S.L. 1967-938

NORTH CAROLINA GENERAL ASSEMBLY

1967 SESSION

CHAPTER 938

SENATE BILL 528

AN ACT TO AMEND CHAPTER 58 OF THE GENERAL STATUTES OF NORTH CAROLINA BY ADDING A NEW ARTICLE THERETO DESIGNATED AS ARTICLE 6A SO AS TO AUTHORIZE THE STOCKHOLDERS OF A DOMESTIC INSURANCE COMPANY TO EXCHANGE THEIR STOCK IN SUCH INSURANCE COMPANY FOR STOCK OF ANOTHER DOMESTIC INSURANCE COMPANY OR OTHER DOMESTIC CORPORATION.

The General Assembly of North Carolina do enact:

Section 1. Chapter 58 of the General Statutes of North Carolina is hereby amended by adding a new Article to subchapter II, designated as Article 6A to read as follows:

"Article 6A

"Exchange of Stock

"G.S. 58-86.2. Exchange of Securities. Any domestic insurance company with capital stock (hereinafter referred to as 'domestic company') may adopt a plan of exchange providing for the exchange by its shareholders of their stock in the domestic company for (i) shares of stock issued by any other domestic stock insurance company or other domestic stock corporation organized or reorganized under the laws of this State — such other corporation being hereinafter referred to as the 'acquiring corporation'; (ii) other securities issued by the acquiring corporation;(iii) cash; (iv) other consideration; (v) any combination of such stock, such other securities, cash or other consideration. For the purpose of this Article, a 'domestic company' or 'domestic stock insurance company' shall mean a business corporation or a stock insurance company, respectively, organized and existing under the laws of the State of North Carolina.

"G.S. 58-86.3. Procedure for Exchange. Subject to the provisions of G.S. 58-86.2, any domestic company may adopt a plan of exchange with any acquiring corporation providing for the exchange of the outstanding stock of the domestic company for shares of stock or other securities issued by the acquiring corporation or cash or other consideration or any combination thereof in the following manner:

"(a) Approval of the Boards of Directors. The boards of directors of the domestic company and of the acquiring corporation by resolutions shall adopt a plan of exchange which shall set forth the terms and conditions of the exchange and the mode of carrying the same into effect and such other provisions with respect to the exchange as may be deemed necessary or desirable.

"(b) Insurance Commissioner's Approval. The domestic company and the acquiring corporation shall submit to the Commissioner of Insurance three copies of the plan of exchange certified by an officer of each as having been adopted in accordance with subsection (a) of this Section. Such copies of the plan of exchange shall be accompanied by (i) financial statements of the domestic company and the acquiring corporation for the last preceding fiscal year, (ii) pro forma financial statements of each corporation based on the assumption that the plan of exchange was effective as proposed at the end of the last preceding fiscal year of the domestic company, (iii) an estimate of expenses already incurred and of expenses expected to be incurred in connection with the proposed plan of exchange, (iv) a written statement which sets forth for each corporation the identity of officers and directors of the domestic company and of the acquiring corporation, and (v) any other information which the Commissioner may require with respect to such plan.

"No director, officer, member or subscriber of the domestic company or of the acquiring corporation, except as is expressly provided by the plan filed with the Commissioner of Insurance, shall receive any fee, commission, other compensations or valuable considerations whatever, for in any manner aiding, promoting, or assisting in the promotion of the plan of exchange.

"The Commissioner of Insurance shall hold a public hearing upon the terms, conditions and provisions of the proposed plan of exchange to determine if the proposed plan of exchange is reasonable, fair and in the public interest. At such hearing the shareholders and the policyholders of the domestic company and the shareholders of the acquiring corporation and also the policyholders of the acquiring corporation, if it is an insurance company, and any other interested parties shall have the right to appear and to become parties to the proceedings.

"Such hearing shall be commenced not less than 30 days after the date on which the plan of exchange is presented to the Commissioner. The hearing shall be held at such place, date and time as the Commissioner shall specify. Notice of the hearing shall be published in a newspaper of general circulation in the city or cities wherein are located the registered office of the domestic company and of the acquiring corporation once a week for two successive weeks, the last publication of such notice to be not more than two weeks prior to the hearing date. Written notice of the hearing shall be mailed at least ten days prior to the hearing by the domestic company and by the acquiring corporation to all of their respective shareholders. All expenses of publication shall be borne by the domestic company or the acquiring corporation or both, as shall be specified in the plan of exchange, and the Commissioner may charge the domestic company or the acquiring corporation, or both, with such of the costs of the hearing as he may deem reasonable.

