§ 4701 Scope of chapter.
This chapter applies as to domestic and foreign insurers of all types, and as to persons providing finances to such insurers.
18 Del. C. 1953, § 4701; 56 Del. Laws, c. 380, § 1.;
§ 4702 Solicitation permit required; penalty.
(a) No person forming or proposing to form an insurer, or insurance holding corporation or corporation to be attorney-in-fact for a reciprocal insurer or proposing to secure funds for the formation or financing of an insurer, or production of insurance business therefor, or an insurance holding corporation or attorney-in-fact corporation of a reciprocal insurer or for the formation of a syndicate, association, firm, partnership or organization for any such purposes, whether domestic or foreign, shall in this State advertise or offer for sale any securities or solicit or receive any funds, subscriptions, applications or membership except as authorized by a currently effective permit (hereinafter sometimes referred to as a “solicitation permit”) issued by the Commissioner.
(b) Any person violating this section shall upon conviction thereof be subject to a fine of not more than $10,000 or imprisonment for not more than 10 years, or both.
18 Del. C. 1953, § 4702; 56 Del. Laws, c. 380, § 1.;
§ 4703 Insurance holding corporation defined.
Within the intent of this chapter an insurance holding corporation is one owning or proposing to own a controlling stock interest in a stock insurer. Shares owned directly or indirectly by the corporation or by its subsidiary or affiliate corporation, firm or organization or by its officers, directors or principal stockholders shall be deemed to be owned by the corporation for the purposes of this provision.
18 Del. C. 1953, § 4703; 56 Del. Laws, c. 380, § 1.;
§ 4704 Exemptions.
Section 4702 of this title shall not apply to:
(1) Sales of securities not involving a public offering, that is, sales on which no commission is payable resulting from offers privately made to not over 20 persons (other than banks, savings associations, investment companies registered as such under the Investment Companies Act of 1940 [15 U.S.C. § 80a-1], registered securities dealers, investment houses and other financial institutions) within a 12-month period and where all persons (including such banks, associations, companies, dealers, houses and institutions) so acquiring such securities do so for investment purposes only and not with a view to further distribution.
(2) Sales of securities by an insurance holding corporation for purposes which do not include that of financing, directly or indirectly, an insurer.
(3) Stock of the insurer or insurance holding corporation to be offered and sold without payment of commission thereon exclusively to directors, employees and agents of the insurer or corporation or any of them under stock options granted pursuant to a written lawful plan therefor adopted by the board of directors and approved by a majority of the stock of the issuer corporation having voting rights, and which plan has been filed with the Commissioner.
(4) Securities issued or proposed to be issued pursuant to any merger, consolidation, bulk reinsurance, conversion, mutualization or corporate affiliation approved by the Commissioner pursuant to Chapter 49 of this title.
(5) Securities issued in exchange for outstanding securities of the issuer or partly in exchange for such outstanding securities and partly for cash in connection with a recapitalization of the issuer or the exercise of conversion or exchange rights under such outstanding securities.
(6) Fractional share interests in stock of the issuer offered and sold for the purpose of rounding out to whole shares in connection with any stock dividend or other distribution of shares to existing security holders of the issuer.
(7) Sales of securities of a corporation established under Chapter 7 or regulated under Chapter 9 of Title 5 which maintains an insurance department or division.
§ 4705 Application for permit.
