4097. (a) A domestic incorporated medical malpractice mutual
insurer, issuing nonassessable policies on a reserve basis may be
converted into an incorporated stock insurer issuing, on a reserve
basis, nonassessable policies either by demutualization or by
establishing a mutual holding company. To that end, it may provide
and carry out a plan for the conversion by complying with the
requirements of this article.
(b) A mutual holding company may be converted into a stock
corporation. To that end, it may provide and carry out a plan for the
conversion by complying with the requirements of this article.
(c) As part of the conversion authorized in this section, a
domestic incorporated medical malpractice mutual insurer may merge
with an incorporated stock insurer, if the merging insurers comply
with the provisions of Article 9 (commencing with Section 4090)
applicable to their participation in the merger, or may transfer its
domicile to any other state, if the insurer complies with Section
709.5.
4097.01. The definitions in this section apply to the following
terms when used in this article.
(a) "Adoption date" means the date the board of directors adopts
the plan of conversion.
(b) "Converted company" means the converted insurer or converted
mutual holding company, as the case may be.
(c) "Converted insurer" means the incorporated stock insurer into
which a medical malpractice mutual insurer has been converted or
merged or redomiciled in accordance with the provisions of this
article.
(d) "Converted mutual holding company" means the stock corporation
into which a mutual holding company has been converted in accordance
with this article.
(e) "Converting mutual company" means, for a plan of conversion
under this article, the medical malpractice mutual insurer or mutual
holding company that is converting under the plan.
(f) "Demutualization" means the conversion of a medical
malpractice mutual insurer into a stock insurer without the
establishment of a mutual holding company or the conversion of a
mutual holding company into a stock corporation.
(g) "Effective date" means, for the conversion of a medical
malpractice mutual insurer, the date upon which the conversion of the
mutual insurer is effective, as specified in the commissioner's
amendment to the mutual insurer's certificate of authority issued in
accordance with Section 4097.11, as a result of conversion
proceedings under this article. For the conversion of a medical
malpractice mutual holding company, "effective date" means the date
upon which the conversion of a mutual holding company is effective,
as specified in the amended articles of incorporation of the mutual
holding company filed with the Secretary of State in accordance with
Section 4097.11, as a result of conversion proceedings under this
article.
(h) "Eligible members" means, for the conversion of a mutual
insurer, members of the mutual insurer who are of record, fully
paid-up and otherwise in good standing on the mutual insurer's
adoption date and on its effective date, but shall not include those
persons covered solely under a reporting endorsement to a claims made
policy on either date. For the conversion of a mutual holding
company, "eligible members" means the members of the mutual holding
company who are of record, fully paid-up with respect to policies in
effect issued by the converted insurer and are otherwise in good
standing on the mutual holding company's adoption date and on its
effective date.
(i) "Medical malpractice mutual insurer" means a mutual insurer
organized under this chapter that writes predominantly medical
malpractice insurance, as that class of insurance is defined in
subdivision (d) of Section 108. A mutual insurer shall be considered
to write predominantly medical malpractice insurance if, for each of
the most recent five calender years, its direct written premiums for
medical malpractice insurance, as reported in the annual statement
filed with the commissioner pursuant to Section 900, is not less than
50 percent of its aggregate direct premiums for all classes of
insurance.
(j) "Member" means a person who, by the records of the mutual
company and by its articles of incorporation or bylaws, is deemed to
be a holder of a membership interest in the mutual company. On and
after the effective date of a plan of conversion that creates a
mutual holding company, the term "member" means a member of a mutual
holding company, as provided in Section 4097.12.
(k) "Membership interests" means the interests of members arising
under this code and the articles of incorporation and bylaws of the
mutual company or otherwise by law. Membership interests include the
right to vote for directors of the mutual company and the right to
vote on any plan of merger, consolidation, reinsurance, or transfer
of assets and liabilities of the mutual company.
(l) "Mutual company" means, in the case of a plan of conversion,
the medical malpractice mutual insurer or mutual holding company that
is converting pursuant to the plan.
(m) "Mutual holding company" means a corporation organized under
the laws of this state subject to the general corporation law as set
forth in the Corporations Code. The articles of incorporation of a
mutual holding company shall contain provisions stating the
following:
(1) It is a mutual holding company organized under this article.
(2) One purpose of the mutual holding company is to hold not less
than 51 percent of the voting stock of a stock holding company, which
in turn holds all of the voting stock of a converted insurer. In
addition, the mutual holding company shall own not less than 51
percent of the total stockholders' equity of the stock holding
company at all times.
(3) It is not authorized to issue voting stock.
(4) Its members have the rights specified in Section 4097.12 and
in its articles of incorporation and bylaws.
(5) Its assets and liabilities are subject to inclusion in the
estate of the converted insurer in any proceedings successfully
prosecuted against the converted insurer under Article 14 (commencing
with Section 1010) or Article 14.3 (commencing with Section 1064.1)
of Chapter 1 of Part 2 of Division 1.
(n) "Mutual holding company independent director" means a member
of the board of directors of the mutual holding company who does not
own shares, options, or any other equity interests in the stock
holding company.
(o) "Mutual insurer" means, in the case of a plan of conversion
under this article, the medical malpractice mutual insurer that is
converting pursuant to the plan.
(p) "Person" means an individual, partnership, firm, association,
corporation, joint-stock company, limited liability company, trust,
government or governmental agency, state or political subdivision of
a state, public or private corporation, board, association, estate,
trustee, or fiduciary, or any similar entity.
(q) "Plan of conversion" or "plan" means a plan adopted by a
mutual company in compliance with this article.
(r) "Policy" means an individual or group policy of insurance
issued by a mutual insurer or a converted insurer. If a policy takes
a form other than an individual form but holders of certificates or
other interests under the policy are treated by the mutual insurer as
if they were holders of individual policies, the mutual insurer may
provide in its plan of conversion under this article that such a
certificate or other interest is deemed to be a policy and deem the
holder of the certificate or other interest to be an owner of a
policy. Such a provision shall be for the sole purpose of determining
the rights, if any, of policyholders of the mutual insurer to vote
upon and receive consideration under the plan of conversion and shall
not affect the other voting rights and qualifications of members of
the mutual insurer.
(s) "Policyholder" means the holder of a policy other than a
reinsurance contract.
(t) "Rights in surplus," for a mutual insurer, means rights of
members of the insurer to a return of that portion of the surplus
that has not been apportioned or declared by the board of directors
for policyholder dividends. "Rights in surplus" includes rights of
members of the insurer to a distribution of surplus in liquidation,
conservation or demutualization of the insurer under this code, or in
a dissolution or winding up. "Rights in surplus," for a mutual
holding company, means rights of members of the company to a return
of any surplus that has not been apportioned or declared by its board
of directors for member dividends. "Rights in surplus" includes
rights of members of the mutual holding company to a distribution of
surplus in liquidation, conservation, or demutualization of the
insurer under this code, or in a dissolution or winding up. "Rights
in surplus" does not include any right expressly conferred solely by
the terms of an insurance policy.
(u) "Stock holding company" means a corporation authorized to
issue one or more classes of capital stock, the corporate purposes of
which include holding all of the voting stock in an insurer that has
been converted from a mutual insurer to a stock insurer in
proceedings under Section 4097.05 in which a mutual holding company
is formed.
(v) "Voting stock" means securities of any class or any ownership
interest having voting power for the election of directors, trustees,
or management of a person, other than securities having voting power
only because of the occurrence of a contingency. All references to a
specified percentage of voting stock of any person mean securities
having the specified percentage of the voting power in that person
for the election of directors, trustees, or management of that
person, other than securities having voting power only because of the
occurrence of a contingency.
4097.02. The plan of conversion shall include appropriate
proceedings for amending the mutual company's articles of
incorporation to give effect to the conversion from a nonstock
corporation into a stock corporation. The plan shall be:
(a) Approved by a resolution of two-thirds of the board of
directors. The resolution shall specify the reasons for and the
purposes of the proposed conversion of the mutual company and the
manner in which the conversion is expected to benefit and serve the
best interests of the policyholders, for a mutual insurer, or
members, for a mutual holding company.
(b) Submitted to the commissioner for consent in writing, subject
to the provisions of Section 4097.06, by an application executed by
an authorized officer of the mutual company and accompanied by the
following documents, or true and correct copies of the documents:
(1) The proposed plan of conversion.
(2) The proposed articles of incorporation of each corporation
that is a constituent corporation of the conversion.
(3) The proposed bylaws of each corporation that is a constituent
corporation of the conversion.
(4) A list of officers and directors, together with their
biographies in the form customarily required by the commissioner, of
each corporation that is a constituent corporation of the conversion.
(5) The resolution of the board of directors of the mutual
company, certified by the secretary of the board of directors,
authorizing the conversion under this article, and a report of the
percentage of directors approving the resolution.
(6) Financial statements, which may be prepared on a pro forma
basis, in the form required by the commissioner.
(7) For a conversion of a mutual insurer, a plan of operations for
the converted insurer.
(8) A summary of the plan of conversion and drafts of written
materials to be mailed to members seeking their approval of the plan.
(9) If the plan provides for the establishment of a mutual holding
company under Section 4097.05, it shall contain all of the
following:
(A) An information statement containing, at a minimum, the
information required under Section 4097.07.
(B) A description of any plans for an initial public offering,
including a description of the maximum percentage of stock to be
sold, the process to be used in offering the stock and setting the
initial sale price for the stock, and how policyholders would be
treated in an initial public offering.
(C) A description of any plans for the transfer of assets and
liabilities, including any subsidiaries, to the mutual holding
company.
(D) Any final rulings relating to the plan of reorganization
obtained from any federal government agency, and all supporting
documents submitted to the agency in connection with those rulings.
(10) A copy of the proposed form of notice of the special meeting
sent to members pursuant to Section 4097.07.
(11) Other relevant information that the commissioner may require.
(c) Approved by two-thirds of the members of the mutual company
voting at a meeting of the members called for that purpose, subject
to the provisions of Section 4097.07.
(d) Filed in the office of the commissioner after receipt of the
commissioner's consent, and after having been approved as provided in
Sections 4097.06 and 4097.07, respectively.
4097.03. For the conversion of a medical malpractice mutual
insurer, the plan of conversion shall provide for either a
demutualization in compliance with Section 4097.04 or for a mutual
holding company in compliance with Section 4097.05. For the
conversion of a mutual holding company, the plan of conversion shall
provide for demutualization in compliance with Section 4097.04.
4097.04. For the demutualization of a mutual insurer into a stock
insurer or for the demutualization of a mutual holding company into a
stock corporation, the plan for conversion shall include the
following:
(a) A fair, just, and equitable formula, approved by the
commissioner, for determining the rights in surplus of each eligible
member in the mutual company. The formula shall take account of both
the total premiums paid by each eligible member and the duration of
his or her membership. The rights in surplus shall be based upon an
appraisal of the fair value of the mutual company by one or more
qualified disinterested persons appointed by the mutual company with
the approval of the commissioner. Those persons shall consider the
assets and liabilities of the mutual company and any factors bearing
on the value of the mutual company.
(b) Each eligible member of the mutual company shall be given a
preemptive right to acquire his or her proportionate part of all of
the proposed capital stock of the converting mutual company, within a
designated reasonable period, by applying upon the purchase of that
part the amount of his or her rights in surplus as determined under
the formula described in subdivision (a).
(c) Each member not applying his or her rights in surplus upon the
purchase price of stock shall elect to receive either a cash payment
or a certificate of contribution. The cash payment shall not be
greater than 50 percent of his or her rights in surplus as determined
by the formula in subdivision (a). The certificate of contribution
shall be in an amount equal to 100 percent of his or her rights in
surplus, as determined by the formula in subdivision (a), shall bear
interest at the rate established in Section 10489.4 for minimum
standard valuation of all life insurance policies of more than 20
years' duration issued in the year, and shall be repayable within 10
years or, if necessary under the terms of the plan, later, only on
written approval of the commissioner and only out of surplus in
excess of an amount established in the plan. Any member not electing
to receive cash or purchase stock shall be deemed to have elected to
receive a certificate of contribution. The stock purchased, cash
payment, or certificate of contribution shall constitute full payment
and discharge of the member's rights in surplus or property interest
in the mutual company, and, notwithstanding any other provision of
law, the member shall have no other rights with respect thereto.
(d) The number of shares to be authorized for the new stock
insurer, their par value, and the method for determining the price at
which the shares will be offered to eligible members, to the end
that the plan, when completed, would satisfy the financial
requirements for issuance of a license to transact insurance.
(e) Provision for the offering to others of shares not purchased
by eligible members within the designated period referred to in
subdivision (b) at a price not less than the offering price to
members.
4097.05. A plan of conversion adopted by a medical malpractice
mutual insurer to establish a mutual holding company shall provide
that the medical malpractice mutual insurer will become a stock
insurer, that the members of the medical malpractice mutual insurer
will become members of a mutual holding company, that the mutual
holding company will acquire at least 51 percent of the voting stock
of the stock holding company, and that the stock holding company will
acquire all of the voting stock of the converted insurer.
4097.06. (a) The commissioner shall examine the plan submitted
pursuant to subdivision (b) of Section 4097.02. If the plan provides
for the establishment of a mutual holding company under Section
4097.05, the mutual insurer shall demonstrate that the issuance of
stock:
(1) Will not require members to pay additional funds to retain
their rights in surplus, but nothing herein is intended to prohibit
or restrict a mutual insurer that is converting to a stock insurer by
establishing a mutual holding company from offering to its members
subscription rights that are in addition to the rights in surplus to
be held in the mutual holding company.
(2) Issued to officers, directors, employees, or employee benefit
plans for their benefit, if any, will be fair, just and equitable and
not hazardous to policyholders, stockholders, or creditors.
