26.1-10-03. Acquisition of control of or merger with domestic insurer - Penalties

26.1-10-03. Acquisition of control of or merger with domestic insurer - Penalties

1. a. A person other than the issuer may not make a tender offer for or a request or

invitation for tenders of, or enter into any agreement to exchange securities for,

seek to acquire, or acquire, in the open market or otherwise, any voting security

of a domestic insurer if, after consummation, the person would, directly or

indirectly, or by conversion or by exercise of any right to acquire, be in control of

the insurer, and a person may not enter an agreement to merge with or otherwise

to acquire control of a domestic insurer or any person controlling a domestic

insurer unless, at the time the offer, request, or invitation is made or the

agreement is entered into, or prior to the acquisition of the securities if no offer or

agreement is involved, the person has filed with the commissioner and has sent

to the insurer, a statement containing the information required by this section and

the offer, request, invitation, agreement, or acquisition has been approved by the

commissioner in the manner prescribed in this chapter.

b. For purposes of this section, any controlling person of a domestic insurer seeking

to divest the person's controlling interest in the domestic insurer, in any manner,

shall file with the commissioner, with a copy to the insurer, confidential notice of

the person's proposed divestiture at least thirty days before the cessation of

control. The commissioner shall determine those instances in which a party

seeking to divest or to acquire a controlling interest in an insurer, will be required

to file for and obtain approval of the transaction. The information remains

confidential until the conclusion of the transaction unless the commissioner

determines confidential treatment will interfere with enforcement of this section. If

the statement referred to in subdivision a is otherwise filed, this subdivision does

not apply.

c. With respect to a transaction subject to this section, the acquiring person shall file

a preacquisition notification with the commissioner which must contain the

information set forth in subdivision a of subsection 3 of section 26.1-10-03.1.

Failure to file the notification may result in penalties specified in subdivision e of

subsection 5 of section 26.1-10-03.1.

d. For purposes of this section, a domestic insurer includes any other person in

control of a domestic insurer unless the other person, as determined by the

commissioner, is either directly or through its affiliates primarily engaged in

business other than the business of insurance. For purposes of this section, the

term "person" does not include a securities broker holding, in the usual and

customary broker's function, less than twenty percent of the voting securities of

an insurer or of any person that controls an insurer.

2. The statement to be filed with the commissioner must be made under oath or

affirmation and must contain the following:

a. The name and address of each person by whom or on whose behalf the merger

or other acquisition of control referred to in subsection 1 is to be effected,

hereinafter called the "acquiring party":

(1) If the person is an individual, the individual's principal occupation and all

offices and positions held during the past five years, and any conviction of

crimes other than minor traffic violations during the past ten years.

person by whom or on whose behalf the merger

or other acquisition of control referred to in subsection 1 is to be effected,

hereinafter called the "acquiring party":

(1) If the person is an individual, the individual's principal occupation and all

offices and positions held during the past five years, and any conviction of

crimes other than minor traffic violations during the past ten years.

(2) If the person is not an individual, a report of the nature of its business

operations during the past five years or for any lesser period as the person

and any predecessors thereof have been in existence; an informative

description of the business intended to be done by the person and the

person's subsidiaries; and a list of all individuals who are or who have been

selected to become directors or executive officers of the person, or who

perform or will perform functions appropriate to these positions. The list

must include for each individual the information required by this subsection.

b. The source, nature, and amount of the consideration used or to be used in

effecting the merger or other acquisition of control, a description of any

transaction that funds were or are to be obtained for any such purpose, including

any pledge of the insurer's stock, or the stock of any of the insurer's subsidiaries

or controlling affiliates, and the identity of persons furnishing the consideration;

provided, however, that if a source of the consideration is a loan made in the

lender's ordinary course of business, the identity of the lender must remain

confidential, if the person filing the statement so requests.

c. Fully audited financial information as to the earnings and financial condition of

each acquiring party for the preceding five fiscal years of each acquiring party, or

for any lesser period as the acquiring party and any predecessors thereof have

been in existence, and similar unaudited information as of a date not earlier than

ninety days prior to the filing of the statement.

d. Any plans or proposals which each acquiring party may have to liquidate the

insurer, to sell its assets or merge or consolidate it with any person, or to make

any other material change in its business or corporate structure or management.

e. The number of shares of any security referred to in subsection 1 which each

acquiring party proposes to acquire, and the terms of the offer, request, invitation,

agreement, or acquisition referred to in subsection 1, and a statement as to the

method used to arrive at the fairness of the proposal.

