11535. (a) A domestic incorporated mutual life insurer, or life and
disability insurer, issuing nonassessable policies on a reserve
basis may be converted into an incorporated stock life or stock life
and disability insurer issuing, on a reserve basis, nonassessable
policies of life insurance or of both life and disability insurance.
To that end, it may provide and carry out a plan for the conversion
by complying with the requirements of this chapter.
(b) A domestic incorporated mutual insurer not referred to in
subdivision (a) and that is not a medical malpractice mutual insurer
as defined in subdivision (i) of Section 4097.01, which may be
referred to in this chapter as a mutual property-casualty insurer,
may be converted into an incorporated stock property-casualty
insurer. To that end, it may provide and carry out a plan for the
conversion by complying with the requirements of this chapter. A
medical malpractice mutual insurer as defined in subdivision (i) of
Section 4097.01 may not convert to a stock insurer under this
chapter.
(c) 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 chapter.
(d) As part of the conversion authorized in this section, a
domestic incorporated mutual insurer may merge with an incorporated
stock insurer, if the merging insurers comply with the provisions of
this code applicable to their participation in the merger, or may
transfer its domicile to any other state, if the insurer complies
with Section 709.5.
11535.1. The definitions in this section apply to the following
terms when used in this chapter.
(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 mutual insurer has been converted or merged or redomiciled in
accordance with the provisions of this chapter.
(d) "Converted mutual holding company" means the stock corporation
into which a mutual holding company has been converted in accordance
with this chapter.
(e) "Converting mutual life company" means, for a plan of
conversion under this chapter, the mutual life insurer or mutual
holding company that is converting under such a plan.
(f) "Effective date" means, for the conversion of a mutual life
insurer, the date upon which the conversion of the mutual life
insurer is effective, as specified in the commissioner's amendment to
the mutual life insurer's certificate of authority issued in
accordance with Section 11542, as a result of conversion proceedings
under this chapter. For the conversion of a 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 11542, as a result of
conversion proceedings under this chapter.
(g) "Eligible members" means, for the conversion of a mutual life
insurer, the members of the mutual life insurer who are of record on
the mutual life insurer's adoption date. For the conversion of a
mutual holding company, "eligible members" means the members of the
mutual holding company who are of record on the mutual holding
company's adoption date.
(h) "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. For a
mutual life insurer, a plan of conversion may provide that the term
"member" also includes a person who is the owner of a policy issued
or assumed by an insurer, that, pursuant to court order, is to be
merged into the converted 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 11542.1.
(i) "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. Membership interests
do not include members' rights in surplus, if any.
(j) "Mutual company" means, in the case of a plan of conversion,
the mutual life insurer, mutual property-casualty insurer, or mutual
holding company that is converting pursuant to such plan.
(k) "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 chapter.
(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 life insurer.
(3) It is not authorized to issue voting stock.
(4) Its members have the rights specified in Section 11542.1 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.
(l) "Mutual insurer" means, in the case of a plan of conversion
under this chapter, the mutual life insurer or mutual
property-casualty insurer that is converting pursuant to such plan.
(m) "Mutual life insurer" means a domestic incorporated mutual
life insurer, or domestic mutual life and disability insurer, that
issues nonassessable policies on a reserve basis.
(n) "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.
(o) "Plan of conversion" or "plan" means a plan adopted by a
mutual company in compliance with this chapter.
(p) "Policy" means an individual or group policy of insurance
issued by a life insurer. If a policy of a mutual life insurer takes
a form other than an individual form but holders of certificates or
other interests under the policy are treated by the mutual life
insurer as if they were holders of individual policies, the mutual
life insurer may provide in its plan of conversion under this chapter
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 life
insurer to vote upon and receive consideration under the plan of
conversion and may not affect the other voting rights and
qualifications of members of the mutual life insurer.
(q) "Policyholder" means the holder of a policy other than a
reinsurance contract.
(r) "Rights in surplus," for a mutual life 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 or
conservation 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 or
conservation 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.
(s) "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 life insurer to a stock life insurer in
proceedings under Section 11537.2 in which a mutual holding company
is formed.
(t) "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.
11536. 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 the majority 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 11538, 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 the 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 chapter.
(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) Other relevant information that the commissioner may require.
(c) Approved by a majority vote of the members of the mutual
company voting at a meeting of the members called for that purpose,
subject to the provisions of Section 11539.
(d) Filed in the office of the commissioner after receipt of the
commissioner's consent, and after having been approved as provided in
Sections 11538 and 11539, respectively.
11537. For the conversion of a mutual property-casualty insurer,
the plan for conversion shall include the following:
(a) A fair and reasonable formula, approved by the commissioner,
for determining the equity of each eligible member in the insurer.
The equity shall be based upon an appraisal of the fair value of the
insurer by one or more qualified disinterested persons appointed by
the insurer with the approval of the commissioner. Those persons
shall consider the assets and liabilities of the insurer and any
factors bearing on the value of the mutual insurer.
(b) Each eligible member of the mutual insurer shall be given a
preemptive right to acquire his or her proportionate part of all of
the proposed capital stock of the insurer, within a designated
reasonable period, by applying upon the purchase of such part the
amount of his or her equity as determined under the formula described
in subdivision (a).
(c) The members entitled to participate in the purchase of stock
or distribution of assets shall be limited to all current
policyholder members whose policies have been of record for not less
than one year prior to the date the board of directors adopted the
plan of conversion.
(d) Each member not applying his or her equity 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 equity 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 equity, 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 equity or property interest in the mutual
insurer, and, notwithstanding any other provision of law, the member
shall have no other rights with respect thereto.
(e) 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 provide for the converted
insurer paid-in capital and surplus in an amount not less than the
minimum paid-in capital and surplus required of a domestic stock
insurer upon initial authorization to transact like kinds of
insurance.
(f) 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.
11537.1. For the conversion of a mutual life insurer, the plan of
conversion shall provide for either a mutual holding company in
compliance with Section 11537.2 or for consideration in compliance
with Section 11537.3. For the conversion of a mutual holding company,
the plan of conversion shall provide for consideration in compliance
with Section 11537.3.
11537.2. A plan of conversion adopted by a mutual life insurer for
the establishment of a mutual holding company shall provide that the
mutual life insurer will become a stock life insurer, that the
members of the mutual life 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.
11537.3. A plan of conversion adopted by a converting mutual life
company shall include the following:
(a) (1) The plan provides that each member's membership interests
and rights in surplus are extinguished and each eligible member will
receive, without payment, nontransferable subscription rights to
purchase a portion of the capital stock of a corporation which will
issue the subscription rights, or, in lieu thereof, shares of capital
stock or other securities of the issuer, cash, premium credits, or
credits to policy account values having an aggregate value equal to
the aggregate exercise price of the subscription rights that
otherwise would have been allocated to the member. The issuer is
either (A) the converted insurer, (B) a corporation, the voting stock
of which is owned by the mutual life insurer or the mutual holding
company, as the case may be, or by any other persons, that will
acquire in the conversion all the voting stock of the converted
insurer, or (C) a corporation, all of the voting stock of which is
owned by the mutual holding company into which both the mutual
holding company and the stock holding company will be merged.
(2) The subscription rights are allocated in whole shares among
the eligible members. The subscription rights, capital stock, cash,
premium credits, and credits to policy account values are allocated
among the eligible members using a fair and equitable formula. This
formula will either (A) allocate a fixed component per capita among
eligible members (specifying how joint owners will be treated for
this purpose) and allocate a variable component among eligible
members in proportion to the cash value of policies held by them, or
(B) allocate the subscription rights, capital stock, cash, or credits
in any other manner that the commissioner may approve.
