RRockingham Casualty Company. Rockingham Mutual Insurance Company. Plan of Mutual Holding Company Conversion. Proxy Statement Appendix A

Transcription

1 Proxy Statement Appendix A Rockingham Mutual Insurance Company Plan of Mutual Holding Company Conversion As Approved by the Board of Directors On December 5, 2012 ockingham Group Rockingham Mutual Insurance Company RRockingham Casualty Company Rockingham Mutual Service Agency, Inc.

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3 Table of Contents Content Page Plan of MHC Conversion 4 Exhibit A Articles of Incorporation of Rockingham Mutual Group, Inc. 15 Exhibit B Rockingham Mutual Group, Inc. Bylaws 17 Exhibit C Articles of Restatement of Rockingham Mutual Insurance Company 28 Exhibit D Rockingham Insurance Company Restated Bylaws 31 Exhibit E Articles of Incorporation of Rockingham Group, Inc. 41 Exhibit F Rockingham Group, Inc. Bylaws 42 Exhibit G Unaudited Pro Forma Financial Statements 51 Exhibit H Designated Directors and Officers 53 3

4 PLAN OF MHC CONVERSION OF ROCKINGHAM MUTUAL INSURANCE COMPANY DECEMBER 5, 2012 RECITALS Rockingham Mutual Insurance Company (the Company ) is a Virginia domestic mutual insurance company organized in the mutual form, which has no authorized capital stock. The Company proposes to reorganize itself pursuant to the provisions of : :13 of the Code of Virginia (the MHC Conversion Law ), et seq of the Code of Virginia (the Virginia Stock Corporation Act ) and et seq of the Code of Virginia (the Virginia Nonstock Corporation Act ), by forming a mutual insurance holding company (the Mutual Holding Company ); by forming an intermediate stock holding company and wholly-owned subsidiary of the Mutual Holding Company (the Stock Holding Company ); and by converting the Company from an incorporated mutual insurer of the Commonwealth of Virginia into an incorporated stock insurer of the Commonwealth of Virginia, and its name shall simultaneously be changed to Rockingham Insurance Company, all of which actions shall constitute the MHC Conversion. The Board of Directors of the Company believes the MHC Conversion to be in the best interests of the Company and that it is fair and equitable as regards the interests of its members. At a meeting duly called and held on December 5, 2012 (the Adoption Date ), the Board of Directors of the Company unanimously approved the MHC Conversion and adopted this Plan of MHC Conversion (as defined in Article I) and authorized and directed the execution of this Plan of MHC Conversion providing for the conversion of the Company in accordance with the requirements of the MHC Conversion Law, and in accordance with the terms and subject to the conditions as provided in this Plan of MHC Conversion. The Board of Directors of the Company has directed that this Plan of MHC Conversion be filed with the Commission (as defined in Article I) for review and approval as provided by law. The Board of Directors of the Company has directed that this Plan of MHC Conversion be submitted to the Eligible Members (as defined in Article I) of the Company for approval in accordance with the MHC Conversion Law and the Company s articles of incorporation and bylaws. NOW, THEREFORE, this Plan of MHC Conversion is entered into by the Company. 4

5 ARTICLE I DEFINITIONS As used in this Plan of MHC Conversion and in the Recitals, the following words or phrases have the following meanings and the following definitions shall be equally applicable to both the singular and plural forms of any of the terms herein defined. Adoption Date has the meaning specified in the Recitals. Virginia. Commission means the State Corporation Commission of the Commonwealth of Company has the meaning specified in the Recitals. Converted Stock Company has the meaning specified in Section 2.5. Designated Ds & Os has the meaning specified in Section 4.2. Effective Date has the meaning specified in Section 3.3. Eligible Member means a member of the Company whose Policy is in force on the Adoption Date. Insurance Law means et seq of the Code of Virginia. Membership Interests means the rights of a member as a member of the Company or, upon completion of the MHC Conversion, of the Mutual Holding Company to vote as provided for in the respective articles of incorporation and bylaws of the Company and the Mutual Holding Company and such other rights as are provided by statute, regulation or order of the Commission, but shall not include any other right expressly conferred by any Policy. Members Meeting has the meaning specified in Section 3.2(a). MHC Articles has the meaning specified in Section 2.4. MHC Bylaws has the meaning specified in Section 2.4. MHC Conversion has the meaning specified in the Recitals. 5

6 MHC Conversion Law has the meaning specified in the Recitals. Mutual Holding Company has the meaning specified in the Recitals. Person means any association, aggregate of individuals, business, company, corporation, individual, joint-stock company, Lloyds type of organization, organization, partnership, receiver, reciprocal or interinsurance exchange, trustee or society. A Person who is the owner of policies in more than one legal capacity (e.g., a trustee under separate trusts) shall be deemed to be a separate Person in each such capacity. Plan of MHC Conversion means this Plan of MHC Conversion, including all Exhibits hereto, as the same may be amended from time to time in accordance with Section 4.6. Policy means an insurance policy, in force, issued by the Company. Restated Articles has the meaning specified in Section 2.7. Restated Bylaws has the meaning specified in Section 2.7. SAP means statutory accounting practices prescribed or permitted by the Commission, applied on a consistent basis throughout the periods involved. SHC Articles has the meaning specified in Section SHC Bylaws has the meaning specified in Section Stock Holding Company has the meaning specified in the Recitals. Virginia Nonstock Corporation Act has the meaning specified in the Recitals. Virginia Stock Corporation Act has the meaning specified in the Recitals. ARTICLE II MHC CONVERSION 2.1 THE MHC CONVERSION. On the Effective Date and in accordance with the terms of this Plan of MHC Conversion and the provisions of the MHC Conversion Law, the Virginia Stock Corporation Act and the Virginia Nonstock Corporation Act, the Company shall be reorganized by forming the Mutual Holding Company, the Stock Holding Company and 6