(a) Written application for any permit required under § 4702 of this title shall be filed with the Commissioner. The application shall show or be accompanied by:
(1) The name, type and purpose of the insurer, corporation, syndicate, association, firm or organization formed or proposed to be formed or financed;
(2) The name, residential address, business background and qualifications of each person associated or to be associated in the enterprise or in the formation of the proposed insurer, corporation, syndicate, association, firm or organization or in the proposed financing;
(3) Full disclosure of the terms of all pertinent understandings and agreements existing or proposed among persons so associated or to be associated, and a copy of each such agreement relating to the proposed financing or insurer, corporation, syndicate, association, firm or organization or the formation thereof;
(4) The plan according to which solicitations are to be made;
(5) A copy of any security, receipt or certificate proposed to be issued and a copy of any proposed application or subscription agreement;
(6) A copy of any prospectus, offering circular, advertising or sales literature or material proposed to be used;
(7) A copy of the proposed form of any escrow agreement required;
(8) Irrevocable appointment of the Commissioner as process agent to receive service of process issued in this State and arising out of any transaction under the permit, if issued. The Commissioner shall prescribe and furnish the form of such appointment;
(9) A copy of the certificate of incorporation or charter of the insurer or proposed insurer or of any other corporation proposing to offer its securities, certified by the public official having custody of the original thereof, and a copy of any syndicate, association, firm, organization or other similar agreement by whatever name called if funds for any of the purposes referred to in § 4702 of this title are to be secured through the sale of any security, interest or right in or relative to such syndicate, association, firm or organization, and, if the insurer is or is to be a reciprocal insurer, a copy of the power of attorney and of other agreements existing or proposed affecting subscribers, investors, the attorney-in-fact or the insurer; and
(10) Such additional pertinent information as the Commissioner may reasonably require.
(b) The application shall be accompanied by deposit of the fees required under § 701 (fee schedule) of this title for the filing of the application and for issuance of the permit, if granted.
(c) In lieu of a special filing thereof of information called for in subsection (a) of this section, the Commissioner may, in his or her discretion, accept a copy of any pertinent filing made with the Securities and Exchange Commission relative to the same offering.
§ 4706 Application for permit to solicit qualifying mutual applications.
Written application for any permit required under § 4702 of this title, in connection with the formation of a domestic mutual insurer by the securing of qualifying applications for insurance as provided in § 4905 of this title, shall be filed with the Commissioner. The application shall contain such information and be accompanied by such of the documents and the fees as required under § 4705 of this title as may be applicable and shall be accompanied by:
(1) A copy of the policy for which applications are proposed to be solicited;
(2) A copy of the proposed insurance application form, consistent with the requirements of § 4907 (qualifying application for insurance) of this title;
(3) A schedule of the premiums or premium rates proposed to be charged in connection with such insurance applications; and
(4) A copy of the bylaws of the proposed insurer.
18 Del. C. 1953, § 4706; 56 Del. Laws, c. 380, § 1.;
§ 4707 Investigation.
(a) Upon completion of the application for a permit under §§ 4705 and 4706 of this title, the Commissioner shall promptly cause an investigation to be made of:
(1) The identity, character, reputation, financial standing and motives of the persons proposing to organize or promote and manage the proposed insurer or organization;
(2) The character, financial responsibility, insurance management experience and business qualifications of the officers, directors and managers of the insurer or proposed insurer or organization; and
(3) Such other aspects of the proposed insurer or financing as the Commissioner deems advisable.
(b) The Commissioner may waive such an investigation of an insurer already duly authorized to transact insurance in this State.
18 Del. C. 1953, § 4707; 56 Del. Laws, c. 380, § 1.;
§ 4708 Grant, denial of permit.
(a) The Commissioner shall expeditiously examine an application for a solicitation permit as soon as it is completed and complete the investigation as called for. Subject to subsection (b) of this section below, if the Commissioner finds on such examination and investigation that:
(1) The application is complete; and
(2) The documents therewith filed are proper in form; and
(3) That the proposed finances are reasonable and adequate in amount for the purposes intended, the Commissioner shall give notice to the applicant that he or she will issue the permit upon the filing of any bond required by § 4713 of this title or deposit required by § 4906 of this title and the filing of an executed copy of any escrow agreement required in connection therewith.
(b) If the Commissioner does not so find or finds that:
(1) The proposed sale of securities would be or tend to be unfair or inequitable as to present or proposed security holders or investors; or
(2) Any of the individuals associated or to be associated in the insurer, corporation, syndicate, association, firm, organization or financing are not of good reputation as to business affairs; or
(3) The insurer or proposed insurer would not be able to qualify for a certificate of authority in this State by virtue of the provisions of § 508(b) of this title,
the Commissioner shall give notice to the applicant that a permit will not be granted, stating the particulars of the grounds therefor, and refund to the applicant all sums deposited in connection with the application except the fee for filing the application for a permit.
