508B.3 - CONVERSION PLANS TO BE FAIR AND EQUITABLE -- ALTERNATIVE PROCEDURES AND REQUIREMENTS.

        508B.3  CONVERSION PLANS TO BE FAIR AND EQUITABLE --      ALTERNATIVE PROCEDURES AND REQUIREMENTS.         A plan of conversion shall be fair and equitable to policyholders.      A plan of conversion is fair and equitable if it satisfies the      conditions of subsection 1, 2, or 3.  The commissioner may determine      whether any other plan proposed by a mutual company is fair and      equitable to its policyholders.         1.  Subject to paragraph "b", a plan of conversion under this      subsection shall provide all of the following:         a.  The policyholders' membership interest shall be exchanged,      in a manner which takes into account the estimated proportionate      contribution of surplus of each class of participating policies and      contracts, for all of the common shares of the reorganized company or      its parent company, if any, or for either or a combination of the      common shares of the reorganized company or its parent company, if      any, and consideration equal to the proceeds of the sale of the      common shares by the issuer or by a trust or other entity existing      for the exclusive benefit of policyholders and established solely for      the purpose of effecting the conversion, to which trust or other      entity the common shares, or the options to acquire or securities      convertible into the common shares, shall be issued by the issuer on      the effective date of the conversion.  The consideration shall be      distributed to policyholders during a process of conversion specified      in the plan which shall not last more than ten years after the      effective date of conversion or until the death of the policyholder,      whichever occurs first.         b.  Unless the anticipated issuance within a shorter period is      disclosed, the issuer of common shares shall not, within two years      after the effective date of reorganization, issue either of the      following:         (1)  Any of its common shares or any securities convertible with      or without consideration into the common shares or carrying any      warrant to subscribe to or purchase common shares.         (2)  Any warrant, right or option to subscribe to or purchase the      common shares or other securities described in subparagraph (1),      except for the issue of common shares to or for the benefit of      policyholders pursuant to the plan of conversion and the issue of      stock in anticipation of options for the purchase of common shares      being granted to officers or employees of the reorganized company or      its parent company, if any, pursuant to this chapter.         c.  Unless the common shares have a public market when issued,      the issuer shall use its best efforts to encourage and assist in the      establishment of a public market for the common shares within two      years of the effective date of the conversion or a longer period as      disclosed in the plan of conversion.  Within one year after the      offering of stock other than the initial distribution, but no later      than six years after the effective date of the conversion, the      reorganized company shall offer to make available to policyholders      who received and retained shares of stock with minimal values on      conversion, a procedure to dispose of those shares of stock at market      value without brokerage commissions or similar fees.         2.  A plan of conversion under this subsection shall provide all      of the following:         a.  The mutual company's participating business, comprised of      its participating policies and contracts in force on the effective      date of the conversion, shall be operated by the reorganized insurer      as a closed block of participating business.  However, at the option      of the mutual company, group policies and group contracts may be      omitted from the closed block.         b.  Assets of the mutual company shall be allocated to the      closed block of participating business in an amount equal to the      reserves and liabilities for the mutual life insurer's participating      policies and contracts in force on the effective date of the      conversion.         c.  The consideration to be given in exchange for the      policyholders' membership interest consists of aggregate      consideration in a form or forms selected by the mutual company      having a value equal to the amount of the statutory surplus of the      mutual life insurer.         d.  The consideration is allocated among the policyholders in      a manner which is fair and equitable to the policyholders.         e.  The reorganized company or its parent corporation shall      issue and sell shares of one or more classes having a total price      equal to the estimated value in the market on the initial offering      date of the shares.         f.  The estimated value shall take into account all of the      following:         (1)  The consideration to be given to policyholders pursuant to      paragraph "c".         (2)  The proceeds of the sale of the shares.         (3)  Any additional value attributable to the shares as a result      of a purchaser or a group of purchasers who acted in concert to      obtain shares in the initial offering, attaining, through such      purchase, control of the reorganized company or its parent      corporation.         g.  If a purchaser or a group of purchasers acting in concert      is to attain such control in the initial offering, the mutual company      shall not, directly or indirectly, pay for any of the costs or      expenses of conversion of the mutual company, whether or not the      conversion is effected.         h.  The reorganized company may share in the profits of the      closed block of participating business for the benefit of      stockholders.         3.  A plan of conversion under this subsection shall satisfy all      of paragraphs "a" through "j" and may add or substitute, as      applicable, the options provided in paragraphs "k" and "l".         a.  The reorganized company or its parent corporation shall      issue and sell shares of one or more classes having a total price      equal to the estimated market value on the initial offering taking      into account the value to be given to participating policyholders      pursuant to paragraph "b" and the proceeds of the sale.         b.  