7 continuing the corporate existence of the Company as a stock insurance company without interruption. 2.2 REASONS FOR THE MHC CONVERSION. To better assure and strengthen its long-term financial position, the Company has adopted a diversification strategy predicated upon its conclusion that continued reliance on commoditized personal lines products will not be viable over the intermediate or long term. The Company s strategy is to grow specialty niches both organically and by acquisition, including by seeking acquisition candidates through a deliberate and prudent search based upon management developed criteria approved by the Board of Directors of the Company. This renewed focus on niche or underserved insurance segments returns the Company to its origins since it was originally formed to provide coverage for exposures that were largely being ignored or underserved by other insurance providers. The MHC Conversion will enhance the Company s strategic and financial flexibility by creating a corporate structure that will potentially enable it to access the capital markets that are presently unavailable to the Company as a mutual insurance company, which may thereby facilitate the growth important to the Company s goal of remaining an effective and competitive insurer in the future. Access to capital markets includes the potential of a sale of a portion of the stock of the Stock Holding Company, provided that the Mutual Holding Company, during its existence, retains direct or indirect ownership and control of a majority of the outstanding voting shares of the Stock Insurance Company. 2.3 FORMATION OF MUTUAL HOLDING COMPANY. On the Effective Date, the Mutual Holding Company shall be incorporated as a mutual corporation pursuant to the provisions of the Virginia Nonstock Corporation Act. The name of the Mutual Holding Company shall be Rockingham Mutual Group, Inc. On the Effective Date, the Eligible Members shall become members of the Mutual Holding Company in accordance with the MHC Articles and the MHC Bylaws and the applicable provisions of the MHC Conversion Law and et seq of the Insurance Law, and their Membership Interests in the Company shall become Membership Interests in the Mutual Holding Company and their Membership Interests in the Company shall be extinguished. On the Effective Date, all other Persons who are not Eligible Members and who own policies shall have their Membership Interests, if any, in the Company extinguished and shall be granted Membership Interests in the Mutual Holding Company. 7

8 2.4 ARTICLES OF INCORPORATION AND BYLAWS OF MUTUAL HOLDING COMPANY. The articles of incorporation of the Mutual Holding Company shall be as set forth in the articles of incorporation attached hereto as Exhibit A (the MHC Articles ). The bylaws of the Mutual Holding Company shall be as set forth in the bylaws attached hereto as Exhibit B (the MHC Bylaws ). 2.5 MHC CONVERSION INTO STOCK INSURANCE COMPANY. On the Effective Date, the Company shall be converted into a stock insurance company (the Converted Stock Company ) authorized to issue capital stock and shall change its corporate name to Rockingham Insurance Company. All of the initial shares of the capital stock of the Converted Stock Company shall be issued to the Mutual Holding Company on the Effective Date and immediately thereafter, the Mutual Holding Company shall contribute all such shares of capital stock of the Converted Stock Company to the Stock Holding Company. 2.6 CONTINUATION OF CORPORATE EXISTENCE. The corporate existence of the Company shall be continued in the Converted Stock Company with the original date of incorporation of May 1, All rights, franchises and interests of the Company in and to any type of property, real, personal, mixed, tangible or intangible, held immediately prior to the Effective Date shall be deemed transferred to and vested in the Converted Stock Company without further act or deed. Simultaneously, the Converted Stock Company shall be deemed to have assumed all obligations and liabilities of the Company that existed immediately prior to the Effective Date. 2.7 AMENDED AND RESTATED ARTICLES OF INCORPORATION AND BYLAWS OF THE CONVERTED STOCK COMPANY. On the Effective Date, the articles of incorporation and bylaws of the Converted Stock Company shall, without further act or deed, be restated substantially in the form set forth in the restated articles of incorporation attached hereto as Exhibit C (the Restated Articles ) and the restated bylaws attached hereto as Exhibit D (the Restated Bylaws ). 2.8 EFFECT OF MHC CONVERSION ON EXISTING POLICIES. On and after the MHC Conversion, every Policy which is in force on the Effective Date shall continue in force under the terms of those Policies, except that all voting and other membership rights under such Policies or under the laws of the Commonwealth of Virginia and any provisions for contingent liability of members shall be extinguished on the Effective Date. 8

