Section 913.10  Authority (Repealed)

 

(Source:  Repealed at 46 Ill. Reg. 12023, effective June 30, 2022)

 

Section 913.20  Purpose and Scope

 

This Part applies to the sale of shares of:

 

a)         All foreign or alien stock insurance companies that have been continuously in business as such for more than ten years and are authorized to transact their business in this State, and

 

b)         All domestic stock insurance companies.

 

(Source:  Amended at 46 Ill. Reg. 12023, effective June 30, 2022)

 

Section 913.30  Definitions

 

"Code" means the Illinois Insurance Code [215 ILCS 5].

 

"Department" means the Illinois Department of Insurance.

 

"Director" means the Director of the Illinois Department of Insurance.

 

"Shares" means securities issued by and representing an interest in any insurance company.  However, "shares" shall not include rights to shares (as distinguished from the shares proper) under stock option plans that have been approved by the Director.

 

(Source:  Amended at 46 Ill. Reg. 12023, effective June 30, 2022)

 

Section 913.40  Filing Requirement

 

Pursuant to Section 147.1 of the Code and the provisions of this Part, a formal application must be submitted to obtain a permit from the Director to sell shares. Any domestic company seeking a permit to solicit subscriptions and issue shares under Section 20 or Section 32 of the Code, except for a private sale as set forth under 50 Ill. Adm. Code 907, shall likewise submit a formal application.  The applicant shall deliver to the Director all documents, paper, agreements and other items that are required to be filed (see Section 913.100).

 

(Source:  Amended at 46 Ill. Reg. 12023, effective June 30, 2022)

 

Section 913.50  The Prospectus

 

a)         Any prospectus required to be filed with and approved for use by the Director shall contain the following information:

 

1)         The date and form of organization of the issuer;

 

2)         A description of the business done and intended to be done by the issuer;

 

3)         The authorized and issued capital of the issuer and a description of the shares to be offered;

 

4)         The proposed method of sale of the shares, the price thereof to the public, and the underwriting and selling discounts and commissions to be paid, and the persons or groups of persons who are to receive same;

 

5)         The intended use by the issuer of the proceeds of the securities;

 

6)         The names and addresses of all of the officers and directors of the issuer (or the incorporators, organizers, promoters or other persons similarly situated, if the issuer is in the process of organization), and a brief biographical sketch of each, setting forth their business experience and specifically including a statement as to whether each of said persons has or has not had any business experience in the type of insurance in which the company is engaging or proposes to engage, and the extent of such experience, if any;

 

7)         The total remuneration of each person in the preceding paragraph and the rate or basis thereof, if the rate or basis is in excess of $10,000, paid to each by issuer during the fiscal year last past, and proposed to be paid for the then current fiscal year;

 

8)         The names and addresses of all persons owning of record, and of all persons owning beneficially, to the extent known, to the applicant, 10% or more of the outstanding shares of the issuer, and the percentage owned by each;

 

9)         A brief description of material pending or threatened legal proceedings including matters before administrative tribunals involving the issuer, other than ordinary routine litigation pursuant to the business in which such issuer is engaged.  Ordinary litigation shall include, but not be limited to, contractual disputes between the issuer and insureds, or the issuer and its agents, or arising out of the prudent administration of the issuer's investments;

 

10)         A description of any stock option, bonus or incentive plans which are in effect or which are proposed;

 

11)         The name of each person or specific class of persons (other than underwriters or dealers, as such) to whom any shares have been sold, within the three year period immediately preceding the date of the application, by the issuer or controlling person at a price varying from that at which the shares are to be offered to the general public pursuant to this application. This shall include a statement of the consideration given or to be given by each such person or class;

 

12)       A statement in boldface on the outside front cover page as follows:

 

            "THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE DIRECTOR OF INSURANCE OF THE STATE OF ILLINOIS, NOR HAS THE DIRECTOR OF INSURANCE OF THE STATE OF ILLINOIS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS";

 

            and in addition, thereto, the following statement is boldface:

 

            "THESE ARE SPECULATIVE SECURITIES.";

 

13)         Financial statements of the issuer prepared in accordance with generally accepted accounting principles.  Such statements are to be audited by an independent certified public accountant in accordance with generally accepted auditing standards as follows:

 

A)        Balance Sheet

            An audited balance sheet as of a date not more than 120 days prior to the application date (Section 913.40) and for the three prior fiscal years or for the life of the company and its immediate predecessors, if less.

