376             1997 Session Laws of Kansas             Ch. 107

An Act concerning insurance; conversion of mutual insurer to stock insurer; amending
K.S.A. 40-4001, 40-4002, 40-4004, 40-4005, 40-4006, 40-4007, 40-4008, 40-4009, 40-
4010, 40-4011, 40-4012, 40-4013 and 40-4014 and repealing the existing sections; also
repealing K.S.A. 40-4003.

Be it enacted by the Legislature of the State of Kansas:

Section 1. K.S.A. 40-4001 is hereby amended to read as follows:
40-4001. A domestic mutual insurer issuing nonassessable policies may
be converted into a domestic stock insurer. To that end, it may provide
and carry out a plan for such conversion by complying with the require-
ments of this act. Because it is not possible to anticipate all of the circum-
stances and considerations which may arise incident to a conversion from
a mutual insurer to a stock insurer, the commissioner has broad authority
in reviewing such conversion, and the procedures and criteria to be ap-
plied by the commissioner are flexible within the parameters of this act.
This act shall be liberally construed to effect the legislative intent set forth

Ch. 107             1997 Session Laws of Kansas             377

in this section and shall not be interpreted to limit the powers granted to
the commissioner by other provisions of law.

Sec. 2. K.S.A. 40-4002 is hereby amended to read as follows: 40-
4002. (a) A resolution shall be adopted by a 2/3 majority of the entire board
of directors of the insurer which shall state the reason reasons such con-
version would benefit the insurer and be in the best interests of its poli-
cyholders. Following adoption of such resolution a detailed plan of con-
version shall be developed and shall be approved by a 2/3 majority of the
entire board of directors. The plan of conversion shall not be effective
unless the plan has been so approved by the board of directors.

(b) A draft of the plan of conversion may be submitted to the com-
missioner for preliminary examination and comment prior to or after the
adoption of the resolution described in subsection (a).

(b) (c) After the completion of the process of preliminary examination
and comment, the plan shall be submitted to the commissioner of insur-
ance for approval in writing, subject to the provisions of K.S.A. 40-4004
and amendments thereto. The plan of conversion shall not be effective
unless the plan has been approved by the commissioner.

(c) (d) If approved by the commissioner, The plan shall be approved
by a majority vote 2/3 of the policyholders voting in person or by proxy at
a meeting of the members policyholders called for that purpose, pursuant
to the bylaws of the insurer., except that if a majority of all policyholders
vote in person or by proxy, then a majority of those voting shall constitute
approval, and the plan of conversion shall not be effective unless the plan
has been so approved by the policyholders. No such proxy vote shall be
effective unless the proxy specifically provides the proxyholder with the
authority to vote on the plan of conversion, and unless the proxy is dated
subsequent to the day on which the plan of conversion is initially approved
by the board of directors of the mutual insurer. Proxy statements relating
to the plan may be mailed to the policyholders in accordance with the
bylaws of the insurer.

(d) (e) The board of directors by a vote of not less than 2/3 of the
entire board may, at any time prior to the date of the meeting called
pursuant to subsection (c) issuance of the certificate of authority pursuant
to K.S.A. 40-4010 and amendments thereto:

(1) Withdraw the plan, if conversion is deemed to be no longer in
the best interests of the insurer or its policyholders; or

(2) amend the plan, except that no amendment which materially
changes the plan shall take effect unless a hearing in accordance with the
provisions of the Kansas administrative procedure act is held thereon and
such amendment is approved by the commissioner and the policyholders
subject to the same conditions and procedures applicable to the original
plan. such amendment is approved by the commissioner. In the event of
a material change to the plan, the commissioner:

378             1997 Session Laws of Kansas             Ch. 107

(A) Shall order a hearing to be conducted in accordance with the
provisions of the Kansas administrative procedure act before approving
or disapproving such material change; and

(B) may require that such a change be approved by the policyholders
pursuant to subsection (d).

(e) (f) The plan shall be filed in the office of the commissioner of
insurance after having been approved as provided above by subsections
(a), (c) and (d).

