§ 7317. Conversion of certain article 43 corporations. (a) (1) An
article forty-three corporation which was the subject of an initial
opinion and decision issued by the superintendent on or before December
thirty-first, nineteen hundred ninety-nine, as the same may be amended
or one or more article forty-three corporations whose main offices on
January first, two thousand seven were located in one of the counties
listed in section one thousand two hundred sixty-two of the public
authorities law and its or their not-for-profit subsidiaries (including,
without limitation, any such subsidiary licensed as a health service
corporation pursuant to this chapter or as a health maintenance
organization organized pursuant to article forty-four of the public
health law), hereinafter referred to in the singular, which seeks to
convert into one or more corporations or other entities organized for
pecuniary profit or into one or more for-profit organizations of any
kind shall submit a proposed plan of conversion to the superintendent
for approval pursuant to this section.

(2) This section shall apply to any transaction the effect of which is
to change the status, orientation or operation of the applicant from a
not-for-profit organization to a for-profit organization, including:

(A) Any sale, lease, transfer, exchange, option, conveyance, gift,
joint venture, merger, consolidation or disposition of all or a material
portion of the assets of the applicant over a period of five years;

(B) Any transfer of control, responsibility or governance over all or
substantially all of the assets of the applicant; or

(C) Continuation of the corporate existence of the applicant by
reconstituting the corporate form of the applicant from a not-for-profit
corporation to a business corporation by the filing of a restated
certificate of incorporation regardless of whether such changes occur in
one transaction or in a series of transactions.

(b) The proposed plan of conversion shall include all items and
address all issues as may be required by the superintendent in order for
the superintendent to assure that the conversion process will not
adversely affect the applicant's contractholders or members, will
protect the interests of and will not negatively impact on the delivery
of health care benefits and services to the people of the state of New
York and results in the fair, equitable and convenient winding down of
the business and affairs of the applicant. The superintendent may adopt
such rules or regulations or establish such procedures as he or she
deems necessary or proper to implement the provisions of this section.

(c)(1) The proposed plan shall address the following items and issues,
if applicable, to the satisfaction of the superintendent:

(A) The transition of contract forms from the not-for-profit
corporation to the converted corporation or health maintenance
organization including any related holding companies, subsidiaries or
other entities involved in the proposed conversion;

(B) Any transfer of assets agreements;

(C) Any corporate resolutions or authorizations by the board of
directors;

(D) Any reinsurance arrangements;

(E) An explanation of any transfers of employees, records and
equipment;

(F) Any management contracts or administrative service agreements;

(G) Any guarantees or cross-guarantee agreements;

(H) Any trust agreements;

(I) That the applicant's financial reserves are funded prior to the
conversion at the level required by law and provide a detailed
description of the financial structure and reserve levels of the
converted corporation or organization;

(J) The governance structure and the character and competence of
directors and officers;

(K) Any administrative agreements among related companies, including
fair and equitable terms and reasonable fees;

(L) A detailed description of any proposed public sale of stock or
securities or any initial public offering;

(M) New or revised contract forms together with notices of
discontinuance or any other explanation to contractholders of the
conversion process;

(N) A plan for outreach to consumers to explain in simple terms the
transaction and the steps, if any, consumers need to take to preserve
their coverage;

(O) Any necessary protections for contractholders to preserve contract
form anniversary dates, calculation of deductibles and consistent
premiums as part of the contract transfer process; and

(P) That sufficient safeguards are in place to ensure that the
affected community has continued or increased access to health care
coverage.

(2) The proposed plan shall explain in detail the method of transfer
of contract forms or other methods of assuring uninterrupted continuance
of coverage for all covered persons, with particular focus on medicare
supplement, policies issued pursuant to sections four thousand three
hundred twenty-one and four thousand three hundred twenty-two of this
chapter, policies subject to chapter six hundred sixty-one of the laws
of nineteen hundred ninety-seven, and any other types of coverage
designated by the superintendent which may warrant special attention.

(d) (i) The superintendent shall review the proposed plan of
conversion and may require, prior to issuing any approval, that the
applicant make any changes to the proposed plan that the superintendent
deems necessary. The superintendent shall establish a date certain by
which the initial public offering shall occur. In the event the proposed
plan of conversion affects an organization certified under article
forty-four of the public health law, the superintendent shall solicit
the views of the commissioner of health and the superintendent shall not
issue any approvals of the plan of conversion unless the commissioner
has consented in writing to those elements of the plan of conversion
which are under the commissioner's jurisdiction with respect to the
applicant's certificate of authority under article forty-four of the
public health law.