 

B)        Statement of Surplus

            Audited for the same period as Section 913.50(a)(13)(A).

 

C)        Profit and Loss or Income Statements

            In comparative columnar form, a profit and loss or income statement of each of the last five fiscal years and the period related to the balance sheet submitted in Section 913.50(a)(13)(A).  Only the three prior fiscal years, and the period related to the balance sheet submitted in Section 913.50(a)(13)(A) needs to be audited.  A statement shall be made relating to any comparable unaudited prior period that all adjustments necessary to a fair statement of the results for such periods, have been included.  As supplemental information, a letter describing in detail the nature and amount of any adjustments, other than normal recurring accruals, entering into the determination of the results shown in the unaudited statements shall be submitted.

 

D)        In addition, the Director of Insurance may, in his discretion, require any explanation, reconciliation or elaboration which is deemed appropriate for proper disclosure of relevant facts.

 

14)         Any additional relevant and material statements or information which the Director shall require for the protection of the prospective purchasers of the shares constituting the offering.

 

b)         All information contained in the prospectus shall be stated and set forth in plain, clear and concise language and shall not contain any false, incomplete or misleading statements.  All material stated therein must be based upon facts and not upon expectations of future prospects, such as projections of profits, dividends or rises in the securities' market price anticipated to occur in a future period.

 

c)         No shares shall be sold when a prospectus is required by any provision of the Code or of this Rule to be filed with the Department, unless a copy of the prospectus as filed with the Department is given to such purchaser or prospective purchaser prior to payment of all or part of the purchase price.

 

d)         All information contained in a prospectus shall be set forth under appropriate captions or headings reasonably indicative of the principal subject matter set forth thereunder.  A reasonably detailed table of contents shall be included showing the subject matter of the various sections or subdivisions and the page number on which each begins.

 

e)         The body of all printed prospectuses shall be in Roman type at least as large as 10-point modern type.  However, to the extent necessary for convenient presentation, financial statements and other statistical or tabular data and the notes thereto may be in Roman type at least as large as 8-point modern type.  All type shall be leaded at least two points.

 

f)         If, after the date of any prospectus, the applicant desires or the Director requires that the prospectus be amended or supplemented, a copy of such amended or supplemental prospectus shall be filled with the Director. Any such amendment or supplement shall in all respects conform to the requirements of this Rule.

 

g)         If, during any time a permit is outstanding, it shall appear to the Director or to the applicant that any statement or information contained in the prospectus is no longer representative of any material facts, then the applicant shall be required to amend said prospectus in whatever particulars are necessary to correct such defect.  Likewise, if it shall appear that any material facts have been omitted, the applicant shall be required to amend said prospectus to correct such defect.

 

(Source:  Amended at 7 Ill. Reg. 6946, effective May 18, 1983)

 

Section 913.60  Alternate Prospectus

 

In those instances in which the proposed offering is being registered under the Federal Securities Act of 1933 (17 U.S.C. 77 et seq.) the applicant in lieu of filing a prospectus as described in Section 913.50 shall file two copies of the prospectus descriptive of the securities in the form in which such prospectus shall have been initially filed under the Federal Securities Act,  and two copies of all subsequent amendments and supplements thereof.  A preliminary prospectus, which meets the requirements of 17 CFR 230.433 promulgated under the Federal Securities Act of 1933, may be circulated prior to the issuance of a permit by the Director.