(g) As used in this act: (1) ``Policyholder'' means a policyholder of the
mutual insurer on the day the plan of conversion is initially approved by
the board of directors of the mutual insurer; except that, with respect to
a mutual insurance company authorized to transact the business of in-
surance in the state of Kansas under the authority granted in article 10
or article 12 of chapter 40 of the Kansas Statutes Annotated, ``policyhol-
der'' means a policyholder of the mutual insurer on the day the plan of
conversion is initially approved by the board of directors of the mutual
insurer, whose policy or policies have been in effect for not less than two
out of three years immediately prior to the date the board of directors
approved the plan, or whose policy or policies have been in effect for at
least 90 days during the 365 days immediately preceding the date the
board of directors approved the plan if the insured is a crop hail insurance
policyholder.

(2) ``Commissioner'' means the commissioner of insurance.

New Sec. 3. The plan of conversion shall comply with the terms and
conditions set forth in subsection (a), (b), (c) or (d) as follows:

(a) Plan of conversion in which policyholders exchange their mem-
bership interests for cash, securities, policy credits, dividends, subscrip-
tion rights or other consideration, or some combination thereof. A mutual
insurer seeking to convert pursuant to this subsection may do so by:

(1) Filing a plan of conversion containing:

(A) A description of the structure, forms and allocation of the pro-
posed consideration to the policyholders, the projected range of the num-
ber of shares of capital stock, if any, to be issued by the new stock insurer
or parent company of the new stock insurer, or any other company, and
such other proposed conditions and provisions as determined by the mu-
tual insurer not to be inconsistent with this act. As used in this act, ``parent
company'' means any company which on or after the effective date of the
conversion owns, directly or indirectly, 51% or more of the capital stock
of the new stock insurer;

(B) a description of any amendments to the insurer's articles of in-
corporation;

(C) provisions establishing the method by which the initial board of
directors of the stock insurer will be selected; and

Ch. 107             1997 Session Laws of Kansas             379

(D) any other additional information as the commissioner of insur-
ance may reasonably request.

(2) providing consideration to the policyholders entitled thereto in
the form of cash, stock, policy credits, dividends, subscription rights, a
combination thereof or such other valuable consideration as the commis-
sioner may approve. With the approval of the commissioner, such con-
sideration may be paid into a trust or other account or entity existing for
the benefit of policyholders, which is established by the company for the
purpose of effecting the conversion.

(b) Plan of conversion in which policyholders exchange their mem-
bership interests solely for subscription rights. A mutual insurer seeking
to convert to a stock insurer pursuant to this subsection may do so by:

(1) Filing a plan of conversion containing:

(A) A provision that each policyholder is to receive, without payment,
nontransferable subscription rights to purchase a portion of the capital
stock of the converted stock company and that, in the aggregate, all pol-
icyholders shall have the right, prior to the right of any other party, to
purchase 100% of the capital stock of the converted company. As an
alternative to subscription rights in the converted stock company, the plan
may provide that each eligible member is to receive, without payment,
nontransferable subscription rights to purchase a portion of the capital
stock of one of the following:

(i) A corporation organized for the purpose of purchasing and holding
the stock of the converted stock company;

(ii) a stock insurance company owned by the mutual company into
which the mutual company will be merged; or

(iii) an unaffiliated stock insurance company or other corporation that
will purchase the stock of the converted stock company;

(B) a provision that the subscription rights shall be allocated in whole
shares among the policyholders using a fair and equitable formula. This
formula may, but need not, take into account how the different classes
of policies of the policyholders contributed to the surplus of the mutual
company or any other factors that may be fair and equitable;

(C) a fair and equitable means for allocating shares of capital stock
in the event of an oversubscription to shares by policyholders exercising
subscription rights received under this section;

(D) at the option of the converting company, a provision that any
shares of capital stock not subscribed to by policyholders exercising sub-
scription rights received under this section may be sold in a public offer-
ing or through a private placement or other alternative method approved
by the commissioner that is fair and equitable to policyholders. The of-
fering to others of shares not purchased by policyholders exercising such
subscription rights shall be at a price not less than the offering price to
such policyholders;

