Cal. Code Regs. tit. 10 § 2608.06

Current through Register 2024 Notice Reg. No. 24, June 14, 2024

Section 2608.06 - Life Agents Production Stock Options Plans

In order to be found fair, just and equitable, any plan of this nature shall ordinarily do not less than the following:

A. Be clear and unambiguous in its terms and as simple as the subject matter permits.

B. Provide that it shall be submitted to and approved by company's directors and stockholders before it becomes effective. Any definitive permit approving such a plan will require said prior submission and approval as a condition precedent to effectiveness of the authorization. The Commissioner may require satisfactory evidence that full and fair disclosure of outstanding options, the details of the plan and its intended operation was made to the stockholders prior to their approval of the plan.

C. Provide that no securities (either rights to options or options) will be issued thereunder without a prior permit of the Insurance Commissioner authorizing such issue; that company will promptly and diligently endeavor to procure the necessary authorizations contemplated by the plan.

D. Provide that business written will serve as a basis for earning options only after such business shall have been in full force and effect for three full policy years and premiums thereon for such period shall have been fully paid. Prepayment of premiums shall not accelerate the running of the persistency period. A policy that terminates in a death claim prior to expiration of the persistency period may be regarded as having run the full three years.

E. Govern the earning of conditional rights to options and the grant of options by a conservative formula based on one of the following:

1. The amount of premiums written (adjusted to an annual premium payment basis) and paid on policies issued during a given calendar quarter;

2. Commissions earned per calendar quarter; or

3. Some other reliable criterion of production of business (per calendar quarter) having intrinsic value to the company.

F. Provide for notifying each participating agent with reasonable promptness after the close of each calendar quarter of the number of shares to which the participating agent has earned conditional rights by virtue of the participating agent's production for such calendar quarter, according to the stated formula. Such notification shall constitute evidence of the participating agent's conditional rights to receive options for an appropriate number of shares after expiration of the persistency period and subject to all other conditions precedent. No form of said notification shall be used without prior approval thereof in writing by the Insurance Commissioner.

G. Provide for the issuance of options with reasonable promptness after expiration of the persistency period, according to the formula applied to business produced during the particular quarter, and subject to fulfillment of all other conditions precedent.

H. Specify that options to be granted thereunder shall be exercisable for not longer than 180 days after issuance thereof after which they shall become null and void.

I. Specify that options granted thereunder shall be nonassignable and non-transferable except by will or by the laws of descent and distribution.

J. Limit the maximum number of shares optionable at any given time to a number equivalent to 10% of company's then issued and outstanding shares.

K. Provide that options shall not be granted to any agent on the basis of personal or controlled business.

L. Provide in effect that agents appointed by the same company shall not transact insurance on each other or on each other's families for the purpose of avoiding the foregoing provision.

M. Provide that no agent shall be required to purchase any insurance on such agent or such agent's family in order to participate therein.

N. Provide for determination of price by a method appropriate to the company as set forth in the next succeeding section hereof.

O. Provide that rights to options for shares ostensibly earned by an agent's production, in accordance with the production formula, shall abate pro-rata at conclusion of the persistency period and prior to issuance of the actual options in any case where issuance of options otherwise required by rights earned would exceed the amount authorized by permit of the Insurance Commissioner.

P. Specify, and require options to be issued thereunder to specify, that, after due notice to the persons concerned and hearing, the Commissioner may for cause modify or terminate any or all of the following upon a finding as hereinafter indicated with respect thereto:

1. The plan, upon a finding that continuation thereof is unfair, unjust or inequitable.

2. Rights to options, upon a finding that issuance of options upon maturity thereof is or will be unfair, unjust or inequitable.

3. Outstanding (issued but unexercised) options, upon a finding that issuance of shares upon exercise thereof is or will be unfair, unjust or inequitable.

Cal. Code Regs. Tit. 10, § 2608.06

1. Change without regulatory effect amending paragraphs F. and M. 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.