"The Commissioner shall issue a written order approving the plan of exchange as delivered to him by the domestic company and the acquiring corporation and such modification therein as the board of directors of each such corporation shall approve, if he finds (i) that the plan, including all such modification, if effected, will not tend adversely to affect the financial stability or management of the domestic company or the general capacity or intention to continue the safe and prudent transaction of the insurance business of the domestic company, or of the acquiring corporation, if it is a domestic insurance company; (ii) that the interests of the policyholders and shareholders of the domestic company, and, if the acquiring corporation is a domestic insurance company, the policyholders of the acquiring corporation are protected; (iii) that the terms and conditions of the plan of exchange and the proposed issuance and exchange are fair and reasonable; and (iv) that the plan of exchange is consistent with the law and will not conflict with the public interest. If the Commissioner fails to approve the plan, he shall state his reasons for such failure in his order made on such hearing.

"Any order issued by the Commissioner hereunder shall be subject to court review in accordance with the provisions of G.S. 58-9.3.

"(c) Approval of Shareholders. The plan of exchange as approved by the Commissioner of Insurance shall then be submitted to a vote of the shareholders of the domestic company at an annual or special meeting of the shareholders. Notice of the submission of the plan to the shareholders shall be included in the notice of such annual or special meeting. The plan shall be approved by the shareholders of the domestic company upon receiving the affirmative votes representing at least two-thirds of the outstanding capital stock of the domestic company or such larger proportion as may be specified in the plan of exchange. Notwithstanding shareholder adoption of the plan of exchange and at any time prior to the filing of the certificate setting forth the plan of exchange pursuant to G.S. 58-86.4, the plan of exchange may be abandoned pursuant to a provision for such abandonment, if any, contained in the plan of exchange.

"(d) Objections. Any shareholder of the domestic company may, by following the procedure set forth in G.S. 55-113(b) object to the plan of exchange and become entitled, if the plan becomes effective, to be paid by the domestic company or the acquiring corporation the fair value of his shares in the domestic company. Such payment and the amount thereof shall be determined in accordance with the provisions of G.S. 55-113(d), (e), (f), (g) and (h).

"G.S. 58-86.4. Filing Plan of Exchange. Not earlier than 31 days after the date of the meeting of shareholders of the domestic company at which the plan of exchange was approved by such shareholders, a certificate setting forth (a) the plan of exchange and (b) the vote by which such plan was adopted by the shareholders of the domestic company, or (c) that the plan of exchange has been abandoned, shall be signed on behalf of the domestic company by its president or a vice president and also by its secretary or an assistant secretary and shall then be presented in triplicate to the Commissioner of Insurance. If the certificate indicates that the plan of exchange has been approved by the domestic company's shareholders as required by G.S. 58-86.3(c) and that the facts otherwise conform to the law, he shall endorse his approval on the certificate and the same shall then be filed as provided in G.S. 55-4. Upon the filing of such certificate, the plan of exchange and the issuance and exchange provided for therein shall become effective, unless a later date and time is specified in the plan of exchange, in which event the plan of exchange and issuance and exchange provided for therein shall become effective upon such later date and time.

"G.S. 58-86.5. Effect of Exchange. Upon the plan of exchange becoming effective, the exchange provided for therein shall be deemed to have been consummated, each shareholder of the domestic company shall cease to be a shareholder of such company and the ownership of all shares of the issued and outstanding stock of the domestic company shall vest in the acquiring corporation automatically without any physical transfer or deposit of certificates representing such shares.