(E) a provision which sets the total price of the capital stock equal to

380             1997 Session Laws of Kansas             Ch. 107

the estimated pro forma market value of the converted stock company
based upon an independent evaluation by one or more qualified experts.
This pro forma market value may be the value that is estimated to be
necessary to attract full subscription for the shares, as indicated by the
independent evaluation and may be stated as a range of pro forma market
value;

(F) a provision which sets the purchase price per share of capital stock
equal to any reasonable amount;

(G) a provision that any person or group of persons acting in concert
shall not acquire, in the public offering or pursuant to the exercise of
subscription rights, more than 5% of the capital stock of the converted
stock company, except with the approval of the commissioner. This lim-
itation does not apply to any entity that is to purchase 100% of the capital
stock of the converted company as part of the plan of conversion approved
by the commissioner; and

(H) a provision that the rights of a holder of a surplus note to partic-
ipate in the conversion, if any, shall be governed by the terms of the
surplus note; and

(2) providing subscription rights to the policyholders entitled thereto
in accordance with the provisions of the plan of conversion as described
in paragraph (1). With the approval of the commissioner, stock that will
be issued pursuant to such subscription rights may be provided to a trust
or other account or entity existing for the benefit of policyholders which
is established by the company for the purpose of effecting the conversion.

(c) Plan of conversion in which policyholders exchange their mem-
bership interests for membership interests in a mutual holding company.

(1) A plan of conversion adopted pursuant to this subsection shall
provide that the mutual insurer will become a stock insurer and that the
owners of policies of the converted insurer that are in force on the effec-
tive date of the plan of conversion or thereafter will become members of
a mutual holding company organized pursuant to paragraph (2) for as
long as their policies remain in force;

(2) a mutual insurer seeking to convert to a stock insurer pursuant to
this subsection may do so by:

(A) Forming a mutual holding company and continuing the corporate
existence of the insurer as a stock insurance company that is a wholly-
owned subsidiary (except to the extent qualifying shares are required to
be held by directors of an insurance company admitted and authorized
to do business in Kansas pursuant to K.S.A. 40-305 and amendments
thereto) of a stock holding company of which at least 51% of the voting
stock is held by the mutual holding company;

(B) forming a mutual holding company and continuing the corporate
existence of the insurer as a stock insurance company of which at least
51% of the voting stock is held by the mutual holding company; or

(C) forming a mutual holding company and continuing the corporate

Ch. 107             1997 Session Laws of Kansas             381

existence of the insurer as a stock insurance company with another own-
ership structure that is approved by the commissioner with at least 51%
of the voting stock of the stock insurance company is ultimately held by
the mutual holding company.

(3) a mutual holding company is not an insurer for purposes of this
act, but the provisions of this act with regard to corporate organization
and procedure of mutual insurers and the election of directors by mutual
insurers, and those provisions of chapter 17 of the Kansas Statutes An-
notated and amendments thereto that are applicable to mutual insurers,
shall apply to the mutual holding company;

(4) a mutual holding company and any stock holding company shall
each be deemed to be a ``holding company'' of the insurer within the
meaning of article 33 of chapter 40 of the Kansas Statutes Annotated and
amendments thereto. Approval of the plan of conversion by the commis-
sioner pursuant to this act shall constitute approval of the acquisition of
control by the mutual holding company and stock holding company, if
applicable, under K.S.A. 40-3304 and amendments thereto, without any
separate filings or other action;

(5) a mutual holding company shall not dissolve, liquidate or wind-
up and dissolve except through proceedings under article 36 of chapter
40 of the Kansas Statutes Annotated and amendments thereto for the
liquidation or dissolution of the converted insurer or as the commissioner
of insurance may otherwise approve. A mutual holding company may,
however, convert to a stock corporation in accordance with the terms of
this article and a plan of conversion approved by the commissioner of
insurance to be fair and equitable after a hearing upon notice to the
company's members;

