§ 21.32. Certain stock options and acquisitions.
(a) General. Any acquisition of shares of stock (other than stock acquired upon the exercise of an option, warrant, or right) under a stock bonus, profit sharing, retirement, incentive, thrift, savings or similar plan, or any acquisition of a qualified or restricted stock option under a qualified or a restricted stock option plan, or a stock option under an employe stock purchase plan by a director or officer of an insurer issuing the stock or stock option, shall be exempt from the operation of section 302.1(2) of the act (40 P. S. § 422.1(2)) if the plan conforms with all of the following:
(1) Approval. The plan shall be approved directly or indirectly by the affirmative votes of the holders of a majority of the securities of the insurer present, or represented and entitled to vote at a meeting duly held in accordance with the applicable laws of the Commonwealth, or by the written consent of the holders of a majority of the securities of the insurer entitled to vote. This method of approval shall be valid, provided that if the vote or written consent was not solicited substantially in accordance with the proxy rules and regulations prescribed by the National Association of Insurance Commissioners, if any, in effect at the time of the vote or written consent, the insurer shall furnish in writing to the holders of record of the securities entitled to vote for the plan substantially the same information concerning the plan which would be required by any the rules and regulations so prescribed and in effect at the time the information is furnished, if proxies to be voted with respect to the approval or disapproval of the plan were then being solicited, on or prior to the date of the first annual meeting of security holders held subsequent to the date the act first applies to the insurer, or the acquisition of an equity security for which exemption is claimed, whichever is later. The written information may be furnished by mail to the last known address of the security holders of record within 30 days prior to the date of mailing. Four copies of the written information shall be filed with, or mailed for filing to, the Insurance Commissioner not later than the date on which it is first sent or given to security holders of the insurer. For the purpose of this paragraph, the term ‘‘insurer’’ includes a predecessor corporation if the plan or obligations to participate thereunder were assumed by the insurer in connection with the succession.
(2) Discretion. If the selection of any director or officer of the insurer to whom stock may be allocated or to whom qualified, restricted or employe stock purchase plan stock options may be granted under the plan, or the determination of the number or maximum number of shares of stock which may be allocated to the director or officer or which may be covered by qualified, restricted or employe stock purchase plan stock options granted to the director or officer, is subject to the discretion of any person, then the discretion shall be exercised only as follows:
(i) With respect to the participation of directors, in any of the following ways:
(A) By the board of directors of the insurer, a majority of which board and a majority of the directors acting in the matter are disinterested persons.
(B) By, or only in accordance with the recommendations of, a committee of three or more persons having full authority to act in the matter, all of the members of which committee are disinterested persons.
(C) In accordance with the plan, if the plan does one of the following:
(I) Specifies the number or maximum number of shares of stock which directors may acquire or which may be subject to qualified, restricted or employe stock purchase plan stock options granted to directors and the terms upon which, and the times at which, or the periods within which, the stock may be acquired or the options may be acquired and exercised.
(II) Sets forth, by formula or otherwise, effective and determinable limitations with respect to the number of shares of stock specified in subclause (I) based upon earnings of the insurer, dividends paid, compensation received by participants, option prices, market value of shares, outstanding shares or percentages thereof outstanding from time to time, or similar factors.
(ii) With respect to the participation of officers who are not directors, in any of the following ways:
(A) By the board of directors of the insurer or a committee of three or more directors.
(B) By, or only in accordance with the recommendatios of, a committee of three or more persons having full authority to act in the matter, all of the members of which committee are disinterested persons.
(iii) For the purpose of this paragraph, a director or committee member shall be deemed to be a disinterested person only if he is not at the time he exercises his discretion eligible, and has not at any time within 1 year prior thereto been eligible, for selection as a person to whom stock may be allocated, or to whom qualified, restricted, or employe stock purchase plan stock options may be granted under the plan or any other plan of the insurer or any of its affiliates entitling the participants therein to acquire stock or qualified, restricted, or employe stock purchase plan stock options of the insurer or any of its affiliates.
(iv) The provisions of this paragraph shall not apply with respect to any option granted, or other equity security acquired, prior to the date that section 302.1(1)—(3) of the act first became applicable with respect to any class of equity securities of any insurer.
(3) Limitations. As to each participant or as to all participants, the plan shall effectively limit the aggregate dollar amount or the aggregate number of shares of stock which may be allocated, or which may be subject to qualified, restricted or employe stock purchase plan stock options granted, under the plan. The limitations may be established on an annual basis, or for the duration of the plan, whether or not the plan has a fixed termination date, and may be determined either by fixed or maximum dollar amounts or fixed or maximum numbers of shares or by formulas based upon earnings of the insurer, dividends paid, compensation received by participants, option prices, market value of shares, outstanding shares or percentages thereof outstanding from time to time, or similar factors which shall result in an effective and determinable limitation. The limitations may be subject to any provisions for adjustment of the plan or of stock allocable or options outstanding thereunder to prevent dilution or enlargement of rights.
(b) Definitions. Unless the context clearly indicates otherwise, all terms used in this section shall have the same meanings as those in the act and in § 21.1 (relating to definitions). In addition, the following words and terms, as used in this section, have the following meanings:
Plan—Any plan, whether or not set forth in any formal written document or documents and whether or not approved in its entirety at one time.
Qualified stock option, employe stock purchase plan—The definition in sections 422 and 423 of the Internal Revenue Code of 1954, as amended.
Restricted stock option—The definition in section 424(b) of the Internal Revenue Code of 1954, as amended. For the purpose of this section, however, an option which meets all of the conditions of that section other than the date of issuance shall be deemed to be a ‘‘restricted stock option.’’(c) Exercise of an option, warrant, or right. As used in this section, the term ‘‘exercise of an option, warrant, or right’’ does not include any of the following:
(1) The making of any election to receive under any plan an award of compensation in the form of stock or credits therefor, provided that the election is made prior to the making of the award, and provided further that the election is irrevocable until at least 6 months after termination of employment.
(2) The subsequent crediting of the stock.
(3) The making of any election as to a time for delivery of the stock after termination of employment, provided that such election is made at least 6 months prior to any such delivery.
(4) The fulfillment of any condition to the absolute right to receive the stock.
(5) The acceptance of certificates for shares of the stock.
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