Ch. 108

1997 LAWS OF MARYLAND

(III) A PROVISION THAT, EXCEPT FOR THE MUTUAL COMPANY'S
LIFE POLICIES, GUARANTEED RENEWABLE ACCIDENT AND HEALTH POLICIES AND
GUARANTEED RENEWABLE, NONCANCELABLE ACCIDENT AND HEALTH POLICIES,
ON THE RENEWAL DATE OF A PARTICIPATING POLICY, THE CONVERTED STOCK
COMPANY MAY ISSUE THE INSURED A NONPARTICIPATING POLICY AS A SUBSTITUTE
FOR THE PARTICIPATING POLICY; AND

(3) THE SUBSCRIPTION RIGHTS OF ELIGIBLE MEMBERS, INCLUDING:

(I) A PROVISION THAT EACH ELIGIBLE MEMBER 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 ELIGIBLE MEMBERS SHALL HAVE THE RIGHT, PRIOR TO
THE RIGHT OF ANY OTHER PARTY, TO PURCHASE 100% OF THE CAPITAL STOCK OF
THE CONVERTED STOCK COMPANY EXCLUSIVE OF ANY SHARES OF CAPITAL STOCK
REQUIRED TO BE SOLD OR DISTRIBUTED TO HOLDERS OF SURPLUS NOTES, IF ANY
AND CAPITAL STOCK PURCHASED BY THE COMPANY'S TAX QUALIFIED EMPLOYEE
STOCK BENEFIT PLAN THAT IS IN EXCESS OF THE TOTAL PRICE OF THE CAPITAL
STOCK ESTABLISHED UNDER SUBSECTION (D) OF THIS SECTION, AS PERMITTED BY
3-405(C) OF THIS SUBTITLE;

A PROVISION THAT EACH ELIGIBLE MEMBER IS TO RECEIVE,
WITHOUT PAYMENT, NONTRANSFERABLE SUBSCRIPTION RIGHTS TO PURCHASE A
PART OF THE CAPITAL STOCK OF:

1. A CORPORATION ORGANIZED FOR THE PURPOSE OF
PURCHASING AND HOLDING ALL THE STOCK OF THE CONVERTED STOCK COMPANY;

2. A STOCK INSURANCE COMPANY OWNED BY THE MUTUAL
COMPANY INTO WHICH THE MUTUAL COMPANY WILL BE MERGED; OR

3. AN UNAFFILIATED STOCK INSURANCE COMPANY OR
OTHER CORPORATION THAT WILL PURCHASE ALL THE STOCK OF THE CONVERTED
STOCK COMPANY; AND

(III) A PROVISION THAT THE SUBSCRIPTION RIGHTS SHALL BE
ALLOCATED IN WHOLE SHARES AMONG THE ELIGIBLE MEMBERS USING A FAIR AND
EQUITABLE FORMULA THIS FORMULA MAY, BUT NEED NOT, TAKE INTO ACCOUNT
HOW THE DIFFERENT CLASSES OF POLICIES OF THE ELIGIBLE MEMBERS
CONTRIBUTED TO THE SURPLUS OF THE MUTUAL COMPANY OR ANY OTHER
FACTORS THAT MAY BE FAIR OR EQUITABLE.

(B) THE PLAN SHALL PROVIDE A FAIR AND EQUITABLE MEANS FOR
ALLOCATING SHARES OF CAPITAL STOCK IN THE EVENT OF AN OVERSUBSCRIPTION
TO SHARES BY ELIGIBLE MEMBERS EXERCISING SUBSCRIPTION RIGHTS RECEIVED
UNDER SUBSECTION (A)(3) OF THIS SECTION.

(C) (1) THE PLAN SHALL PROVIDE THAT ANY SHARES OF CAPITAL STOCK
NOT SUBSCRIBED TO BY ELIGIBLE MEMBERS EXERCISING SUBSCRIPTION RIGHTS
RECEIVED UNDER SUBSECTION (A)(3) OF THIS SECTION SHALL BE SOLD IN A PUBLIC
OFFERING THROUGH AN UNDERWRITER.

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