(ii) For purposes of granting his approval pursuant to subsection (f)
of this section, the superintendent may deem sufficient and as meeting
all legal requirements any or all portions of the conversion transaction
completed by an applicant organized under article forty-three of this
chapter which was the subject of an initial opinion and decision issued
by the superintendent on or before December thirty-first, nineteen
hundred ninety-nine, as the same may be amended.

(e) The superintendent shall provide in an opinion and decision
approving the conversion for the timely transfer of the public asset
consistent with the purposes of this chapter so as to maximize the value
of the public asset. The public asset shall be deposited in a special
fund to be known as the "public asset fund." Such fund shall consist of
assets or moneys paid to it as a result of the creation of a "public
asset", as defined in paragraph three of subsection (j) of section four
thousand three hundred one of this chapter, together with any earnings
thereon. Such fund shall be separate and apart from any other fund and
from all other state moneys. The comptroller shall be the sole custodian
of the fund. Custodial authority of the fund shall be limited to the
rights set forth in this subsection, and any and all other rights,
including shareholder rights with respect to the public asset shall be
vested in the board, as set forth in paragraph four of subsection (j) of
section four thousand three hundred one of this chapter. All
disbursements shall be made by the comptroller upon vouchers signed by
the superintendent, or his deputy, upon the direction of the board
established pursuant to subparagraph (B) of paragraph four of subsection
(j) of section four thousand three hundred one of this chapter. The
moneys of the fund shall be invested by the comptroller, pursuant to the
direction of such board, so as to maximize the value of the assets in
such fund consistent with the board's statutory obligation to direct
disbursements as described herein and in subsection (j) of section four
thousand three hundred one of this chapter. The fund shall continue
until there are no longer any assets or moneys therein available for
distribution.

(f) (i) Notwithstanding any other provision of law, the
superintendent's approval of the conversion transaction shall constitute
final approval of the transaction and no further authorizations or
approvals shall be required. Notwithstanding any other provision of law,
sole jurisdiction for any challenge of the superintendent's final
determination regarding the conversion transaction shall rest with the
New York supreme court and shall be commenced within thirty days of the
superintendent's final determination. Judicial review shall be limited
to a determination as to whether the superintendent acted in an
arbitrary or capricious manner with respect to reaching a determination.

(ii) This section shall be deemed to supercede all otherwise
applicable laws and legal requirements and compliance with this section
and subsection (j) of section four thousand three hundred one of this
chapter and the use of such funds as provided in such section, and in
subsection (k) of this section, shall be deemed to constitute compliance
with and shall supercede all such other legal requirements, including,
but not limited to, statutory, common law and any other requirements
relating to not-for-profit corporations and fiduciary requirements
applicable to the board of directors of any company filing a plan
pursuant to this section. In addition, and not in limitation of the
foregoing, a transaction approved by the superintendent shall be deemed
for all purposes to be a transaction that is fair and reasonable to an
applicant and to promote the purposes of that applicant, and the use of
proceeds as described herein shall be deemed for all purposes to be a
use for a purpose that is consistent with and as near as may be to the
purposes for which the applicant was originally organized and
subsequently operated.

(g) The conversion transaction shall not result in inurement to any
private person or entity. The converted corporation shall not issue to
any employee or member of the board of directors of either the applicant
or the converted corporation, any stock options, warrants or stock
appreciation rights unless the value of such options, warrants or rights
is initially set at the publicly traded price of the stock of the
converted insurer on a date no earlier than six months after the
commencement of the initial public offering. In no event shall a
director of the applicant receive stock options in his or her capacity
as a director of the applicant.

(h) After the superintendent deems the proposed plan of conversion
sufficiently complete, the superintendent shall hold one or more public
hearings regarding the proposed plan of conversion within the geographic
area served by the applicant. The number and locations of the hearings
shall be sufficient to ensure adequate public involvement and comment.
The applicant shall provide notice of the public hearings throughout the
geographic area affected by the application by distributing a form or
notice approved by the superintendent and including such notices in the
state register, in accordance with the provisions of the state
administrative procedure act, in newspapers of general circulation and
electronic notices posted on the internet. The applicant shall notify
contractholders, subscribers and enrollees, as well as participating
providers of health care services under the applicant's health plan, in
writing of the application and hearings. In the event that there is an
amendment to the application, additional hearings shall be held with due
notice provided that the superintendent determines that such changes to
the plan are materially adverse to the interests of policyholders,
subscribers or enrollees. Upon receipt of a complete application, the
application and any supporting material submitted to the superintendent
in conjunction with the application shall be deemed to be public records
and shall be made available to the public for inspection during normal
business hours, at no cost, at the applicant's main office within the
state of New York and at the office of the superintendent. Prior to the
hearing date, the applicant shall post its application and all such
supporting material electronically on the internet. The superintendent
shall cause a transcript to be made of each public hearing and such
transcript and any submitted written comments shall become public
records. The superintendent shall similarly promptly provide copies of
transcripts of any hearings held by the superintendent to the
commissioner of health and all members of the board.