9 2.9 FORMATION OF STOCK HOLDING COMPANY. On the Effective Date, the Stock Holding Company shall be incorporated as a stock corporation pursuant to the provisions of the Virginia Stock Corporation Act. The name of the Stock Holding Company shall be Rockingham Group, Inc ARTICLES OF INCORPORATION OF THE STOCK HOLDING COMPANY. On the Effective Date the articles of incorporation of the Stock Holding Company shall be as set forth in the articles of incorporation of Rockingham Group, Inc. attached as Exhibit E (the SHC Articles ). The bylaws of the Stock Holding Company shall be as set forth in the bylaws attached hereto as Exhibit F (the SHC Bylaws ) ISSUANCE OF SHARES OF CAPITAL STOCK. On the Effective Date, all of the shares of the common stock of the Converted Stock Company shall be issued to the Mutual Holding Company, and all of the shares of common stock of the Stock Holding Company shall be issued to the Mutual Holding Company, and immediately thereafter, the Mutual Holding Company shall contribute all such shares of common stock of the Converted Stock Company to the Stock Holding Company. Under this structure, the Mutual Holding Company will at all times retain direct or indirect ownership and control of at least a majority of the outstanding shares of the common stock of the Converted Stock Company GRANTING OF MEMBERSHIP INTERESTS IN MUTUAL HOLDING COMPANY SUBSEQUENT TO THE EFFECTIVE DATE. Persons who become policyholders of the Converted Stock Company subsequent to the Effective Date shall be granted Membership Interests in the Mutual Holding Company FINANCIAL CONDITION OF THE CONVERTED STOCK COMPANY. Attached hereto as Exhibit G are unaudited pro forma financial statements of the Company and the Converted Stock Company, prepared in accordance with SAP, which demonstrate that the financial condition of the Converted Stock Company will not be diminished by this Plan of MHC Conversion NO CURRENT PLAN OF DISTRIBUTION. There is no current plan to issue shares of the Converted Stock Company or the Stock Holding Company to the public or to other Persons who are not direct or indirect subsidiaries of the Mutual Holding Company. 9

10 ARTICLE III APPROVAL, CONDITIONS AND EFFECTIVE DATE OF MHC CONVERSION 3.1 APPROVAL BY THE COMMISSION. The Company shall file an application with the Commission and obtain the Commission s approval of this Plan of MHC Conversion as required by the MHC Conversion Law. 3.2 APPROVAL BY ELIGIBLE MEMBERS AFTER THE COMMISSION S APPROVAL. (a) ELIGIBLE MEMBERS MEETING. This Plan of MHC Conversion is subject to approval by the Eligible Members. After this Plan of MHC Conversion has been approved by the Commission, the Company shall hold a meeting of the Eligible Members (the Members Meeting ) during which Eligible Members shall be entitled to vote on the proposal to approve this Plan of MHC Conversion. The Board of Directors of the Company has directed that this Plan of MHC Conversion be submitted to the Commission for review and approval as provided by law. Approval of this Plan of MHC Conversion is subject to the affirmative vote of more than two-thirds of the votes cast by Eligible Members at the Members Meeting, provided that a quorum is present. Each Policy represents a Membership Interest in the Company, and Eligible Members shall be entitled to cast one vote for each such Membership Interest. Eligible Members may vote in person or by proxy. (b) NOTICE OF MEMBERS MEETING. The Members Meeting shall be held not less than twenty-five (25) nor more than sixty (60) days from the date notice of the Members Meeting is given. Notice of the Members Meeting to act on this Plan of MHC Conversion shall be given to each Eligible Member at the Eligible Member s address as shown on the Company s records not later than forty-five (45) days following the date of the Commission s approval of this Plan of MHC Conversion. (c) CONTENT OF NOTICE. The notice of the Members Meeting shall contain, among other things, the information and notices required under the provisions of the MHC Conversion Law and by the Commission and shall be accompanied by a form of proxy permitting the Eligible Members to vote FOR or AGAINST this Plan of MHC Conversion. The provision of the MHC Conversion Law authorizing or permitting the Company to convert to a stock company shall be set forth in the notice of the Members Meeting and a summary of the 10

11 transaction and procedures to be followed in the MHC Conversion shall be provided in clear and explicit language. Approval by the Eligible Members of this Plan of MHC Conversion shall constitute approval by the Eligible Members of the MHC Articles, the MHC Bylaws, the Restated Articles and the Restated Bylaws. 3.3 CONDITIONS AND EFFECTIVE DATE. Upon satisfaction of all conditions as provided in Subsections (a), (b) and (c) of this Section 3.3, the Company shall file the MHC Articles, the SHC Articles and the Restated Articles with the Commission. In addition, the Converted Stock Company shall file with the Commission a copy of the minutes of the Members Meeting together with a copy of MHC Bylaws, the SHC Bylaws and the Restated Bylaws. This Plan of MHC Conversion shall become effective on the date (the Effective Date ) that all of the provisions of this Section 3.3 have been complied with and the MHC Articles, the SHC Articles and the Restated Articles have been filed and admitted to record in the office of the clerk of the Commission in the manner provided by the Virginia Stock Corporation Act. (a) ELIGIBLE MEMBERS APPROVAL. The MHC Conversion shall not become effective unless this Plan of MHC Conversion shall have been approved by the Eligible Members as provided in Section 3.2(a). (b) REGULATORY APPROVALS. The MHC Conversion shall not become effective unless: (i) this Plan of MHC Conversion shall have been approved by the Commission as provided in Section 3.1; (ii) the MHC Articles, Restated Articles and SHC Articles as provided in Sections 2.4, 2.7 and 2.10 shall have been approved by the Commission; and (iii) the form of notice to Eligible Members and the form of proxy as provided in Section 3.2(c) shall have been approved by the Commission. (c) TAX CONSIDERATIONS. The MHC Conversion shall not become effective unless on or prior to the Effective Date the Company shall have obtained rulings from the Internal Revenue Service or an opinion of independent tax counsel substantially to the effect that the MHC Conversion of the Company from a domestic mutual insurance company into a stock insurance company, the exchange of the Membership Interests in the Company for Membership Interests in the Mutual Holding Company, the issuance of the shares of the capital 11