(6) the charter of the mutual holding company shall be filed with the
commissioner and shall contain the matters required to be contained in
the charter of a mutual insurer by article 5 or article 12 of chapter 40 of
the Kansas Statutes Annotated and amendments thereto, as applicable,
except that the name of the mutual holding company shall contain the
word ``mutual'' and shall not contain the word ``insurance'' and the com-
pany's powers shall not include doing an insurance business;

(7) the commissioner of insurance may, by adoption of rules and reg-
ulations, require a mutual holding company to file annual statements with
the commissioner in such form as the commissioner prescribes;

(8) any subsidiaries of the company that have been reorganized pur-
suant to this act and amendments thereto may remain as subsidiaries of
such company or become subsidiaries of the mutual or stock holding
company provided that if such subsidiaries shall become subsidiaries of a
stock holding company, then the reorganized company shall be reim-
bursed the value of its holdings in such subsidiaries, as reflected on the
company's most recently filed financial statements, in the event shares of

382             1997 Session Laws of Kansas             Ch. 107

the stock holding company are or have been issued to other than the
mutual holding company;

(9) with the written approval of the commissioner, and subject to
conditions that the commissioner may impose, a mutual holding company
may:

(A) Merge or consolidate with, or acquire the assets of, a mutual
holding company;

(B) together with its converted insurer subsidiary, merge or consoli-
date with or acquire the assets of any other insurer; or

(C) engage in any other merger, consolidation or acquisition trans-
action which may be approved by the commissioner;

(10) a member of a mutual holding company is not, as a member,
personally liable for the acts, debts, liabilities or obligations of such com-
pany. No assessment of any kind may be imposed upon the members of
a mutual holding company by the board of directors, members or credi-
tors of such company or because of any liability of any company owned
or controlled by the mutual holding company or because of any act, debt
or liability of the mutual holding company;

(11) a membership interest in a mutual holding company shall not
constitute a security under the laws of this state; and

(12) the commissioner shall retain jurisdiction over any mutual hold-
ing company or stock holding company organized pursuant to this section
to assure that policyholder interests are protected.

(d) Plan of conversion in which policyholders exchange their mem-
bership interests for an option to purchase a proportionate amount of
stock in the converted company.

A mutual insurer seeking to convert pursuant to this subsection may
do so by filing a plan of conversion containing:

(1) A description of any amendments to the insurer's articles of in-
corporation to effect a conversion from a mutual corporation into a stock
corporation. Any other amendments proposed for the articles of incor-
poration shall be set forth in the plan.

(2) The establishment of a conversion value, as of the calendar quar-
ter ending immediately preceding the date of the adoption of the reso-
lution specified in subsection (a) of K.S.A. 40-4002, and amendments
thereto. The conversion value shall be equal to the company's policyhol-
ders' surplus, determined in accordance with the statutory method of
accounting used in preparing the last annual statement filed with the
commissioner of insurance. The insurer shall submit a list of qualified
disinterested appraisers, from which the commissioner shall appoint one
or more such appraisers, who shall establish the conversion value in ac-
cordance with the above procedure.

(3) The procedure by which each policyholder shall receive a pro-
portionate amount of the conversion value in the manner prescribed
herein and in paragraph (4). Such amount shall be based upon net pre-

Ch. 107             1997 Session Laws of Kansas             383

mium paid to the general account of the insurer within three years prior
to the date on which the board of directors approved the plan.

(4) Provisions whereby the insurer or any holding company of the
insurer shall distribute such proportionate conversion value, in the fol-
lowing method:

(A) Each policyholder will be issued an option to purchase stock in
the converted company;

(B) the total stated value of the stock to be issued shall be equal to
the conversion value as determined in paragraph (2);

(C) the stock option shall provide that the policyholders may pur-
chase the stock at its stated value;

(D) the maximum amount of stock that may be purchased by each
policyholder shall be in proportion to the policyholder's share of the con-
version value, with the number of shares rounded to the nearest whole
number, plus any shares purchased pursuant to purchased stock options,
subject to the limitations provided in subparagraph (J);