(3) Provides sufficient means for the accumulated earnings, cash,
and other non-operating assets held by the mutual holding company to
inure to the exclusive benefit of its members.
(b) As part of the examination the commissioner shall order a
public hearing on the plan after written notice of the hearing to the
mutual company, its members, and the public. Members of the mutual
company, their representatives, and the public shall have the right
to appear at the public hearing and to submit written comments to the
commissioner. The hearing shall occur before the policyholder vote.
The commissioner may require as a condition of consent that the
mutual company make modifications of the proposed plan that the
commissioner finds necessary for the protection of policyholders. The
commissioner shall consent to the plan if he or she finds all of the
following:
(1) For the conversion of a mutual insurer, the plan is fair,
just, and equitable to the insurer and its policyholders.
(2) For the conversion of a mutual holding company, the plan is
fair, just, and equitable to the company, its members, and the
policyholders of the converted insurer.
(3) The plan does not violate the law.
(4) The converted insurer will, after the conversion, satisfy the
requirements for the issuance of a license to write the line or lines
of insurance for which it is presently licensed.
(c) For the conversion of a mutual company, the commissioner may
appoint one or more actuarial, financial, or other consultants,
including legal counsel, as the commissioner finds necessary to
advise the commissioner in making the determination of whether the
proposed plan of conversion meets the applicable requirements of this
article. The mutual company is responsible for the reasonable fees
and expenses of any actuarial, financial, or other consultants,
including legal counsel, appointed, and for the mailing and
publication of notices to the mutual company and its members.
4097.07. The meeting of members prescribed by subdivision (c) of
Section 4097.02 shall be called by the board of directors, the
chairperson of the board, or the president of the mutual company.
Notice of the meeting shall be given to eligible members by mail at
least 45 days prior to the date set for the meeting to members of the
mutual company of record on the date the plan of conversion was
adopted by the board of directors. In the event that a plan of
reorganization provides for the establishment of a mutual holding
company under Section 4097.05, the notice shall be accompanied by an
information statement describing the proposed reorganization. The
information statement shall include, at a minimum, the following
items:
(a) A full copy and a summary of the plan of reorganization.
(b) A discussion addressing the reasons and purposes of the
proposed restructuring, which shall include a comparison to a
demutualization.
(c) An analysis of the benefits and risks associated with the
proposed reorganization to the mutual company and its policyholders.
(d) An explanation of how the restructuring will benefit
policyholders, as well as a description of any potential risks to
policyholder interests and a description of how the policyholders'
rights differ at the mutual holding company level from those in the
existing company.
(e) A description of any stock issuance, including any shares or
options to be issued to directors, officers, agents, employees, or
employee benefit plans, for their benefit, that will be made in
conjunction with the plan of conversion, if any, and the guidelines
and parameters which shall apply in the event stock is to be issued,
including a detailed discussion of subscription rights that are to be
granted to policyholders.
(f) Any proposed amendments to the mutual insurer's articles of
incorporation to address the restructuring from a mutual to a stock
insurer.
(g) Any proposed articles and bylaws of the mutual holding company
and any other entities to be created in the reorganization.
(h) Financial information.
(i) Any other information that the commissioner determines is
necessary to make a complete and adequate disclosure to
policyholders.
Voting shall be by ballot, in person or by proxy. A quorum shall
consist of 10 percent of the members of the mutual company entitled
to vote at the meeting.
4097.08. Nothing in this article shall be deemed to prohibit the
inclusion in the plan of conversion of provisions under which the
insurer's officers, directors, employees, agents, and employee
benefit plans for their benefit may be entitled, in accordance with
reasonable classifications of those individuals and employee benefit
plans as may be included in the plan, to purchase for cash, at the
same price as offered to the public in the initial public offering,
voting stock not purchased by members upon exercise of subscription
rights. Nothing in this code shall be deemed to prohibit the
establishment of stock option, incentive, and share ownership plans
customary for publicly traded companies in the same and similar
industries. The plan may not permit those persons to acquire any of
the following:
(a) Greater than 25 percent of the voting stock issued pursuant to
the plan for a medical malpractice mutual insurer having assets in
excess of two hundred million dollars ($200,000,000) or 35 percent
for a medical malpractice mutual insurer having assets of two hundred
million dollars ($200,000,000) or less.
(b) Greater than 25 percent of the stockholders' equity for a
medical malpractice mutual insurer having assets in excess of two
hundred million dollars ($200,000,000) or 35 percent for a medical
malpractice mutual insurer having assets of less than two hundred
million dollars ($200,000,000).
(c) Unexercised options that exceed 20 percent of the number of
the issued and outstanding shares.
4097.09. No director, officer, agent, or employee of the mutual
company shall receive any fee, commission, or other valuable
consideration whatsoever, other than 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 shall not be deemed to prohibit the payment of reasonable
fees and compensation to attorneys at law, accountants, and actuaries
for services performed in the independent practice of their
professions, even though they may also be directors of the mutual
company.
4097.10. At any time before that plan of conversion becomes
effective as provided in Section 4097.11, the mutual company may, by
resolution of at least two-thirds of the board of directors, amend
the plan of conversion or withdraw the plan of conversion. Any plan
amendment shall require the written consent of the commissioner. For
a plan amendment, all references in this article to the plan of
conversion shall be deemed to refer to the plan as amended, but no
amendment shall be deemed to change the adoption date of the plan of
conversion. No amendment may change the plan of conversion in a
manner that the commissioner determines is materially disadvantageous
to policyholders of the mutual insurer or members of the mutual
holding company, unless a further public hearing is held on the plan
as amended, if the amendment is made after the initial public
hearing, or if the plan as amended is submitted for reconsideration
by the members if the amendment is made after the plan has been
approved by the members.
4097.11. (a) Upon consent by the commissioner to the plan of
conversion of a mutual insurer and filing of the plan of conversion
in accordance with the provisions of this article, the commissioner
shall issue a new certificate of authority to the converted insurer.
Upon issuance of the certificate of authority to a mutual insurer and
subject to subdivision (a) of Section 110 of the Corporations Code,
the Secretary of State shall accept for filing the articles of
incorporation, certificate of amendment of articles of incorporation,
or agreement of merger and officers' certificates of the converted
insurer for the conversion of a mutual insurer. For a plan of
conversion that provides for the establishment of a mutual holding
company in accordance with Section 4097.05, the Secretary of State
shall accept for filing the articles of incorporation of the mutual
holding company and the stock holding company. Upon consent to the
plan of conversion of a mutual holding company and filing of the plan
of conversion in accordance with the provisions of this article, the
Secretary of State shall accept for filing the articles of
incorporation or certificate of amendment of articles of
incorporation of the converted mutual holding company. The plan is
effective upon the filing of the articles of incorporation or
certificate of amendment of articles of incorporation.
(b) Upon the effective date of the plan of conversion of a mutual
insurer, the mutual insurer shall immediately become a stock
corporation. The converted insurer shall be a continuation of the
original mutual insurer, and the conversion shall in no way annul,
modify, or change any of the original mutual insurer's existing
suits, rights, contracts, or liabilities except as provided in the
approved conversion plan. The insurer, after conversion, shall
exercise all the rights and powers and perform all the duties
conferred or imposed by law upon insurers writing the classes of
insurance written by it, and shall retain the rights and contracts
existing prior to conversion, subject to the effect of the plan.
(c) Upon the effective date of the plan of conversion of a mutual
holding company, all membership interests and rights in surplus are
extinguished, members eligible to receive consideration under the
plan of conversion are entitled to receive the consideration in
exchange for their membership interests and liquidation of their
rights in surplus, and the plan otherwise becomes effective in
accordance with its terms. The conversion in no way annuls, modifies,
or changes any of the converting mutual holding company's existing
suits, rights, contracts, or liabilities, except as provided in the
approved plan of conversion.
4097.12. (a) Upon the effective date of a plan of conversion in
accordance with Section 4097.05, the mutual insurer immediately
becomes a stock corporation, the membership interests and rights in
surplus of its members are extinguished, the members of the mutual
insurer immediately become members of the mutual holding company and
are granted rights in surplus in the mutual holding company
equivalent to those rights in surplus previously held in the
converted company, all of the voting stock initially issued by the
converted insurer is owned by the stock holding company, and all of
the voting stock initially issued by the stock holding company is
owned by the mutual holding company. Except for the membership
interests in the mutual insurer, which become membership interests in
the mutual holding company, nothing herein is intended to, nor shall
eliminate, curtail or otherwise diminish the contract rights of
policyholders of a converted company. The stock holding company may
thereafter, subject to compliance with Article 8 (commencing with
Section 820) of Chapter 1 of Part 2 of Division 1, issue securities
to other persons. After the effective date, owners of policies that
are issued by a stock insurer that has been converted from a mutual
insurer pursuant to proceedings under this article shall become
members of the mutual holding company immediately upon issuance of
the policies, except that owners of a reporting endorsements issued
by the insurer that provide strictly tail coverage on expired claims
made policies shall not be members of the mutual holding company. Any
person may be a member of a mutual holding company.
(b) From the effective date, the mutual holding company shall hold
at least 51 percent of the issued and outstanding voting stock of
the stock holding company and the stock holding company thereafter
shall at all times hold all of the issued and outstanding voting
stock of the converted insurer. The stock holding company may issue
additional voting stock, and securities convertible into voting
stock, to the mutual holding company and to other persons if, in the
aggregate, the voting stock of the stock holding company held by the
mutual holding company is not less than 51 percent of the issued and
outstanding voting stock of the stock holding company. For purposes
of the 51 percent limitation, any issued and outstanding securities
of the stock holding company that are convertible into voting stock
are considered issued and outstanding voting stock.
(c) From the effective date, the mutual holding company's equity
interest in the stock holding company shall not be less than 51
percent of the total stockholders' equity in the stock holding
company. For purposes of the 51 percent limitation, any issued and
outstanding securities of the stock holding company that are
convertible into equity securities, whether voting or nonvoting,
shall be considered stockholders' equity. Debt securities that
include a default contingency conversion interest shall not be
considered stockholders' equity for compliance with the foregoing
limitation.
(d) The commissioner shall retain jurisdiction over the mutual
holding company pursuant to this article. For purposes of Section
1215.5, the mutual holding company shall be considered as if it were
an insurance company. The commissioner shall also retain jurisdiction
over the issuance of debt securities by the mutual holding company
in accordance with the protections provided in Article 8 (commencing
with Section 820) of Chapter 1 of Part 2 of Division 1.
(e) If any proceedings under Article 14 (commencing with Section
1010), Article 14.3 (commencing with Section 1064.1), Article 14.5
(commencing with Section 1065.1), or Article 15.5 (commencing with
Section 1077), of Chapter 1 of Part 2 of Division 1, are brought
naming as a party a stock insurer created as a result of proceedings
authorized by this article, the mutual holding company formed as part
of the conversion automatically becomes a party to the proceedings.
All of the assets of the mutual holding company, including, but not
limited to, its interest in the stock holding company formed pursuant
to this article, are deemed assets of the estate of the stock
insurer to the extent necessary to satisfy claims of persons against
the stock insurer who have claims falling within the priorities
established in paragraphs (1) to (5), inclusive, of subdivision (a)
of Section 1033. Claims of persons in their capacity as members of
the mutual holding company shall be claims falling within the
priority established in paragraph (6) of subdivision (a) of Section
1033. A mutual holding company may not dissolve, liquidate, or wind
up and dissolve without the prior written approval of the
commissioner or the court pursuant to proceedings brought pursuant to
Article 15 (commencing with Section 1070) of Chapter 1 of Part 2 of
Division 1.
(f) Except as provided in this code, a mutual holding company is
subject to the provisions of the general corporation law in like
manner with other corporations. However, provisions of that law
referring to shareholders or members shall be applied as though those
provisions referred to the members of a mutual holding company. With
respect to the management, records, and affairs of a mutual holding
company and except as otherwise provided in this chapter, a member of
a mutual holding company has the same character of rights and
relationship as a stockholder has toward a domestic stock insurer
subject to the provisions of this code.
(g) Each member of a mutual holding company is entitled to one
vote on each matter coming to a vote at any meeting of members,
regardless of the number of policies that the member holds.
(h) Notice of all meetings of members of the mutual holding
company, whether annual or special, shall be given in writing to the
members entitled to vote. The notice shall be given by the secretary,
assistant secretary, or other persons charged with that duty. If
there is no officer so charged, or if he or she neglects or refuses
this duty, notice may be given by any director. At the option of the
converted insurer, the notice may be imprinted on premium notices or
receipts or on both. A notice may be given to any member either
personally, or by mail, or other means of written communication,
charges prepaid, addressed to the member at his or her address
appearing on the books of the insurer, or given by the member to the
converted insurer for the purpose of notice. If a member gives no
address, and if there is no address on the books of the insurer,
notice shall be deemed to have been given the member if sent by mail
or other means of written communication addressed to the place where
the principal office of the converted insurer is situated, or if
published at least once in a newspaper of general circulation in the
county in which the office is located and in the newspaper that has
the largest daily circulation in this state. Notice of any meeting of
members shall be sent to each member entitled to notice not less
than 14 days before a meeting. Notice of any meeting of members shall
specify the place, the day, and the hour of the meeting and the
general nature of the business to be transacted. For any member who
gives no address and has no address on the books of the insurer,
notice of an annual meeting to be held at the time and place
specified is deemed adequate if published at least once in each of
four successive weeks in a newspaper of general circulation in the
county in which the principal office of the converted insurer is
located and in the newspaper that has the largest daily circulation
in this state. If the notice is so published, no other notice of the
meeting is required.
(i) The presence in person or by proxy of 5 percent of the members
of a mutual holding company entitled to vote at any meeting
constitutes a quorum for the transaction of all business of the
mutual holding company, including, but not limited to, the amendment
of the articles of incorporation or bylaws of the mutual holding
company.