(b) The plan specifies or authorizes the board of directors of the
converting mutual life company to set the expiration date of the
subscription rights, if any, allocated by the plan. The exercise
price per share of the subscription rights is 50 percent of the price
per share at which the capital stock of the issuer is first offered
to the public in the offering referred to in subdivision (d), as
fixed at the time of the offering by the boards of directors of the
converting mutual life company and the issuer or committees of the
boards.
(c) The plan provides that any eligible member not exercising the
subscription rights, if any, allocated to the member will instead
receive alternative forms of consideration having an aggregate value
equal to the aggregate exercise price of the subscription rights
allocated to the member. The alternative forms of consideration may
include shares of capital stock of the issuer, cash, premium credits,
or credits to policy account values. The choices available to the
eligible member shall be specified in the plan. The choices available
may take into account the type of policy, size of policy, tax status
of the member, and other factors that the commissioner determines
are appropriate.
(d) The plan provides that the issuer will make a public offering
of its capital stock at a price determined by the boards of directors
of the converting mutual life company and the issuer. The number of
shares to be offered is determined according to the plan and may
include any shares issuable upon exercise of subscription rights that
are not exercised. The plan may also provide for the issue and sale
of securities of the issuer to other persons at the time of the
public offering. However, any plan provisions pertaining to the
issuance and sale of securities to the insurer's officers, directors,
employees, agents, and employee benefit plans for their benefit
shall be subject to Section 11540.
(e) The plan of a mutual life insurer may provide for the
establishment, for policyholder dividend purposes only, of a closed
block. The closed block will consist of all of the participating
individual policies of life insurance of the mutual life insurer in
force on the effective date of the plan for which the insurer had an
experience-based dividend scale payable in the year in which the plan
is adopted. Assets of the insurer shall be allocated to the closed
block in an amount that produces cash-flows, together with
anticipated revenues from the closed block business, expected to be
sufficient (1) to support the closed block business, including
payment of claims and those expenses and taxes specified in the plan
and (2) to provide for continuation of dividend scales in effect on
the adoption date if the experience underlying the scales continues,
and for appropriate adjustments in the scales if the experience
changes. The plan may provide for conditions under which the
converted insurer may cease to maintain the closed block and its
allocated assets. Regardless of such a cessation, the obligation
under the policies constituting the closed block business remain the
obligations of the converted insurer. Dividends on those policies
shall be apportioned by the board of directors of the converted
insurer in accordance with the terms of the policies.
(f) In lieu of the provisions contemplated by subdivisions (a) to
(d), inclusive, a plan may be adopted by a converting mutual life
company that:
(1) Is fair and equitable to the members of the converting mutual
life company and provides for consideration to the members having a
value equal to or greater than the value of the consideration that
would have been payable to the members pursuant to a plan of
conversion contemplated by subdivisions (a) to (d), inclusive.
(2) Has been approved by a resolution of the majority of the board
of directors that specifies the basis on which the board of
directors of the converting mutual life company finds that adopting
the plan of conversion under this subdivision meets the requirements
of paragraph (1).
(3) Provides that each member's membership interests and rights in
surplus are extinguished and each eligible member will receive,
without payment by the member, consideration that is allocated among
the eligible members using a fair and equitable formula. This formula
will either (A) allocate a fixed component per capita among eligible
members, specifying how joint owners will be treated for this
purpose, and allocate a variable component among eligible members in
proportion to the cash value of policies held by them, or (B)
allocate the consideration in any other manner that the commissioner
may approve.
(4) Provides that eligible members may receive one or more kinds
of consideration, including shares of capital stock of the converting
mutual life company or shares of capital stock (or interests in
shares of capital stock) of a corporation that, after the conversion,
directly or indirectly, controls the converted insurer, cash,
premium credits, or credits to pay policy account values, as set
forth in the plan.
(5) Provides for either of the following:
(A) The conversion of the converting mutual life company into a
domestic stock corporation.
(B) The conversion of the converting mutual life company by means
of a merger (i) in the case of a mutual life insurer into a domestic
stock corporation, provided the corporation has been issued a
certificate of authority, or (ii) in the case of a converting mutual
holding company into a domestic or foreign stock corporation, and, in
the case of that merger:
(I) The merger and conversion shall be subject to the provisions
of this chapter other than subdivisions (a) to (d), inclusive.
(II) Chapter 11 (commencing with Section 1100), Chapter 12
(commencing with Section 1200), and Chapter 13 (commencing with
Section 1300), of Division 1 of the Corporations Code shall not apply
to the converting mutual life company in the merger except that
Section 1107 of the Corporations Code shall apply.
(III) The merger and conversion shall become effective upon the
filing of appropriate instruments with the Secretary of State.
(6) The plan may also provide for the converted company, or a
corporation that will directly or indirectly control the converted
insurer after the conversion, to issue and sell its securities to
other persons at the time of the conversion. Any plan provisions
pertaining to the issuance and sale of securities to the insurer's
officers, directors, employees, agents, and employee benefit plans
for their benefit shall be subject to Section 11540.
11538. (a) The commissioner shall examine the plan submitted
pursuant to subdivision (b) of Section 11536. As a part of the
examination the commissioner may order a hearing on the plan after
written notice of the hearing to the mutual company, and its members,
all of whom shall have the right to appear at the hearing. 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 and
equitable to the insurer and its policyholders.
(2) For the conversion of a mutual holding company, the plan is
fair 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.
(b) For the conversion of a converting mutual life 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 chapter. The converting mutual life 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.
11539. The meeting of members prescribed by subdivision (c) of
Section 11536 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 30 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. Voting shall be by ballot, in
person or by proxy. A quorum shall consist of 5 percent of the
members of the mutual company entitled to vote at the meeting.
11540. (a) Nothing in this chapter 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 chapter 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 more
than 25 percent of the voting stock issued pursuant to the plan for a
mutual life insurer having assets in excess of two hundred million
dollars ($200,000,000) or 35 percent for a mutual life insurer having
assets of two hundred million dollars ($200,000,000) or less.
(b) For the conversion of a mutual property-casualty insurer,
subdivision (f) of Section 11537 does not prohibit the inclusion in
the conversion plan of provisions under which the individuals
comprising the insurer's management, employees and agents are
entitled to purchase for cash, at the same price as offered to the
insurer's members, shares of stock not taken by members on the
preemptive offering to members, in accordance with such reasonable
classifications of such individuals as may be included in the plan.
The plan may not provide for such individuals to acquire in excess of
25 percent of the shares of stock issued pursuant to the plan for a
mutual insurer having assets in excess of two hundred million dollars
($200,000,000) or 35 percent for a mutual insurer having assets of
two hundred million dollars ($200,000,000) or less.
11541. 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.
11541.1. At any time before that plan of conversion becomes
effective as provided in Section 11542, the mutual company may, by
resolution of a majority 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 chapter 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 life 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.
11542. (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 chapter, 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 in accordance with Section 11537.2, 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 chapter, 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
property-casualty 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
life insurer in accordance with Section 11537.3, the mutual life
insurer immediately becomes a stock corporation, all membership
interests and rights in surplus are extinguished, and members
eligible to exercise subscription rights or receive other
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. The converted insurer is a
continuation of the original mutual life insurer, and the conversion
in no way annuls, modifies, or changes any of the original mutual
life insurer's existing suits, rights, contracts, or liabilities,
except as provided in the plan of conversion. 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.
(d) 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.