(E) policyholders not exercising their option to purchase the stock
shall be entitled to sell such option to any person or corporation, including
the parent corporation;

(F) the sale of any such stock option shall transfer to the purchaser
all rights in and conditions to the option;

(G) all stock options shall be exercised within 60 days from the date
such options are distributed to the policyholders and the options shall
expire at the end of such sixty-day period;

(H) the converted company or the parent corporation shall purchase,
at a price not less than the amount set forth in the plan, all stock options
that have not been exercised within 60 days from the date such options
are distributed to the policyholders;

(I) the converted company or the parent corporation shall purchase,
at the stated value, all stock not purchased pursuant to the stock options
and such purchase must be made within 60 days from the date the stock
options expire;

(J) notwithstanding the provisions of subparagraph (D), ownership of
the voting stock of the insurer is subject to the provisions of K.S.A. 40-
4008.

The above distribution method shall constitute full payment and dis-
charge of the policyholder's proportionate conversion value, but this pro-
vision shall shall not be held to prohibit the converted company or the
parent corporation from including in the plan provisions for the distri-
bution of any other valuable consideration to policyholders. Notwith-
standing any other provision of law, the policyholders shall have no other
rights resulting from membership in a mutual insurance company with
respect to the insurer.

(5) A statement as to the number of shares to be authorized for the
insurer and their value. The paid-in capital and surplus of the converted

384             1997 Session Laws of Kansas             Ch. 107

capital stock insurer shall be in an amount not less than two times the
minimum initial paid-in capital and surplus required of a domestic stock
insurer doing business as of the same date as the converted company, to
transact like kinds of insurance.

(6) Provisions establishing the method by which the initial board of
directors of the stock insurer will be selected.

New Sec. 4. The commissioner may require that the conversion plan
of a mutual life insurer provide for the establishment, for policyholder
dividend purposes only, of a closed block. In the event that the commis-
sioner requires such 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 of conversion for which
the insurer has an experience-based dividend scale payable in the year in
which the plan is adopted. Assets of the insurer shall be allocated to any
such closed block in an amount that produces cash flows, together with
anticipated revenues from the closed block business, expected to be rea-
sonably 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 pol-
icies shall be apportioned by the board of directors of the converted in-
surer in accordance with the terms of the policies.

New Sec. 5. (a) All policies in force on the effective date of conver-
sion remain in force under the terms of the policies, except that the
following rights, to the extent they existed in the mutual company, shall
be extinguished on the effective date of the conversion:

(1) Any voting rights of the policyholders in the mutual insurance
company that were provided under the policies;

(2) any assessment provisions provided for under the policies; and

(3) any right to share in the surplus of the mutual company provided
for under the policies, except that:

(A) Holders of participating policies in effect on the date of conver-
sion continue to have a right to receive dividends as provided in the
participating policies, if any, unless the holders of such participating pol-
icies receive a nonparticipating policy as a substitute for the participating
policy pursuant to subparagraph (B); and

(B) upon the renewal date of a participating policy, the converted
stock company may issue the insured a nonparticipating policy as a sub-
stitute for the participating policy, except that no such substitutions may

Ch. 107             1997 Session Laws of Kansas             385

be issued for the mutual company's life policies, guaranteed renewable
accident and health policies and guaranteed renewable, noncancelable
accident and health policies.

(b) Unless otherwise ordered by the commissioner of insurance and
notwithstanding any provisions of law to the contrary, policyholders are
not required to be given preemptive rights, and, except as provided in
the plan of conversion and in subsection (a), policyholders shall have no
other rights resulting from membership in a mutual insurance company
with respect to the insurer.