"Certificates representing shares of the domestic company prior to the plan of exchange becoming effective shall, after the plan of exchange becomes effective, represent (i) shares of the issued and outstanding capital stock or other securities issued by the acquiring corporation, and (ii) the right, if any, to receive such cash or other consideration upon such terms as shall be specified in the plan of exchange: Provided, that the plan of exchange (a) shall specify that all certificates representing shares of stock of the domestic company may, after the plan of exchange becomes effective, be exchanged for shares of stock or other securities issued by the acquiring corporation or cash or other consideration or any combination thereof upon such terms as shall be specified in the plan of exchange, and (b) may require that all certificates representing shares of stock of the domestic company shall, after the plan of exchange becomes effective, represent only the right to receive shares of stock or other securities issued by the acquiring corporation or cash or other consideration or any combination thereof upon such terms as shall be specified in the plan of exchange.

"G.S. 58-86.6. Authorized Insurance Business and Regulatory Authority. (a) Nothing contained in this Article shall be construed to authorize any insurance company to engage in any kind or kinds of insurance business not authorized by its articles of incorporation, or to authorize any acquiring corporation which is not an insurance company to engage directly in the business of insurance. Subsequent to the effective date of the plan of exchange, the Commissioner having regard to the findings stated in subsection (b) of G.S. 58-86.3, shall have the authority to require that the affairs of the domestic company be conducted in such manner as to assure the continuing safe conduct and transaction of the domestic company's business of insurance.

"(b) If at any time the Commissioner finds, after due notice and opportunity to be heard as provided by G.S. 58-9.2, that the business and affairs of the acquiring corporation are of such nature or are conducted in such manner as to endanger the continued solvency of any domestic insurance company, to be harmful to any domestic insurance company, or to impair the rights of any policyholder, he shall issue such written order or orders as he deems appropriate to assure that the business and affairs of the acquiring corporation are of such nature and are conducted in such manner as to no longer endanger the solvency of any domestic insurance company, to be harmful to any domestic insurance company, or to impair the rights of any policyholder, including an order requiring the acquiring corporation to divest itself of the stock of the domestic company.

"(c) The Commissioner may examine, at such time or times as he may deem appropriate, the financial and business affairs of the acquiring corporation, and in connection with any such examination or examinations the acquiring corporation shall make available its books, records and accounts, and the Commissioner may require from the acquiring corporation and its officers, directors and employees the submission of such written or oral statements as the Commissioner may deem necessary or advisable. The cost of the examination shall be borne by the acquiring corporation at the same rate as is provided for under G.S. 58-63(3).

"(d) Any acquiring corporation which owns or controls any domestic insurance company shall be subject to all proxy solicitation and insider trading regulations promulgated from time to time by the Commissioner of Insurance pursuant to statutory authority.

"(e) It shall be unlawful for any domestic insurance company which has exercised the privileges allowed by this Article, except upon written approval by the Commissioner and subject to the provisions of G.S. 58-79,

(1) to invest any of its funds in the capital stock, bonds, debentures, or other obligations of any acquiring corporation of which it is a subsidiary, or of any other subsidiary of any such acquiring corporation;

(2) to accept the capital stock, bonds, debentures, or other obligations of any acquiring corporation of which it is a subsidiary or any other subsidiary of any such acquiring corporation, as collateral security for advances made to any person or company;

(3) to purchase securities, other assets or obligations under repurchase agreement from any acquiring corporation of which it is a subsidiary or any other subsidiary of any such acquiring corporation; and

(4) to make any loan, discount or extension of credit to any acquiring corporation of which it is a subsidiary or to any other subsidiary of any such acquiring corporation.

"G.S. 58-86.7. Nothing in this Article shall affect the power of the Commissioner to regulate, supervise and control insurance companies to the extent of and as provided by this Chapter.

"G.S. 58-86.8. Any other domestic corporation, other than a domestic insurance company, which shall acquire the majority of the voting capital stock of any domestic insurance company shall be subject to the regulations contained in this Article; provided, however, that the provisions of this Article shall not apply to any domestic corporation which has acquired a domestic insurance company or companies prior to the effective date of this Article."

Sec. 2. All law and clauses of laws in conflict with this Act are hereby repealed.

Sec. 3. If any clause, sentence, paragraph or provision of this Act shall for any reason be adjudged by any court unconstitutional or invalid, such judgment shall not affect or invalidate the remainder of this Act but shall be confined in its operation to the clause, sentence, paragraph or provision adjudged unconstitutional or invalid.

Sec. 4. This Act shall be in full force and effect from and after its ratification.

In the General Assembly read three times and ratified, this the 27th day of June, 1967.