11542.1. (a) Upon the effective date of a plan of conversion in
accordance with Section 11537.2, the mutual life insurer immediately
becomes a stock corporation, the membership interests and rights in
surplus of its members are extinguished, the members of the mutual
life insurer immediately become members of the mutual holding
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. 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 life
insurer pursuant to proceedings under this chapter shall become
members of the mutual holding company immediately upon issuance of
the policies. 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 to the mutual holding company and, in
addition, to other persons an amount of voting stock and securities
convertible into voting stock, if in the aggregate, the issued and
outstanding voting stock of the stock holding company not held by the
mutual holding company does not exceed 49 percent of the issued and
outstanding voting stock of the stock holding company. For purposes
of the 49-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) The commissioner shall retain jurisdiction over the mutual
holding company organized pursuant to this chapter. 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.
(d) 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 life insurer subject to the provisions of this code.
(e) 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.
(f) Notice of all meetings of members, 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 such officer, 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.
(g) 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.
(h) 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.
(i) The articles of incorporation or the bylaws of the mutual
holding company may provide that the directors may be divided into
two or more classes whose terms of office shall expire at different
times. 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. 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.
(j) 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 chapter, 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 chapter, are deemed assets of the estate of the stock life
insurer to the extent necessary to satisfy claims of persons against
the stock life 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.
(k) 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.
11542.2. 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 paragraph (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
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 11535.1, 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.
11543. 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.
11543.1. (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 chapter or any acts taken or
proposed to be taken under this chapter 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
11536 or subdivision (a) of Section 11542, 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 11546, 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 chapter 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.
11544. The offer or sale of securities issued pursuant to the plan
of conversion developed and approved in accordance with the
provisions of this chapter, shall be exempt from Article 8
(commencing with Section 820) of Chapter 1 of Part 2 of Division 1.
11545. The commissioner shall have the authority from time to time,
to make, amend and rescind such rules and regulations as may be
necessary to carry out the provisions of this chapter. 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.
11546. Upon completion of the act of conversion and issuance of the
certificate of authority under Section 11542, the Secretary of State
shall accept for filing a verified copy of the amended articles of
incorporation.
11547. (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 11542
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. Such an amendment shall take effect upon filing with the
Secretary of State after compliance with the following:
(1) Approval by a resolution of the majority 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 11538.
(3) For the conversion of a mutual insurer, approval by a majority
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 11536 and who vote at a meeting called for that purpose.
(4) For the conversion of a mutual holding company, approval by a
majority 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 11536 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
such 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 30 days
prior to the date set for the meeting. Voting shall be by ballot, in
person or by proxy. A quorum consists of 5 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 a majority 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.
11548. If the name of a mutual life insurer converting to a stock
insurer pursuant to this chapter 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.
11549. (a) Pursuant to this section, a mutual holding company may
merge into a foreign mutual holding company that is domiciled in a
state to which the converted insurer has transferred its domicile or
will transfer its domicile concurrently with the merger. The merger
shall be effected pursuant to an agreement of merger between the
mutual holding company and the foreign mutual holding company in
accordance with the General Corporation Law, to the extent not
inconsistent with this section. The merger shall take effect upon
filing the agreement of merger with the California Secretary of State
after compliance with the following:
(1) Approval of the agreement of merger by a resolution of the
majority of the board of directors of the mutual holding company and
signing of the agreement of merger by the parties thereto.
(2) Approval of an amendment to the converted insurer's plan of
conversion in accordance with Section 11547 by a resolution of the
majority of the board of directors of the converted insurer in order
to reflect appropriately the merger and transfer of domicile.
(3) Submission of the agreement of merger and the amendment to the
commissioner for consent in writing.
(4) Approval of the agreement of merger by a majority of the
members of the mutual holding company who vote at a meeting called
for that purpose.
(5) Approval of the amendment by a majority of the members of the
mutual holding company who were members of the converted insurer and
were entitled to vote on the original plan of conversion approved
pursuant to subdivision (c) of Section 11536 and who vote at a
meeting called for the purpose.
(6) Filing of the agreement of merger in the office of the
commissioner after having been consented to and approved as
contemplated by paragraphs (2), (3), (4), and (5).
(b) The submission to the commissioner prescribed in paragraph (3)
of subdivision (a) shall be accompanied by a filing fee of eight
thousand one hundred dollars ($8,100), evidence that the foreign
mutual holding company that will survive the merger is qualified as a
foreign corporation under the General Corporation Law, and any other
relevant information that the commissioner may require.
(c) The meetings of members prescribed in paragraphs (4) and (5)
of subdivision (a) and shall be called by the board of directors, the
chairperson of the board, or the president of the mutual holding
company, and may be combined at a single meeting with separate voting
by those eligible to vote on the matters referred to in paragraphs
(4) and (5) of subdivision (a). Notice of the meeting shall be given
by mail to members entitled to vote at the meeting at least 30 days
prior to the date set for the meeting. Voting shall be by ballot, in
person, or by proxy. A quorum for each such matter consists of 5
percent of the members of the mutual holding company entitled to vote
at the meeting on the matter.
(d) The commissioner shall consent to any proposed merger and
amendment if he or she determines that the merger will be fair and
equitable to the mutual holding company and its members.
11535. (a) A domestic incorporated mutual life insurer, or life and
disability insurer, issuing nonassessable policies on a reserve
basis may be converted into an incorporated stock life or stock life
and disability insurer issuing, on a reserve basis, nonassessable
policies of life insurance or of both life and disability insurance.
To that end, it may provide and carry out a plan for the conversion
by complying with the requirements of this chapter.
(b) A domestic incorporated mutual insurer not referred to in
subdivision (a) and that is not a medical malpractice mutual insurer
as defined in subdivision (i) of Section 4097.01, which may be
referred to in this chapter as a mutual property-casualty insurer,
may be converted into an incorporated stock property-casualty
insurer. To that end, it may provide and carry out a plan for the
conversion by complying with the requirements of this chapter. A
medical malpractice mutual insurer as defined in subdivision (i) of
Section 4097.01 may not convert to a stock insurer under this
chapter.
(c) 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 chapter.
(d) As part of the conversion authorized in this section, a
domestic incorporated mutual insurer may merge with an incorporated
stock insurer, if the merging insurers comply with the provisions of
this code applicable to their participation in the merger, or may
transfer its domicile to any other state, if the insurer complies
with Section 709.5.
11535.1. The definitions in this section apply to the following
terms when used in this chapter.
(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 mutual insurer has been converted or merged or redomiciled in
accordance with the provisions of this chapter.
(d) "Converted mutual holding company" means the stock corporation
into which a mutual holding company has been converted in accordance
with this chapter.
(e) "Converting mutual life company" means, for a plan of
conversion under this chapter, the mutual life insurer or mutual
holding company that is converting under such a plan.
(f) "Effective date" means, for the conversion of a mutual life
insurer, the date upon which the conversion of the mutual life
insurer is effective, as specified in the commissioner's amendment to
the mutual life insurer's certificate of authority issued in
accordance with Section 11542, as a result of conversion proceedings
under this chapter. For the conversion of a 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 11542, as a result of
conversion proceedings under this chapter.
(g) "Eligible members" means, for the conversion of a mutual life
insurer, the members of the mutual life insurer who are of record on
the mutual life insurer's adoption date. For the conversion of a
mutual holding company, "eligible members" means the members of the
mutual holding company who are of record on the mutual holding
company's adoption date.
(h) "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. For a
mutual life insurer, a plan of conversion may provide that the term
"member" also includes a person who is the owner of a policy issued
or assumed by an insurer, that, pursuant to court order, is to be
merged into the converted 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 11542.1.
(i) "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. Membership interests
do not include members' rights in surplus, if any.