(j) Any required member approval shall be by the affirmative vote
of a majority of the members who vote, or a higher percentage of the
members as may be required by law or the articles of incorporation, a
quorum being present.
(k) The board of the mutual holding company shall be comprised of
not less than 6 nor more than 18 directors. A majority of the mutual
holding company directors shall be policyholders of the converted
insurer. Unless the plan provides that at least a majority of the
directors of the boards of the stock holding company and the
converted insurer are also directors of the mutual holding company,
the commissioner shall determine whether the proposed composition of
the boards of directors of each of the constituent corporations of
the mutual holding company system, as provided in the articles of
incorporation and bylaws, facilitate the control of the converted
insurer by the mutual holding company. No term shall continue longer
than six years. In the absence of such provisions, each director
shall be elected for a term of one year. All directors shall hold
office for the term for which they are elected and until their
successors are elected and qualified. The bylaws of the mutual
holding company shall set forth a procedure for establishing mutual
holding company independent directors in the event that the stock
holding company issues securities. Not less than one of every six
directors of the mutual holding company shall be so designated. A
director may, but need not, be a member of the mutual holding company
of which he or she is acting as director. Vacancies in the board of
directors may be filled by a majority of the remaining directors,
though less than a quorum. Each director so elected shall hold office
until the next annual meeting.
(l) Membership interests in a mutual holding company are exempt
from Article 8 (commencing with Section 820) of Chapter 1 of Part 2
of Division 1. A description of the membership interests and related
factual disclosure shall not be considered to be an inducement to buy
insurance in violation of Section 10430. Any promise of returns,
profits, or distributions, or representations with regard to the
benefits of membership, made as an inducement in connection with the
issuance and delivery of a policy is subject to Section 10430 and the
remedy provided in Section 10433.
4097.13. Prior to, and for a period of five years following, the
effective date of the plan of conversion, no person or group of
persons acting in concert shall directly or indirectly offer to
acquire or acquire in any manner the beneficial ownership of 5
percent or more of any class of voting securities of a converted
insurer or of a person that controls, as defined by subdivision (b)
of Section 1215, the converted insurer, without the prior consent of
the commissioner. Any application for that approval shall contain
information as the commissioner may require and shall be accompanied
by a filing fee in an amount equal to the filing fee specified in
Section 1215.2. In the event of any violation of this section, or of
any action that, if consummated, would constitute a violation, all
voting securities of the converted insurer or of the person acquired
by any person in excess of the maximum amount permitted to be
acquired by the person pursuant to this subdivision shall be deemed
to be nonvoting securities of the converted insurer or of that
person. The violation or action may be enforced or enjoined by an
appropriate proceeding commenced by the converted insurer, a person,
the commissioner, any policyholder or stockholder of the converted
insurer, or the person on behalf of the converted insurer or the
person in the superior court in the judicial district in which the
converted insurer has its home office or in any other court having
jurisdiction. The court may issue any order it finds necessary to
cure the violation or to prevent the proposed action. In addition to
the foregoing, whenever it appears to the commissioner that any
person has committed a violation of this section, the commissioner
may proceed as provided in Article 14 (commencing with Section 1010)
of Chapter 1 of Part 2 of Division 1 to take possession of the
property of the converted insurer and to conduct the business
thereof. For the purposes of this section, "beneficial ownership,"
with respect to voting securities, means the sole or shared power to
vote, or direct the voting of, voting securities or the sole or
shared power to dispose, or direct the disposition, of voting
securities. "Voting security" includes voting stock as defined in
Section 4097.01, any preorganization certificate or subscription,
including subscription rights issued pursuant to a plan of
conversion, or any security convertible, with or without
consideration, into voting security, or carrying any warrant or right
to subscribe for or purchase any voting security, or any such
warrant or right. "Offer" includes an offer to buy or acquire,
solicitation of an offer to sell, tender offer for, or request or
invitation for tenders of a security or interest in a security for
value.
4097.14. Unless otherwise provided in the plan of conversion, the
directors and officers of the mutual company shall serve as directors
and officers of the converted company until new directors and
officers have been duly elected and qualified pursuant to the
articles of incorporation and bylaws of the stock company.
4097.15. (a) Notwithstanding any other provision of law and except
as otherwise provided in subdivision (b), actions concerning any plan
of conversion, proposed plan of conversion, plan amendment, or
proposed plan amendment under this article or any acts taken or
proposed to be taken under this article shall be commenced within one
year after the plan of conversion or plan amendment is filed in the
office of the commissioner pursuant to subdivision (d) of Section
4097.02 or subdivision (a) of Section 4098.1, or six months from the
effective date of the plan of conversion, whichever is later. If the
plan of conversion is withdrawn, the actions or acts shall be
commenced within six months from the date the board of directors
approves a resolution to withdraw the plan. If an action concerns or
arises out of a plan amendment or proposed plan amendment made under
Section 4097.18, the applicable time period is measured from the
filing, effective date, or approval of withdrawal of the plan
amendment, whichever is later.
(b) Judicial review of any act of the commissioner or any other
governmental body or officer concerning or arising out of any plan of
conversion, proposed plan of conversion, plan amendment, or proposed
plan amendment under this article may only be had by filing a
petition for a writ of mandate within 30 days of the date of the act.
However, any petition seeking judicial review shall be filed no
later than 30 days from the effective date of the plan of conversion
or plan amendment, whichever is the subject of the petition.
4097.16. The offer or sale of securities, including any debt
securities, issued pursuant to the plan of conversion developed and
approved in accordance with the provisions of this article, shall be
exempt from Article 8 (commencing with Section 820) of Chapter 1 of
Part 2 of Division 1.
4097.17. The commissioner shall have the authority from time to
time, to make, amend, and rescind any rules and regulations as may be
necessary to carry out the provisions of this article. The
commissioner shall also have the authority to charge and collect from
the insurer for the actual amount of expenses reasonably incurred by
the state in discharge of the commissioner's duties hereunder.
4097.18. Upon completion of the act of conversion and issuance of
the certificate of authority under Section 4097.11, the Secretary of
State shall accept for filing a verified copy of the amended articles
of incorporation.
4097.19. (a) The amended articles of incorporation of a converted
company that have been adopted pursuant to a plan of conversion and
filed with the Secretary of State in accordance with Section 4097.11
may be further amended after the effective date pursuant to
applicable law. The plan of conversion may be amended in other
respects after the effective date of the plan as specified in this
section. The amendment shall take effect upon filing with the
Secretary of State after compliance with the following:
(1) Approval by a resolution of at least two-thirds of the board
of directors of the converted company. The resolution shall specify
the reasons for and the purposes of the proposed amendment.
(2) Submission to the commissioner for consent in writing, subject
to the provisions of Section 4097.06.
(3) For the conversion of a mutual insurer, approval by at least
two-thirds of those current policyholders of the corporation who were
members of the former mutual insurer and were entitled to vote on
the original plan of conversion approved pursuant to subdivision (c)
of Section 4097.02 and who vote at a meeting called for that purpose.
(4) For the demutualization of a mutual holding company, approval
by at least two-thirds of those current members of the corporation
who were members of the former mutual holding company and were
entitled to vote on the original plan of conversion approved pursuant
to subdivision (c) of Section 4097.02 and who vote at a meeting
called for that purpose.
(5) Filed in the office of the commissioner after having been
consented to and approved as contemplated by paragraphs (2), (3), and
(4).
(b) If an amendment proposed under subdivision (a) would adversely
affect the rights of one or more classes of members, but not all
those members, then only the members of each class whose rights would
be adversely affected by the proposed amendment are entitled to vote
on the proposed plan amendment.
(c) A policyholder or member meeting prescribed by paragraph (3)
or (4) of subdivision (a) shall be called by the board of directors,
the chairperson of the board, or the president of the converted
company. Notice of the meeting shall be given to policyholders or
members entitled to vote at the meeting by mail at least 45 days
prior to the date set for the meeting. Voting shall be by ballot, in
person, or by proxy. A quorum consists of 10 percent of the
policyholders or members of the converted company entitled to vote at
the meeting.
(d) At any time before the plan amendment becomes effective, the
converted company may, by resolution of two-thirds of the board of
directors, amend the plan amendment or withdraw its plan amendment.
For an amendment to a plan amendment, all references in this section
to the plan amendment shall be deemed to refer to the plan amendment
as amended. Any amendment of the plan amendment shall require the
written consent of the commissioner. No amendment shall be deemed to
change the date of adoption of the plan amendment. No amendment made
after approval by the policyholders or members as provided in
paragraph (3) or (4) of subdivision (a) may change the plan amendment
in a manner that the commissioner determines is materially
disadvantageous to any of the affected policyholders or members
unless the plan amendment as amended is submitted for reconsideration
under the procedures prescribed for the original plan amendment
policyholder or member approval.
4097.20. If the name of a mutual insurer converting to a stock
insurer pursuant to this article includes the word "mutual," the new
stock insurer may continue to use the word "mutual" in its name if
the name includes a word or words that identify the new stock insurer
as a stock insurer and the commissioner finds that the continued use
of the word "mutual" in its name is not likely to mislead or deceive
the public.
4097. (a) A domestic incorporated medical malpractice mutual
insurer, issuing nonassessable policies on a reserve basis may be
converted into an incorporated stock insurer issuing, on a reserve
basis, nonassessable policies either by demutualization or by
establishing a mutual holding company. To that end, it may provide
and carry out a plan for the conversion by complying with the
requirements of this article.
(b) A mutual holding company may be converted into a stock
corporation. To that end, it may provide and carry out a plan for the
conversion by complying with the requirements of this article.
(c) As part of the conversion authorized in this section, a
domestic incorporated medical malpractice mutual insurer may merge
with an incorporated stock insurer, if the merging insurers comply
with the provisions of Article 9 (commencing with Section 4090)
applicable to their participation in the merger, or may transfer its
domicile to any other state, if the insurer complies with Section
709.5.
4097.01. The definitions in this section apply to the following
terms when used in this article.
(a) "Adoption date" means the date the board of directors adopts
the plan of conversion.
(b) "Converted company" means the converted insurer or converted
mutual holding company, as the case may be.
(c) "Converted insurer" means the incorporated stock insurer into
which a medical malpractice mutual insurer has been converted or
merged or redomiciled in accordance with the provisions of this
article.
(d) "Converted mutual holding company" means the stock corporation
into which a mutual holding company has been converted in accordance
with this article.
(e) "Converting mutual company" means, for a plan of conversion
under this article, the medical malpractice mutual insurer or mutual
holding company that is converting under the plan.
(f) "Demutualization" means the conversion of a medical
malpractice mutual insurer into a stock insurer without the
establishment of a mutual holding company or the conversion of a
mutual holding company into a stock corporation.
(g) "Effective date" means, for the conversion of a medical
malpractice mutual insurer, the date upon which the conversion of the
mutual insurer is effective, as specified in the commissioner's
amendment to the mutual insurer's certificate of authority issued in
accordance with Section 4097.11, as a result of conversion
proceedings under this article. For the conversion of a medical
malpractice mutual holding company, "effective date" means the date
upon which the conversion of a mutual holding company is effective,
as specified in the amended articles of incorporation of the mutual
holding company filed with the Secretary of State in accordance with
Section 4097.11, as a result of conversion proceedings under this
article.
(h) "Eligible members" means, for the conversion of a mutual
insurer, members of the mutual insurer who are of record, fully
paid-up and otherwise in good standing on the mutual insurer's
adoption date and on its effective date, but shall not include those
persons covered solely under a reporting endorsement to a claims made
policy on either date. For the conversion of a mutual holding
company, "eligible members" means the members of the mutual holding
company who are of record, fully paid-up with respect to policies in
effect issued by the converted insurer and are otherwise in good
standing on the mutual holding company's adoption date and on its
effective date.
(i) "Medical malpractice mutual insurer" means a mutual insurer
organized under this chapter that writes predominantly medical
malpractice insurance, as that class of insurance is defined in
subdivision (d) of Section 108. A mutual insurer shall be considered
to write predominantly medical malpractice insurance if, for each of
the most recent five calender years, its direct written premiums for
medical malpractice insurance, as reported in the annual statement
filed with the commissioner pursuant to Section 900, is not less than
50 percent of its aggregate direct premiums for all classes of
insurance.
(j) "Member" means a person who, by the records of the mutual
company and by its articles of incorporation or bylaws, is deemed to
be a holder of a membership interest in the mutual company. On and
after the effective date of a plan of conversion that creates a
mutual holding company, the term "member" means a member of a mutual
holding company, as provided in Section 4097.12.
(k) "Membership interests" means the interests of members arising
under this code and the articles of incorporation and bylaws of the
mutual company or otherwise by law. Membership interests include the
right to vote for directors of the mutual company and the right to
vote on any plan of merger, consolidation, reinsurance, or transfer
of assets and liabilities of the mutual company.
(l) "Mutual company" means, in the case of a plan of conversion,
the medical malpractice mutual insurer or mutual holding company that
is converting pursuant to the plan.
(m) "Mutual holding company" means a corporation organized under
the laws of this state subject to the general corporation law as set
forth in the Corporations Code. The articles of incorporation of a
mutual holding company shall contain provisions stating the
following:
(1) It is a mutual holding company organized under this article.
(2) One purpose of the mutual holding company is to hold not less
than 51 percent of the voting stock of a stock holding company, which
in turn holds all of the voting stock of a converted insurer. In
addition, the mutual holding company shall own not less than 51
percent of the total stockholders' equity of the stock holding
company at all times.
(3) It is not authorized to issue voting stock.
(4) Its members have the rights specified in Section 4097.12 and
in its articles of incorporation and bylaws.