Sec. 6. K.S.A. 40-4004 is hereby amended to read as follows: 40-
4004. (a) The commissioner of insurance shall examine the plan submit-
ted pursuant to subsection (b) or (c) of K.S.A. 40-4002, and amendments
thereto. As a part of the such examination, the commissioner of insurance,
within 30 days after its receipt, shall order a hearing on the plan to be
conducted in accordance with the provisions of the Kansas administrative
procedure act and shall give not less than 20 days' written notice of the
date of hearing to the insurer and give not less than 20 days' written notice
to policyholders by publication or otherwise. The commissioner of insur-
ance shall approve the plan unless if the commissioner of insurance finds
the plan is unfair or inequitable to policyholders, will cause the insurer
to become unable to fulfill such insurer's contractual obligations or is not
in accordance with the provisions of this act. that:

(1) The plan of conversion is fair and equitable to policyholders;

(2) the plan of conversion complies with the provisions of this act;

(3) the plan of conversion does not unjustly enrich any director, of-
ficer, agent or employee of the insurer; and

(4) the new stock insurer would meet minimum requirements to be
issued a certificate of authority by the commissioner to transact business
in this state and the continued operations of the new stock insurer would
not be hazardous to existing or future policyholders or the public.

(b) The amount of consideration provided by the converting insurer
to policyholders shall be deemed to be fair and equitable pursuant to
subsection (a), if the consideration is at least the amount of statutory
surplus attributable to contributions of policyholders.

(c) Upon submission of a plan of conversion, the commissioner may
request any additional documents or information in the possession of the
insurer or its affiliates as are reasonably necessary to enable the commis-
sioner to make the findings required by this section for the approval of
the plan.

Sec. 7. K.S.A. 40-4005 is hereby amended to read as follows: 40-
4005. The meeting called for approval of the plan by the policyholders
prescribed by K.S.A. 40-4002 and amendments thereto shall be called by
a majority of the board of directors, the chairperson of the board or the
president. A copy of the plan and any information the commissioner of

386             1997 Session Laws of Kansas             Ch. 107

insurance deems necessary to policyholder understanding, including a
comprehensible summary of the plan in a form approved by the commis-
sioner, shall accompany the notice.

Sec. 8. K.S.A. 40-4006 is hereby amended to read as follows: 40-
4006. (a) For five years from the conversion date, no person (including
any individual, corporation, firm or affiliated group of individuals, cor-
porations or firms), other than a parent corporation, may own, directly
or indirectly, more than 5% of the voting stock (including any securities
that may be convertible into voting stock) of the converted insurer, unless:

(1) The person is a policyholder whose allocated share of the consid-
eration provided for in the plan of conversion is 5% or more of the voting
stock (including any securities that may be convertible into voting stock),
and such individual may not purchase stock totaling more than the in-
dividual's allocated share of such consideration; or

(2) the purchase is permitted by the commissioner and authorized by
the converted company's board of directors.

(b) In the event of any violation of this section, or in the event of any
action that, if consummated, would constitute a violation of this section,
all voting securities of the converted insurer (or of the person controlling
the converted insurer) that is acquired by any person in excess of the
maximum amount permitted to be acquired by the person pursuant to
this section shall be deemed to be nonvoting securities of the converted
insurer (or of the person controlling the converted insurer). The violation
or action may be enforced or enjoined by an appropriate proceeding com-
menced by the converted insurer, the person controlling the converted
insurer, the commissioner, any policyholder or stockholder of the con-
verted insurer on behalf of the converted insurer (or on behalf of the
person controlling the converted insurer) in the district court 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 that would constitute a vio-
lation.

(c) Nothing herein provided in this act shall be deemed to prohibit
the insurer's directors, officers, agents or employees from being eligible
to purchase stock or other securities of the insurer, subject to the provi-
sions of subparagraphs (A) and (B) of paragraph (10) of subsection (e) of
K.S.A. 40-4003 subsection (a).

Sec. 9. K.S.A. 40-4007 is hereby amended to read as follows: 40-
4007. (a) No director, officer, agent or employee of the insurer shall
secure any unfair advantage through a plan of conversion by reducing
the volume of new business written, by cancellation or by reducing or by
any other means seeking to reduce, limit or alter the number or identity
of the insurer's policyholders entitled to participate in such plan.