(j) "Mutual company" means, in the case of a plan of conversion,
the mutual life insurer, mutual property-casualty insurer, or mutual
holding company that is converting pursuant to such plan.
(k) "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 chapter.
(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 life insurer.
(3) It is not authorized to issue voting stock.
(4) Its members have the rights specified in Section 11542.1 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.
(l) "Mutual insurer" means, in the case of a plan of conversion
under this chapter, the mutual life insurer or mutual
property-casualty insurer that is converting pursuant to such plan.
(m) "Mutual life insurer" means a domestic incorporated mutual
life insurer, or domestic mutual life and disability insurer, that
issues nonassessable policies on a reserve basis.
(n) "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.
(o) "Plan of conversion" or "plan" means a plan adopted by a
mutual company in compliance with this chapter.
(p) "Policy" means an individual or group policy of insurance
issued by a life insurer. If a policy of a mutual life insurer takes
a form other than an individual form but holders of certificates or
other interests under the policy are treated by the mutual life
insurer as if they were holders of individual policies, the mutual
life insurer may provide in its plan of conversion under this chapter
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 life
insurer to vote upon and receive consideration under the plan of
conversion and may not affect the other voting rights and
qualifications of members of the mutual life insurer.
(q) "Policyholder" means the holder of a policy other than a
reinsurance contract.
(r) "Rights in surplus," for a mutual life 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 or
conservation 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 or
conservation 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.
(s) "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 life insurer to a stock life insurer in
proceedings under Section 11537.2 in which a mutual holding company
is formed.
(t) "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.
11536. 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 the majority 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 11538, 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 the 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 chapter.
(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) Other relevant information that the commissioner may require.
(c) Approved by a majority vote of the members of the mutual
company voting at a meeting of the members called for that purpose,
subject to the provisions of Section 11539.
(d) Filed in the office of the commissioner after receipt of the
commissioner's consent, and after having been approved as provided in
Sections 11538 and 11539, respectively.
11537. For the conversion of a mutual property-casualty insurer,
the plan for conversion shall include the following:
(a) A fair and reasonable formula, approved by the commissioner,
for determining the equity of each eligible member in the insurer.
The equity shall be based upon an appraisal of the fair value of the
insurer by one or more qualified disinterested persons appointed by
the insurer with the approval of the commissioner. Those persons
shall consider the assets and liabilities of the insurer and any
factors bearing on the value of the mutual insurer.
(b) Each eligible member of the mutual insurer shall be given a
preemptive right to acquire his or her proportionate part of all of
the proposed capital stock of the insurer, within a designated
reasonable period, by applying upon the purchase of such part the
amount of his or her equity as determined under the formula described
in subdivision (a).
(c) The members entitled to participate in the purchase of stock
or distribution of assets shall be limited to all current
policyholder members whose policies have been of record for not less
than one year prior to the date the board of directors adopted the
plan of conversion.
(d) Each member not applying his or her equity 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 equity 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 equity, 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 equity or property interest in the mutual
insurer, and, notwithstanding any other provision of law, the member
shall have no other rights with respect thereto.
(e) 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 provide for the converted
insurer paid-in capital and surplus in an amount not less than the
minimum paid-in capital and surplus required of a domestic stock
insurer upon initial authorization to transact like kinds of
insurance.
(f) 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.
11537.1. For the conversion of a mutual life insurer, the plan of
conversion shall provide for either a mutual holding company in
compliance with Section 11537.2 or for consideration in compliance
with Section 11537.3. For the conversion of a mutual holding company,
the plan of conversion shall provide for consideration in compliance
with Section 11537.3.
11537.2. A plan of conversion adopted by a mutual life insurer for
the establishment of a mutual holding company shall provide that the
mutual life insurer will become a stock life insurer, that the
members of the mutual life 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.
11537.3. A plan of conversion adopted by a converting mutual life
company shall include the following:
(a) (1) The plan provides that each member's membership interests
and rights in surplus are extinguished and each eligible member will
receive, without payment, nontransferable subscription rights to
purchase a portion of the capital stock of a corporation which will
issue the subscription rights, or, in lieu thereof, shares of capital
stock or other securities of the issuer, cash, premium credits, or
credits to policy account values having an aggregate value equal to
the aggregate exercise price of the subscription rights that
otherwise would have been allocated to the member. The issuer is
either (A) the converted insurer, (B) a corporation, the voting stock
of which is owned by the mutual life insurer or the mutual holding
company, as the case may be, or by any other persons, that will
acquire in the conversion all the voting stock of the converted
insurer, or (C) a corporation, all of the voting stock of which is
owned by the mutual holding company into which both the mutual
holding company and the stock holding company will be merged.
(2) The subscription rights are allocated in whole shares among
the eligible members. The subscription rights, capital stock, cash,
premium credits, and credits to policy account values are allocated
among the eligible members using a fair and equitable formula. This
formula will either (A) allocate a fixed component per capita among
eligible members (specifying how joint owners will be treated for
this purpose) and allocate a variable component among eligible
members in proportion to the cash value of policies held by them, or
(B) allocate the subscription rights, capital stock, cash, or credits
in any other manner that the commissioner may approve.
(b) The plan specifies or authorizes the board of directors of the
converting mutual life company to set the expiration date of the
subscription rights, if any, allocated by the plan. The exercise
price per share of the subscription rights is 50 percent of the price
per share at which the capital stock of the issuer is first offered
to the public in the offering referred to in subdivision (d), as
fixed at the time of the offering by the boards of directors of the
converting mutual life company and the issuer or committees of the
boards.
(c) The plan provides that any eligible member not exercising the
subscription rights, if any, allocated to the member will instead
receive alternative forms of consideration having an aggregate value
equal to the aggregate exercise price of the subscription rights
allocated to the member. The alternative forms of consideration may
include shares of capital stock of the issuer, cash, premium credits,
or credits to policy account values. The choices available to the
eligible member shall be specified in the plan. The choices available
may take into account the type of policy, size of policy, tax status
of the member, and other factors that the commissioner determines
are appropriate.
(d) The plan provides that the issuer will make a public offering
of its capital stock at a price determined by the boards of directors
of the converting mutual life company and the issuer. The number of
shares to be offered is determined according to the plan and may
include any shares issuable upon exercise of subscription rights that
are not exercised. The plan may also provide for the issue and sale
of securities of the issuer to other persons at the time of the
public offering. However, any plan provisions pertaining to the
issuance and sale of securities to the insurer's officers, directors,
employees, agents, and employee benefit plans for their benefit
shall be subject to Section 11540.
(e) The plan of a mutual life insurer may provide for the
establishment, for policyholder dividend purposes only, of a closed
block. The closed block will consist of all of the participating
individual policies of life insurance of the mutual life insurer in
force on the effective date of the plan for which the insurer had an
experience-based dividend scale payable in the year in which the plan
is adopted. Assets of the insurer shall be allocated to the closed
block in an amount that produces cash-flows, together with
anticipated revenues from the closed block business, expected to be
sufficient (1) to support the closed block business, including
payment of claims and those expenses and taxes specified in the plan
and (2) to provide for continuation of dividend scales in effect on
the adoption date if the experience underlying the scales continues,
and for appropriate adjustments in the scales if the experience
changes. The plan may provide for conditions under which the
converted insurer may cease to maintain the closed block and its
allocated assets. Regardless of such a cessation, the obligation
under the policies constituting the closed block business remain the
obligations of the converted insurer. Dividends on those policies
shall be apportioned by the board of directors of the converted
insurer in accordance with the terms of the policies.