§ 4709 Terms of permit; compliance.
(a) Upon filing any bond required by § 4713 or deposit required by § 4906 of this title or upon decision to grant the permit if such a bond is not so required and upon filing an executed copy of any required escrow agreement, the Commissioner shall issue a permit to the applicant.
(b) Every such permit shall contain provisions, as applicable, as follows:
(1) It shall state the securities which are to be offered, the number, par value, if any, and selling price, or identify the insurance contract or contracts for which applications and advance premiums are to be solicited in the case of formation of a new domestic mutual insurer;
(2) It shall require that all purchases and premiums shall be payable only in lawful money of the United States of America, except where stock or other securities are to be issued in exchange for securities or rights thereto under a plan of recapitalization or refinancing of an insurer or other corporation approved by the Commissioner;
(3) It shall require that any securities proposed to be offered or sold under the permit shall be so offered and sold at the same price to all parties, subject, at the option of the issuer in the case of subscriptions to be paid in installments, to a reasonable additional charge to cover expenses and loss of interest earnings attributable to such installment subscriptions;
(4) It shall limit the portion of funds received on account of sale of securities under the permit which may be used for organization, securities sales and promotion expenses to such amount as the Commissioner deems reasonably adequate under the proposed plan of solicitation but in no event to exceed 15% of such funds as and when the funds are actually received;
(5) If the Commissioner believes the same to be desirable for the protection of the public or for any other reasonable purpose the permit may:
a. Require the founders, promoters, incorporators or other persons directly involved in the proposed offering to subscribe and pay for, immediately and in cash, a reasonable proportion of the same securities as proposed to be offered in this State, at a price not less than that at which any such securities are to be offered to other subscribers or purchasers;
b. Prohibit, limit or control the granting of options to such founders, promoters, incorporators or other persons to buy the securities;
c. Prohibit, by any founder, promoter, incorporator or other person associated or to be associated in solicitations under the permit, the resale or transfer for a period terminating 1 year after expiration, or other termination of the permit, of such person’s interest in any security, right or interest of the kind proposed to be offered under the permit or any other security, interest or right which such person may have in or as to the same issuing entity or the granting of any option or lien as to any such security, right or interest. The Commissioner may, require that any security, right or interest of which the resale or transfer is herein prohibited, shall be deposited and held in escrow for the prescribed period. This provision shall not prohibit the sale or transfer of any such security, right or interest by the estate or personal representative of a deceased founder, promoter or incorporator or deceased person associated in solicitations under the permit;
d. Contain other reasonable provisions for the protection of existing or proposed investors in this State;
(6) If the permit is issued in connection with the solicitation of qualifying applications for a proposed domestic mutual insurer, it shall limit the portion of funds received therefor which may be used for organization and sales expense to a reasonable commission related to the kind of insurance policy involved and costs incurred by mutual insurers in Delaware in the production of similar business and provide that no such commissions shall be paid or be deemed earned until the insurer has received its certificate of authority and the policies so applied for have been actually issued, delivered to and accepted by the respective insureds;
(7) The permit shall expire after a period stated therein, which period shall be not more than 2 years after its date of issue, unless earlier terminated by the Commissioner, but subject to an extension of time for such additional reasonable period, not to exceed 1 year, as the Commissioner may grant for good cause shown;
(8) The permit shall contain such other reasonable conditions relative to accounting, reports, deposits or other matters consistent with this chapter as the Commissioner deems advisable for the reasonable protection of existing or prospective investors.
(c) The holder of the permit and its directors, officers, employees, agents, founders, promoters, incorporators and representatives shall comply with the terms of the permit.
§ 4710 Permit as inducement.
