutual company's
expense, any qualified expert not otherwise a part of the commissioner's staff to assist in
reviewing the fair market value of the company and in determining whether the alternative plan
may be approved.
    Subd. 13. Effect of conversion. (a) Upon the conversion of a converting mutual company to
a reorganized company according to this section, the corporate existence of the converting mutual
company is continued in the reorganized company. All the rights, franchises, and interests of the
converting mutual company in and to all property and things in action belonging to this property,
is considered transferred to and vested in the reorganized company without any deed or transfer.
Simultaneously, the reorganized company is considered to have assumed all the obligations and
liabilities of the converting mutual company.
(b) The directors and officers of the converting mutual company, unless otherwise specified
in the plan of conversion, shall serve as directors and officers of the reorganized company until
new directors and officers of the reorganized company are duly elected according to the articles of
incorporation and bylaws of the reorganized company.
(c) All policies in force on the effective date of the conversion continue to remain in force
under the terms of those policies, except that any voting rights of the members provided for under
the policies are extinguished on the effective date of the conversion.
(d) All membership interests in the converting mutual company are extinguished on the
effective date of a conversion.
    Subd. 14. Conflict of interest. No director, officer, agent, employee of the converting
mutual company, or any other person shall receive a fee, commission, or other valuable
consideration, other than the person's usual regular salary and compensation, for in any manner
aiding, promoting, or assisting in the conversion except as set forth in the plan approved by the
commissioner. This provision does not prohibit the payment of reasonable fees and compensation
to attorneys, accountants, investment bankers, and actuaries for services performed in the
independent practice of their professions.
    Subd. 15. Costs and expenses. All the costs and expenses connected with a plan of
conversion must be paid for or reimbursed by the converting mutual company or the reorganized
company except where the plan provides otherwise.
    Subd. 16. Limitation of actions. (a) An action challenging the validity of or arising out of
acts taken or proposed to be taken according to this section must be commenced within 180
days after the effective date of the conversion.
(b) The converting mutual company, the reorganized company, or any defendant in an action
described in paragraph (a), may petition the court in the action to order a party to give security for
the reasonable attorney fees that may be incurred by a party to the action. The amount of security
may be increased or decreased in the discretion of the court having jurisdiction if a showing is
made that the security provided is or may become inadequate or excessive.
    Subd. 16a. Continuance of participating policy dividends. (a) To the extent required
by this section, the plan of reorganization of a converting mutual insurer that is a mutual
life insurance company or of a converting mutual holding company that has a life insurance
company subsidiary shall make adequate provision for the protection of the reasonable dividend
expectations of the policyholders of active participating policies, either through the establishment
of a closed block or other method acceptable by the commissioner.
(b) A closed block must be operated as follows:
(1) The converting mutual company's active participating policies may be operated by the
reorganized company as a closed block of participating business.
(2) Assets must be allocated to the closed block of participating business in an amount
that ensures that the assets, together with the anticipated revenue from the closed block, are
reasonably expected to be sufficient to permit the closed block to pay all policy benefits, including
dividends according to the current dividend scale, and other items as appropriate. The plan must
be accompanied by an opinion of an independent qualified actuary who meets the standards set
forth in the insurance laws or rules for the submission of actuarial opinions as to the adequacy of
reserves or assets. The opinion must relate to the adequacy of the assets allocated to support the
closed block of business. The actuarial opinion must be based on methods of analysis considered
appropriate for those purposes by the actuarial standards board.
(3) The reorganized company shall keep a separate accounting for the closed block and shall
make and include in the annual statement to be filed with the commissioner each year a separate
statement showing the gains, losses, and expenses properly attributable to the closed block.
(4) The closed block must be reviewed periodically by an independent, qualified actuary for
compliance with the requirements of the plan and this subdivision and a copy of the report must
be provided to the commissioner and the reorganized company.
(5) Notwithstanding the establishment of a closed block, the entire assets of the company
that issued the policies must be available for the payment of benefits to policyholders. Payment
must first be made from the assets supporting the closed block until exhausted, and then from
the general assets of the company which issued the policies.
    Subd. 17. Supervisory conversions. The commissioner may waive or alter any of the
requirements of this section to protect the interests of policyholders or members if the converting
mutual company is subject to the commissioner's administrative supervision under chapter 60G
or rehabilitation under chapter 60B.
    Subd. 18. Postconversion acquisition. Prior to and for a period of three years following
the date when the distribution of consideration to the eligible members in exchange for their
membership interests is completed under a plan of conversion according to this section, no person
other than the reorganized company shall directly or indirectly acquire or offer to acquire in any
manner ownership or beneficial ownership of ten percent or more of any class of voting security
of the reorganized company, or of any affiliate of the reorganized company which controls,
directly or indirectly, a majority of the voting power of the reorganized company, without the
prior approval of the commissioner. For the purposes of this subdivision, the terms "affiliate"
and "person" have the meanings given in section 60D.15, and the term "reorganized company"
includes any successor of the reorganized company.
History: 1996 c 446 art 2 s 3; 1997 c 231 art 15 s 1-3; 1999 c 177 s 7; 2002 c 336 s 1; 2005
c 69 art 2 s 7, 18; 2006 c 204 s 1