(f) In lieu of the provisions contemplated by subdivisions (a) to
(d), inclusive, a plan may be adopted by a converting mutual life
company that:
(1) Is fair and equitable to the members of the converting mutual
life company and provides for consideration to the members having a
value equal to or greater than the value of the consideration that
would have been payable to the members pursuant to a plan of
conversion contemplated by subdivisions (a) to (d), inclusive.
(2) Has been approved by a resolution of the majority of the board
of directors that specifies the basis on which the board of
directors of the converting mutual life company finds that adopting
the plan of conversion under this subdivision meets the requirements
of paragraph (1).
(3) Provides that each member's membership interests and rights in
surplus are extinguished and each eligible member will receive,
without payment by the member, consideration that is allocated among
the eligible members using a fair and equitable formula. This formula
will either (A) allocate a fixed component per capita among eligible
members, specifying how joint owners will be treated for this
purpose, and allocate a variable component among eligible members in
proportion to the cash value of policies held by them, or (B)
allocate the consideration in any other manner that the commissioner
may approve.
(4) Provides that eligible members may receive one or more kinds
of consideration, including shares of capital stock of the converting
mutual life company or shares of capital stock (or interests in
shares of capital stock) of a corporation that, after the conversion,
directly or indirectly, controls the converted insurer, cash,
premium credits, or credits to pay policy account values, as set
forth in the plan.
(5) Provides for either of the following:
(A) The conversion of the converting mutual life company into a
domestic stock corporation.
(B) The conversion of the converting mutual life company by means
of a merger (i) in the case of a mutual life insurer into a domestic
stock corporation, provided the corporation has been issued a
certificate of authority, or (ii) in the case of a converting mutual
holding company into a domestic or foreign stock corporation, and, in
the case of that merger:
(I) The merger and conversion shall be subject to the provisions
of this chapter other than subdivisions (a) to (d), inclusive.
(II) Chapter 11 (commencing with Section 1100), Chapter 12
(commencing with Section 1200), and Chapter 13 (commencing with
Section 1300), of Division 1 of the Corporations Code shall not apply
to the converting mutual life company in the merger except that
Section 1107 of the Corporations Code shall apply.
(III) The merger and conversion shall become effective upon the
filing of appropriate instruments with the Secretary of State.
(6) The plan may also provide for the converted company, or a
corporation that will directly or indirectly control the converted
insurer after the conversion, to issue and sell its securities to
other persons at the time of the conversion. Any plan provisions
pertaining to the issuance and sale of securities to the insurer's
officers, directors, employees, agents, and employee benefit plans
for their benefit shall be subject to Section 11540.
11538. (a) The commissioner shall examine the plan submitted
pursuant to subdivision (b) of Section 11536. As a part of the
examination the commissioner may order a hearing on the plan after
written notice of the hearing to the mutual company, and its members,
all of whom shall have the right to appear at the hearing. 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 and
equitable to the insurer and its policyholders.
(2) For the conversion of a mutual holding company, the plan is
fair 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.
(b) For the conversion of a converting mutual life 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 chapter. The converting mutual life 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.
11539. The meeting of members prescribed by subdivision (c) of
Section 11536 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 30 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. Voting shall be by ballot, in
person or by proxy. A quorum shall consist of 5 percent of the
members of the mutual company entitled to vote at the meeting.
11540. (a) Nothing in this chapter 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 chapter 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 more
than 25 percent of the voting stock issued pursuant to the plan for a
mutual life insurer having assets in excess of two hundred million
dollars ($200,000,000) or 35 percent for a mutual life insurer having
assets of two hundred million dollars ($200,000,000) or less.
(b) For the conversion of a mutual property-casualty insurer,
subdivision (f) of Section 11537 does not prohibit the inclusion in
the conversion plan of provisions under which the individuals
comprising the insurer's management, employees and agents are
entitled to purchase for cash, at the same price as offered to the
insurer's members, shares of stock not taken by members on the
preemptive offering to members, in accordance with such reasonable
classifications of such individuals as may be included in the plan.
The plan may not provide for such individuals to acquire in excess of
25 percent of the shares of stock issued pursuant to the plan for a
mutual insurer having assets in excess of two hundred million dollars
($200,000,000) or 35 percent for a mutual insurer having assets of
two hundred million dollars ($200,000,000) or less.
11541. 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.
11541.1. At any time before that plan of conversion becomes
effective as provided in Section 11542, the mutual company may, by
resolution of a majority 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 chapter 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 life 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.
11542. (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 chapter, 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 in accordance with Section 11537.2, 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 chapter, 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
property-casualty 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
life insurer in accordance with Section 11537.3, the mutual life
insurer immediately becomes a stock corporation, all membership
interests and rights in surplus are extinguished, and members
eligible to exercise subscription rights or receive other
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. The converted insurer is a
continuation of the original mutual life insurer, and the conversion
in no way annuls, modifies, or changes any of the original mutual
life insurer's existing suits, rights, contracts, or liabilities,
except as provided in the plan of conversion. 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.
(d) 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.
11542.1. (a) Upon the effective date of a plan of conversion in
accordance with Section 11537.2, the mutual life insurer immediately
becomes a stock corporation, the membership interests and rights in
surplus of its members are extinguished, the members of the mutual
life insurer immediately become members of the mutual holding
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. 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 life
insurer pursuant to proceedings under this chapter shall become
members of the mutual holding company immediately upon issuance of
the policies. 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 to the mutual holding company and, in
addition, to other persons an amount of voting stock and securities
convertible into voting stock, if in the aggregate, the issued and
outstanding voting stock of the stock holding company not held by the
mutual holding company does not exceed 49 percent of the issued and
outstanding voting stock of the stock holding company. For purposes
of the 49-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) The commissioner shall retain jurisdiction over the mutual
holding company organized pursuant to this chapter. 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.
(d) 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 life insurer subject to the provisions of this code.
(e) 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.
(f) Notice of all meetings of members, 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 such officer, 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.
(g) 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.
(h) 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.
(i) The articles of incorporation or the bylaws of the mutual
holding company may provide that the directors may be divided into
two or more classes whose terms of office shall expire at different
times. 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. 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.
(j) 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 chapter, 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 chapter, are deemed assets of the estate of the stock life
insurer to the extent necessary to satisfy claims of persons against
the stock life 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.
(k) 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.
11542.2. 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 paragraph (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
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 11535.1, 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.
11543. 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.
11543.1. (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 chapter or any acts taken or
proposed to be taken under this chapter 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
11536 or subdivision (a) of Section 11542, 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 11546, 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 chapter 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.
11544. The offer or sale of securities issued pursuant to the plan
of conversion developed and approved in accordance with the
provisions of this chapter, shall be exempt from Article 8
(commencing with Section 820) of Chapter 1 of Part 2 of Division 1.
11545. The commissioner shall have the authority from time to time,
to make, amend and rescind such rules and regulations as may be
necessary to carry out the provisions of this chapter. 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.
11546. Upon completion of the act of conversion and issuance of the
certificate of authority under Section 11542, the Secretary of State
shall accept for filing a verified copy of the amended articles of
incorporation.
11547. (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 11542
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. Such an amendment shall take effect upon filing with the
Secretary of State after compliance with the following:
(1) Approval by a resolution of the majority 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 11538.
(3) For the conversion of a mutual insurer, approval by a majority
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 11536 and who vote at a meeting called for that purpose.
(4) For the conversion of a mutual holding company, approval by a
majority 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 11536 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
such 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 30 days
prior to the date set for the meeting. Voting shall be by ballot, in
person or by proxy. A quorum consists of 5 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 a majority 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.