(b) No director, officer, agent or employee of the insurer shall receive

Ch. 107             1997 Session Laws of Kansas             387

any fee, commission or other valuable consideration whatsoever, other
than regular salary and compensation, for in any manner aiding, promot-
ing or assisting in the conversion except as set forth in the plan approved
by the commissioner of insurance. This provision shall not be deemed to
prohibit the payment of reasonable fees and compensation to attorneys
at law, accountants, appraisers, actuaries, financial advisers or other sim-
ilar professionals for services performed in the independent practice of
their professions, even though they such person may also be directors of
the insurer.

Sec. 10. K.S.A. 40-4008 is hereby amended to read as follows: 40-
4008. Within 30 days of receipt of the filing of the approved plan in
accordance with subsection (e) (f) of K.S.A. 40-4002 and the amended
articles of incorporation, the commissioner of insurance shall issue a new
certificate of authority to the insurer. Notwithstanding the actions of any
other jurisdiction, the issuance of such certificate shall be deemed the
final act of conversion and the mutual insurer shall concurrently become
a stock insurer. The date of the issuance of such certificate shall be the
``conversion date'' of the insurer. The stock insurer shall be a continuation
of the mutual insurer and deemed to have been organized at the time
the converted mutual insurer was organized. The conversion shall in no
way annul, modify or change any of such insurer's existing suits, rights,
contracts or liabilities except as provided in the 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.

Sec. 11. K.S.A. 40-4009 is hereby amended to read as follows: 40-
4009. The directors and officers of the mutual insurer shall serve until
new directors and officers have been duly elected and qualified pursuant
to the plan and articles of incorporation or bylaws of the insurer converted
insurer or of the affiliates of the converted insurer, if applicable, unless
otherwise determined by the board of directors of the converting insurer.

Sec. 12. K.S.A. 40-4010 is hereby amended to read as follows: 40-
4010. The offer or sale of securities issued pursuant to under the plan
developed and approved in accordance with the provisions of this act shall
be exempt from the Kansas securities laws.

Sec. 13. K.S.A. 40-4011 is hereby amended to read as follows: 40-
4011. No action challenging the validity of a conversion, or any aspect of
such conversion under this act, may be commenced more than 30 days
after the final act of conversion.

In any action challenging the plan of conversion or charging that the
directors of the insurer or converted insurer converting insurer, the con-
verted insurer, the mutual holding company or the stock holding com-
pany, as applicable or any other person or persons have acted improperly

388             1997 Session Laws of Kansas             Ch. 107

in connection with any aspect of the conversion, the insurer or converted
insurer in whose right such action is brought or the defendant or defen-
dants shall be entitled at any state stage of the proceedings before final
judgment to require the plaintiff or plaintiffs to give security for the rea-
sonable expenses including attorney fees, which may be incurred by the
converting insurer, converted insurer or any other parties defendant in
connection with such action. Thereafter, the amount of such security,
from time to time, may be increased or decreased in the discretion of the
court having jurisdiction of such action upon a showing that the security
provided has or may become inadequate or excessive.

Sec. 14. K.S.A. 40-4012 is hereby amended to read as follows: 40-
4012. The commissioner of insurance shall have the authority to may
adopt such rules and regulations as may be necessary to carry out the
provisions of this act.

Sec. 15. K.S.A. 40-4013 is hereby amended to read as follows: 40-
4013. The commissioner of insurance shall also have the authority to
retain experts and may charge and collect from the insurer the actual
amount of expenses, including the expenses of retaining experts, reason-
ably incurred by the state in discharge of the commissioner's duties here-
under, including the determination of a valuation of the insurer.

Sec. 16. K.S.A. 40-4014 is hereby amended to read as follows: 40-
4014. Within Not later than 24 hours of after issuance of the certificate
of authority to the converted stock insurer, a certified copy of the
amended articles of incorporation of the insurer shall be filed with the
secretary of state.

Sec. 17. K.S.A. 40-4001, 40-4002, 40-4003, 40-4004, 40-4005, 40-
4006, 40-4007, 40-4008, 40-4009, 40-4010, 40-4011, 40-4012, 40-4013
and 40-4014 are hereby repealed.

Sec. 18. This act shall take effect and be in force from and after its
publication in the statute book.

Approved April 10, 1997.