1998 Minnesota Statutes

     60A.075 Mutual company conversion to stock company. 

    Subdivision 1.    Definitions.  For the purposes of this 
 section, the terms in this subdivision have the meanings given 
 them. 

    (a) "Eligible member" means a policyholder whose policy is 
 in force as of the record date, which is the date that the 
 mutual company's board of directors adopts a plan of conversion 
 or some other date specified as the record date in the plan of 
 conversion and approved by the commissioner.  Unless otherwise 
 provided in the plan, a person insured under a group policy is 
 not an eligible member, unless on the record date: 

    (1) the person is insured or covered under a group life 
 policy or group annuity contract under which funds are 
 accumulated and allocated to the respective covered persons; 

    (2) the person has the right to direct the application of 
 the funds so allocated; 

    (3) the group policyholder makes no contribution to the 
 premiums or deposits for the policy or contract; and 

    (4) the converting mutual company has the names and 
 addresses of the persons covered under the group life policy or 
 group annuity contract. 

    (b) "Reorganized company" means a Minnesota domestic stock 
 insurance company that has converted from a Minnesota domestic 
 mutual insurance company according to this section. 

    (c) "Plan of conversion" or "plan" means a plan adopted by 
 a Minnesota domestic mutual insurance company's board of 
 directors under this section to convert the mutual company into 
 a Minnesota domestic stock insurance company. 

    (d) "Policy" means a policy or contract of insurance issued 
 by a converting mutual company, including an annuity contract. 

    (e) "Commissioner" means the commissioner of commerce. 

    (f) "Converting mutual company" means a Minnesota domestic 
 mutual insurance company seeking to convert to a Minnesota 
 domestic stock insurance company according to this section. 

    (g) "Effective date of a conversion" means the date 
 determined according to subdivision 6. 

    (h) "Membership interests" means all policyholders' rights 
 as members of the converting mutual company, including but not 
 limited to, rights to vote and to participate in any 
 distributions of surplus, whether or not incident to the 
 company's liquidation. 

    (i) "Equitable surplus" means the converting mutual 
 company's surplus as regards policyholders as of the record date 
 of the conversion or other date approved by the commissioner 
 determined in a manner that is not unfair or inequitable to 
 policyholders. 

    (j) "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.  A mutual insurance company 
 may become a stock insurance company according to a plan of 
 conversion established and approved in the manner provided by 
 this section. 

    Subd. 3.    Adoption of a plan of conversion by the 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) At any time before approval of a plan by the 
 commissioner, the converting mutual company, by the affirmative 
 vote of a majority of its board of directors, may amend or 
 withdraw the plan. 

    Subd. 4.    Approval of the plan of conversion by the 
 commissioner.  (a)    Documents to be filed.  After 
 adoption of the plan by the converting mutual company's board of 
 directors, but before the members' approval of the plan, the 
 converting mutual company shall file the following documents 
 with the commissioner for review and approval: 

    (1) the plan of conversion, including an independent 
 evaluation of the pro forma market value and of the equitable 
 surplus of the company and of the estimated value of any shares 
 to be issued and an independent actuarial opinion, if required; 

    (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; 
 and 

    (6) other information or documentation requested by the 
 commissioner or required by rule. 

    (b)    Required findings.  The commissioner shall 
 approve or conditionally approve the plan upon finding that: 

    (1) the provisions of this section have been fully met; and 

    (2) the plan will not be unfair or inequitable to 
 policyholders. 

    (c)    Time.  The plan of conversion shall, by order, be 
 approved, conditionally approved, or disapproved by the 
 commissioner within the later of 30 days from the commissioner's 
 receipt of all required information from the converting mutual 
 company or 30 days after the conclusion of a public hearing held 
 according to paragraph (e).  An approval or conditional approval 
 of a plan expires if the reorganization is not completed within 
 180 days after the approval or conditional approval unless this 
 time period is extended by the commissioner for good cause shown.

    (d)    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. 

    (e)    Hearing.  The commissioner may, but need not, 
 conduct a public hearing regarding the proposed plan of 
 conversion.  The hearing must begin no later than 30 days after 
 submission to the commissioner of a plan of conversion and all 
 required information.  The commissioner shall give the 
 converting mutual company at least 20 days' notice of the 
 hearing.  At the hearing, the converting mutual company, its 
 policyholders, and any other person whose interest may be 
 affected by the proposed conversion may present evidence, 
 examine and cross-examine witnesses, and offer oral and written 
 arguments or comments according to the procedure for contested 
 cases under chapter 14.  The persons participating may conduct 
 discovery proceedings in the same manner as prescribed for the 
 district courts of this state.  All discovery proceedings must 
 be concluded no later than three days before the scheduled 
 commencement date of the public hearing. 