11548. If the name of a mutual life insurer converting to a stock
insurer pursuant to this chapter 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.
11549. (a) Pursuant to this section, a mutual holding company may
merge into a foreign mutual holding company that is domiciled in a
state to which the converted insurer has transferred its domicile or
will transfer its domicile concurrently with the merger. The merger
shall be effected pursuant to an agreement of merger between the
mutual holding company and the foreign mutual holding company in
accordance with the General Corporation Law, to the extent not
inconsistent with this section. The merger shall take effect upon
filing the agreement of merger with the California Secretary of State
after compliance with the following:
(1) Approval of the agreement of merger by a resolution of the
majority of the board of directors of the mutual holding company and
signing of the agreement of merger by the parties thereto.
(2) Approval of an amendment to the converted insurer's plan of
conversion in accordance with Section 11547 by a resolution of the
majority of the board of directors of the converted insurer in order
to reflect appropriately the merger and transfer of domicile.
(3) Submission of the agreement of merger and the amendment to the
commissioner for consent in writing.
(4) Approval of the agreement of merger by a majority of the
members of the mutual holding company who vote at a meeting called
for that purpose.
(5) Approval of the amendment by a majority of the members of the
mutual holding company who were members of the converted insurer and
were entitled to vote on the original plan of conversion approved
pursuant to subdivision (c) of Section 11536 and who vote at a
meeting called for the purpose.
(6) Filing of the agreement of merger in the office of the
commissioner after having been consented to and approved as
contemplated by paragraphs (2), (3), (4), and (5).
(b) The submission to the commissioner prescribed in paragraph (3)
of subdivision (a) shall be accompanied by a filing fee of eight
thousand one hundred dollars ($8,100), evidence that the foreign
mutual holding company that will survive the merger is qualified as a
foreign corporation under the General Corporation Law, and any other
relevant information that the commissioner may require.
(c) The meetings of members prescribed in paragraphs (4) and (5)
of subdivision (a) and shall be called by the board of directors, the
chairperson of the board, or the president of the mutual holding
company, and may be combined at a single meeting with separate voting
by those eligible to vote on the matters referred to in paragraphs
(4) and (5) of subdivision (a). Notice of the meeting shall be given
by mail to members entitled to vote at the meeting at least 30 days
prior to the date set for the meeting. Voting shall be by ballot, in
person, or by proxy. A quorum for each such matter consists of 5
percent of the members of the mutual holding company entitled to vote
at the meeting on the matter.
(d) The commissioner shall consent to any proposed merger and
amendment if he or she determines that the merger will be fair and
equitable to the mutual holding company and its members.
11535. (a) A domestic incorporated mutual life insurer, or life and
disability insurer, issuing nonassessable policies on a reserve
basis may be converted into an incorporated stock life or stock life
and disability insurer issuing, on a reserve basis, nonassessable
policies of life insurance or of both life and disability insurance.
To that end, it may provide and carry out a plan for the conversion
by complying with the requirements of this chapter.
(b) A domestic incorporated mutual insurer not referred to in
subdivision (a) and that is not a medical malpractice mutual insurer
as defined in subdivision (i) of Section 4097.01, which may be
referred to in this chapter as a mutual property-casualty insurer,
may be converted into an incorporated stock property-casualty
insurer. To that end, it may provide and carry out a plan for the
conversion by complying with the requirements of this chapter. A
medical malpractice mutual insurer as defined in subdivision (i) of
Section 4097.01 may not convert to a stock insurer under this
chapter.
(c) 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 chapter.
(d) As part of the conversion authorized in this section, a
domestic incorporated mutual insurer may merge with an incorporated
stock insurer, if the merging insurers comply with the provisions of
this code applicable to their participation in the merger, or may
transfer its domicile to any other state, if the insurer complies
with Section 709.5.
11535.1. The definitions in this section apply to the following
terms when used in this chapter.
(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 mutual insurer has been converted or merged or redomiciled in
accordance with the provisions of this chapter.
(d) "Converted mutual holding company" means the stock corporation
into which a mutual holding company has been converted in accordance
with this chapter.
(e) "Converting mutual life company" means, for a plan of
conversion under this chapter, the mutual life insurer or mutual
holding company that is converting under such a plan.
(f) "Effective date" means, for the conversion of a mutual life
insurer, the date upon which the conversion of the mutual life
insurer is effective, as specified in the commissioner's amendment to
the mutual life insurer's certificate of authority issued in
accordance with Section 11542, as a result of conversion proceedings
under this chapter. For the conversion of a 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 11542, as a result of
conversion proceedings under this chapter.
(g) "Eligible members" means, for the conversion of a mutual life
insurer, the members of the mutual life insurer who are of record on
the mutual life insurer's adoption date. For the conversion of a
mutual holding company, "eligible members" means the members of the
mutual holding company who are of record on the mutual holding
company's adoption date.
(h) "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. For a
mutual life insurer, a plan of conversion may provide that the term
"member" also includes a person who is the owner of a policy issued
or assumed by an insurer, that, pursuant to court order, is to be
merged into the converted 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 11542.1.
(i) "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. Membership interests
do not include members' rights in surplus, if any.
(j) "Mutual company" means, in the case of a plan of conversion,
the mutual life insurer, mutual property-casualty insurer, or mutual
holding company that is converting pursuant to such plan.
(k) "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 chapter.
(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 life insurer.
(3) It is not authorized to issue voting stock.
(4) Its members have the rights specified in Section 11542.1 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.
(l) "Mutual insurer" means, in the case of a plan of conversion
under this chapter, the mutual life insurer or mutual
property-casualty insurer that is converting pursuant to such plan.
(m) "Mutual life insurer" means a domestic incorporated mutual
life insurer, or domestic mutual life and disability insurer, that
issues nonassessable policies on a reserve basis.
(n) "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.
(o) "Plan of conversion" or "plan" means a plan adopted by a
mutual company in compliance with this chapter.
(p) "Policy" means an individual or group policy of insurance
issued by a life insurer. If a policy of a mutual life insurer takes
a form other than an individual form but holders of certificates or
other interests under the policy are treated by the mutual life
insurer as if they were holders of individual policies, the mutual
life insurer may provide in its plan of conversion under this chapter
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 life
insurer to vote upon and receive consideration under the plan of
conversion and may not affect the other voting rights and
qualifications of members of the mutual life insurer.
(q) "Policyholder" means the holder of a policy other than a
reinsurance contract.
(r) "Rights in surplus," for a mutual life 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 or
conservation 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 or
conservation 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.
(s) "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 life insurer to a stock life insurer in
proceedings under Section 11537.2 in which a mutual holding company
is formed.
(t) "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.
11536. 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 the majority 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 11538, 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 the 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 chapter.
(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) Other relevant information that the commissioner may require.
(c) Approved by a majority vote of the members of the mutual
company voting at a meeting of the members called for that purpose,
subject to the provisions of Section 11539.
(d) Filed in the office of the commissioner after receipt of the
commissioner's consent, and after having been approved as provided in
Sections 11538 and 11539, respectively.
11537. For the conversion of a mutual property-casualty insurer,
the plan for conversion shall include the following:
(a) A fair and reasonable formula, approved by the commissioner,
for determining the equity of each eligible member in the insurer.
The equity shall be based upon an appraisal of the fair value of the
insurer by one or more qualified disinterested persons appointed by
the insurer with the approval of the commissioner. Those persons
shall consider the assets and liabilities of the insurer and any
factors bearing on the value of the mutual insurer.
(b) Each eligible member of the mutual insurer shall be given a
preemptive right to acquire his or her proportionate part of all of
the proposed capital stock of the insurer, within a designated
reasonable period, by applying upon the purchase of such part the
amount of his or her equity as determined under the formula described
in subdivision (a).
