The exercise price to be stated in options issued pursuant to an authorized plan of the kind described in Section 2608.06, supra, shall bear a reasonable relationship to the actual value of the shares to be optioned. "Reasonable relationship" is understood to be not less than 75% of such value and not so great as to be unfair, unjust or inequitable. Actual value shall be determined in a manner appropriate to the status of the company as found by the Commissioner in accordance with the following:
A. In the case of an insurer which alleges and proves to the Commissioner's reasonable satisfaction that its shares, through substantial trading in a free market involving willing sellers and willing and able buyers, have achieved a recognized value in the market place; the plan shall provide that:1. Company will average bona fide trading prices in the last available reported transactions on not less than one trading day per month each month during the production quarter. The selection of such trading day shall be on a consistent basis. The application for price clearance shall state such price so found and substantiate the same by reasonable evidence.2. Company shall with reasonable promptness after expiration of each calendar quarter report such price to the Commissioner, and apply for clearance of the price related thereto (rounded off to the nearest tenth of a dollar) which it proposes under the plan to state in options ultimately to be issued after expiration of the persistency period, such options to be based on production during the quarter to which the price relates.3. If the Commissioner does not within 30 days thereafter object, said price shall automatically, after expiration of 30 days from and after receipt by the Commissioner of such application for price clearance, be deemed acceptable. Whereupon, or upon specific clearance thereof, company will proceed to notify its agents of their production during such calendar quarter and the conditional rights which such production has ostensibly earned according to the formula.B. In the case of an insurer which is unable to allege and prove to the Commissioner's reasonable satisfaction that its shares have achieved a recognized value in the market place as described in Paragraph A of this Section 2608.07, the plan shall provide for an appropriate mathematical formula, concurred in by the Commissioner, for determination of price pending such time as the Commissioner shall agree that said insurer's publicly traded stock has attained the status described in Paragraph A of this Section. Such formula shall: 1. Take into account at least the following items:(d) value of business on its books.2. Give recognition to company's age and the persistency of its business.3. Provide that as company progresses in age and financial condition and its shares are publicly traded in increasing volume, such recognition as is concurred in by the Commissioner shall be given to the price arrived at in the market place. (Prices artificially created, influenced or sustained in a rigged or controlled market will not be accorded weight by the Commissioner.) (Secs. 839, 843)Cal. Code Regs. Tit. 10, § 2608.07