2011 ORS § 732.612¹
Consideration for membership interest in converting or reorganizing mutual insurer
  • kinds of consideration
  • allocation of consideration

(1) In the case of a conversion or in the case of a reorganization involving the organization of a stock holding company, consideration for the membership interests of the eligible members of a converting mutual insurer shall consist of one or any combination of the following:

(a) Nontransferable subscription rights to purchase shares of capital stock of the issuer as described in subsection (2) of this section;

(b) Shares of capital stock of the issuer as described in subsection (3) of this section;

(c) Cash;

(d) Premium credits;

(e) In the case of a converting mutual insurer transacting primarily property or casualty insurance, or both, certificates of contribution that bear interest as established in the plan, that are repayable within 10 years or, if approved by the Director of the Department of Consumer and Business Services, within a longer period and that are repayable on terms set forth in the plan;

(f) In the case of individual policies of life insurance, credits to policy account values or other enhancements in policy benefits; and

(g) Any other form of consideration described in the plan and approved by the director.

(2) A plan may provide for allocation to eligible members, without payment, of nontransferable subscription rights to purchase shares of capital stock of the issuer, and the plan shall contain the following provisions:

(a) The plan must allocate the subscription rights in whole shares among the eligible members. In the case of a converting mutual insurer transacting primarily life or health insurance, or both, the subscription rights shall be allocated in accordance with subsection (6) of this section. In the case of a converting mutual insurer transacting primarily property or casualty insurance, or both, the subscription rights shall be allocated in accordance with subsection (7) of this section.

(b) The plan must specify the expiration date of the subscription rights or authorize the board of directors of the converting mutual insurer to establish the expiration date. The subscription rights may be exercised, in whole or in part, by an eligible member in the manner described in the plan including, but not limited to, the payment of the subscription exercise price for the shares purchased. The plan may require an eligible member who exercises subscription rights to purchase a minimum number of shares unless the director determines that such minimum purchase requirement is unreasonable based on the interests of the eligible members, the converted stock insurer and the issuer. The proposed subscription exercise price per share shall be set forth in the plan and shall be less than the price at which shares of capital stock of the issuer will be first offered in accordance with paragraph (e) of this subsection. The proposed subscription exercise price per share shall be determined by the boards of directors of the converting mutual insurer and the issuer and shall be approved by the director based on the interests of the eligible members, the policyholders, the converted stock insurer and the issuer.

(c) The plan must provide that to the extent an eligible member does not exercise, in whole or in part, subscription rights allocated to the eligible member, the eligible member instead will receive one or more of the forms of consideration described in subsection (1) of this section that are specified in the plan.

(d) The plan must set the pro forma market value of the converted stock insurer, which is the value that is estimated to be necessary to attract full subscription for all shares offered by the issuer. The pro forma market value of the converted stock insurer shall be determined by an independent valuation by a qualified person. The price per share at which the shares of capital stock of the issuer are first offered in accordance with paragraph (e) of this subsection shall be equal to such pro forma market value of the converted stock insurer divided by the number of shares that would be issued if all subscription rights allocated to the eligible members are exercised.

(e) The plan must further provide that any shares of capital stock of the issuer for which subscription rights are allocated to the eligible members but which are not purchased by the eligible members pursuant to the exercise of such subscription rights must be sold in a public offering through an underwriter, unless the number of shares that are not purchased by the eligible members is so small in number so as not to warrant the expense of a public offering, in which case the plan may provide for the sale of such shares by private placement or through any other fair and equitable means approved by the director. If the director finds that market conditions or other circumstances may cause the interests of the eligible members to be adversely affected, the director may require such offering of shares to be postponed or the terms of such offering to be modified.

(3) A plan may provide for the allocation to the eligible members, without payment, of shares of capital stock of the issuer. The plan must allocate the shares of capital stock of the issuer in whole shares among the eligible members. In the case of a converting mutual insurer transacting primarily life or health insurance, or both, the shares shall be allocated in accordance with subsection (6) of this section. In the case of a converting mutual insurer transacting primarily property or casualty insurance, or both, the shares shall be allocated in accordance with subsection (7) of this section. If shares of capital stock of the issuer constitute the only consideration to be received by the eligible members and the plan does not provide for the sale of additional shares of capital stock or other securities of the issuer, the plan does not need to include the valuation of the converting mutual insurer. If the plan provides for the allocation to the eligible members, without payment, of shares of capital stock of the issuer, the plan may establish a reasonable period within which the eligible members to whom such shares are issued may not dispose of such shares.

(4) If shares of capital stock of the issuer are issued in accordance with subsection (2) or (3) of this section, the issuer must use its best efforts to encourage and assist in the establishment of a public market for such shares unless the director finds that such public market is not feasible or is not in the best interests of the eligible members, the converted stock insurer and the issuer. The director may provide that subscription rights or shares of capital stock of the issuer do not need to be allocated under subsection (2) or (3) of this section to eligible members residing in a foreign country or other jurisdiction if there is a small number of eligible members residing in such foreign country or other jurisdiction and any registration, qualification, filing or other compliance matters under the laws of such foreign country or other jurisdiction with respect to the shares of capital stock of the issuer would be impracticable or unduly burdensome upon the issuer.

(5) Regardless of the form of consideration for the membership interests of the eligible members of a converting mutual insurer, the plan may provide for the sale of additional shares of capital stock or other securities of the issuer to persons other than the eligible members. The issuer shall offer such additional shares or other securities at a price and on terms determined by the boards of directors of the converting mutual insurer and the issuer.

(6) For a converting mutual insurer transacting primarily life or health insurance, or both, the consideration specified in subsection (1) of this section must be allocated among the eligible members pursuant to a fair and equitable formula. The formula for allocating the consideration among the eligible members must either:

(a) Allocate a fixed component of consideration per capita among the eligible members and allocate a variable component of consideration among the eligible members in proportion to the cash value of policies held by them; or

(b) Allocate the consideration among the eligible members in any other manner approved by the director.

(7) For a converting mutual insurer transacting primarily property or casualty insurance, or both, the consideration specified in subsection (1) of this section must be allocated among the eligible members pursuant to a fair and equitable formula. The formula for allocating the consideration among the eligible members must do either of the following:

(a) Allocate the consideration among the eligible members in the proportion that the aggregate premiums earned by the converting mutual insurer on the policies in force of the eligible member during a specified period before the record date described in ORS 732.600 (Definitions for ORS 732.600 to 732.630) (7) bear to the aggregate premiums so earned by the converting mutual insurer during the same period on all policies in force of all eligible members. The specified period must be 36 months unless another period is specified in the plan.

(b) Allocate the consideration among the eligible members in any other manner approved by the director.

(8) The form of consideration to be given to a class or category of eligible members may differ from the form of consideration to be given to another class or category of eligible members. The choice of the form of consideration to be given to a class or category of eligible members may take into account the type of policy, size of policy, tax status of the eligible member and other factors that the director determines are appropriate.

(9) In the case of a conversion or in the case of a reorganization involving the organization of a stock holding company, a member of the converting mutual insurer who is not an eligible member is not entitled to receive any consideration for the membership interest of such member.

(10) In the case of a reorganization involving the organization of a mutual holding company, the membership interests of the members of the converting mutual insurer, whether or not such members are eligible members, shall be merged into the mutual holding company, and consequently the membership interests of the members of the converting mutual insurer shall become membership interests in the mutual holding company. [1997 c.771 §6]