(5) Its assets and liabilities are subject to inclusion in the
estate of the converted insurer in any proceedings successfully
prosecuted against the converted insurer under Article 14 (commencing
with Section 1010) or Article 14.3 (commencing with Section 1064.1)
of Chapter 1 of Part 2 of Division 1.
(n) "Mutual holding company independent director" means a member
of the board of directors of the mutual holding company who does not
own shares, options, or any other equity interests in the stock
holding company.
(o) "Mutual insurer" means, in the case of a plan of conversion
under this article, the medical malpractice mutual insurer that is
converting pursuant to the plan.
(p) "Person" means an individual, partnership, firm, association,
corporation, joint-stock company, limited liability company, trust,
government or governmental agency, state or political subdivision of
a state, public or private corporation, board, association, estate,
trustee, or fiduciary, or any similar entity.
(q) "Plan of conversion" or "plan" means a plan adopted by a
mutual company in compliance with this article.
(r) "Policy" means an individual or group policy of insurance
issued by a mutual insurer or a converted insurer. If a policy takes
a form other than an individual form but holders of certificates or
other interests under the policy are treated by the mutual insurer as
if they were holders of individual policies, the mutual insurer may
provide in its plan of conversion under this article that such a
certificate or other interest is deemed to be a policy and deem the
holder of the certificate or other interest to be an owner of a
policy. Such a provision shall be for the sole purpose of determining
the rights, if any, of policyholders of the mutual insurer to vote
upon and receive consideration under the plan of conversion and shall
not affect the other voting rights and qualifications of members of
the mutual insurer.
(s) "Policyholder" means the holder of a policy other than a
reinsurance contract.
(t) "Rights in surplus," for a mutual insurer, means rights of
members of the insurer to a return of that portion of the surplus
that has not been apportioned or declared by the board of directors
for policyholder dividends. "Rights in surplus" includes rights of
members of the insurer to a distribution of surplus in liquidation,
conservation or demutualization of the insurer under this code, or in
a dissolution or winding up. "Rights in surplus," for a mutual
holding company, means rights of members of the company to a return
of any surplus that has not been apportioned or declared by its board
of directors for member dividends. "Rights in surplus" includes
rights of members of the mutual holding company to a distribution of
surplus in liquidation, conservation, or demutualization of the
insurer under this code, or in a dissolution or winding up. "Rights
in surplus" does not include any right expressly conferred solely by
the terms of an insurance policy.
(u) "Stock holding company" means a corporation authorized to
issue one or more classes of capital stock, the corporate purposes of
which include holding all of the voting stock in an insurer that has
been converted from a mutual insurer to a stock insurer in
proceedings under Section 4097.05 in which a mutual holding company
is formed.
(v) "Voting stock" means securities of any class or any ownership
interest having voting power for the election of directors, trustees,
or management of a person, other than securities having voting power
only because of the occurrence of a contingency. All references to a
specified percentage of voting stock of any person mean securities
having the specified percentage of the voting power in that person
for the election of directors, trustees, or management of that
person, other than securities having voting power only because of the
occurrence of a contingency.
4097.02. The plan of conversion shall include appropriate
proceedings for amending the mutual company's articles of
incorporation to give effect to the conversion from a nonstock
corporation into a stock corporation. The plan shall be:
(a) Approved by a resolution of two-thirds of the board of
directors. The resolution shall specify the reasons for and the
purposes of the proposed conversion of the mutual company and the
manner in which the conversion is expected to benefit and serve the
best interests of the policyholders, for a mutual insurer, or
members, for a mutual holding company.
(b) Submitted to the commissioner for consent in writing, subject
to the provisions of Section 4097.06, by an application executed by
an authorized officer of the mutual company and accompanied by the
following documents, or true and correct copies of the documents:
(1) The proposed plan of conversion.
(2) The proposed articles of incorporation of each corporation
that is a constituent corporation of the conversion.
(3) The proposed bylaws of each corporation that is a constituent
corporation of the conversion.
(4) A list of officers and directors, together with their
biographies in the form customarily required by the commissioner, of
each corporation that is a constituent corporation of the conversion.
(5) The resolution of the board of directors of the mutual
company, certified by the secretary of the board of directors,
authorizing the conversion under this article, and a report of the
percentage of directors approving the resolution.
(6) Financial statements, which may be prepared on a pro forma
basis, in the form required by the commissioner.
(7) For a conversion of a mutual insurer, a plan of operations for
the converted insurer.
(8) A summary of the plan of conversion and drafts of written
materials to be mailed to members seeking their approval of the plan.
(9) If the plan provides for the establishment of a mutual holding
company under Section 4097.05, it shall contain all of the
following:
(A) An information statement containing, at a minimum, the
information required under Section 4097.07.
(B) A description of any plans for an initial public offering,
including a description of the maximum percentage of stock to be
sold, the process to be used in offering the stock and setting the
initial sale price for the stock, and how policyholders would be
treated in an initial public offering.
(C) A description of any plans for the transfer of assets and
liabilities, including any subsidiaries, to the mutual holding
company.
(D) Any final rulings relating to the plan of reorganization
obtained from any federal government agency, and all supporting
documents submitted to the agency in connection with those rulings.
(10) A copy of the proposed form of notice of the special meeting
sent to members pursuant to Section 4097.07.
(11) Other relevant information that the commissioner may require.
(c) Approved by two-thirds of the members of the mutual company
voting at a meeting of the members called for that purpose, subject
to the provisions of Section 4097.07.
(d) Filed in the office of the commissioner after receipt of the
commissioner's consent, and after having been approved as provided in
Sections 4097.06 and 4097.07, respectively.
4097.03. For the conversion of a medical malpractice mutual
insurer, the plan of conversion shall provide for either a
demutualization in compliance with Section 4097.04 or for a mutual
holding company in compliance with Section 4097.05. For the
conversion of a mutual holding company, the plan of conversion shall
provide for demutualization in compliance with Section 4097.04.
4097.04. For the demutualization of a mutual insurer into a stock
insurer or for the demutualization of a mutual holding company into a
stock corporation, the plan for conversion shall include the
following:
(a) A fair, just, and equitable formula, approved by the
commissioner, for determining the rights in surplus of each eligible
member in the mutual company. The formula shall take account of both
the total premiums paid by each eligible member and the duration of
his or her membership. The rights in surplus shall be based upon an
appraisal of the fair value of the mutual company by one or more
qualified disinterested persons appointed by the mutual company with
the approval of the commissioner. Those persons shall consider the
assets and liabilities of the mutual company and any factors bearing
on the value of the mutual company.
(b) Each eligible member of the mutual company shall be given a
preemptive right to acquire his or her proportionate part of all of
the proposed capital stock of the converting mutual company, within a
designated reasonable period, by applying upon the purchase of that
part the amount of his or her rights in surplus as determined under
the formula described in subdivision (a).
(c) Each member not applying his or her rights in surplus upon the
purchase price of stock shall elect to receive either a cash payment
or a certificate of contribution. The cash payment shall not be
greater than 50 percent of his or her rights in surplus as determined
by the formula in subdivision (a). The certificate of contribution
shall be in an amount equal to 100 percent of his or her rights in
surplus, as determined by the formula in subdivision (a), shall bear
interest at the rate established in Section 10489.4 for minimum
standard valuation of all life insurance policies of more than 20
years' duration issued in the year, and shall be repayable within 10
years or, if necessary under the terms of the plan, later, only on
written approval of the commissioner and only out of surplus in
excess of an amount established in the plan. Any member not electing
to receive cash or purchase stock shall be deemed to have elected to
receive a certificate of contribution. The stock purchased, cash
payment, or certificate of contribution shall constitute full payment
and discharge of the member's rights in surplus or property interest
in the mutual company, and, notwithstanding any other provision of
law, the member shall have no other rights with respect thereto.
(d) The number of shares to be authorized for the new stock
insurer, their par value, and the method for determining the price at
which the shares will be offered to eligible members, to the end
that the plan, when completed, would satisfy the financial
requirements for issuance of a license to transact insurance.
(e) Provision for the offering to others of shares not purchased
by eligible members within the designated period referred to in
subdivision (b) at a price not less than the offering price to
members.
4097.05. A plan of conversion adopted by a medical malpractice
mutual insurer to establish a mutual holding company shall provide
that the medical malpractice mutual insurer will become a stock
insurer, that the members of the medical malpractice mutual insurer
will become members of a mutual holding company, that the mutual
holding company will acquire at least 51 percent of the voting stock
of the stock holding company, and that the stock holding company will
acquire all of the voting stock of the converted insurer.
4097.06. (a) The commissioner shall examine the plan submitted
pursuant to subdivision (b) of Section 4097.02. If the plan provides
for the establishment of a mutual holding company under Section
4097.05, the mutual insurer shall demonstrate that the issuance of
stock:
(1) Will not require members to pay additional funds to retain
their rights in surplus, but nothing herein is intended to prohibit
or restrict a mutual insurer that is converting to a stock insurer by
establishing a mutual holding company from offering to its members
subscription rights that are in addition to the rights in surplus to
be held in the mutual holding company.
(2) Issued to officers, directors, employees, or employee benefit
plans for their benefit, if any, will be fair, just and equitable and
not hazardous to policyholders, stockholders, or creditors.
(3) Provides sufficient means for the accumulated earnings, cash,
and other non-operating assets held by the mutual holding company to
inure to the exclusive benefit of its members.
(b) As part of the examination the commissioner shall order a
public hearing on the plan after written notice of the hearing to the
mutual company, its members, and the public. Members of the mutual
company, their representatives, and the public shall have the right
to appear at the public hearing and to submit written comments to the
commissioner. The hearing shall occur before the policyholder vote.
The commissioner may require as a condition of consent that the
mutual company make modifications of the proposed plan that the
commissioner finds necessary for the protection of policyholders. The
commissioner shall consent to the plan if he or she finds all of the
following:
(1) For the conversion of a mutual insurer, the plan is fair,
just, and equitable to the insurer and its policyholders.
(2) For the conversion of a mutual holding company, the plan is
fair, just, and equitable to the company, its members, and the
policyholders of the converted insurer.
(3) The plan does not violate the law.
(4) The converted insurer will, after the conversion, satisfy the
requirements for the issuance of a license to write the line or lines
of insurance for which it is presently licensed.
(c) For the conversion of a mutual company, the commissioner may
appoint one or more actuarial, financial, or other consultants,
including legal counsel, as the commissioner finds necessary to
advise the commissioner in making the determination of whether the
proposed plan of conversion meets the applicable requirements of this
article. The mutual company is responsible for the reasonable fees
and expenses of any actuarial, financial, or other consultants,
including legal counsel, appointed, and for the mailing and
publication of notices to the mutual company and its members.
4097.07. The meeting of members prescribed by subdivision (c) of
Section 4097.02 shall be called by the board of directors, the
chairperson of the board, or the president of the mutual company.
Notice of the meeting shall be given to eligible members by mail at
least 45 days prior to the date set for the meeting to members of the
mutual company of record on the date the plan of conversion was
adopted by the board of directors. In the event that a plan of
reorganization provides for the establishment of a mutual holding
company under Section 4097.05, the notice shall be accompanied by an
information statement describing the proposed reorganization. The
information statement shall include, at a minimum, the following
items:
(a) A full copy and a summary of the plan of reorganization.
(b) A discussion addressing the reasons and purposes of the
proposed restructuring, which shall include a comparison to a
demutualization.
(c) An analysis of the benefits and risks associated with the
proposed reorganization to the mutual company and its policyholders.
(d) An explanation of how the restructuring will benefit
policyholders, as well as a description of any potential risks to
policyholder interests and a description of how the policyholders'
rights differ at the mutual holding company level from those in the
existing company.
(e) A description of any stock issuance, including any shares or
options to be issued to directors, officers, agents, employees, or
employee benefit plans, for their benefit, that will be made in
conjunction with the plan of conversion, if any, and the guidelines
and parameters which shall apply in the event stock is to be issued,
including a detailed discussion of subscription rights that are to be
granted to policyholders.
(f) Any proposed amendments to the mutual insurer's articles of
incorporation to address the restructuring from a mutual to a stock
insurer.
(g) Any proposed articles and bylaws of the mutual holding company
and any other entities to be created in the reorganization.
(h) Financial information.
(i) Any other information that the commissioner determines is
necessary to make a complete and adequate disclosure to
policyholders.
Voting shall be by ballot, in person or by proxy. A quorum shall
consist of 10 percent of the members of the mutual company entitled
to vote at the meeting.
4097.08. Nothing in this article shall be deemed to prohibit the
inclusion in the plan of conversion of provisions under which the
insurer's officers, directors, employees, agents, and employee
benefit plans for their benefit may be entitled, in accordance with
reasonable classifications of those individuals and employee benefit
plans as may be included in the plan, to purchase for cash, at the
same price as offered to the public in the initial public offering,
voting stock not purchased by members upon exercise of subscription
rights. Nothing in this code shall be deemed to prohibit the
establishment of stock option, incentive, and share ownership plans
customary for publicly traded companies in the same and similar
industries. The plan may not permit those persons to acquire any of
the following:
(a) Greater than 25 percent of the voting stock issued pursuant to
the plan for a medical malpractice mutual insurer having assets in
excess of two hundred million dollars ($200,000,000) or 35 percent
for a medical malpractice mutual insurer having assets of two hundred
million dollars ($200,000,000) or less.
(b) Greater than 25 percent of the stockholders' equity for a
medical malpractice mutual insurer having assets in excess of two
hundred million dollars ($200,000,000) or 35 percent for a medical
malpractice mutual insurer having assets of less than two hundred
million dollars ($200,000,000).
(c) Unexercised options that exceed 20 percent of the number of
the issued and outstanding shares.