(i) Within a reasonable time after receipt of a final plan of
conversion, the superintendent shall render a written decision
determining whether the proposed plan of conversion shall become
effective as filed, shall become effective as modified or shall be
disapproved.

(j) To assist in the review of the proposed plan of conversion, the
superintendent shall be authorized to hire independent financial,
health, legal and other experts and consultants, the reasonable and
necessary costs of which shall be paid by the applicant. The applicant
shall deliver to the superintendent at the time of submission of the
proposed plan of conversion a written undertaking in form and substance
satisfactory to the superintendent and signed by the applicant and by
such other persons as the superintendent may require specifying the
manner in which all costs and expenses incurred in any manner in
connection with the plan of conversion shall be paid or reimbursed. Such
undertaking shall provide for the payment or reimbursement of all
expenses incurred by the superintendent or the department in connection
with the plan of conversion, other than normal operating expenses of the
department.

(k) (1) A charitable organization shall be established for the purpose
of receiving the charitable asset and shall operate as a tax exempt
organization pursuant to section 501(c)(3) of the federal internal
revenue code for the purposes of receiving the charitable asset. Whether
or not the charitable organization is classified as a private foundation
under section 509 of the internal revenue code, as amended or any
comparable provision of any successor law, it shall be subject to the
restrictions and limitations that apply to private foundations in
sections 4941 through 4945 of the federal internal revenue code, as
amended or any comparable provision of any successor law. The
superintendent shall provide in an opinion and decision approving the
conversion for the timely transfer of the charitable asset consistent
with the purposes of this chapter. In the case of the conversion of a
corporation or corporations which occurs after the effective date of the
chapter of the laws of two thousand seven which amended this paragraph,
the superintendent shall provide in an opinion and decision approving
such conversion for the timely transfer of the charitable asset to the
New York state health foundation created pursuant to this subsection and
in compliance with all applicable provisions of this subsection.

(2) The charitable organization shall be governed by a board of
directors composed of nine members, three of whom shall be voting
members and six of whom shall be non-voting members, which shall be
appointed as follows: one voting member and two non-voting members shall
be appointed by each of the governor, the temporary president of the
senate, and the speaker of the assembly. Each member shall have a term
of three years and may be reappointed at the end of said term by the
same person that made the original appointment. A vacancy in the
membership of the board shall be filled for the unexpired portion of the
term provided for by the original appointment by the same person that
made the original appointment. Members may not be officers or employees
of the state or any municipal subdivision thereof. The board of such
charitable organization shall be broadly representative of the community
and include representatives of patient, consumer and public interest
organizations and individuals with expertise in public health, health
care delivery and financing, patient health issues, investments and
philanthropic administration, provided further, no more than three board
members of the entire board shall be representatives from any one
organization or provider group and board vacancies shall be filled from
eligible representatives who are not represented or who are under
represented on the board. The charitable organization's structure shall
provide mechanisms for ongoing community consultation and engagement
including, but not limited to, the establishment of a community advisory
board. A vacancy in the membership of the board shall be filled for the
unexpired portion of the term provided for by the original appointment
by the same person that made the original appointment.

(3) The mission of such charitable organization shall include:

(A) expansion of access to health care by extending health insurance
coverage to state residents who cannot afford to purchase their own
coverage or who have coverage that is inadequate to meet their needs;

(B) expansion and enhancement of access to health care by augmenting
and creating health care programs that deliver services to populations
that are unable to access health care or that improve public health; and

(C) augmentation of its other program priorities by supporting
programs that inform and educate New Yorkers about public health issues
and empower communities to address these issues by becoming more
effective at identifying and articulating health care needs and
implementing solutions.

Programs or initiatives instituted by the charitable organization
shall not neglect the residents or institutions served by the applicant
prior to the conversion.

(4) The members of the board of directors of the charitable
organization shall serve without compensation for their services as
members, but shall be entitled to reimbursement for actual and necessary
expenses incurred in the performance of their official duties. Such
members, except as otherwise provided by law, may engage in private
employment, or in a profession or business.

(5) The members of the board of directors of the charitable
organization and its corporate existence shall continue until there are
no longer any assets or moneys comprising the charitable asset available
for distribution.

(6) The affirmative vote of all three voting members of the board of
directors of the charitable organization shall be necessary for the
transaction of any business or the exercise of any power or function of
such board. Such board may delegate to one or more of its members, or
its agents, such powers and duties as it may deem proper.