f. The amount of each class of any security referred to in subsection 1 which is

beneficially owned or concerning which there is a right to acquire beneficial

ownership by each acquiring party.

g. A full description of any contracts, arrangements, or understandings with respect

to any security referred to in subsection 1 in which any acquiring party is involved,

including transfer of any of the securities, joint ventures, loan or option

arrangements, puts or calls, guarantees of loans, guarantees against loss or

guarantees of profits, division of losses or profits, or the giving or withholding of

proxies. The description must identify the persons who have entered into the

contracts, arrangements, or understandings.

h. A description of the purchase of any security referred to in subsection 1 during

the twelve calendar months preceding the filing of the statement, by any acquiring

party, including the dates of purchase, names of the purchasers, and

consideration paid or agreed to be paid.

i. A description of any recommendations to purchase any security referred to in

subsection 1 made during the twelve calendar months preceding the filing of the

statement, by any acquiring party, or by anyone based upon interviews or at the

suggestion of the acquiring party.

j. Copies of all tender offers for, requests or invitations for tenders of, exchange

deration paid or agreed to be paid.

i. A description of any recommendations to purchase any security referred to in

subsection 1 made during the twelve calendar months preceding the filing of the

statement, by any acquiring party, or by anyone based upon interviews or at the

suggestion of the acquiring party.

j. Copies of all tender offers for, requests or invitations for tenders of, exchange

offers for, and agreements to acquire or exchange any securities referred to in

subsection 1, and, if distributed, of additional soliciting material relating thereto.

k. The term of any agreement, contract, or understanding made with or proposed to

be made with any broker-dealer as to solicitation of securities referred to in

subsection 1 for tender, and the amount of any fees, commissions, or other

compensation to be paid to broker-dealers with regard thereto.

l. An agreement by the person required to file the statement referred to in

subsection 1 to provide the annual report, specified in subsection 12 of section

26.1-10-04, for so long as control exists.

m. An acknowledgment by the person required to file the statement referred to in

subsection 1, that the person and all subsidiaries within the person's control in

the insurance holding company system will provide information to the

commissioner upon request as necessary to evaluate enterprise risk to the

insurer.

n. Any additional information the commissioner by rule prescribes as necessary or

appropriate for the protection of policyholders of the insurer or in the public

interest.

If the person required to file the statement referred to in subsection 1 is a

partnership, limited partnership, syndicate, or other group, the commissioner may

require that the information called for by subdivisions a through n must be given with

respect to each partner of the partnership or limited partnership, each member of the

syndicate or group, and each person who controls the partner or member. If any

partner, member, or person is a corporation or the person required to file the statement

referred to in subsection 1 is a corporation, the commissioner may require that the

information called for by subdivisions a through n must be given with respect to the

corporation, each officer and director of the corporation, and each person who is

directly or indirectly the beneficial owner of more than ten percent of the outstanding

voting securities of the corporation.

If any material change occurs in the facts set forth in the statement filed with the

commissioner and sent to the insurer pursuant to this section, an amendment setting

forth the change, together with copies of all documents and other material relevant to

the change, must be filed with the commissioner and sent to the insurer within two

business days after the person learns of the change.

3. If any offer, request, invitation, agreement, or acquisition referred to in subsection 1 is

proposed to be made by means of a registration statement under the Securities Act of

1933 or in circumstances requiring the disclosure of similar information under the

Securities Exchange Act of 1934, or under a state law requiring similar registration or

disclosure, the person required to file the statement referred to in subsection 1 may

utilize those documents in furnishing the information called for by that statement.

4. a. The commissioner shall approve any merger or other acquisition of control

referred to in subsection 1 unless, after a public hearing, the commissioner finds

that:

(1) After the change of control, the domestic insurer referred to in subsection 1

would not be able to satisfy the requirements for the issuance of a certificate

of authority to write the lines of insurance for which it is presently licensed.

sioner shall approve any merger or other acquisition of control

referred to in subsection 1 unless, after a public hearing, the commissioner finds

that:

(1) After the change of control, the domestic insurer referred to in subsection 1

would not be able to satisfy the requirements for the issuance of a certificate

of authority to write the lines of insurance for which it is presently licensed.

(2) The effect of the merger or other acquisition of control would be substantially

to lessen competition in insurance in this state or tend to create a monopoly.