4097.09. No director, officer, agent, or employee of the mutual
company shall receive any fee, commission, or other valuable
consideration whatsoever, other than 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 shall not be deemed to prohibit the payment of reasonable
fees and compensation to attorneys at law, accountants, and actuaries
for services performed in the independent practice of their
professions, even though they may also be directors of the mutual
company.
4097.10. At any time before that plan of conversion becomes
effective as provided in Section 4097.11, the mutual company may, by
resolution of at least two-thirds of the board of directors, amend
the plan of conversion or withdraw the plan of conversion. Any plan
amendment shall require the written consent of the commissioner. For
a plan amendment, all references in this article to the plan of
conversion shall be deemed to refer to the plan as amended, but no
amendment shall be deemed to change the adoption date of the plan of
conversion. No amendment may change the plan of conversion in a
manner that the commissioner determines is materially disadvantageous
to policyholders of the mutual insurer or members of the mutual
holding company, unless a further public hearing is held on the plan
as amended, if the amendment is made after the initial public
hearing, or if the plan as amended is submitted for reconsideration
by the members if the amendment is made after the plan has been
approved by the members.
4097.11. (a) Upon consent by the commissioner to the plan of
conversion of a mutual insurer and filing of the plan of conversion
in accordance with the provisions of this article, the commissioner
shall issue a new certificate of authority to the converted insurer.
Upon issuance of the certificate of authority to a mutual insurer and
subject to subdivision (a) of Section 110 of the Corporations Code,
the Secretary of State shall accept for filing the articles of
incorporation, certificate of amendment of articles of incorporation,
or agreement of merger and officers' certificates of the converted
insurer for the conversion of a mutual insurer. For a plan of
conversion that provides for the establishment of a mutual holding
company in accordance with Section 4097.05, the Secretary of State
shall accept for filing the articles of incorporation of the mutual
holding company and the stock holding company. Upon consent to the
plan of conversion of a mutual holding company and filing of the plan
of conversion in accordance with the provisions of this article, the
Secretary of State shall accept for filing the articles of
incorporation or certificate of amendment of articles of
incorporation of the converted mutual holding company. The plan is
effective upon the filing of the articles of incorporation or
certificate of amendment of articles of incorporation.
(b) Upon the effective date of the plan of conversion of a mutual
insurer, the mutual insurer shall immediately become a stock
corporation. The converted insurer shall be a continuation of the
original mutual insurer, and the conversion shall in no way annul,
modify, or change any of the original mutual insurer's existing
suits, rights, contracts, or liabilities except as provided in the
approved conversion plan. The insurer, after conversion, shall
exercise all the rights and powers and perform all the duties
conferred or imposed by law upon insurers writing the classes of
insurance written by it, and shall retain the rights and contracts
existing prior to conversion, subject to the effect of the plan.
(c) Upon the effective date of the plan of conversion of a mutual
holding company, all membership interests and rights in surplus are
extinguished, members eligible to receive consideration under the
plan of conversion are entitled to receive the consideration in
exchange for their membership interests and liquidation of their
rights in surplus, and the plan otherwise becomes effective in
accordance with its terms. The conversion in no way annuls, modifies,
or changes any of the converting mutual holding company's existing
suits, rights, contracts, or liabilities, except as provided in the
approved plan of conversion.
4097.12. (a) Upon the effective date of a plan of conversion in
accordance with Section 4097.05, the mutual insurer immediately
becomes a stock corporation, the membership interests and rights in
surplus of its members are extinguished, the members of the mutual
insurer immediately become members of the mutual holding company and
are granted rights in surplus in the mutual holding company
equivalent to those rights in surplus previously held in the
converted company, all of the voting stock initially issued by the
converted insurer is owned by the stock holding company, and all of
the voting stock initially issued by the stock holding company is
owned by the mutual holding company. Except for the membership
interests in the mutual insurer, which become membership interests in
the mutual holding company, nothing herein is intended to, nor shall
eliminate, curtail or otherwise diminish the contract rights of
policyholders of a converted company. The stock holding company may
thereafter, subject to compliance with Article 8 (commencing with
Section 820) of Chapter 1 of Part 2 of Division 1, issue securities
to other persons. After the effective date, owners of policies that
are issued by a stock insurer that has been converted from a mutual
insurer pursuant to proceedings under this article shall become
members of the mutual holding company immediately upon issuance of
the policies, except that owners of a reporting endorsements issued
by the insurer that provide strictly tail coverage on expired claims
made policies shall not be members of the mutual holding company. Any
person may be a member of a mutual holding company.
(b) From the effective date, the mutual holding company shall hold
at least 51 percent of the issued and outstanding voting stock of
the stock holding company and the stock holding company thereafter
shall at all times hold all of the issued and outstanding voting
stock of the converted insurer. The stock holding company may issue
additional voting stock, and securities convertible into voting
stock, to the mutual holding company and to other persons if, in the
aggregate, the voting stock of the stock holding company held by the
mutual holding company is not less than 51 percent of the issued and
outstanding voting stock of the stock holding company. For purposes
of the 51 percent limitation, any issued and outstanding securities
of the stock holding company that are convertible into voting stock
are considered issued and outstanding voting stock.
(c) From the effective date, the mutual holding company's equity
interest in the stock holding company shall not be less than 51
percent of the total stockholders' equity in the stock holding
company. For purposes of the 51 percent limitation, any issued and
outstanding securities of the stock holding company that are
convertible into equity securities, whether voting or nonvoting,
shall be considered stockholders' equity. Debt securities that
include a default contingency conversion interest shall not be
considered stockholders' equity for compliance with the foregoing
limitation.
(d) The commissioner shall retain jurisdiction over the mutual
holding company pursuant to this article. For purposes of Section
1215.5, the mutual holding company shall be considered as if it were
an insurance company. The commissioner shall also retain jurisdiction
over the issuance of debt securities by the mutual holding company
in accordance with the protections provided in Article 8 (commencing
with Section 820) of Chapter 1 of Part 2 of Division 1.
(e) If any proceedings under Article 14 (commencing with Section
1010), Article 14.3 (commencing with Section 1064.1), Article 14.5
(commencing with Section 1065.1), or Article 15.5 (commencing with
Section 1077), of Chapter 1 of Part 2 of Division 1, are brought
naming as a party a stock insurer created as a result of proceedings
authorized by this article, the mutual holding company formed as part
of the conversion automatically becomes a party to the proceedings.
All of the assets of the mutual holding company, including, but not
limited to, its interest in the stock holding company formed pursuant
to this article, are deemed assets of the estate of the stock
insurer to the extent necessary to satisfy claims of persons against
the stock insurer who have claims falling within the priorities
established in paragraphs (1) to (5), inclusive, of subdivision (a)
of Section 1033. Claims of persons in their capacity as members of
the mutual holding company shall be claims falling within the
priority established in paragraph (6) of subdivision (a) of Section
1033. A mutual holding company may not dissolve, liquidate, or wind
up and dissolve without the prior written approval of the
commissioner or the court pursuant to proceedings brought pursuant to
Article 15 (commencing with Section 1070) of Chapter 1 of Part 2 of
Division 1.
(f) Except as provided in this code, a mutual holding company is
subject to the provisions of the general corporation law in like
manner with other corporations. However, provisions of that law
referring to shareholders or members shall be applied as though those
provisions referred to the members of a mutual holding company. With
respect to the management, records, and affairs of a mutual holding
company and except as otherwise provided in this chapter, a member of
a mutual holding company has the same character of rights and
relationship as a stockholder has toward a domestic stock insurer
subject to the provisions of this code.
(g) Each member of a mutual holding company is entitled to one
vote on each matter coming to a vote at any meeting of members,
regardless of the number of policies that the member holds.
(h) Notice of all meetings of members of the mutual holding
company, whether annual or special, shall be given in writing to the
members entitled to vote. The notice shall be given by the secretary,
assistant secretary, or other persons charged with that duty. If
there is no officer so charged, or if he or she neglects or refuses
this duty, notice may be given by any director. At the option of the
converted insurer, the notice may be imprinted on premium notices or
receipts or on both. A notice may be given to any member either
personally, or by mail, or other means of written communication,
charges prepaid, addressed to the member at his or her address
appearing on the books of the insurer, or given by the member to the
converted insurer for the purpose of notice. If a member gives no
address, and if there is no address on the books of the insurer,
notice shall be deemed to have been given the member if sent by mail
or other means of written communication addressed to the place where
the principal office of the converted insurer is situated, or if
published at least once in a newspaper of general circulation in the
county in which the office is located and in the newspaper that has
the largest daily circulation in this state. Notice of any meeting of
members shall be sent to each member entitled to notice not less
than 14 days before a meeting. Notice of any meeting of members shall
specify the place, the day, and the hour of the meeting and the
general nature of the business to be transacted. For any member who
gives no address and has no address on the books of the insurer,
notice of an annual meeting to be held at the time and place
specified is deemed adequate if published at least once in each of
four successive weeks in a newspaper of general circulation in the
county in which the principal office of the converted insurer is
located and in the newspaper that has the largest daily circulation
in this state. If the notice is so published, no other notice of the
meeting is required.
(i) The presence in person or by proxy of 5 percent of the members
of a mutual holding company entitled to vote at any meeting
constitutes a quorum for the transaction of all business of the
mutual holding company, including, but not limited to, the amendment
of the articles of incorporation or bylaws of the mutual holding
company.
(j) Any required member approval shall be by the affirmative vote
of a majority of the members who vote, or a higher percentage of the
members as may be required by law or the articles of incorporation, a
quorum being present.
(k) The board of the mutual holding company shall be comprised of
not less than 6 nor more than 18 directors. A majority of the mutual
holding company directors shall be policyholders of the converted
insurer. Unless the plan provides that at least a majority of the
directors of the boards of the stock holding company and the
converted insurer are also directors of the mutual holding company,
the commissioner shall determine whether the proposed composition of
the boards of directors of each of the constituent corporations of
the mutual holding company system, as provided in the articles of
incorporation and bylaws, facilitate the control of the converted
insurer by the mutual holding company. No term shall continue longer
than six years. In the absence of such provisions, each director
shall be elected for a term of one year. All directors shall hold
office for the term for which they are elected and until their
successors are elected and qualified. The bylaws of the mutual
holding company shall set forth a procedure for establishing mutual
holding company independent directors in the event that the stock
holding company issues securities. Not less than one of every six
directors of the mutual holding company shall be so designated. A
director may, but need not, be a member of the mutual holding company
of which he or she is acting as director. Vacancies in the board of
directors may be filled by a majority of the remaining directors,
though less than a quorum. Each director so elected shall hold office
until the next annual meeting.
(l) Membership interests in a mutual holding company are exempt
from Article 8 (commencing with Section 820) of Chapter 1 of Part 2
of Division 1. A description of the membership interests and related
factual disclosure shall not be considered to be an inducement to buy
insurance in violation of Section 10430. Any promise of returns,
profits, or distributions, or representations with regard to the
benefits of membership, made as an inducement in connection with the
issuance and delivery of a policy is subject to Section 10430 and the
remedy provided in Section 10433.
4097.13. Prior to, and for a period of five years following, the
effective date of the plan of conversion, no person or group of
persons acting in concert shall directly or indirectly offer to
acquire or acquire in any manner the beneficial ownership of 5
percent or more of any class of voting securities of a converted
insurer or of a person that controls, as defined by subdivision (b)
of Section 1215, the converted insurer, without the prior consent of
the commissioner. Any application for that approval shall contain
information as the commissioner may require and shall be accompanied
by a filing fee in an amount equal to the filing fee specified in
Section 1215.2. In the event of any violation of this section, or of
any action that, if consummated, would constitute a violation, all
voting securities of the converted insurer or of the person acquired
by any person in excess of the maximum amount permitted to be
acquired by the person pursuant to this subdivision shall be deemed
to be nonvoting securities of the converted insurer or of that
person. The violation or action may be enforced or enjoined by an
appropriate proceeding commenced by the converted insurer, a person,
the commissioner, any policyholder or stockholder of the converted
insurer, or the person on behalf of the converted insurer or the
person in the superior court in the judicial district in which the
converted insurer has its home office or in any other court having
jurisdiction. The court may issue any order it finds necessary to
cure the violation or to prevent the proposed action. In addition to
the foregoing, whenever it appears to the commissioner that any
person has committed a violation of this section, the commissioner
may proceed as provided in Article 14 (commencing with Section 1010)
of Chapter 1 of Part 2 of Division 1 to take possession of the
property of the converted insurer and to conduct the business
thereof. For the purposes of this section, "beneficial ownership,"
with respect to voting securities, means the sole or shared power to
vote, or direct the voting of, voting securities or the sole or
shared power to dispose, or direct the disposition, of voting
securities. "Voting security" includes voting stock as defined in
Section 4097.01, any preorganization certificate or subscription,
including subscription rights issued pursuant to a plan of
conversion, or any security convertible, with or without
consideration, into voting security, or carrying any warrant or right
to subscribe for or purchase any voting security, or any such
warrant or right. "Offer" includes an offer to buy or acquire,
solicitation of an offer to sell, tender offer for, or request or
invitation for tenders of a security or interest in a security for
value.
4097.14. Unless otherwise provided in the plan of conversion, the
directors and officers of the mutual company shall serve as directors
and officers of the converted company until new directors and
officers have been duly elected and qualified pursuant to the
articles of incorporation and bylaws of the stock company.