(7) The members of the board of directors of the charitable
organization shall have the power to make and execute contracts and all
other instruments, and to exercise such other powers, necessary or
convenient for the exercise of its powers and functions.

In directing investments pursuant to this subparagraph, the board of
directors of the charitable organization shall not be limited by any
restrictions on investments contained in any other section of law,
subject only to the board's obligations and the considerations set forth
above.

(8) (A) Neither the members of the board of directors of the
charitable organization nor any agent or other person or persons acting
on its behalf, while acting within the scope of their authority as
members or agents of the board, shall be subject to any personal
liability resulting from the carrying out of the powers conferred
hereunder; and (B) the provisions of section seventeen of the public
officers law shall apply to members of the board and agents or other
persons acting on its behalf, in connection with any and all claims,
demands, suits, actions or proceedings which may be made or brought
against any of them arising out of any determination made or actions
taken or omitted to be taken in compliance with any obligations under or
pursuant to the terms of this section or section four thousand three
hundred one of this chapter. The provisions of this subparagraph shall
be severable from and shall survive any legal challenge to the legality,
validity, or constitutionality of this section.

(9) The charitable organization receiving the charitable asset agrees
in writing to register and file annual financial reports with the
attorney general in compliance with section 8-1.4 of the estates,
powers, and trusts law and to post its registration filing and annual
reports electronically on the internet.

(10) The charitable organization receiving the charitable asset, its
directors, officers, and staff shall be and will remain independent of
any control or influence by the surviving corporation or other surviving
entity organized for pecuniary profit and its affiliates and successors.
Such requirement shall not prevent the charitable organization from
voting its equity shares in the for-profit organization in accordance
with the voting and shareholders rights agreement entered into by the
board with respect to the public asset and the charitable organization
shall be subject to such voting and shareholders rights agreement and
the asset preservation agreement between the board with respect to the
public asset and the converted corporation. No person who is an officer,
director, or staff member of the applicant at the time such corporation
applies to the superintendent for permission to convert, or thereafter
shall be an officer, director, or staff member of the charitable
organization receiving the charitable asset. No director, officer,
agent, or employee of the applicant or the charitable organization
receiving the charitable asset will receive additional compensation
arising from the conversion transaction.

(11) The charitable organization receiving the charitable asset will
establish formal mechanisms to avoid conflicts of interest and to
prohibit grants benefitting the surviving corporation or other surviving
entity organized for pecuniary profit, or its affiliates or successors,
directors, management, and staff.

(12) Any action or proceeding in which any question arises as to the
validity of any provision in this subsection or in section seven
thousand three hundred seventeen of this chapter, shall be preferred
over all other civil causes except election causes in all courts of the
state of New York and shall be heard and determined in preference to all
other civil business pending therein except election causes,
irrespective of position on the calendar. The same preference shall be
granted upon application of counsel to the board in any action or
proceeding questioning the validity of any provision herein in which he
or she may be allowed to intervene.

(13) To assist in carrying out its functions, the board shall be
authorized to hire independent financial, legal and other experts and
consultants.

(14) Inconsistent provisions of other laws are superseded. Insofar as
any provision herein is inconsistent with the provisions of any other
law, general, special or local, the provisions herein shall be
controlling.

(15) This section, being necessary for the welfare of the state and
its inhabitants, shall be liberally construed so as to effectuate its
purposes.

(l) For the purposes of this section, fair market value shall consist
of either; (i) one hundred percent of the stock that is transferred,
provided that a portion of the shares may be sold in an initial public
offering and that the net proceeds shall be transferred, together with
the remaining unsold shares, (provided further that additional stock may
be sold for fair market value that is transferred to the converted
corporation), or (ii) in the case where one hundred percent of the stock
is not transferred and a public stock offering is not anticipated, an
independent valuation that takes into account market value, investment
or earnings value and not asset value. Within five days of the
superintendent's final determination of the fair market value, the
superintendent shall forward to the attorney general such independent
valuation. The attorney general may, within thirty days after having
received such valuation, provide the superintendent with written
objections to such valuation. The superintendent shall respond to such
written objections within seven days stating either that the
superintendent accepts such objections and has modified his or her
determination accordingly, or that the superintendent rejects such
objections. The attorney general may, thereafter, pursue an action in
supreme court seeking to have the valuation adjusted in accordance with
the attorney general's objections. Such action shall be preferred over
all other civil causes except election causes in all courts of the state
of New York and shall be heard and determined in preference to all other
civil business pending therein except election causes, irrespective of
position on the calendar.