The participating policyholders' consideration shall be      based on the latest annual statement, updated to the effective date      of the conversion plan, and filed prior to the effective date of the      adoption by the board of directors of the plan of conversion.  The      policyholders' consideration shall be equal to the sum of the total      amount of assets allocated to the participating business and an      amount equal to reserves and other liabilities attributable to any      group participating policies and contracts not included in the closed      block of participating business.         c.  The consideration to be given in exchange for the      policyholders' membership interest shall consist of the participating      policyholders' consideration and nontransferable preemptive      subscription rights to purchase all of the common shares of the      issuer and the establishment of a liquidation account for the benefit      of the policyholders in the event of a subsequent complete      liquidation of the reorganized company having the terms described in      paragraph "j".         d.  The consideration and the preemptive subscription rights      to purchase the common shares shall be allocated among the      participating policyholders in a manner determined by the reorganized      company which takes into account the estimated contribution of each      class of participating policies and contracts to the total amount of      the policyholders' consideration.         e.  The number of the common shares which any person, together      with any affiliates or group of persons acting in concert, may      subscribe for or purchase in the reorganization shall be limited to      not more than five percent of the common shares.  For this purpose,      neither the members of the board of directors of the reorganized      company nor of its parent corporation, if any, shall be deemed to be      affiliates or a group of persons acting in concert solely by reason      of their board membership.         f.  Unless the common shares have a public market when issued,      officers and directors of the issuer and their affiliates shall not,      for at least ninety days after the date of conversion, purchase      common shares of the issuer, except in negotiated transactions      involving more than ten percent of the outstanding common shares.         g.  Unless the common shares have a public market when issued,      the issuer shall use its best efforts to encourage and assist in the      establishment of a public market for the common shares.         h.  The issuer shall not, for at least three years following      the conversion, repurchase any of its common shares except pursuant      to a pro rata tender offer to all shareholders.         i.  Until the liquidation account has been reduced to zero,      the issuer shall not declare or pay a cash dividend on, or repurchase      any of, its common shares in an amount in excess of its cumulative      earned surplus generated after the conversion determined in      accordance with generally accepted accounting principles, if the      effect would be to cause the amount of the statutory surplus of the      reorganized company to be reduced below the then amount of the      liquidation account.         j.  The liquidation account referred to in paragraph "c"      must be equal to the excess of the total amount of the assets of the      mutual company as of the effective date of the conversion over the      sum of the total amount of assets allocated to the closed block of      participating business and the policyholders' consideration and other      reserves and liabilities attributed to policies and contracts not      included in the amount attributable to policies and contracts in      force on that effective date.  The determinations shall be based on      the latest annual statement of the mutual company, updated to the      effective date, and filed before the effective date of the conversion      plan.  The function of the liquidation account is solely to establish      a priority on liquidation and its existence does not restrict the use      or application of the surplus of the reorganized company except as      specified in paragraph "i".  The liquidation account shall be      allocated equally as of the effective date of conversion among the      then participating policyholders.  The amount allocated to a policy      or contract shall not increase and shall be reduced to zero when the      policy or contract terminates.  In the event of a complete      liquidation of the reorganized company, the policyholders among which      the liquidation account is allocated are entitled to receive a      liquidation distribution in the then amount of the liquidation      account before any liquidation distribution is made with respect to      shares.         k.  At the option of the mutual company, the consideration to      be given in exchange for the policyholders' membership interests may      consist of cash, securities of the reorganized company, securities of      another institution, a certificate of contribution, additional life      insurance, annuity benefits, increased dividends, or other      consideration or any combination of forms of consideration.  The      consideration, if any, given to a class or category of policyholders      may differ from the consideration given to another class or category      of policyholders.  The certificate of contribution shall be repayable      in ten years, equal to one hundred percent of the value of the      policyholders' membership interest, and bear interest at the highest      rate charged by the reorganized company for policy loans on the      effective date of the conversion.         l.  At the option of the mutual company, a plan may provide      that any shares of the stock of the reorganized company or its parent      corporation included in the policyholders' consideration shall be      placed on the effective date of the conversion in a trust or other      entity existing for the exclusive benefit of the participating      policyholders and established solely for the purpose of effecting the      reorganization.  Under this option, the shares placed in trust shall      be sold over a period of not more than ten years and the proceeds of      the shares shall be distributed using the distribution priorities      prescribed in the plan.  
         Section History: Recent Form
         85 Acts, ch 127, §3; 90 Acts, ch 1234, § 9--14; 2000 Acts, ch      1023, §8, 60         Referred to in § 508B.1, 508B.5, 508B.13