31.04.10.04

.04 Exemption from Insurance Article, §3-119(e), Annotated Code of Maryland, of Acquisitions of Shares of Stock and Stock Options under Certain Stock Bonus, Stock Option, or Similar Plans.

Any acquisition of shares of stock (other than stock acquired upon the exercise of an option, warrant, or right) pursuant to a stock bonus, profit sharing, retirement, incentive, thrift, savings or similar plan, or any acquisition of a qualified or a restricted stock option plan, or a stock option pursuant to an employees' stock purchase plan, by a director or officer of the issuer of the stock or stock option shall be exempt from the operation of Insurance Article, §3-119(e), Annotated Code of Maryland, if the plan meets the following conditions:

A. The plan has been approved, directly or indirectly, by the affirmative votes of the holders of a majority of the securities of the issuer present, or represented, and entitled to vote at a meeting duly held in accordance with the applicable laws of Maryland, or by the written consent of the holders of a majority of the securities of the issuer entitled to vote. However, 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 issuer 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 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 before the date of the first annual meeting of security holders held subsequent to the later of the date Insurance Article, §3-119, Annotated Code of Maryland, first applies to the issuer, or the acquisition of an equity security for which exemption is claimed. The written information may be furnished by mail to the last known address of the security holders of record within 30 days before 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 issuer. For the purposes of this section, the term "issuer" includes a predecessor corporation if the plan or obligations to participate thereunder were assumed by the insurer in connection with the succession.

B. If the selection of any director or officer of the issuer to whom stock may be allocated or to whom qualified, restricted, or employee stock purchase plan stock options may be granted pursuant to 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 employee 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:

(1) With respect to the participation of directors:

(a) By the board of directors of the issuer, 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 recommendation 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; or

(c) Otherwise in accordance with the plan, if the plan:

(i) Specifies the number or maximum number of shares of stock which directors may acquire or which may be subject to qualified, restricted, or employee 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; or

(ii) Sets forth, by formula or otherwise, effective and determinable limitations with respect to the foregoing based upon earnings of the issuer, 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.

(2) With respect to the participation of officers who are not directors:

(a) By the board of directors of the issuer or a committee of three or more directors; or

(b) By, or only in accordance with the recommendation 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.

(3) For the purpose of this section a director or committee member shall be deemed to be a disinterested person only if that person is not at the time the discretion is exercised 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 employee stock purchase plan stock options may be granted pursuant to the plan or any other plan of the issuer or any of its affiliates entitling the participants in the plan to acquire stock or qualified, restricted, or employee stock purchase plan stock options of the issuer or any of its affiliates.

(4) The provisions of this section do not apply with respect to any option granted, or other equity security acquired, before the date that Insurance Article, §3-119, Annotated Code of Maryland, first became applicable with respect to any class of equity security of the issuer.

C. As to each participant or as to all participants, the plan effectively limits 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 employee stock purchase plan stock options granted, pursuant to 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 number of shares or by formulas based upon earnings of the issuer, dividends paid, compensation received by participants, option prices, market value of shares, outstanding shares or percentages of shares outstanding from time to time, or similar factors which will result in an effective and determinable limitation. 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.

D. Unless the context otherwise requires, all terms used in this regulation shall have the same meaning as in Insurance Article, Annotated Code of Maryland. In addition, the following definitions apply:

(1) "Plan" includes 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.

(2) "Qualified stock option" and "employee stock purchase plan" that are set forth in 422 and 423 of the Internal Revenue Code of 1954, as amended, are to be applied to those terms when used in this chapter. The term "restricted stock option" as defined in §424(b) of the Internal Revenue Code of 1954, as amended, shall be applied to that term as used in this chapter, provided, however, that for the purposes of this chapter 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."