4097.15. (a) Notwithstanding any other provision of law and except
as otherwise provided in subdivision (b), actions concerning any plan
of conversion, proposed plan of conversion, plan amendment, or
proposed plan amendment under this article or any acts taken or
proposed to be taken under this article shall be commenced within one
year after the plan of conversion or plan amendment is filed in the
office of the commissioner pursuant to subdivision (d) of Section
4097.02 or subdivision (a) of Section 4098.1, or six months from the
effective date of the plan of conversion, whichever is later. If the
plan of conversion is withdrawn, the actions or acts shall be
commenced within six months from the date the board of directors
approves a resolution to withdraw the plan. If an action concerns or
arises out of a plan amendment or proposed plan amendment made under
Section 4097.18, the applicable time period is measured from the
filing, effective date, or approval of withdrawal of the plan
amendment, whichever is later.
(b) Judicial review of any act of the commissioner or any other
governmental body or officer concerning or arising out of any plan of
conversion, proposed plan of conversion, plan amendment, or proposed
plan amendment under this article may only be had by filing a
petition for a writ of mandate within 30 days of the date of the act.
However, any petition seeking judicial review shall be filed no
later than 30 days from the effective date of the plan of conversion
or plan amendment, whichever is the subject of the petition.
4097.16. The offer or sale of securities, including any debt
securities, issued pursuant to the plan of conversion developed and
approved in accordance with the provisions of this article, shall be
exempt from Article 8 (commencing with Section 820) of Chapter 1 of
Part 2 of Division 1.
4097.17. The commissioner shall have the authority from time to
time, to make, amend, and rescind any rules and regulations as may be
necessary to carry out the provisions of this article. The
commissioner shall also have the authority to charge and collect from
the insurer for the actual amount of expenses reasonably incurred by
the state in discharge of the commissioner's duties hereunder.
4097.18. Upon completion of the act of conversion and issuance of
the certificate of authority under Section 4097.11, the Secretary of
State shall accept for filing a verified copy of the amended articles
of incorporation.
4097.19. (a) The amended articles of incorporation of a converted
company that have been adopted pursuant to a plan of conversion and
filed with the Secretary of State in accordance with Section 4097.11
may be further amended after the effective date pursuant to
applicable law. The plan of conversion may be amended in other
respects after the effective date of the plan as specified in this
section. The amendment shall take effect upon filing with the
Secretary of State after compliance with the following:
(1) Approval by a resolution of at least two-thirds of the board
of directors of the converted company. The resolution shall specify
the reasons for and the purposes of the proposed amendment.
(2) Submission to the commissioner for consent in writing, subject
to the provisions of Section 4097.06.
(3) For the conversion of a mutual insurer, approval by at least
two-thirds of those current policyholders of the corporation who were
members of the former mutual insurer and were entitled to vote on
the original plan of conversion approved pursuant to subdivision (c)
of Section 4097.02 and who vote at a meeting called for that purpose.
(4) For the demutualization of a mutual holding company, approval
by at least two-thirds of those current members of the corporation
who were members of the former mutual holding company and were
entitled to vote on the original plan of conversion approved pursuant
to subdivision (c) of Section 4097.02 and who vote at a meeting
called for that purpose.
(5) Filed in the office of the commissioner after having been
consented to and approved as contemplated by paragraphs (2), (3), and
(4).
(b) If an amendment proposed under subdivision (a) would adversely
affect the rights of one or more classes of members, but not all
those members, then only the members of each class whose rights would
be adversely affected by the proposed amendment are entitled to vote
on the proposed plan amendment.
(c) A policyholder or member meeting prescribed by paragraph (3)
or (4) of subdivision (a) shall be called by the board of directors,
the chairperson of the board, or the president of the converted
company. Notice of the meeting shall be given to policyholders or
members entitled to vote at the meeting by mail at least 45 days
prior to the date set for the meeting. Voting shall be by ballot, in
person, or by proxy. A quorum consists of 10 percent of the
policyholders or members of the converted company entitled to vote at
the meeting.
(d) At any time before the plan amendment becomes effective, the
converted company may, by resolution of two-thirds of the board of
directors, amend the plan amendment or withdraw its plan amendment.
For an amendment to a plan amendment, all references in this section
to the plan amendment shall be deemed to refer to the plan amendment
as amended. Any amendment of the plan amendment shall require the
written consent of the commissioner. No amendment shall be deemed to
change the date of adoption of the plan amendment. No amendment made
after approval by the policyholders or members as provided in
paragraph (3) or (4) of subdivision (a) may change the plan amendment
in a manner that the commissioner determines is materially
disadvantageous to any of the affected policyholders or members
unless the plan amendment as amended is submitted for reconsideration
under the procedures prescribed for the original plan amendment
policyholder or member approval.
4097.20. If the name of a mutual insurer converting to a stock
insurer pursuant to this article includes the word "mutual," the new
stock insurer may continue to use the word "mutual" in its name if
the name includes a word or words that identify the new stock insurer
as a stock insurer and the commissioner finds that the continued use
of the word "mutual" in its name is not likely to mislead or deceive
the public.
4097. (a) A domestic incorporated medical malpractice mutual
insurer, issuing nonassessable policies on a reserve basis may be
converted into an incorporated stock insurer issuing, on a reserve
basis, nonassessable policies either by demutualization or by
establishing a mutual holding company. To that end, it may provide
and carry out a plan for the conversion by complying with the
requirements of this article.
(b) A mutual holding company may be converted into a stock
corporation. To that end, it may provide and carry out a plan for the
conversion by complying with the requirements of this article.
(c) As part of the conversion authorized in this section, a
domestic incorporated medical malpractice mutual insurer may merge
with an incorporated stock insurer, if the merging insurers comply
with the provisions of Article 9 (commencing with Section 4090)
applicable to their participation in the merger, or may transfer its
domicile to any other state, if the insurer complies with Section
709.5.
4097.01. The definitions in this section apply to the following
terms when used in this article.
(a) "Adoption date" means the date the board of directors adopts
the plan of conversion.
(b) "Converted company" means the converted insurer or converted
mutual holding company, as the case may be.
(c) "Converted insurer" means the incorporated stock insurer into
which a medical malpractice mutual insurer has been converted or
merged or redomiciled in accordance with the provisions of this
article.
(d) "Converted mutual holding company" means the stock corporation
into which a mutual holding company has been converted in accordance
with this article.
(e) "Converting mutual company" means, for a plan of conversion
under this article, the medical malpractice mutual insurer or mutual
holding company that is converting under the plan.
(f) "Demutualization" means the conversion of a medical
malpractice mutual insurer into a stock insurer without the
establishment of a mutual holding company or the conversion of a
mutual holding company into a stock corporation.
(g) "Effective date" means, for the conversion of a medical
malpractice mutual insurer, the date upon which the conversion of the
mutual insurer is effective, as specified in the commissioner's
amendment to the mutual insurer's certificate of authority issued in
accordance with Section 4097.11, as a result of conversion
proceedings under this article. For the conversion of a medical
malpractice mutual holding company, "effective date" means the date
upon which the conversion of a mutual holding company is effective,
as specified in the amended articles of incorporation of the mutual
holding company filed with the Secretary of State in accordance with
Section 4097.11, as a result of conversion proceedings under this
article.
(h) "Eligible members" means, for the conversion of a mutual
insurer, members of the mutual insurer who are of record, fully
paid-up and otherwise in good standing on the mutual insurer's
adoption date and on its effective date, but shall not include those
persons covered solely under a reporting endorsement to a claims made
policy on either date. For the conversion of a mutual holding
company, "eligible members" means the members of the mutual holding
company who are of record, fully paid-up with respect to policies in
effect issued by the converted insurer and are otherwise in good
standing on the mutual holding company's adoption date and on its
effective date.
(i) "Medical malpractice mutual insurer" means a mutual insurer
organized under this chapter that writes predominantly medical
malpractice insurance, as that class of insurance is defined in
subdivision (d) of Section 108. A mutual insurer shall be considered
to write predominantly medical malpractice insurance if, for each of
the most recent five calender years, its direct written premiums for
medical malpractice insurance, as reported in the annual statement
filed with the commissioner pursuant to Section 900, is not less than
50 percent of its aggregate direct premiums for all classes of
insurance.
(j) "Member" means a person who, by the records of the mutual
company and by its articles of incorporation or bylaws, is deemed to
be a holder of a membership interest in the mutual company. On and
after the effective date of a plan of conversion that creates a
mutual holding company, the term "member" means a member of a mutual
holding company, as provided in Section 4097.12.
(k) "Membership interests" means the interests of members arising
under this code and the articles of incorporation and bylaws of the
mutual company or otherwise by law. Membership interests include the
right to vote for directors of the mutual company and the right to
vote on any plan of merger, consolidation, reinsurance, or transfer
of assets and liabilities of the mutual company.
(l) "Mutual company" means, in the case of a plan of conversion,
the medical malpractice mutual insurer or mutual holding company that
is converting pursuant to the plan.
(m) "Mutual holding company" means a corporation organized under
the laws of this state subject to the general corporation law as set
forth in the Corporations Code. The articles of incorporation of a
mutual holding company shall contain provisions stating the
following:
(1) It is a mutual holding company organized under this article.
(2) One purpose of the mutual holding company is to hold not less
than 51 percent of the voting stock of a stock holding company, which
in turn holds all of the voting stock of a converted insurer. In
addition, the mutual holding company shall own not less than 51
percent of the total stockholders' equity of the stock holding
company at all times.
(3) It is not authorized to issue voting stock.
(4) Its members have the rights specified in Section 4097.12 and
in its articles of incorporation and bylaws.
(5) Its assets and liabilities are subject to inclusion in the
estate of the converted insurer in any proceedings successfully
prosecuted against the converted insurer under Article 14 (commencing
with Section 1010) or Article 14.3 (commencing with Section 1064.1)
of Chapter 1 of Part 2 of Division 1.
(n) "Mutual holding company independent director" means a member
of the board of directors of the mutual holding company who does not
own shares, options, or any other equity interests in the stock
holding company.
(o) "Mutual insurer" means, in the case of a plan of conversion
under this article, the medical malpractice mutual insurer that is
converting pursuant to the plan.
(p) "Person" means an individual, partnership, firm, association,
corporation, joint-stock company, limited liability company, trust,
government or governmental agency, state or political subdivision of
a state, public or private corporation, board, association, estate,
trustee, or fiduciary, or any similar entity.
(q) "Plan of conversion" or "plan" means a plan adopted by a
mutual company in compliance with this article.
(r) "Policy" means an individual or group policy of insurance
issued by a mutual insurer or a converted insurer. If a policy takes
a form other than an individual form but holders of certificates or
other interests under the policy are treated by the mutual insurer as
if they were holders of individual policies, the mutual insurer may
provide in its plan of conversion under this article that such a
certificate or other interest is deemed to be a policy and deem the
holder of the certificate or other interest to be an owner of a
policy. Such a provision shall be for the sole purpose of determining
the rights, if any, of policyholders of the mutual insurer to vote
upon and receive consideration under the plan of conversion and shall
not affect the other voting rights and qualifications of members of
the mutual insurer.
(s) "Policyholder" means the holder of a policy other than a
reinsurance contract.
(t) "Rights in surplus," for a mutual insurer, means rights of
members of the insurer to a return of that portion of the surplus
that has not been apportioned or declared by the board of directors
for policyholder dividends. "Rights in surplus" includes rights of
members of the insurer to a distribution of surplus in liquidation,
conservation or demutualization of the insurer under this code, or in
a dissolution or winding up. "Rights in surplus," for a mutual
holding company, means rights of members of the company to a return
of any surplus that has not been apportioned or declared by its board
of directors for member dividends. "Rights in surplus" includes
rights of members of the mutual holding company to a distribution of
surplus in liquidation, conservation, or demutualization of the
insurer under this code, or in a dissolution or winding up. "Rights
in surplus" does not include any right expressly conferred solely by
the terms of an insurance policy.
(u) "Stock holding company" means a corporation authorized to
issue one or more classes of capital stock, the corporate purposes of
which include holding all of the voting stock in an insurer that has
been converted from a mutual insurer to a stock insurer in
proceedings under Section 4097.05 in which a mutual holding company
is formed.
(v) "Voting stock" means securities of any class or any ownership
interest having voting power for the election of directors, trustees,
or management of a person, other than securities having voting power
only because of the occurrence of a contingency. All references to a
specified percentage of voting stock of any person mean securities
having the specified percentage of the voting power in that person
for the election of directors, trustees, or management of that
person, other than securities having voting power only because of the
occurrence of a contingency.
4097.02. The plan of conversion shall include appropriate
proceedings for amending the mutual company's articles of
incorporation to give effect to the conversion from a nonstock
corporation into a stock corporation. The plan shall be:
(a) Approved by a resolution of two-thirds of the board of
directors. The resolution shall specify the reasons for and the
purposes of the proposed conversion of the mutual company and the
manner in which the conversion is expected to benefit and serve the
best interests of the policyholders, for a mutual insurer, or
members, for a mutual holding company.
(b) Submitted to the commissioner for consent in writing, subject
to the provisions of Section 4097.06, by an application executed by
an authorized officer of the mutual company and accompanied by the
following documents, or true and correct copies of the documents:
(1) The proposed plan of conversion.
(2) The proposed articles of incorporation of each corporation
that is a constituent corporation of the conversion.
(3) The proposed bylaws of each corporation that is a constituent
corporation of the conversion.
(4) A list of officers and directors, together with their
biographies in the form customarily required by the commissioner, of
each corporation that is a constituent corporation of the conversion.
(5) The resolution of the board of directors of the mutual
company, certified by the secretary of the board of directors,
authorizing the conversion under this article, and a report of the
percentage of directors approving the resolution.
(6) Financial statements, which may be prepared on a pro forma
basis, in the form required by the commissioner.
(7) For a conversion of a mutual insurer, a plan of operations for
the converted insurer.
(8) A summary of the plan of conversion and drafts of written
materials to be mailed to members seeking their approval of the plan.
(9) If the plan provides for the establishment of a mutual holding
company under Section 4097.05, it shall contain all of the
following:
(A) An information statement containing, at a minimum, the
information required under Section 4097.07.
