Ch. 108 1997 LAWS OF MARYLAND

SECT/ON 2. AND BE IT FURTHER ENACTED. That the Laws of Maryland read as
follows:

Article - Insurance

[3-121.

(a) A domestic mutual insurer may become a stock insurer under a plan and
procedure that is approved by the Commissioner after a hearing.

(b) The Commissioner may not approve a plan or procedure for conversion of a
mutual insurer to a stock insurer unless:

(1) the plan or procedure is equitable to the insurer's members;

(2) the plan is subject to approval by vote of at least three-fourths of the
insurer's current members who vote on the plan in person, by proxy, or by mail at a
meeting of members called for that purpose under reasonable notice and procedure
approved by the Commissioner;

(3) for a life insurer, the right to vote may be limited to members who hold
policies, other than term or group policies, that have been in force for at least 1 year;

(4) THE PLAN PROVIDES AS TO ANY HOLDER OF A SURPLUS NOTE
PARTICIPATING IN THE CONVERSION THAT:

(I) THE RIGHTS OF THE HOLDER SHALL BE GOVERNED BY THE
TERMS OF THE SURPLUS NOTE; OR

(II) IF THE TERMS OF THE SURPLUS NOTE ARE SILENT REGARDING
A CONVERSION AND THE HOLDER IS NOT ALSO A MEMBER, THE HOLDER MAY NOT
VOTE ON THE PLANNED CONVERSION;

(4) (5) the equity of each policyholder in the insurer:

(i) is determinable under a fair formula approved by the
Commissioner; and

(ii) is based on not less than the insurer's entire surplus, minus
contributed or borrowed surplus funds, plus a reasonable present equity in reserves and
in all nonadmitted assets;

(5) (6) all current policyholders and all persons that were policyholders of
the insurer within 3 years before the date the plan was submitted to the Commissioner are
entitled to participate in the purchase of stock or distribution of assets;

(6) (7) the plan gives to each policyholder specified in item (5) (6) of this
subsection a preemptive right:

(i) within a designated reasonable period, to acquire the
policyholder's proportionate part of all of the proposed capital stock of the insurer; and

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