12 stock of the Converted Stock Company and Stock Holding Company, and the contribution of the shares of the capital stock of the Converted Stock Company by the Mutual Holding Company to the Stock Holding Company will constitute a tax-free MHC Conversion, or will otherwise constitute a tax-free transaction for the parties to the MHC Conversion under the provisions of the Internal Revenue Code of 1986, as amended. ARTICLE IV ADDITIONAL PROVISIONS 4.1 NO TRANSFER OR EXCHANGE. The MHC Conversion shall not be construed to result in any reinsurance or in any real or constructive issuance or exchange of any insurance policy or contract or any other transfer of any assets, rights or obligations of the Company. 4.2 DIRECTORS AND OFFICERS. The name of each director and officer of the Company, together with biographical information for each such individual, is set forth on Exhibit H (collectively, the Designated Ds & Os ). The Designated Ds & Os, or their successors, to the extent they still hold such positions on the Effective Date, shall serve as the directors and officers of the Converted Stock Company, the Stock Holding Company and the Mutual Holding Company on and after the Effective Date, until new directors and officers have been duly elected and qualified pursuant to the Restated Articles and the Restated Bylaws, the SHC Articles and SHC Bylaws and the MHC Articles and MHC Bylaws, respectively. 4.3 CONFLICT OF INTEREST. No director, officer, agent or employee of the Company or other Person shall receive any fee, commission or other valuable consideration, other than such Person s regular salary or compensation, for in any manner aiding, promoting, arranging, or assisting in the MHC Conversion except as set forth in this Plan of MHC Conversion. This Section 4.3 shall not prohibit the payment of reasonable fees and compensation to attorneys, accountants or actuaries for services performed in the independent practice of their professions notwithstanding the fact that such attorney, accountant or actuary is a member of the Board of Directors of the Company. 4.4 NOTICES. If the Company complies substantially and in good faith with the notice requirements of the MHC Conversion Law, its failure to give any member of the Company 12

13 a required notice shall not impair the validity of the action taken under the MHC Conversion Law or this Plan of MHC Conversion. 4.5 ASSETS OF MUTUAL HOLDING COMPANY. If for any reason the Converted Stock Company becomes subject to any delinquency proceedings under et seq of the Code of Virginia, substantially all of the assets of the Mutual Holding Company will be available for the benefit of the Converted Stock Company and the Policyholders. To assure that the assets of the Mutual Holding Company will be so available for any such delinquency proceedings, on the Effective Date, the Mutual Holding Company and the Converted Stock Company will enter into a Pledge and Security Agreement (the form of which shall be approved by the Commission) whereby the Mutual Holding Company will assign, pledge and grant to the Converted Stock Company a security interest in substantially all of its assets now owned or thereafter acquired, including all of the shares of the Stock Holding Company acquired by the Mutual Holding Company. In addition, at any time and from time to time that the Board of Directors of the Mutual Holding Company determines that the Mutual Holding Company has an accumulation of earnings in excess of the funds that may be needed to pay the expenses and obligations of the Mutual Holding Company as they become due and payable, the Board of Directors of the Mutual Holding Company will direct that any such excess shall be contributed to the surplus of the Converted Stock Company and be used for the benefit of the Converted Stock Company and its Policyholders in a manner as determined by the Board of Directors of the Converted Stock Company. 4.6 AMENDMENT OF PLAN OF MHC CONVERSION; WITHDRAWAL OF PLAN OF MHC CONVERSION. At any time before approval of the Plan of MHC Conversion by the Eligible Members, the Board of Directors of the Company, by affirmative vote of not less than two-thirds of its members, may amend or withdraw this Plan of MHC Conversion. No Person shall have any rights or claims against the Company or its Board of Directors based on withdrawal of this Plan of MHC Conversion. 4.7 CORRECTIONS. The Company may, until the Effective Date, by an instrument executed by its Chairman of the Board, President, Vice Chairman of the Board, or any Vice President, attested by its Secretary or Assistant Secretary under the Company s corporate seal and submitted to the Commission, make such modifications as are appropriate to correct errors, clarify existing items or make additions to correct manifest omissions in this Plan of MHC Conversion, including the Exhibits hereto. The Company may in the same manner also 13