    Subd. 5.    Approval of the plan by the eligible members. 
  (a)    Notice.  Following approval or conditional approval 
 of the plan by the commissioner, all eligible members shall be 
 given notice of a regular or special meeting of the 
 policyholders 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 required.  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, within 45 days of the 
 commissioner's approval of the plan, unless the commissioner 
 directs an earlier date for mailing.  The meeting to vote upon 
 the plan must be set for a date no less than 45 days after the 
 date when the notice of the meeting is mailed by the converting 
 mutual company unless the commissioner directs an earlier date 
 for the meeting.  If the meeting to vote upon the plan is held 
 coincident with the converting mutual company's annual meeting 
 of policyholders, only one combined notice of meeting is 
 required. 

    (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.  (a)    Filing.  Following 
 approval by the 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, the converting mutual 
 company shall file the articles with the secretary of state as 
 provided by chapter 300. 

    (b)    Effective date.  Effective on the date of filing 
 an amendment or restatement of the articles of incorporation 
 with the secretary of state as provided by chapter 300, or on a 
 later date if the plan so specifies, the converting mutual 
 corporation shall become a stock corporation and shall no longer 
 be a mutual corporation. 

    Subd. 7.    Plan not unfair or inequitable.  A plan of 
 conversion shall not be unfair or inequitable to policyholders.  
 A plan of conversion is not unfair or inequitable if it 
 satisfies the conditions of subdivision 8, 9, or 10.  The 
 commissioner may determine that any other plan proposed by a 
 converting mutual company is not unfair or inequitable to 
 policyholders. 

    Subd. 8.    Share conversion.  A plan of conversion 
 under this subdivision shall provide for exchange of 
 policyholders' membership interests in return for shares in the 
 reorganized company, according to paragraphs (a) to (c). 

    (a) The policyholders' membership interests shall be 
 exchanged, in a manner that takes into account the estimated 
 proportionate contribution of equitable surplus of each class of 
 participating policies and contracts, for all of the common 
 shares of the reorganized company or common shares of its parent 
 company or a permitted issuer, or for a combination of the 
 common shares of the reorganized company or common shares of its 
 parent company or a permitted issuer. 

    (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 policyholders 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 policyholders 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.    Surplus distribution.  A plan of conversion 
 under this subdivision shall provide for the exchange of the 
 policyholders' membership interests in return for the operation 
 of the converting mutual company's participating policies as a 
 closed block of business and for the distribution of the 
 company's equitable surplus to policyholders, and shall provide 
 for the issuance of new shares of the reorganized company or its 
 parent corporation, each according to paragraphs (a) to (i). 

    (a) The converting mutual company's participating business, 
 comprised of its participating policies and contracts in force 
 on the effective date of the conversion or other reasonable date 
 as provided in the plan, shall be operated by the reorganized 
 company as a closed block of participating business.  However, 
 at the option of the converting mutual company, group policies 
 and group contracts may be omitted from the closed block. 

    (b) Assets of the converting mutual company must be 
 allocated to the closed block of participating business in an 
 amount equal to the reserves and liabilities for the converting 
 mutual life insurer's participating policies and contracts in 
 force on the effective date of the conversion.  The plan must be 
 accompanied by an opinion of an independent qualified actuary 
 who meets the standards set forth in the insurance laws or 
 regulations 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. 

    (c) 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. 

    (d) Notwithstanding the establishment of a closed block, 
 the entire assets of the reorganized company shall 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 reorganized 
 company. 

    (e) The converting mutual company's equitable surplus shall 
 be distributed to eligible participating policyholders 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 
 policyholders may differ from the consideration given to another 
 class or category of policyholders.  A certificate of 
 contribution must be repayable in ten years, be equal to 100 
 percent of the value of the policyholders' membership interest, 
 and bear interest at the highest rate charged by the reorganized 
 company for policy loans on the effective date of the conversion.

    (f) The consideration must be allocated among the 
 policyholders in a manner that is fair and equitable to the 
 policyholders. 

    (g) 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 market value of the reorganized company; 

    (2) the consideration to be given to policyholders 
 according to paragraph (e); 

    (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. 

    (h) If a purchaser or a group of purchasers acting in 
 concert is to attain control in the initial offering, the mutual 
 company shall not, directly or indirectly, pay for any of the 
 costs or expenses of conversion of the mutual company, whether 
 or not the conversion is effected, except with permission of the 
 commissioner. 