(c) The members entitled to participate in the purchase of stock
or distribution of assets shall be limited to all current
policyholder members whose policies have been of record for not less
than one year prior to the date the board of directors adopted the
plan of conversion.
(d) Each member not applying his or her equity 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 equity 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 equity, 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 equity or property interest in the mutual
insurer, and, notwithstanding any other provision of law, the member
shall have no other rights with respect thereto.
(e) 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 provide for the converted
insurer paid-in capital and surplus in an amount not less than the
minimum paid-in capital and surplus required of a domestic stock
insurer upon initial authorization to transact like kinds of
insurance.
(f) 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.
11537.1. For the conversion of a mutual life insurer, the plan of
conversion shall provide for either a mutual holding company in
compliance with Section 11537.2 or for consideration in compliance
with Section 11537.3. For the conversion of a mutual holding company,
the plan of conversion shall provide for consideration in compliance
with Section 11537.3.
11537.2. A plan of conversion adopted by a mutual life insurer for
the establishment of a mutual holding company shall provide that the
mutual life insurer will become a stock life insurer, that the
members of the mutual life 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.
11537.3. A plan of conversion adopted by a converting mutual life
company shall include the following:
(a) (1) The plan provides that each member's membership interests
and rights in surplus are extinguished and each eligible member will
receive, without payment, nontransferable subscription rights to
purchase a portion of the capital stock of a corporation which will
issue the subscription rights, or, in lieu thereof, shares of capital
stock or other securities of the issuer, cash, premium credits, or
credits to policy account values having an aggregate value equal to
the aggregate exercise price of the subscription rights that
otherwise would have been allocated to the member. The issuer is
either (A) the converted insurer, (B) a corporation, the voting stock
of which is owned by the mutual life insurer or the mutual holding
company, as the case may be, or by any other persons, that will
acquire in the conversion all the voting stock of the converted
insurer, or (C) a corporation, all of the voting stock of which is
owned by the mutual holding company into which both the mutual
holding company and the stock holding company will be merged.
(2) The subscription rights are allocated in whole shares among
the eligible members. The subscription rights, capital stock, cash,
premium credits, and credits to policy account values are allocated
among the eligible members using a fair and equitable formula. This
formula will either (A) allocate a fixed component per capita among
eligible members (specifying how joint owners will be treated for
this purpose) and allocate a variable component among eligible
members in proportion to the cash value of policies held by them, or
(B) allocate the subscription rights, capital stock, cash, or credits
in any other manner that the commissioner may approve.
(b) The plan specifies or authorizes the board of directors of the
converting mutual life company to set the expiration date of the
subscription rights, if any, allocated by the plan. The exercise
price per share of the subscription rights is 50 percent of the price
per share at which the capital stock of the issuer is first offered
to the public in the offering referred to in subdivision (d), as
fixed at the time of the offering by the boards of directors of the
converting mutual life company and the issuer or committees of the
boards.
(c) The plan provides that any eligible member not exercising the
subscription rights, if any, allocated to the member will instead
receive alternative forms of consideration having an aggregate value
equal to the aggregate exercise price of the subscription rights
allocated to the member. The alternative forms of consideration may
include shares of capital stock of the issuer, cash, premium credits,
or credits to policy account values. The choices available to the
eligible member shall be specified in the plan. The choices available
may take into account the type of policy, size of policy, tax status
of the member, and other factors that the commissioner determines
are appropriate.
(d) The plan provides that the issuer will make a public offering
of its capital stock at a price determined by the boards of directors
of the converting mutual life company and the issuer. The number of
shares to be offered is determined according to the plan and may
include any shares issuable upon exercise of subscription rights that
are not exercised. The plan may also provide for the issue and sale
of securities of the issuer to other persons at the time of the
public offering. However, any plan provisions pertaining to the
issuance and sale of securities to the insurer's officers, directors,
employees, agents, and employee benefit plans for their benefit
shall be subject to Section 11540.
(e) The plan of a mutual life insurer may provide for the
establishment, for policyholder dividend purposes only, of a closed
block. The closed block will consist of all of the participating
individual policies of life insurance of the mutual life insurer in
force on the effective date of the plan for which the insurer had an
experience-based dividend scale payable in the year in which the plan
is adopted. Assets of the insurer shall be allocated to the closed
block in an amount that produces cash-flows, together with
anticipated revenues from the closed block business, expected to be
sufficient (1) to support the closed block business, including
payment of claims and those expenses and taxes specified in the plan
and (2) to provide for continuation of dividend scales in effect on
the adoption date if the experience underlying the scales continues,
and for appropriate adjustments in the scales if the experience
changes. The plan may provide for conditions under which the
converted insurer may cease to maintain the closed block and its
allocated assets. Regardless of such a cessation, the obligation
under the policies constituting the closed block business remain the
obligations of the converted insurer. Dividends on those policies
shall be apportioned by the board of directors of the converted
insurer in accordance with the terms of the policies.
(f) In lieu of the provisions contemplated by subdivisions (a) to
(d), inclusive, a plan may be adopted by a converting mutual life
company that:
(1) Is fair and equitable to the members of the converting mutual
life company and provides for consideration to the members having a
value equal to or greater than the value of the consideration that
would have been payable to the members pursuant to a plan of
conversion contemplated by subdivisions (a) to (d), inclusive.
(2) Has been approved by a resolution of the majority of the board
of directors that specifies the basis on which the board of
directors of the converting mutual life company finds that adopting
the plan of conversion under this subdivision meets the requirements
of paragraph (1).
(3) Provides that each member's membership interests and rights in
surplus are extinguished and each eligible member will receive,
without payment by the member, consideration that is allocated among
the eligible members using a fair and equitable formula. This formula
will either (A) allocate a fixed component per capita among eligible
members, specifying how joint owners will be treated for this
purpose, and allocate a variable component among eligible members in
proportion to the cash value of policies held by them, or (B)
allocate the consideration in any other manner that the commissioner
may approve.
(4) Provides that eligible members may receive one or more kinds
of consideration, including shares of capital stock of the converting
mutual life company or shares of capital stock (or interests in
shares of capital stock) of a corporation that, after the conversion,
directly or indirectly, controls the converted insurer, cash,
premium credits, or credits to pay policy account values, as set
forth in the plan.
(5) Provides for either of the following:
(A) The conversion of the converting mutual life company into a
domestic stock corporation.
(B) The conversion of the converting mutual life company by means
of a merger (i) in the case of a mutual life insurer into a domestic
stock corporation, provided the corporation has been issued a
certificate of authority, or (ii) in the case of a converting mutual
holding company into a domestic or foreign stock corporation, and, in
the case of that merger:
(I) The merger and conversion shall be subject to the provisions
of this chapter other than subdivisions (a) to (d), inclusive.
(II) Chapter 11 (commencing with Section 1100), Chapter 12
(commencing with Section 1200), and Chapter 13 (commencing with
Section 1300), of Division 1 of the Corporations Code shall not apply
to the converting mutual life company in the merger except that
Section 1107 of the Corporations Code shall apply.
(III) The merger and conversion shall become effective upon the
filing of appropriate instruments with the Secretary of State.
(6) The plan may also provide for the converted company, or a
corporation that will directly or indirectly control the converted
insurer after the conversion, to issue and sell its securities to
other persons at the time of the conversion. Any plan provisions
pertaining to the issuance and sale of securities to the insurer's
officers, directors, employees, agents, and employee benefit plans
for their benefit shall be subject to Section 11540.