 

(Source:  Amended at 7 Ill. Reg. 6946, effective May 18, 1983)

 

Section 913.70  Equity Interest of Certain Persons

 

The incorporators, organizers, promoters or other persons similarly situated of any domestic company organized after May 11, 1964 shall, prior to the issuance of a permit for a public sale by the Director pursuant to Section 20 of the Code, deposit in escrow in a bank or trust company in this State pursuant to an agreement a sum of money sufficient to purchase at the public offering price a total of not less than 15% of the shares and shall further provide that the total shares so purchased shall likewise be held in escrow and not in any manner disposed of for a minimum of 3 years after the date that the company is issued a Certificate of Authority pursuant to Section 24 of the Code.  The agreement shall also provide that the incorporators, organizers, promoters and like parties understand and agree to faithfully perform their obligations as such and also that they understand, in the event of a later public sale at a higher offering price per share, that they may be required to deposit all or part of their own shares under an escrow agreement pursuant to Section 913.80.

 

(Source:  Amended at 46 Ill. Reg. 12023, effective June 30, 2022)

 

Section 913.80  Escrow Requirements

 

If application is made to the Director for a Permit authorizing the applicant to sell to the public shares of stock of an issue subject to this Part, and it shall appear to the Director that shares of stock of the issuer have, within the five (5) years next preceding the date of the application for such Permit, been issued or sold by the issuer or a controlling person for a consideration at a price less than the proposed public offering price, then the Director may for the protection of the prospective purchasers of the shares proposed to be offered, require that the shares issued for such consideration and help by officers and directors and holders of 10% of outstanding stock be delivered to a bank or trust company in this State authorized to accept and execute trusts, under an escrow agreement providing that the owners of the shares so escrowed shall not, in case of dissolution or insolvency of the issuer, participate in its assets until after the owners of all the shares of the issuer (other than those escrowed) shall have received an amount per share equal to the public offering price of the proposed offering.  Such escrow agreement shall remain in force until the first to occur of the following:

 

a)         Written consent is given by the Director authorizing the release of such escrowed shares;

 

b)         Financial statements of the issuer prepared in accordance with generally accepted accounting principles which have been audited by an independent certified public accountant in accordance with generally accepted auditing standards have been submitted to the Director establishing that the issuer has earned an amount equal to an average of 5% per annum in any 24 month period or at least 10% per annum in any 12 month period of a sum equal to the number of shares then outstanding, multiplied by the public offering price at time of the imposition of the escrow, adjusted for any intervening stock splits, dividends or combination; or

 

c)         The question of the release of such escrow is first put to the shareholders of the issuer and receives the affirmative vote of the holders of not less than the majority of the outstanding shares held by others than parties to the escrow.

 

(Source:  Amended at 7 Ill. Reg. 6946, effective May 18, 1983)

 

Section 913.90  Stock Option Plans

 

The Director shall be guided in the granting of a permit to issue shares to implement stock option plans by the following:

 

a)         Any stock option or purchase plan which meets the requirements of Sections 422, 423 or 424 of the Internal Revenue Code of 1954, as hereafter may be amended, shall be deemed prima facie reasonable by the Director, provided however, that the number of shares to be granted pursuant to such a plan, together with the number of shares in respect of which unexercised options are outstanding or may be granted under any and all other option plans of the company, shall in no event exceed 10% of the total shares outstanding. The burden shall be upon the applicant to prove that such plan complies with the provisions of said Sections 422, 423 or 424, as amended, and such proof shall be made prior to the issuance of any  Permit in connection with the execution of such plan.

 

b)         Any stock option plan which does not comply with the Internal Revenue Code as referred to above, shall be approved by the Director only upon proof that the following conditions have been met:

 

1)         The option price is not less than 100% of the market price of shares on the date the plan becomes effective, or if there is no market price of such shares on the date the plan becomes effective, the last highest public offering price;

 

2)         The total of all shares to be granted pursuant to such plan, together with the number of shares in respect of which unexercised option are outstanding or may be granted under any and all other option plans of the company, shall in no event exceed 10% of the total shares outstanding;

 

3)         In the event an individual at the time the option is granted owns 10% of the stock of the issuer, the option price is not less than 110% of the market price of the shares on the date the plan becomes effective, or if there is no market price of such shares on the date the plan becomes effective, the last highest public offering price;

 

4)         Such options require the optionee to hold the stock for 1 year from the date of the exercise of the option;

 

5)         Such options by their terms are not exercisable after the expiration of 5 years from the dates such options are granted;

 

6)         The options are given only in respect of benefits which will be given to the company by the person receiving the option; and

 

7)         The plan has been submitted to a vote of the shareholders of the company and received the affirmative vote of the holders of not less than ⅔ of the outstanding shares.