    (i) Periodically, with the commissioner's approval, the 
 reorganized company may share in the profits of the closed block 
 of participating business for the benefit of stockholders if the 
 assets allocated to the closed block are in excess of those 
 necessary to support the closed block. 

    Subd. 10.    Subscription rights.  A plan of conversion 
 under this subdivision shall provide for exchange of the 
 policyholders' membership interests in return for the operation 
 of the converting mutual company's participating policies as a 
 closed block of business, for the creation of a liquidation 
 account to protect the interests of policyholders, and for the 
 issuance of subscription rights to eligible policyholders, and 
 shall provide for the issuance of shares by the reorganized 
 company, each according to paragraphs (a) to (j). 

    (a) The converting mutual company's participating business, 
 comprised of its participating policies and contracts in force 
 on the effective date of the conversion, or such other 
 reasonable date specified in the plan, and excluding at the 
 converting mutual company's option any group policies or group 
 contracts, shall be operated by the reorganized company as a 
 closed block of participating business according to subdivision 
 9, paragraphs (a) to (d). 

    (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 policyholders. 

    (c) The policyholders 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 participating 
 policyholders in whole shares in a manner provided in the plan 
 that takes into account the estimated contribution of each class 
 of participating policies and contracts to the total amount of 
 the policyholders' 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 must 
 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, is 
 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 policyholders in the event of a complete liquidation 
 of the reorganized company.  The liquidation account must be 
 equal to the equitable surplus 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 surplus 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 participating policyholders.  The amount allocated to a 
 policy or contract must not increase and must be reduced to zero 
 when the policy or contract terminates.  In the event of a 
 complete liquidation of the reorganized company, the 
 policyholders 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 issuer shall not declare or pay a cash dividend on, or 
 repurchase any of, its common shares in an amount in excess of 
 its cumulative earned surplus generated after the conversion 
 determined according to statutory accounting principles, if the 
 effect would be to cause the amount of the statutory surplus 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 policyholders' consideration must be 
 placed on the effective date of the conversion in a trust or 
 other entity existing for the exclusive benefit of the 
 participating policyholders 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 ten years and the proceeds of the shares must be 
 distributed using the distribution priorities prescribed in the 
 plan. 

    (b) A plan may provide that the directors and officers of 
 the converting mutual company shall receive, without payment, 
 nontransferable subscription rights to purchase capital stock of 
 the reorganized company, its parent, or a permitted issuer.  
 Those subscription rights must be allocated among the directors 
 and officers by a fair and equitable formula. 

    (1) The total number of shares that may be purchased under 
 this clause, may not exceed 35 percent of the total number of 
 shares to be issued in the case of a converting mutual company 
 with total assets of less than $50,000,000 or 25 percent of the 
 total shares to be issued in the case of a converting mutual 
 company with total assets of more than $500,000,000.  For 
 converting mutual companies with total assets between 
 $50,000,000 and $500,000,000, the total number of shares that 
 may be purchased may not exceed an interpolated percentage 
 between 25 and 35 percent. 

    (2) Stock purchased by a director or officer under clause 
 (1) may not be sold within one year following the effective date 
 of the conversion. 

    (3) The plan may also provide that a director or officer, 
 or person acting in concert with a director or officer of the 
 converting mutual company, may not acquire any capital stock of 
 the reorganized company for three years after the effective date 
 of the conversion, except through a licensed securities broker 
 or dealer, without the permission of the commissioner.  That 
 provision may not apply to prohibit the directors and officers 
 from purchasing stock through subscription rights received in 
 the plan under clause (1). 

    (c) A plan may allocate to a tax-qualified employee benefit 
 plan nontransferable subscription rights to purchase up to ten 
 percent of the capital stock of the reorganized company, its 
 parent, or a permitted issuer.  The employee benefit plan must 
 be entitled to exercise its subscription rights regardless of 
 the amount of shares purchased by other persons. 

    Subd. 12.    Alternative plan of conversion.  In lieu of 
 selecting a plan of conversion provided for in this section, 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 members, is fair 
 and equitable, and is based upon an independent appraisal of the 
 market value of the mutual company by a qualified person, 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 whether the alternative plan may be approved and the 
 valuation of the company. 

    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 must be 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 policyholders 
 provided for under the policies are extinguished on the 
 effective date of the 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. 17.    Supervisory conversions.  The commissioner 
 may waive or alter any of the requirements of this section to 
 protect the interests of policyholders if the converting mutual 
 company is subject to the commissioner's administrative 
 supervision under chapter 60G or rehabilitation under chapter 
 60B. 

    HIST: 1996 c 446 art 2 s 3; 1997 c 231 art 15 s 1-3