11538. (a) The commissioner shall examine the plan submitted
pursuant to subdivision (b) of Section 11536. As a part of the
examination the commissioner may order a hearing on the plan after
written notice of the hearing to the mutual company, and its members,
all of whom shall have the right to appear at the hearing. 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 and
equitable to the insurer and its policyholders.
(2) For the conversion of a mutual holding company, the plan is
fair 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.
(b) For the conversion of a converting mutual life 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 chapter. The converting mutual life 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.
11539. The meeting of members prescribed by subdivision (c) of
Section 11536 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 30 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. Voting shall be by ballot, in
person or by proxy. A quorum shall consist of 5 percent of the
members of the mutual company entitled to vote at the meeting.
11540. (a) Nothing in this chapter 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 chapter 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 more
than 25 percent of the voting stock issued pursuant to the plan for a
mutual life insurer having assets in excess of two hundred million
dollars ($200,000,000) or 35 percent for a mutual life insurer having
assets of two hundred million dollars ($200,000,000) or less.
(b) For the conversion of a mutual property-casualty insurer,
subdivision (f) of Section 11537 does not prohibit the inclusion in
the conversion plan of provisions under which the individuals
comprising the insurer's management, employees and agents are
entitled to purchase for cash, at the same price as offered to the
insurer's members, shares of stock not taken by members on the
preemptive offering to members, in accordance with such reasonable
classifications of such individuals as may be included in the plan.
The plan may not provide for such individuals to acquire in excess of
25 percent of the shares of stock issued pursuant to the plan for a
mutual insurer having assets in excess of two hundred million dollars
($200,000,000) or 35 percent for a mutual insurer having assets of
two hundred million dollars ($200,000,000) or less.
11541. 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.
11541.1. At any time before that plan of conversion becomes
effective as provided in Section 11542, the mutual company may, by
resolution of a majority 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 chapter 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 life 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.
11542. (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 chapter, 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 in accordance with Section 11537.2, 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 chapter, 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
property-casualty 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
life insurer in accordance with Section 11537.3, the mutual life
insurer immediately becomes a stock corporation, all membership
interests and rights in surplus are extinguished, and members
eligible to exercise subscription rights or receive other
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. The converted insurer is a
continuation of the original mutual life insurer, and the conversion
in no way annuls, modifies, or changes any of the original mutual
life insurer's existing suits, rights, contracts, or liabilities,
except as provided in the plan of conversion. 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.
(d) 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.
11542.1. (a) Upon the effective date of a plan of conversion in
accordance with Section 11537.2, the mutual life insurer immediately
becomes a stock corporation, the membership interests and rights in
surplus of its members are extinguished, the members of the mutual
life insurer immediately become members of the mutual holding
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. 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 life
insurer pursuant to proceedings under this chapter shall become
members of the mutual holding company immediately upon issuance of
the policies. 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 to the mutual holding company and, in
addition, to other persons an amount of voting stock and securities
convertible into voting stock, if in the aggregate, the issued and
outstanding voting stock of the stock holding company not held by the
mutual holding company does not exceed 49 percent of the issued and
outstanding voting stock of the stock holding company. For purposes
of the 49-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) The commissioner shall retain jurisdiction over the mutual
holding company organized pursuant to this chapter. 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.
(d) 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 life insurer subject to the provisions of this code.
(e) 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.
(f) Notice of all meetings of members, 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 such officer, 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.
(g) 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.
(h) 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.
(i) The articles of incorporation or the bylaws of the mutual
holding company may provide that the directors may be divided into
two or more classes whose terms of office shall expire at different
times. 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. 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.
(j) 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 chapter, 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 chapter, are deemed assets of the estate of the stock life
insurer to the extent necessary to satisfy claims of persons against
the stock life 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.
(k) 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.
11542.2. 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 paragraph (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
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 11535.1, 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.
11543. 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.
11543.1. (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 chapter or any acts taken or
proposed to be taken under this chapter 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
11536 or subdivision (a) of Section 11542, 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 11546, 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 chapter 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.
11544. The offer or sale of securities issued pursuant to the plan
of conversion developed and approved in accordance with the
provisions of this chapter, shall be exempt from Article 8
(commencing with Section 820) of Chapter 1 of Part 2 of Division 1.
11545. The commissioner shall have the authority from time to time,
to make, amend and rescind such rules and regulations as may be
necessary to carry out the provisions of this chapter. 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.
11546. Upon completion of the act of conversion and issuance of the
certificate of authority under Section 11542, the Secretary of State
shall accept for filing a verified copy of the amended articles of
incorporation.
11547. (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 11542
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. Such an amendment shall take effect upon filing with the
Secretary of State after compliance with the following:
(1) Approval by a resolution of the majority 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 11538.
(3) For the conversion of a mutual insurer, approval by a majority
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 11536 and who vote at a meeting called for that purpose.
(4) For the conversion of a mutual holding company, approval by a
majority 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 11536 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
such 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 30 days
prior to the date set for the meeting. Voting shall be by ballot, in
person or by proxy. A quorum consists of 5 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 a majority 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.
11548. If the name of a mutual life insurer converting to a stock
insurer pursuant to this chapter 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.
11549. (a) Pursuant to this section, a mutual holding company may
merge into a foreign mutual holding company that is domiciled in a
state to which the converted insurer has transferred its domicile or
will transfer its domicile concurrently with the merger. The merger
shall be effected pursuant to an agreement of merger between the
mutual holding company and the foreign mutual holding company in
accordance with the General Corporation Law, to the extent not
inconsistent with this section. The merger shall take effect upon
filing the agreement of merger with the California Secretary of State
after compliance with the following:
(1) Approval of the agreement of merger by a resolution of the
majority of the board of directors of the mutual holding company and
signing of the agreement of merger by the parties thereto.
(2) Approval of an amendment to the converted insurer's plan of
conversion in accordance with Section 11547 by a resolution of the
majority of the board of directors of the converted insurer in order
to reflect appropriately the merger and transfer of domicile.
(3) Submission of the agreement of merger and the amendment to the
commissioner for consent in writing.
(4) Approval of the agreement of merger by a majority of the
members of the mutual holding company who vote at a meeting called
for that purpose.
(5) Approval of the amendment by a majority of the members of the
mutual holding company who were members of the converted insurer and
were entitled to vote on the original plan of conversion approved
pursuant to subdivision (c) of Section 11536 and who vote at a
meeting called for the purpose.
(6) Filing of the agreement of merger in the office of the
commissioner after having been consented to and approved as
contemplated by paragraphs (2), (3), (4), and (5).
(b) The submission to the commissioner prescribed in paragraph (3)
of subdivision (a) shall be accompanied by a filing fee of eight
thousand one hundred dollars ($8,100), evidence that the foreign
mutual holding company that will survive the merger is qualified as a
foreign corporation under the General Corporation Law, and any other
relevant information that the commissioner may require.
(c) The meetings of members prescribed in paragraphs (4) and (5)
of subdivision (a) and shall be called by the board of directors, the
chairperson of the board, or the president of the mutual holding
company, and may be combined at a single meeting with separate voting
by those eligible to vote on the matters referred to in paragraphs
(4) and (5) of subdivision (a). Notice of the meeting shall be given
by mail to members entitled to vote at the meeting at least 30 days
prior to the date set for the meeting. Voting shall be by ballot, in
person, or by proxy. A quorum for each such matter consists of 5
percent of the members of the mutual holding company entitled to vote
at the meeting on the matter.
(d) The commissioner shall consent to any proposed merger and
amendment if he or she determines that the merger will be fair and
equitable to the mutual holding company and its members.