The granting of a solicitation permit is permissive only and shall not constitute an endorsement by the Commissioner of any person or thing related to any such insurer, corporation, syndicate, association, firm, organization or financing nor constitute evidence of the completeness or accuracy of information presented in any prospectus or other sales literature, and the existence of the permit shall not be advertised or used as an inducement in any solicitation. The Commissioner shall place the substance of this section in conspicuous type at the top of each such permit issued.
18 Del. C. 1953, § 4710; 56 Del. Laws, c. 380, § 1.;
§ 4711 Prospectus required; other literature.
(a) An offering of securities under a solicitation permit shall be made only by a written prospectus delivered to the prospective investor.
(b) The prospectus shall make a disclosure of all facts relative to the issuer and the offered security which are reasonably material to the offered investment and shall not omit a material fact necessary to make the statements clear, in the light of the circumstances under which they are made. The Commissioner may make reasonable rules and regulations concerning the form and contents of prospectuses not inconsistent with the provisions of this chapter.
(c) The Commissioner may accept, as a compliance with this section, a prospectus or offering circular covering securities to be offered in this State under an existing registration thereof with the Securities and Exchange Commission or under an existing exemption from such registration pursuant to “Regulation A” of the general rules and regulations of the Securities and Exchange Commission under the Securities Act of 1933, as amended [15 U.S.C. § 77a et seq.].
(d) As to securities covered by a solicitation permit, no sales literature or other visual sales material, other than the prospectus or offering circular, shall be used in solicitations unless a copy of the same has been filed with the Commissioner in advance of such use and not disapproved by the Commissioner in writing, mailed or delivered to the filing party within 10 days after the date of such filing. The Commissioner shall disapprove any such literature or material found to be untrue or misleading. This provision shall not be deemed to modify or affect any applicable requirement or prohibition under or pursuant to the Securities Act of 1933 [15 U.S.C. § 77a et seq.], as amended.
§ 4712 Modification or revocation of permit.
The Commissioner may, for cause, modify a solicitation permit theretofore issued, or may, after a hearing thereon, revoke the permit for violation of law or of the terms of the permit or any proper order of the Commissioner or for material misrepresentation in the offering or sale of securities or policies under the permit.
18 Del. C. 1953, § 4712; 56 Del. Laws, c. 380, § 1.;
§ 4713 Bond for permit.
(a) The Commissioner shall not issue a solicitation permit until the applicant therefor has filed with the Commissioner a corporate surety bond in the penalty of $10,000, aggregate amount, in favor of the State and for the use and benefit of the State and of proposed Delaware investors in and creditors of the permittee.
(b) The bond shall be conditioned upon the payment of costs incurred by the State in event of any proceeding for liquidation or dissolution of the proposed organization before completion of organization or if a certificate of authority to be an insurer is not granted; and upon a full accounting for funds received until the proposed insurer has been granted its certificate of authority or until the corporation, syndicate, association, firm or organization or financing has been completed within the terms of the permit.
(c) In lieu of filing such bond the applicant may deposit with the State Treasurer, through the Commissioner, $10,000 in cash or a certificate of deposit issued by a bank located in Delaware or an equivalent amount in United States government bonds at market value to be held in trust under the same conditions as required of the bond. The amount so deposited may be credited toward payment of subscription to securities by founders, promoters and incorporators if required under § 4709(b)(5)a. of this title.
(d) The Commissioner may waive the requirement for a bond or deposit in lieu thereof if the securities are to be issued in connection with subsequent financing as provided in § 4717 of this title.
(e) The Commissioner shall release and discharge any such bond or deposit or remaining portion thereof held under this section upon written request of the person entitled thereto and upon proof to the Commissioner’s satisfaction that all liabilities and obligations with respect to which the bond or deposit was filed or made have been fully settled or terminated or otherwise adequately provided for.
(f) This section does not apply as to solicitation of initial qualifying applications for insurance in a domestic mutual insurer pursuant to § 4906 of this title, except as provided in such § 4906.
§ 4714 Escrow of funds.