14 make such modifications as may be required by the Commission after the filing of the application for review and approval of the Plan of MHC Conversion as a condition of approval of the MHC Conversion. 4.8 COSTS AND EXPENSES. All costs and expenses incurred in connection with this Plan of MHC Conversion shall be paid either by the Company or the Converted Stock Company. 4.9 LIMITATION ON ACTIONS. Any action challenging the validity of or arising out of any act taken or proposed to be taken under the MHC Conversion Law or this Plan of MHC Conversion shall be commenced within thirty (30) days after the Effective Date GOVERNING LAW. The terms of this Plan of MHC Conversion shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia HEADINGS. Article and section headings contained in this Plan of MHC Conversion are for convenience only, and shall not be considered in construing or interpreting any of the provisions hereof RECITALS. The Recitals are a general expression of the concepts of this Plan of MHC Conversion. They are not, and shall not be construed to be, a substantive part of this Plan of MHC Conversion except for definitions included therein. IN WITNESS WHEREOF, Rockingham Mutual Insurance Company, by the authority of its Board of Directors, has caused this Plan of MHC Conversion to be signed by its President and attested by its Chief Financial Officer and Secretary on December 5, ROCKINGHAM MUTUAL INSURANCE COMPANY By: William Neal Menefee President ATTEST: John Stuart Barret Chief Financial Officer and Secretary 14

15 Exhibit A ARTICLES OF INCORPORATION ROCKINGHAM MUTUAL GROUP, INC. The undersigned, pursuant to Chapter 10 of Title 13.1 of the Code of Virginia, state(s) as follows: 1. The name of the corporation is Rockingham Mutual Group, Inc., and is organized pursuant to the provisions of : :13 of the Code of Virginia as a mutual holding company. 2. The corporation shall have one or more classes of members with such designations, qualifications and rights as set forth in the bylaws. 3. The directors shall be elected by the members, and vacancies for unexpired terms of directors shall be filled by the board of directors. 4. A. The name of the corporation's initial registered agent is W. Neal Menefee. B. The initial registered agent is an initial director of the corporation. 5. A. The corporation's initial registered office address, which is identical to the business office of the initial registered agent, is 633 East Market Street, Harrisonburg, VA B. The registered office is located in the city of Harrisonburg. 6. The initial directors are: Name Class Address Nancy H. Agee A 633 East Market Street, Harrisonburg, VA Gene P. Berry B 633 East Market Street, Harrisonburg, VA Warren K. Coleman B 633 East Market Street, Harrisonburg, VA Stephen C. Fogleman B 633 East Market Street, Harrisonburg, VA H. Roger Higgins, III A 633 East Market Street, Harrisonburg, VA Anne B. Keeler C 633 East Market Street, Harrisonburg, VA W. Neal Menefee A 633 East Market Street, Harrisonburg, VA Christopher S. Runion A 633 East Market Street, Harrisonburg, VA Carolyn F. Sedwick C 633 East Market Street, Harrisonburg, VA Pamela L. Turner C 633 East Market Street, Harrisonburg, VA The terms of the initial Class A directors shall expire at the 2014 annual members meeting, terms of the initial Class C directors shall expire at the 2015 annual members meeting, and terms of the initial Class B directors shall expire at the 2016 annual members meeting. At the 2014 annual members meeting and at each annual members meeting held thereafter, directors shall be chosen for a term of three years to succeed those whose terms are then expiring. 7. The corporation shall hold not less than a majority of the shares of voting stock of a converted company or an intermediate holding company that, in turn, directly or indirectly holds all of the voting shares of a converted company. 15

16 8. The corporation is not authorized to issue capital stock except in accordance with the provisions of :9 of the Code of Virginia. 9. The members of the corporation shall have the rights specified in : :13 of the Code of Virginia and these articles of incorporation. 10. The assets of the corporation shall be subject to inclusion in the estate of a converted company in any proceeding initiated against a converted company under , et seq. of the Code of Virginia. INCORPORATOR: William Neal Menefee Date 16

17 Exhibit B ROCKINGHAM MUTUAL GROUP, INC. BYLAWS Effective [ ], 201[ ] ARTICLE 1 MEMBERS 1.1 Who May Become Members. Each insurance policy which was issued by Rockingham Insurance Company or its predecessor, Rockingham Mutual Insurance Company, and is in force shall represent a membership in the company, and the holders of each such policy shall be members of the company, entitled to cast a single vote for each membership in such manner as they may decide. 1.2 Annual Meetings of Members. The annual meeting of members of the company shall be held no later than April 30 of each year at such time and place as directed by the board of directors. 1.3 Special Meetings of Members. Special meetings of the members of the company may be called at any time by the board of directors. The purpose of every special meeting shall be stated in the notice, and no business shall be transacted except such business as is specified in the notice. 1.4 Quorum for Members Meetings. There shall be at least three percent (3%) of the members of the company present in person or by proxy to constitute a quorum at any annual or special meeting. 1.5 Notice of Meetings of Members. The company shall give written notice to its members of the date, time and place of each annual and special meeting. The notice shall be given, either personally or by mail, no less than 10 nor more than 60 days before the date of the meeting except that notice of a members meeting to act on an amendment of the articles of incorporation, a plan of merger, domestication, a proposed sale of assets pursuant to of the Virginia Code, or the dissolution of the company shall be given not less than 25 nor more than 60 days before the meeting. In lieu of delivering notice as specified above, the company may publish the notice at least once a week for two successive calendar weeks in a newspaper published in the city or county in which the registered office of the company is located, or having a general circulation in such city or county, the first publication to be not more than 60 days and the second not less than 7 days before the date of the meeting. 17