In applying the competitive standard in this subdivision:

(a) The information requirements of subdivision a of subsection 3 of

section 26.1-10-03.1 and the standards of subdivision b of

subsection 4 of section 26.1-10-03.1;

(b) The merger or other acquisition may not be disapproved if the

commissioner finds that any of the situations meeting the criteria

provided by subdivision c of subsection 4 of section 26.1-10-03.1

exist; and

(c) The commissioner may condition the approval of the merger or other

acquisition on the removal of the basis of disapproval within a

specified period of time.

(3) The financial condition of any acquiring party might jeopardize the financial

stability of the insurer or prejudice the interest of its policyholders.

(4) The plans or proposals which the acquiring party has to liquidate the insurer,

sell its assets or consolidate or merge it with any person, or to make any

other material change in its business or corporate structure or management,

are unfair and unreasonable to policyholders of the insurer and not in the

public interest.

(5) The competence, experience, and integrity of those persons who would

control the operation of the insurer are such that it would not be in the

interest of policyholders of the insurer and of the public to permit the merger

or other acquisition of control.

(6) The acquisition is likely to be hazardous or prejudicial to the insurance

buying public.

b. The public hearing referred to in subdivision a must be held within thirty days

after the statement required by subsection 1 is filed and at least twenty days'

notice must be given by the commissioner to the person filing the statement. Not

less than seven days' notice of the hearing must be given by the person filing the

statement to the insurer and to other persons designated by the commissioner.

The commissioner shall make a determination within the sixty-day period

preceding the effective date of the proposed transaction. At the hearing, the

person filing the statement, the insurer, any person to whom notice of hearing

was sent, and any other person whose interests may be affected have the right to

present evidence, examine and cross-examine witnesses, and offer oral and

written arguments and in connection therewith are entitled to conduct discovery

proceedings in the same manner allowed in district court of this state. All

discovery proceedings must be concluded not later than three days prior to the

hearing.

c. If the proposed acquisition of control will require the approval of more than one

commissioner, the public hearing referred to in subdivision b may be held on a

consolidated basis upon request of the person filing the statement referred to in

subsection 1. Within five days of making the request for a public hearing, the

person shall file the statement referred to in subsection 1 with the national

association of insurance commissioners. A commissioner may opt out of a

consolidated hearing and shall provide notice to the applicant of the opt out within

ten days of the receipt of the statement referred to in subsection 1. A hearing

conducted on a consolidated basis is public and must be held within the United

States before the commissioners of the states in which the insurers are

domiciled. The commissioners shall hear and receive evidence. A commissioner

a

consolidated hearing and shall provide notice to the applicant of the opt out within

ten days of the receipt of the statement referred to in subsection 1. A hearing

conducted on a consolidated basis is public and must be held within the United

States before the commissioners of the states in which the insurers are

domiciled. The commissioners shall hear and receive evidence. A commissioner

may attend the hearing in person or by telecommunication.

d. In connection with a change of control of a domestic insurer, any determination by

the commissioner that the person acquiring control of the insurer must be

required to maintain or restore the capital of the insurer to the level required by

the laws and rules of this state must be made not later than sixty days after the

date of notification of the change in control submitted pursuant to subdivision a of

subsection 1.

e. The commissioner may retain at the acquiring person's expense any attorneys,

actuaries, accountants, and other experts not otherwise a part of the

commissioner's staff as may be reasonably necessary to assist the commissioner

in reviewing the proposed acquisition of control.

5. This section does not apply to:

a. Any transaction which is subject to the provisions of chapter 26.1-07, dealing with

the merger or consolidation of two or more insurers.

b. Any offer, request, invitation, agreement, or acquisition which the commissioner

by order exempts as not having been made or entered for the purpose and not

having the effect of changing or influencing the control of a domestic insurer or as

otherwise not comprehended within the purposes of this section.

6. The following is a violation of this section:

a. The failure to file any statement, amendment, or other material required to be

filed pursuant to subsection 1 or 2.

b. The effectuation or any attempt to effectuate an acquisition of control of,

divestiture of, or merger with, a domestic insurer without the approval of the

commissioner.

7. The courts of this state have jurisdiction over every person not resident, domiciled, or

authorized to do business in this state who files a statement with the commissioner

under this section, and over all actions involving the person arising out of violations of

this section, and each person is deemed to have performed acts equivalent to and

constituting appointment of the commissioner as the person's attorney upon whom

may be served all lawful process in any action, suit, or proceeding arising out of

violations of this section. Copies of all lawful process must be served on the

commissioner and transmitted by registered mail by the commissioner to the person at

the person's last-known address.