 

c)         The Director may waive any requirements for option plans under Section 913.90(b) in those cases in which he finds that valid contractual rights were acquired prior to the effective date of this Part, under plans which had been previously approved by the Director.

 

(Source:  Amended at 7 Ill. Reg. 6946, effective May 18, 1983)

 

Section 913.100  Documents to be Filed with the Director

 

In addition to all other documents required to be filed with the Director pursuant to Section 147.1(4) of the Code, an issuer, underwriter, dealer or controlling person making application to the Director for a permit to sell shares shall submit to the Department the following documents in duplicate, when applicable:

 

a)         The form of the prospectus to be used in connection with the public sale of shares;

 

b)         Underwriting or selling agreements signed by the issuer and the selling agents;

 

c)         Audited financial statements as required in the prospectus;

 

d)         Executed copies of all escrow agreements required by any provision of this Part;

 

e)         Stock Option Plans;

 

f)         A supplemental statement signed by the proposed incorporators or officers as the case may be, setting forth the following information:

 

1)         other expenses of issuance and distribution;

 

2)         relationship of the applicant to experts named in the prospectus;

 

3)         subsidiaries of the applicant;

 

4)         indemnification of incorporators, officers or directors;

 

5)         In lieu of the foregoing, copies of the registration statement as filed with the Securities Exchange Commission pursuant to the Federal Securities Act (15 U.S.C. 77f), may be submitted.

 

g)         The names and addresses of counsel who have verified the legality of the issues;

 

h)         Consent of the experts named in the prospectus, dated and signed in cases of an intrastate offering and conformed copies in cases of an interstate offering;

 

i)          A sworn, executed biographical affidavit, from each officer and director of domestic companies that have been engaged in business for less than 10 years, each new officer and director of all existing domestic companies, or upon request, from each incorporator, organizer, promoter or other person similarly situated.  The biographical affidavits shall include, but not be limited to, the following information:  identifying information; affiant's identifying and contact information; affiant's educational, residential and employment history; affiant's professional, business and technical licenses and memberships; a complete history of affiant's fidelity bonding; affiant's criminal charges and convictions; civil, regulatory, administrative and disciplinary actions in the affiant's individual or corporate capacity; a complete history of affiant's bankruptcy, insolvency, liens and foreclosures in an individual or corporate capacity; affiant's consent to release background reports to the Department and consent for third parties to cooperate in the gathering of background information; and affiant's and affiant's immediate family's equity holdings in any entity subject to insurance regulation.  The Department will accept the biographical affidavit, and any supplement to that affidavit, that is obtained from the website of the National Association of Insurance Commissioners (NAIC) or the Department;

 

j)          Any additional documents that are required under Sections 20, 32 and 32.1 of the Code; and

 

k)         Agreement signed by the applicant to file all necessary amendments and supplements to the prospectus.

 

(Source:  Amended at 46 Ill. Reg. 12023, effective June 30, 2022)

 

Section 913.110  Severability Provision

 

If any section or portion of a section of this rule, or the applicability thereof to any person or circumstances is held invalid by a court, the remainder of the rule, or the applicability to other persons or circumstances, shall not be effected thereby.

 

(Source:  Amended at 7 Ill. Reg. 6946, effective May 18, 1983)

Section 913.ILLUSTRATION A   Biographical Affidavit (Repealed)

 

(Source:  Repealed at 46 Ill. Reg. 12023, effective June 30, 2022)

Section 913.EXHIBIT A   Instructions As To Financial Statements (Repealed)

 

(Source:  Repealed at 7 Ill. Reg. 6946, effective May 18, 1983)

Section 913.EXHIBIT B   Instructions As To Financial Statements (Repealed)

 

(Source:  Repealed at 7 Ill. Reg. 6946, effective May 18, 1983)

Section 913.EXHIBIT C   Statement of Education, Prior Occupation, Business Experience and Supplementary Information (Repealed)

 

(Source:  Repealed at 7 Ill. Reg. 6946, effective May 18, 1983)