(B) A description of any plans for an initial public offering,
including a description of the maximum percentage of stock to be
sold, the process to be used in offering the stock and setting the
initial sale price for the stock, and how policyholders would be
treated in an initial public offering.
(C) A description of any plans for the transfer of assets and
liabilities, including any subsidiaries, to the mutual holding
company.
(D) Any final rulings relating to the plan of reorganization
obtained from any federal government agency, and all supporting
documents submitted to the agency in connection with those rulings.
(10) A copy of the proposed form of notice of the special meeting
sent to members pursuant to Section 4097.07.
(11) Other relevant information that the commissioner may require.
(c) Approved by two-thirds of the members of the mutual company
voting at a meeting of the members called for that purpose, subject
to the provisions of Section 4097.07.
(d) Filed in the office of the commissioner after receipt of the
commissioner's consent, and after having been approved as provided in
Sections 4097.06 and 4097.07, respectively.
4097.03. For the conversion of a medical malpractice mutual
insurer, the plan of conversion shall provide for either a
demutualization in compliance with Section 4097.04 or for a mutual
holding company in compliance with Section 4097.05. For the
conversion of a mutual holding company, the plan of conversion shall
provide for demutualization in compliance with Section 4097.04.
4097.04. For the demutualization of a mutual insurer into a stock
insurer or for the demutualization of a mutual holding company into a
stock corporation, the plan for conversion shall include the
following:
(a) A fair, just, and equitable formula, approved by the
commissioner, for determining the rights in surplus of each eligible
member in the mutual company. The formula shall take account of both
the total premiums paid by each eligible member and the duration of
his or her membership. The rights in surplus shall be based upon an
appraisal of the fair value of the mutual company by one or more
qualified disinterested persons appointed by the mutual company with
the approval of the commissioner. Those persons shall consider the
assets and liabilities of the mutual company and any factors bearing
on the value of the mutual company.
(b) Each eligible member of the mutual company shall be given a
preemptive right to acquire his or her proportionate part of all of
the proposed capital stock of the converting mutual company, within a
designated reasonable period, by applying upon the purchase of that
part the amount of his or her rights in surplus as determined under
the formula described in subdivision (a).
(c) Each member not applying his or her rights in surplus upon the
purchase price of stock shall elect to receive either a cash payment
or a certificate of contribution. The cash payment shall not be
greater than 50 percent of his or her rights in surplus as determined
by the formula in subdivision (a). The certificate of contribution
shall be in an amount equal to 100 percent of his or her rights in
surplus, as determined by the formula in subdivision (a), shall bear
interest at the rate established in Section 10489.4 for minimum
standard valuation of all life insurance policies of more than 20
years' duration issued in the year, and shall be repayable within 10
years or, if necessary under the terms of the plan, later, only on
written approval of the commissioner and only out of surplus in
excess of an amount established in the plan. Any member not electing
to receive cash or purchase stock shall be deemed to have elected to
receive a certificate of contribution. The stock purchased, cash
payment, or certificate of contribution shall constitute full payment
and discharge of the member's rights in surplus or property interest
in the mutual company, and, notwithstanding any other provision of
law, the member shall have no other rights with respect thereto.
(d) The number of shares to be authorized for the new stock
insurer, their par value, and the method for determining the price at
which the shares will be offered to eligible members, to the end
that the plan, when completed, would satisfy the financial
requirements for issuance of a license to transact insurance.
(e) Provision for the offering to others of shares not purchased
by eligible members within the designated period referred to in
subdivision (b) at a price not less than the offering price to
members.
4097.05. A plan of conversion adopted by a medical malpractice
mutual insurer to establish a mutual holding company shall provide
that the medical malpractice mutual insurer will become a stock
insurer, that the members of the medical malpractice mutual insurer
will become members of a mutual holding company, that the mutual
holding company will acquire at least 51 percent of the voting stock
of the stock holding company, and that the stock holding company will
acquire all of the voting stock of the converted insurer.
4097.06. (a) The commissioner shall examine the plan submitted
pursuant to subdivision (b) of Section 4097.02. If the plan provides
for the establishment of a mutual holding company under Section
4097.05, the mutual insurer shall demonstrate that the issuance of
stock:
(1) Will not require members to pay additional funds to retain
their rights in surplus, but nothing herein is intended to prohibit
or restrict a mutual insurer that is converting to a stock insurer by
establishing a mutual holding company from offering to its members
subscription rights that are in addition to the rights in surplus to
be held in the mutual holding company.
(2) Issued to officers, directors, employees, or employee benefit
plans for their benefit, if any, will be fair, just and equitable and
not hazardous to policyholders, stockholders, or creditors.
(3) Provides sufficient means for the accumulated earnings, cash,
and other non-operating assets held by the mutual holding company to
inure to the exclusive benefit of its members.
(b) As part of the examination the commissioner shall order a
public hearing on the plan after written notice of the hearing to the
mutual company, its members, and the public. Members of the mutual
company, their representatives, and the public shall have the right
to appear at the public hearing and to submit written comments to the
commissioner. The hearing shall occur before the policyholder vote.
The commissioner may require as a condition of consent that the
mutual company make modifications of the proposed plan that the
commissioner finds necessary for the protection of policyholders. The
commissioner shall consent to the plan if he or she finds all of the
following:
(1) For the conversion of a mutual insurer, the plan is fair,
just, and equitable to the insurer and its policyholders.
(2) For the conversion of a mutual holding company, the plan is
fair, just, and equitable to the company, its members, and the
policyholders of the converted insurer.
(3) The plan does not violate the law.
(4) The converted insurer will, after the conversion, satisfy the
requirements for the issuance of a license to write the line or lines
of insurance for which it is presently licensed.
(c) For the conversion of a mutual company, the commissioner may
appoint one or more actuarial, financial, or other consultants,
including legal counsel, as the commissioner finds necessary to
advise the commissioner in making the determination of whether the
proposed plan of conversion meets the applicable requirements of this
article. The mutual company is responsible for the reasonable fees
and expenses of any actuarial, financial, or other consultants,
including legal counsel, appointed, and for the mailing and
publication of notices to the mutual company and its members.
4097.07. The meeting of members prescribed by subdivision (c) of
Section 4097.02 shall be called by the board of directors, the
chairperson of the board, or the president of the mutual company.
Notice of the meeting shall be given to eligible members by mail at
least 45 days prior to the date set for the meeting to members of the
mutual company of record on the date the plan of conversion was
adopted by the board of directors. In the event that a plan of
reorganization provides for the establishment of a mutual holding
company under Section 4097.05, the notice shall be accompanied by an
information statement describing the proposed reorganization. The
information statement shall include, at a minimum, the following
items:
(a) A full copy and a summary of the plan of reorganization.
(b) A discussion addressing the reasons and purposes of the
proposed restructuring, which shall include a comparison to a
demutualization.
(c) An analysis of the benefits and risks associated with the
proposed reorganization to the mutual company and its policyholders.
(d) An explanation of how the restructuring will benefit
policyholders, as well as a description of any potential risks to
policyholder interests and a description of how the policyholders'
rights differ at the mutual holding company level from those in the
existing company.
(e) A description of any stock issuance, including any shares or
options to be issued to directors, officers, agents, employees, or
employee benefit plans, for their benefit, that will be made in
conjunction with the plan of conversion, if any, and the guidelines
and parameters which shall apply in the event stock is to be issued,
including a detailed discussion of subscription rights that are to be
granted to policyholders.
(f) Any proposed amendments to the mutual insurer's articles of
incorporation to address the restructuring from a mutual to a stock
insurer.
(g) Any proposed articles and bylaws of the mutual holding company
and any other entities to be created in the reorganization.
(h) Financial information.
(i) Any other information that the commissioner determines is
necessary to make a complete and adequate disclosure to
policyholders.
Voting shall be by ballot, in person or by proxy. A quorum shall
consist of 10 percent of the members of the mutual company entitled
to vote at the meeting.
4097.08. Nothing in this article shall be deemed to prohibit the
inclusion in the plan of conversion of provisions under which the
insurer's officers, directors, employees, agents, and employee
benefit plans for their benefit may be entitled, in accordance with
reasonable classifications of those individuals and employee benefit
plans as may be included in the plan, to purchase for cash, at the
same price as offered to the public in the initial public offering,
voting stock not purchased by members upon exercise of subscription
rights. Nothing in this code shall be deemed to prohibit the
establishment of stock option, incentive, and share ownership plans
customary for publicly traded companies in the same and similar
industries. The plan may not permit those persons to acquire any of
the following:
(a) Greater than 25 percent of the voting stock issued pursuant to
the plan for a medical malpractice mutual insurer having assets in
excess of two hundred million dollars ($200,000,000) or 35 percent
for a medical malpractice mutual insurer having assets of two hundred
million dollars ($200,000,000) or less.
(b) Greater than 25 percent of the stockholders' equity for a
medical malpractice mutual insurer having assets in excess of two
hundred million dollars ($200,000,000) or 35 percent for a medical
malpractice mutual insurer having assets of less than two hundred
million dollars ($200,000,000).
(c) Unexercised options that exceed 20 percent of the number of
the issued and outstanding shares.
4097.09. No director, officer, agent, or employee of the mutual
company shall receive any fee, commission, or other valuable
consideration whatsoever, other than 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 shall not be deemed to prohibit the payment of reasonable
fees and compensation to attorneys at law, accountants, and actuaries
for services performed in the independent practice of their
professions, even though they may also be directors of the mutual
company.
4097.10. At any time before that plan of conversion becomes
effective as provided in Section 4097.11, the mutual company may, by
resolution of at least two-thirds of the board of directors, amend
the plan of conversion or withdraw the plan of conversion. Any plan
amendment shall require the written consent of the commissioner. For
a plan amendment, all references in this article to the plan of
conversion shall be deemed to refer to the plan as amended, but no
amendment shall be deemed to change the adoption date of the plan of
conversion. No amendment may change the plan of conversion in a
manner that the commissioner determines is materially disadvantageous
to policyholders of the mutual insurer or members of the mutual
holding company, unless a further public hearing is held on the plan
as amended, if the amendment is made after the initial public
hearing, or if the plan as amended is submitted for reconsideration
by the members if the amendment is made after the plan has been
approved by the members.
4097.11. (a) Upon consent by the commissioner to the plan of
conversion of a mutual insurer and filing of the plan of conversion
in accordance with the provisions of this article, the commissioner
shall issue a new certificate of authority to the converted insurer.
Upon issuance of the certificate of authority to a mutual insurer and
subject to subdivision (a) of Section 110 of the Corporations Code,
the Secretary of State shall accept for filing the articles of
incorporation, certificate of amendment of articles of incorporation,
or agreement of merger and officers' certificates of the converted
insurer for the conversion of a mutual insurer. For a plan of
conversion that provides for the establishment of a mutual holding
company in accordance with Section 4097.05, the Secretary of State
shall accept for filing the articles of incorporation of the mutual
holding company and the stock holding company. Upon consent to the
plan of conversion of a mutual holding company and filing of the plan
of conversion in accordance with the provisions of this article, the
Secretary of State shall accept for filing the articles of
incorporation or certificate of amendment of articles of
incorporation of the converted mutual holding company. The plan is
effective upon the filing of the articles of incorporation or
certificate of amendment of articles of incorporation.
(b) Upon the effective date of the plan of conversion of a mutual
insurer, the mutual insurer shall immediately become a stock
corporation. The converted insurer shall be a continuation of the
original mutual insurer, and the conversion shall in no way annul,
modify, or change any of the original mutual insurer's existing
suits, rights, contracts, or liabilities except as provided in the
approved conversion plan. The insurer, after conversion, shall
exercise all the rights and powers and perform all the duties
conferred or imposed by law upon insurers writing the classes of
insurance written by it, and shall retain the rights and contracts
existing prior to conversion, subject to the effect of the plan.
(c) Upon the effective date of the plan of conversion of a mutual
holding company, all membership interests and rights in surplus are
extinguished, members eligible to receive consideration under the
plan of conversion are entitled to receive the consideration in
exchange for their membership interests and liquidation of their
rights in surplus, and the plan otherwise becomes effective in
accordance with its terms. The conversion in no way annuls, modifies,
or changes any of the converting mutual holding company's existing
suits, rights, contracts, or liabilities, except as provided in the
approved plan of conversion.
4097.12. (a) Upon the effective date of a plan of conversion in
accordance with Section 4097.05, the mutual insurer immediately
becomes a stock corporation, the membership interests and rights in
surplus of its members are extinguished, the members of the mutual
insurer immediately become members of the mutual holding company and
are granted rights in surplus in the mutual holding company
equivalent to those rights in surplus previously held in the
converted company, all of the voting stock initially issued by the
converted insurer is owned by the stock holding company, and all of
the voting stock initially issued by the stock holding company is
owned by the mutual holding company. Except for the membership
interests in the mutual insurer, which become membership interests in
the mutual holding company, nothing herein is intended to, nor shall
eliminate, curtail or otherwise diminish the contract rights of
policyholders of a converted company. The stock holding company may
thereafter, subject to compliance with Article 8 (commencing with
Section 820) of Chapter 1 of Part 2 of Division 1, issue securities
to other persons. After the effective date, owners of policies that
are issued by a stock insurer that has been converted from a mutual
insurer pursuant to proceedings under this article shall become
members of the mutual holding company immediately upon issuance of
the policies, except that owners of a reporting endorsements issued
by the insurer that provide strictly tail coverage on expired claims
made policies shall not be members of the mutual holding company. Any
person may be a member of a mutual holding company.