18 1.6 Voting at Meetings of Members. At all meetings of members each membership shall be entitled to one vote. Votes may be cast either personally or by written proxy executed by the member or his authorized attorney-in-fact. Proxies shall be filed with the secretary of the company before or at the time of the meeting. Jointly held memberships shall be entitled to one vote. ARTICLE 2 DIRECTORS 2.1 Number, Term and Qualifications of Directors. The management of the company shall be vested in a board of directors of not less than 5 nor more than 13 persons elected by the members at the annual meeting of the company. At any meeting of the members held for the purpose of electing directors or changing the number thereof, the range for the size of the board of directors or change from a variable-range to a fixed size board of directors may be accomplished by a majority of the votes cast by the members in person or by proxy. Directors shall be elected for a term of three years each and shall serve until their successors are elected and qualified. Directors may serve until they attain the age of 68 and shall automatically be retired from the board of directors on their 68th birthdays. 2.2 Vacancies. Vacancies for unexpired terms of directors shall be filled by the board of directors. 2.3 Duties of Directors. All corporate powers of the company shall be exercised by, or under due authority of, and the business of the company managed under the direction of the board of directors. The directors shall fix salaries of officers and directors, adopt bylaws, rules and regulations and generally be responsible for the policy-making of the company. The board of directors shall approve an annual budget and establish policies which are calculated to promote short-term and long-range stability and business growth. The board of directors shall have the right, if it desires, to establish goals for growth and to plan and budget in terms of these goals. At each annual meeting of the members the directors shall cause to be submitted a report of the business of the company for the preceding year. 2.4 Meetings of the Board of Directors. The directors shall hold an annual meeting immediately after the annual meeting of the members, or at such other time as the directors may determine. The directors shall elect officers of the company at the annual meeting. Additionally, the directors shall hold regular meetings at such place, either in or out of the Commonwealth of Virginia, at times as it may from time to time determine. Special meetings of the board of directors may be held whenever called by the chairman of the board of directors, president, or by a majority of the directors. Any business may be transacted at a special 18

19 meeting. A majority of the directors in office shall constitute a quorum at any meeting of the board of directors. 2.5 Notice of Meetings of Directors. Oral or written notice of each special meeting of the board of directors shall be given to each director by the president or by someone designated by the president not less than 12 hours prior to the time of the meeting. Notice of a special meeting may be waived by the directors and appearance at a meeting shall constitute a waiver unless the director appears specifically for the purpose of objecting to the meeting. Notice of a special meeting need not describe its purpose. No notice need be given of the regular meetings of the directors provided the same is held at the time and place then customary according to previous action of the board of directors. Notice need not be given as to the annual meeting of the board of directors if the same is held immediately after the annual meeting of the members. If held at another time, then notice of such annual meeting shall be given at least three days prior to the meeting. 2.6 Participation Through Various Means of Communication. Directors may participate in a regular or a special meeting by, or conduct a meeting through the use of, any means of communication by which all directors may simultaneously hear each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting. 2.7 General Standards of Conduct for Directors. A director shall discharge his duties in accordance with his good faith judgment of the best interests of the company. Unless a director has knowledge or information concerning the matter in question that makes reliance unwarranted, a director is entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, if prepared or presented by: 1. One or more officers or employees of the company whom the director believes, in good faith, to be reliable and competent in the matters presented; 2. Legal counsel, public accountants, or other persons as to matters the director believes, in good faith, are within the person s professional or expert competence; or 3. A committee of the board of directors of which he is not a member if the director believes, in good faith, that the committee merits confidence. 2.8 Action Without Meeting. Any action required or permitted to be taken at a board of directors meeting may be taken without a meeting if the action is taken by all of the members of the board of directors. The action shall be evidenced by one or more written consents stating the action taken, signed by each director either before or after the action taken, and included in 19

