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.

(Amended by Stats. 1999, Ch. 868, Sec. 5. Effective January 1, 2000.)