(a) The holder of the solicitation permit shall promptly deposit all funds received from an offering of securities in this State pursuant to the permit, other than advance premiums for insurance which are subject to § 4907 of this title, in escrow in a bank or trust company located in this State and under an agreement consistent with this chapter approved by the Commissioner.
(b) No part of such funds shall be withdrawn from such deposit except:
(1) For payment of organization, sales and promotion expenses as earned and as authorized by the permit, and funds for such purposes may be withheld from the deposit; or
(2) For the purpose of making any deposit with the Commissioner required for issuance of a certificate of authority to an insurer or, if the organization is not or is not to be, an insurer, upon completion of payments on securities subscriptions made under the permit and deposit or appropriation of such funds to the purposes specified in the permit; or
(3) For the making of refunds as provided in § 4716 of this title.
(c) Funds while so held in escrow may be invested in certificates of deposit or savings accounts. Interest accruing thereon shall become part of the funds released as provided in paragraph (b)(2) of this section above, or shall be applied toward the costs of making refunds under paragraph (b)(3) of this section above, or to supplement the bond or deposit in lieu thereof in the event the same is called on pursuant to § 4713 of this title.
(d) When the Commissioner has issued a certificate of authority to a proposed insurer, any such funds remaining in escrow for its account shall be released to the insurer.
(e) The Commissioner may waive compliance with this section as to funds to be received under a subsequent financing permit under § 4717 of this title or in other circumstances where the Commissioner deems such an escrow to be reasonably unnecessary for the protection of investors or of the public.
§ 4715 Subscriptions.
All subscriptions to securities under a solicitation permit shall be binding upon and enforceable against the parties thereto in accordance with the terms of the subscription contract and subject to the provisions of this chapter. No such contract shall be made conditional except upon such reasonable conditions consistent with applicable statutes as may uniformly be set forth in all such contracts with the Commissioner’s approval as not being inappropriate or inequitable.
18 Del. C. 1953, § 4715; 56 Del. Laws, c. 380, § 1.;
§ 4716 Failure to complete or qualify.
(a) The Commissioner shall withdraw all funds held in escrow under § 4714 of this title and refund to securities subscribers or purchasers all sums paid therein under the solicitation permit, less that part allowed and used for organization, sales and promotion expenses, if:
(1) The permit holder has failed to complete its organization or financing within the terms of the permit or if it has failed to secure its certificate of authority to be an insurer, all before expiration of the permit; or
(2) The permit is revoked.
(b) As to funds paid in on subscriptions by founders, promoters and incorporators and held on deposit in lieu of bond under § 4713(c) of this title, only such portion of such funds shall be refundable under this section as may remain after discharge of all liabilities against the deposit under § 4713 of this title and after the charging of such funds with a proportionate share of organization, sales and promotion expenses.
18 Del. C. 1953, § 4716; 56 Del. Laws, c. 380, § 1.;
§ 4717 Subsequent financing; penalty.
(a) No person referred to in § 4702 (solicitation permit required; penalty) of this title, after receiving a certificate of authority, if an insurer in this or any other State or after completing its original organization and financing, if other than an insurer, shall in this State solicit or receive funds in exchange for its securities until it has applied to the Commissioner for and has been granted a solicitation permit. This provision is subject to the same exemptions as are provided by § 4704 of this title.
(b) The Commissioner shall expeditiously issue such a permit unless the Commissioner finds:
(1) That the funds proposed to be secured are inadequate or excessive in amount for the purposes intended; or
(2) That the proposed securities or the manner of their distribution would be unfair or inequitable to existing or proposed security holders or policyholders of the issuer.
(c) Any such permit granted by the Commissioner shall be for such duration and shall contain such terms and be issued upon such conditions as the Commissioner may reasonably specify or require for the protection of existing or proposed investors. In the Commissioner’s discretion, such terms and conditions may be substantially the same as or materially different from requirements made under this chapter as to solicitation permits for initial financing.
(d) Violation of subsection (a) of this section shall be subject to the same penalties as prescribed by § 4702(b) (solicitation permit required; penalty) of this title.