20 the minutes or filed with the corporate records reflecting the action taken. Action taken under this provision becomes effective when the last director signs the consent, unless the consent specifies a different effective date, in which event the action taken is effective as of the date specified provided the consent states the date of execution by each director. A consent signed under this section has the effect of a meeting vote and may be described as such in any document. 2.9 Director Conflicts of Interests. A conflict of interest transaction is one with the company in which a director has either a direct or indirect personal interest. A conflict of interest transaction shall not be voidable by the company solely because of a director s interest in the transaction if any one of the following is true: 1. The material facts of the transaction and the director s interest were disclosed or known to the board of directors or a committee of the board of directors and the board of directors or the committee authorized, approved or ratified the transaction; or 2. The material facts of the transaction and the director s interest were disclosed to the members entitled to vote and the members authorized, approved or ratified the transaction; or 3. The transaction was fair to the company Definition of Indirect Personal Interest. A director of the company shall be deemed to have an indirect personal interest in a transaction if (a) another entity in which the director has a material financial interest or in which he is a general partner is a party to the transaction, or (b) another entity of which he is a director, an officer or a trustee is a party to the transaction and the transaction is or should be considered by this board of directors. A vote or consent of an entity in which the director has an interest is deemed a vote or consent of the director Approval of Conflict of Interest Transaction. In instances where the material facts of the transaction and the director s interest were disclosed or known to the board of directors or a committee of the board of directors the transaction will be deemed authorized, approved or ratified if it receives the affirmative vote of a majority of the directors on the board of directors, or on the committee, who have no direct or indirect personal interest in the transaction. Such a transaction may not, however, be authorized, approved or ratified by a single director. If a majority of the directors who have no direct or indirect personal interest in the transaction vote to authorize, approve or ratify the transaction, all quorum requirements will be deemed met for purposes of taking action under this bylaw. 20

21 ARTICLE 3 OFFICERS 3.1 Title, Term and Qualifications. (a) Principal Officers. The board of directors shall at its annual meeting elect the officers of the company. The officers shall be a chairman of the board of directors, a vice chairman of the board of directors, a president (also interchangeably referred to as the chief executive officer ), one or more vice presidents, one of whom may be named an executive vice president or senior vice president if the board of directors deems advisable, a secretary, a treasurer, and a chief financial officer. The board of directors may-also-elect such additional officers as it deems appropriate. (b) Assistant Officers. The president may appoint assistant officers subordinate to those appointed under paragraph (a) of this section. Unless expressly provided to the contrary, such assistant officers shall be ineligible for any compensation or incentive plans, authority levels, or other rights or privileges limited to officers. (c) Directors of the Company. The president, chairman and vice chairman of the board of directors must be directors, but the other officers and assistant officers need not be directors. (d) Term. Officers, other than the chairman and vice chairman of the board of directors, shall be elected for terms of one year but shall hold such office only at the pleasure of the board of directors. The chairman and the vice chairman of the board of directors shall be elected for terms of 2 years but shall likewise hold office at the board of directors pleasure. The chairman and vice chairman of the board of directors shall not be eligible to immediately succeed themselves in office. Assistant officers appointed by the president under paragraph (b) of this section shall hold office at the pleasure of the president. (e) Multiple offices. Any two or more offices may be held by the same person, except the offices of president and secretary and the offices of chairman and vice chairman of the board of directors. 21

22 3.2 Vacancies. Vacancies for unexpired terms of officers shall be filled by the board of directors. In the event of resignation of an officer made effective at a later date and accepted by the company, the directors may fill the pending vacancy before the effective date but the successor shall not take office until such effective date. 3.3 Duties of the Chairman of the Board of Directors. The chairman of the board of directors shall be a link between the board of directors and management of the company. He shall serve as chairman of and preside at the meetings of the board of directors and shall perform such other duties as may be assigned to him from time to time by the directors. By reason of his office he shall have the right to attend all meetings of committees, but shall have no vote unless designated as a voting member of such committee by the board of directors. 3.4 Duties of the Vice Chairman of the Board of Directors. The vice chairman of the board of directors shall, in the absence of the chairman, preside at the meetings of the board of directors and shall perform such other duties as may be assigned to him from time to time by the board of directors. 3.5 Duties of the President. The president shall be the chief executive officer of the company, shall see that the company bylaws are enforced and shall have general management and control of the business and affairs of the company, subject to the policies established by the board of directors. The president shall keep the board of directors informed of major issues and developments that affect the company and of management s position and plans with regard to these issues. He shall, when appropriate, engage the board of directors in a discussion of such issues and developments while management s position and plans are still being developed. He shall respond to board of directors and committee requests for information. In addition, he shall provide for officers and employees of the company to respond on their own behalf, as well as his, in accordance with a policy communicated to the organization. He shall cooperate with the chairman of the board of directors in developing board of directors and committee meeting schedules and agendas that meet the needs of the board of directors and of management. He shall maintain with the chairman of the board of directors a mutual communication system to meet each other s needs. The president shall perform generally such other duties as may be delegated to him by the board of directors. 3.6 Duties of Vice Presidents. Vice presidents of the company shall perform such tasks as may be assigned to them by the board of directors or the president. Vice presidents may be assigned duties as heads of departments, and in such event their work and effort shall be concentrated in that field according to guidelines established by the board of directors, or in the absence of board of directors policy, by the president, reporting, unless otherwise specified, 22

