Montana Code Annotated
Part 7. Conversion of Nonprofit Health Entity to For-Profit or Mutual Benefit Corporation
50-4-701. Definitions

50-4-701. Definitions. As used in this part, the following definitions apply:
(1) "Commissioner" means the Montana state auditor and ex officio commissioner of insurance provided for in 2-15-1903.
(2) "Control or governance" means the possession, indirect or direct, of the power to direct or cause the direction of the management and policies of a person or entity, whether through the ownership of voting securities, by contract other than a commercial contract for goods or nonmanagement services, or otherwise unless the power is solely the result of an official position with a corporate office held by the person.
(3) (a) "Conversion" or "conversion transaction" means the sale, transfer, lease, exchange, transfer by exercise of an option, optioning, conveyance, merger, affiliation, mutualization, joint venture, or other disposition by a nonprofit health entity or another person or entity resulting in the transfer of control or governance to a person or entity other than the nonprofit health entity of the lesser of:
(i) more than 10% in fair market value of the assets or operations of a nonprofit health entity; or
(ii) assets of a nonprofit health entity amounting to a fair market value of $5 million or more.
(b) A disposition or transfer constitutes a conversion transaction regardless of whether it occurs directly or indirectly and whether it occurs in a single transaction or a series of related transactions. In determining the value of a tangible asset under this definition, the value of the asset must be calculated net of any mortgage, lien, or other encumbrance on the asset that exists of record.
(c) The term does not include:
(i) a transaction in the ordinary course of the nonprofit health entity's business that does not result in a material change in the nonprofit health entity's ownership, management structure, or nonprofit corporate mission;
(ii) a transaction or series of transactions in the ordinary course of a nonprofit health entity's business if the effect of the transaction or series of transactions is not to convert the nonprofit health entity from a nonprofit to a for-profit entity, to transfer the nonprofit health entity's business or operations to a for-profit entity, or to transfer the control or benefit of public assets and the proceeds of public assets to a mutual benefit or for-profit entity;
(iii) awards, grants, or payments to or on behalf of intended members or beneficiaries, consistent with the lawful purposes of a nonprofit health entity;
(iv) a change in the membership of the board of directors or officers of the nonprofit health entity or a wholly owned subsidiary of the nonprofit health entity if the change in membership does not result in a change in the nonprofit corporate status of the nonprofit health entity, does not result from a transfer of control, governance, or ownership of the nonprofit health entity, and does not result from transfer of a power of appointment of directors or officers of the nonprofit health entity or a wholly owned subsidiary of the nonprofit health entity;
(v) settlement, satisfaction, or payment of a claim or suit against or debt of the nonprofit health entity or a wholly owned subsidiary of the nonprofit health entity incurred in the ordinary course of business;
(vi) execution of a promissory note, guaranty, or other evidence of indebtedness for the amount of a loan, the proceeds of which are paid solely to the nonprofit health entity or a wholly owned subsidiary of the nonprofit health entity;
(vii) any payment, transfer, or other transaction required by law or by order of any authorized administrative officer or agency, including but not limited to payment of taxes, fees, fines, penalties, or other assessments to a government or a nonprofit health entity or a transaction ordered by the commissioner or the attorney general;
(viii) purchases, sales, or transfers in the ordinary course of business for fair market value of cash or cash equivalents owned by the nonprofit health entity or any wholly owned subsidiary in exchange for goods, products, services, or an interest in property, including but not limited to stocks, shares, bonds, notes, evidences of indebtedness, negotiable instruments, or an ownership interest in an entity, to be held by the nonprofit health entity or its wholly owned subsidiary;
(ix) granting of an encumbrance in the ordinary course of business, such as a security interest or mortgage deed with respect to an asset owned by the nonprofit health entity or a wholly owned subsidiary of the nonprofit health entity to secure indebtedness for borrowed money, the net proceeds of which are paid solely to the nonprofit health entity or its wholly owned subsidiary, and a foreclosure or other exercise of remedies permitted with respect to an encumbrance;
(x) sale, investment, or transfer in the ordinary course of business for fair market value of an interest in property owned by the nonprofit health entity or a wholly owned subsidiary, the net proceeds of which are paid solely to the nonprofit health entity or its wholly owned subsidiary;
(xi) any transfer of assets between a nonprofit health entity that is a nonprofit public benefit corporation and a nonprofit mutual benefit corporation in which all of the members are nonprofit public benefit corporations, provided that the management of all assets transferred by a nonprofit public benefit corporation in a transaction described in this subsection (3)(c)(xi) continue to be managed in a manner consistent with the public benefit purpose of the transferring nonprofit public benefit corporation; or
(xii) any other transaction or proposed transaction for fair market value if:
(A) the nonprofit health entity or its wholly owned subsidiary retains or will retain substantially the same degree of control, governance, or ownership of the proceeds of the transaction that the nonprofit health entity or its wholly owned subsidiary held in the assets or operations prior to the transaction or proposed transaction;
(B) the nonprofit health entity maintains its operations as a nonprofit health entity and public assets or the proceeds of public assets are maintained as public assets; and
(C) none of the assets or operations of the nonprofit health entity or its wholly owned subsidiary inure or will inure directly or indirectly to the benefit of any officer, director, trustee, or employee of the nonprofit health entity or its wholly owned subsidiary.
(4) "Fair market value" means the fair market value as of the date of the transaction or proposed transaction as determined by an independent appraisal of the assets or operations performed and communicated by a qualified appraiser according to applicable professional appraisal standards.
(5) "Health maintenance organization" has the meaning provided in 33-31-102.
(6) "Health service corporation" has the meaning provided in 33-30-101.
(7) (a) "Nonprofit health entity" means:
(i) a nonprofit health maintenance organization; or
(ii) a nonprofit health service corporation.
(b) The term includes any entities affiliated with a nonprofit health entity through ownership, governance, or membership, such as a holding company or subsidiary.
(8) "Ordinary course of business" means with respect to a transaction or disposition that the transaction comports with the usual and customary practices of the kind of business in which the nonprofit health entity is engaged.
(9) "Public assets" include:
(a) assets held for the benefit of the public or the community;
(b) assets in which the public has an ownership interest;
(c) assets owned by a governmental entity; and
(d) assets owned by a nonprofit corporation to the extent that the corporation holds assets in a charitable trust.
(10) "Transferee" means the person in a conversion transaction that receives the ownership or control of the nonprofit health entity that is the subject of the conversion transaction or of the nonprofit health entity's assets.
(11) "Transferor" means the nonprofit health entity that is the subject of the conversion transaction or the corporation that owns the nonprofit health entity that is the subject of the conversion transaction.
History: En. Sec. 1, Ch. 214, L. 2005.