(b) From the effective date, the mutual holding company shall hold
at least 51 percent of the issued and outstanding voting stock of
the stock holding company and the stock holding company thereafter
shall at all times hold all of the issued and outstanding voting
stock of the converted insurer. The stock holding company may issue
additional voting stock, and securities convertible into voting
stock, to the mutual holding company and to other persons if, in the
aggregate, the voting stock of the stock holding company held by the
mutual holding company is not less than 51 percent of the issued and
outstanding voting stock of the stock holding company. For purposes
of the 51 percent limitation, any issued and outstanding securities
of the stock holding company that are convertible into voting stock
are considered issued and outstanding voting stock.
(c) From the effective date, the mutual holding company's equity
interest in the stock holding company shall not be less than 51
percent of the total stockholders' equity in the stock holding
company. For purposes of the 51 percent limitation, any issued and
outstanding securities of the stock holding company that are
convertible into equity securities, whether voting or nonvoting,
shall be considered stockholders' equity. Debt securities that
include a default contingency conversion interest shall not be
considered stockholders' equity for compliance with the foregoing
limitation.
(d) The commissioner shall retain jurisdiction over the mutual
holding company pursuant to this article. For purposes of Section
1215.5, the mutual holding company shall be considered as if it were
an insurance company. The commissioner shall also retain jurisdiction
over the issuance of debt securities by the mutual holding company
in accordance with the protections provided in Article 8 (commencing
with Section 820) of Chapter 1 of Part 2 of Division 1.
(e) If any proceedings under Article 14 (commencing with Section
1010), Article 14.3 (commencing with Section 1064.1), Article 14.5
(commencing with Section 1065.1), or Article 15.5 (commencing with
Section 1077), of Chapter 1 of Part 2 of Division 1, are brought
naming as a party a stock insurer created as a result of proceedings
authorized by this article, the mutual holding company formed as part
of the conversion automatically becomes a party to the proceedings.
All of the assets of the mutual holding company, including, but not
limited to, its interest in the stock holding company formed pursuant
to this article, are deemed assets of the estate of the stock
insurer to the extent necessary to satisfy claims of persons against
the stock insurer who have claims falling within the priorities
established in paragraphs (1) to (5), inclusive, of subdivision (a)
of Section 1033. Claims of persons in their capacity as members of
the mutual holding company shall be claims falling within the
priority established in paragraph (6) of subdivision (a) of Section
1033. A mutual holding company may not dissolve, liquidate, or wind
up and dissolve without the prior written approval of the
commissioner or the court pursuant to proceedings brought pursuant to
Article 15 (commencing with Section 1070) of Chapter 1 of Part 2 of
Division 1.
(f) Except as provided in this code, a mutual holding company is
subject to the provisions of the general corporation law in like
manner with other corporations. However, provisions of that law
referring to shareholders or members shall be applied as though those
provisions referred to the members of a mutual holding company. With
respect to the management, records, and affairs of a mutual holding
company and except as otherwise provided in this chapter, a member of
a mutual holding company has the same character of rights and
relationship as a stockholder has toward a domestic stock insurer
subject to the provisions of this code.
(g) Each member of a mutual holding company is entitled to one
vote on each matter coming to a vote at any meeting of members,
regardless of the number of policies that the member holds.
(h) Notice of all meetings of members of the mutual holding
company, whether annual or special, shall be given in writing to the
members entitled to vote. The notice shall be given by the secretary,
assistant secretary, or other persons charged with that duty. If
there is no officer so charged, or if he or she neglects or refuses
this duty, notice may be given by any director. At the option of the
converted insurer, the notice may be imprinted on premium notices or
receipts or on both. A notice may be given to any member either
personally, or by mail, or other means of written communication,
charges prepaid, addressed to the member at his or her address
appearing on the books of the insurer, or given by the member to the
converted insurer for the purpose of notice. If a member gives no
address, and if there is no address on the books of the insurer,
notice shall be deemed to have been given the member if sent by mail
or other means of written communication addressed to the place where
the principal office of the converted insurer is situated, or if
published at least once in a newspaper of general circulation in the
county in which the office is located and in the newspaper that has
the largest daily circulation in this state. Notice of any meeting of
members shall be sent to each member entitled to notice not less
than 14 days before a meeting. Notice of any meeting of members shall
specify the place, the day, and the hour of the meeting and the
general nature of the business to be transacted. For any member who
gives no address and has no address on the books of the insurer,
notice of an annual meeting to be held at the time and place
specified is deemed adequate if published at least once in each of
four successive weeks in a newspaper of general circulation in the
county in which the principal office of the converted insurer is
located and in the newspaper that has the largest daily circulation
in this state. If the notice is so published, no other notice of the
meeting is required.
(i) The presence in person or by proxy of 5 percent of the members
of a mutual holding company entitled to vote at any meeting
constitutes a quorum for the transaction of all business of the
mutual holding company, including, but not limited to, the amendment
of the articles of incorporation or bylaws of the mutual holding
company.
(j) Any required member approval shall be by the affirmative vote
of a majority of the members who vote, or a higher percentage of the
members as may be required by law or the articles of incorporation, a
quorum being present.
(k) The board of the mutual holding company shall be comprised of
not less than 6 nor more than 18 directors. A majority of the mutual
holding company directors shall be policyholders of the converted
insurer. Unless the plan provides that at least a majority of the
directors of the boards of the stock holding company and the
converted insurer are also directors of the mutual holding company,
the commissioner shall determine whether the proposed composition of
the boards of directors of each of the constituent corporations of
the mutual holding company system, as provided in the articles of
incorporation and bylaws, facilitate the control of the converted
insurer by the mutual holding company. No term shall continue longer
than six years. In the absence of such provisions, each director
shall be elected for a term of one year. All directors shall hold
office for the term for which they are elected and until their
successors are elected and qualified. The bylaws of the mutual
holding company shall set forth a procedure for establishing mutual
holding company independent directors in the event that the stock
holding company issues securities. Not less than one of every six
directors of the mutual holding company shall be so designated. A
director may, but need not, be a member of the mutual holding company
of which he or she is acting as director. Vacancies in the board of
directors may be filled by a majority of the remaining directors,
though less than a quorum. Each director so elected shall hold office
until the next annual meeting.
(l) Membership interests in a mutual holding company are exempt
from Article 8 (commencing with Section 820) of Chapter 1 of Part 2
of Division 1. A description of the membership interests and related
factual disclosure shall not be considered to be an inducement to buy
insurance in violation of Section 10430. Any promise of returns,
profits, or distributions, or representations with regard to the
benefits of membership, made as an inducement in connection with the
issuance and delivery of a policy is subject to Section 10430 and the
remedy provided in Section 10433.
4097.13. Prior to, and for a period of five years following, the
effective date of the plan of conversion, no person or group of
persons acting in concert shall directly or indirectly offer to
acquire or acquire in any manner the beneficial ownership of 5
percent or more of any class of voting securities of a converted
insurer or of a person that controls, as defined by subdivision (b)
of Section 1215, the converted insurer, without the prior consent of
the commissioner. Any application for that approval shall contain
information as the commissioner may require and shall be accompanied
by a filing fee in an amount equal to the filing fee specified in
Section 1215.2. In the event of any violation of this section, or of
any action that, if consummated, would constitute a violation, all
voting securities of the converted insurer or of the person acquired
by any person in excess of the maximum amount permitted to be
acquired by the person pursuant to this subdivision shall be deemed
to be nonvoting securities of the converted insurer or of that
person. The violation or action may be enforced or enjoined by an
appropriate proceeding commenced by the converted insurer, a person,
the commissioner, any policyholder or stockholder of the converted
insurer, or the person on behalf of the converted insurer or the
person in the superior court in the judicial district in which the
converted insurer has its home office or in any other court having
jurisdiction. The court may issue any order it finds necessary to
cure the violation or to prevent the proposed action. In addition to
the foregoing, whenever it appears to the commissioner that any
person has committed a violation of this section, the commissioner
may proceed as provided in Article 14 (commencing with Section 1010)
of Chapter 1 of Part 2 of Division 1 to take possession of the
property of the converted insurer and to conduct the business
thereof. For the purposes of this section, "beneficial ownership,"
with respect to voting securities, means the sole or shared power to
vote, or direct the voting of, voting securities or the sole or
shared power to dispose, or direct the disposition, of voting
securities. "Voting security" includes voting stock as defined in
Section 4097.01, any preorganization certificate or subscription,
including subscription rights issued pursuant to a plan of
conversion, or any security convertible, with or without
consideration, into voting security, or carrying any warrant or right
to subscribe for or purchase any voting security, or any such
warrant or right. "Offer" includes an offer to buy or acquire,
solicitation of an offer to sell, tender offer for, or request or
invitation for tenders of a security or interest in a security for
value.
4097.14. Unless otherwise provided in the plan of conversion, the
directors and officers of the mutual company shall serve as directors
and officers of the converted company until new directors and
officers have been duly elected and qualified pursuant to the
articles of incorporation and bylaws of the stock company.
4097.15. (a) Notwithstanding any other provision of law and except
as otherwise provided in subdivision (b), actions concerning any plan
of conversion, proposed plan of conversion, plan amendment, or
proposed plan amendment under this article or any acts taken or
proposed to be taken under this article shall be commenced within one
year after the plan of conversion or plan amendment is filed in the
office of the commissioner pursuant to subdivision (d) of Section
4097.02 or subdivision (a) of Section 4098.1, or six months from the
effective date of the plan of conversion, whichever is later. If the
plan of conversion is withdrawn, the actions or acts shall be
commenced within six months from the date the board of directors
approves a resolution to withdraw the plan. If an action concerns or
arises out of a plan amendment or proposed plan amendment made under
Section 4097.18, the applicable time period is measured from the
filing, effective date, or approval of withdrawal of the plan
amendment, whichever is later.
(b) Judicial review of any act of the commissioner or any other
governmental body or officer concerning or arising out of any plan of
conversion, proposed plan of conversion, plan amendment, or proposed
plan amendment under this article may only be had by filing a
petition for a writ of mandate within 30 days of the date of the act.
However, any petition seeking judicial review shall be filed no
later than 30 days from the effective date of the plan of conversion
or plan amendment, whichever is the subject of the petition.
4097.16. The offer or sale of securities, including any debt
securities, issued pursuant to the plan of conversion developed and
approved in accordance with the provisions of this article, shall be
exempt from Article 8 (commencing with Section 820) of Chapter 1 of
Part 2 of Division 1.
4097.17. The commissioner shall have the authority from time to
time, to make, amend, and rescind any rules and regulations as may be
necessary to carry out the provisions of this article. The
commissioner shall also have the authority to charge and collect from
the insurer for the actual amount of expenses reasonably incurred by
the state in discharge of the commissioner's duties hereunder.
4097.18. Upon completion of the act of conversion and issuance of
the certificate of authority under Section 4097.11, the Secretary of
State shall accept for filing a verified copy of the amended articles
of incorporation.
4097.19. (a) The amended articles of incorporation of a converted
company that have been adopted pursuant to a plan of conversion and
filed with the Secretary of State in accordance with Section 4097.11
may be further amended after the effective date pursuant to
applicable law. The plan of conversion may be amended in other
respects after the effective date of the plan as specified in this
section. The amendment shall take effect upon filing with the
Secretary of State after compliance with the following:
(1) Approval by a resolution of at least two-thirds of the board
of directors of the converted company. The resolution shall specify
the reasons for and the purposes of the proposed amendment.
(2) Submission to the commissioner for consent in writing, subject
to the provisions of Section 4097.06.
(3) For the conversion of a mutual insurer, approval by at least
two-thirds of those current policyholders of the corporation who were
members of the former mutual insurer and were entitled to vote on
the original plan of conversion approved pursuant to subdivision (c)
of Section 4097.02 and who vote at a meeting called for that purpose.
(4) For the demutualization of a mutual holding company, approval
by at least two-thirds of those current members of the corporation
who were members of the former mutual holding company and were
entitled to vote on the original plan of conversion approved pursuant
to subdivision (c) of Section 4097.02 and who vote at a meeting
called for that purpose.
(5) Filed in the office of the commissioner after having been
consented to and approved as contemplated by paragraphs (2), (3), and
(4).
(b) If an amendment proposed under subdivision (a) would adversely
affect the rights of one or more classes of members, but not all
those members, then only the members of each class whose rights would
be adversely affected by the proposed amendment are entitled to vote
on the proposed plan amendment.
(c) A policyholder or member meeting prescribed by paragraph (3)
or (4) of subdivision (a) shall be called by the board of directors,
the chairperson of the board, or the president of the converted
company. Notice of the meeting shall be given to policyholders or
members entitled to vote at the meeting by mail at least 45 days
prior to the date set for the meeting. Voting shall be by ballot, in
person, or by proxy. A quorum consists of 10 percent of the
policyholders or members of the converted company entitled to vote at
the meeting.
(d) At any time before the plan amendment becomes effective, the
converted company may, by resolution of two-thirds of the board of
directors, amend the plan amendment or withdraw its plan amendment.
For an amendment to a plan amendment, all references in this section
to the plan amendment shall be deemed to refer to the plan amendment
as amended. Any amendment of the plan amendment shall require the
written consent of the commissioner. No amendment shall be deemed to
change the date of adoption of the plan amendment. No amendment made
after approval by the policyholders or members as provided in
paragraph (3) or (4) of subdivision (a) may change the plan amendment
in a manner that the commissioner determines is materially
disadvantageous to any of the affected policyholders or members
unless the plan amendment as amended is submitted for reconsideration
under the procedures prescribed for the original plan amendment
policyholder or member approval.
4097.20. If the name of a mutual insurer converting to a stock
insurer pursuant to this article includes the word "mutual," the new
stock insurer may continue to use the word "mutual" in its name if
the name includes a word or words that identify the new stock insurer
as a stock insurer and the commissioner finds that the continued use
of the word "mutual" in its name is not likely to mislead or deceive
the public.