23 to the president of the company. Vice presidents shall attend regular sessions of meetings of the board of directors and shall attend meetings of committees at the request of the chairman of any such committee. 3.7 Duties of the Secretary. The secretary shall have responsibility for preparing and maintaining custody of minutes of meetings of the directors and members and for authenticating records of the company. The secretary shall further perform such duties as are assigned by the board of directors or the president. The secretary shall attend all regular sessions of meetings of the board of directors and shall attend meetings of committees at the request of the chairman of any such committee. The secretary shall cause to be kept the minutes of all committee meetings attended by him. 3.8 Duties of the Treasurer. The treasurer shall receive and safely keep and in keeping with policies established or condoned by the board of directors, disburse company funds, keep such appropriate and accurate books and accounts as are necessary to show in detail all matters handled by him. Additionally, he shall have such powers and perform such other duties as are usually exercised and performed by the treasurer of a business corporation or as may be assigned to him by the board of directors or by the president. He shall attend all regular sessions of meetings of the board of directors and shall attend meetings of committees at the request of the chairman of any such committee. 3.9 Duties of the Chief Financial Officer. The chief financial officer shall have responsibility for monitoring, evaluating and reporting on the financial performance and condition of the company. The chief financial officer further shall develop and review with the board of directors short and long-range financial forecasts that will assure the long-term financial soundness and solvency of the company. The chief financial officer shall take appropriate action to cause all corporate level financial and regulatory reports to be duly filed in accordance with applicable laws and regulations and shall be responsible for monitoring the company s investment portfolio, including the placement of investments in accordance with directions from the board of directors and the company s investment policy Duties of Other Officers. Other officers of the company shall have and perform such duties as are assigned to them by the board of directors or by the president Facsimile Signatures. Any officer s signature may be by facsimile except on negotiable instruments, provided that signatures on checks may also be by facsimile within limits and safeguards approved by management. 23

24 ARTICLE 4 COMMITTEES 4.1 Standing Committees. There shall be four standing committees consisting of the finance committee, the audit committee, the human resources and corporate governance committee, and the strategic issues committee. Each of these committees shall consist of at least three persons, all of whom are appointed by the chairman of the board of directors. Each committee shall have a chairman selected by its own members. The members shall serve terms of two years concurrently with the term of the chairman of the board of directors. The chairman of each standing committee shall serve a similar term. Members and chairmen are eligible for reappointment or reelection. No person may serve as chairman of more than one standing committee. All meetings of these committees shall be held with no less than 24 hours notice, either oral or written, given to each member. The chairman of each committee shall provide a report to the board of directors summarizing issues addressed and action taken or recommended by the committee. A majority of the members of each committee shall constitute a quorum of that committee. 4.2 Finance Committee. The finance committee shall meet at least quarterly. It shall have the responsibility of seeing that the surplus and funds of the company are invested in accordance with policies and guidelines approved by the board of directors. The committee may operate with outside investment managers and company management to implement investment policy and monitor investment revenue. 4.3 Audit Committee. The audit committee shall meet at least quarterly. It shall recommend to the board of directors the appointment of a firm of independent public accountants (the auditors ) to audit the accounts of the company. It shall oversee the activities of the auditor, shall review matters associated with financial reporting and internal controls and shall, if requested by the board of directors, submit reports to the board of directors concerning the audit. 4.4 Human Resources and Corporate Governance Committee. This committee shall meet at least quarterly. It shall have the responsibility of providing general oversight for the company s compensation program, including salaries and benefits and specific compensation recommendations for officers and senior managers. It shall further have oversight and responsibility for the development and implementation of incentive compensation programs for management. It shall conduct performance appraisals, as requested, of the president. Additionally, it shall have responsibility for providing general oversight for corporate governance matters including the development and implementation of the appropriate 24

25 governance policies and procedures to assure that the board of directors is appropriately constituted and equipped to meet its fiduciary obligations to policyholders. 4.5 Strategic Issues Committee. This committee shall meet at least quarterly. It shall have the responsibility to track and understand how long-term trends in various areas that impact the financial services industry might affect the performance, viability and sustainability of the company. The committee will conduct assessments and make recommendations to the full board of directors regarding the appropriateness of the company s mission statement, business focus, organization structure/capacity and strategic plan. 4.6 Other Committees. The chairman of the board of directors may, at his discretion, or shall upon request by majority of the board of directors, appoint special committees whose membership is designated by the chairman or selected by a majority of the board of directors as the board of directors determines. These committees so constituted and appointed shall serve at the pleasure of the board of directors and shall, through the chairman of each, from time to time report to and advise the board of directors within the committee s particular area of responsibility and interest. The board of directors may provide, by resolution applicable to all such special committees, for the organization and conduct of the business of the committees. 4.7 Changes in Committee Membership; Filling of Vacancies. The board of directors may remove any member from any committee, except that the chairman of the board of directors and the vice chairman of the board of directors may not be removed from committees so long as they hold such offices. Any vacancy in a committee shall be filled by appointment of the chairman of the board of directors. The board of directors may, at any time, discharge any committee except a standing committee. 4.8 Action of Committees Without a Meeting. Any action required or permitted to be taken by a committee of the board of directors may be taken without a meeting if all members of the committee consent to the action in writing either before or after the action is taken and the writing or writings evidencing such consent are filed with the minutes of proceedings of such committee. For all purposes of these bylaws, any such consent shall constitute a resolution duly passed by such committee. 4.9 General Action of Committees. Any committee established under these bylaws shall have the right to examine all reports that are relevant to its work made by the company or a subsidiary to regulatory authorities and of examinations of the company or any of its subsidiaries made by regulatory authorities. 25