Cal. Code Regs. tit. 10 § 2608.05

Current through Register 2024 Notice Reg. No. 45, November 8, 2024

Section 2608.05 - Procedure

The Commissioner cannot and will not abdicate the Commissioner's authority and duty under Insurance Code Section 839. Hence, blanket permits for unlimited numbers of shares to be sold for unstated prices to undetermined people pursuant to exercise of options granted for undescribed reasons or under undisclosed circumstances will not be granted. The alternative procedures prescribed in this section will care for the most commonly encountered situations involving long term plans of this type, e.g., restricted or qualified stock options plans.

A. Applicant may apply for and obtain a negotiating permit for approval of its plan; and thereafter, from year to year as options are voted to be granted to employees, apply for and obtain a separate (definitive) permit for each year to issue options to the persons and for the number of shares specified in its board of directors' resolution and, upon due exercise thereof, to issue and sell shares accordingly. Such an application shall allege the exercise price to be stated in the options and shall by appropriate means show that it is fair, just and equitable.

B. An applicant having a long term plan, not desiring to follow the system outlined in Paragraph A of this Section, and which can satisfy other requirements, may proceed thusly:

1. It may apply for and secure a permit approving the plan for circularization and authorizing the form of option to be issued. Such permit will also authorize issue of options for a period of not to exceed one year after date of the permit at an exercise price per share alleged in the application and satisfactorily proved.

2. Thereafter, it may apply for yearly extensions (amendments) of the permit at exercise prices duly alleged and proved.

3. The filing fee for an application for amendment is as stated in Section 2603.19 of Article 3, supra. Other portions of said Article are also applicable, especially Sections 2603.06-2603.11.

C. Applicant may obtain a permit authorizing the issuance of options at a named initial option price, during a designated term, conditioned on clearance by the Commissioner of any subsequent issue of options for a different option price. Clearance will be presumed if the Commissioner does not reject the new price within 30 days after applicant has filed with the Commissioner a notice, supported by appropriate proof, of the new option price. As an alternative to clearance of subsequent option prices by the Commissioner, applicant may propose the determination of such subsequent option prices by the Board of Directors or Option Committee in accordance with a formula. If the Commissioner finds such formula will result in the fixing of an actual price which will be fair, just and equitable, the Commissioner will authorize its use in lieu of requiring that the Commissioner pass upon the actual option price subsequently determined. If the stock to be optioned is shown to the Commissioner's satisfaction to have an established market, the formula may be in terms of averages of bid and asked prices at such times and places as to assure that true free market values will result from application of the formula. The foregoing method may be used in appropriate cases to procure authorization for issuance of options at 100% of fair market value of the shares optioned; or, in appropriate cases at some other figure fixed with reference to the fair market value. If a reliable market has not yet been established to the Commissioner's satisfaction, other methods, or combinations of methods to determine fair, just and equitable values will be considered.

Submission of at least annual reports of transactions will, in either event, be required.

Cal. Code Regs. Tit. 10, § 2608.05

1. Change without regulatory effect amending first paragraph and paragraph C. filed 7-14-2021 pursuant to section 100, title 1, California Code of Regulations (Register 2021, No. 29). Filing deadline specified in Government Code section 11349.3(a) extended 60 calendar days pursuant to Executive Order N-40-20.