Current through Register Vol. 50, No. 9, March 1, 2024
NECESSITY, FUNCTION, AND CONFORMITY:
KRS
304.2-110 provides that the Commissioner of
Insurance may make reasonable rules and administrative regulations necessary
for or as an aid to the effectuation of any provision of the Kentucky Insurance
Code.
KRS
304.26-090 gives the commissioner the
authority to promulgate administrative regulations to execute the functions
vested in him under KRS Chapter 304, Subtitle 26, relating to insider trading.
This administrative regulation sets forth the requirements upon insiders
trading in equity securities of a domestic stock insurance company.
Section 1. General Application.
(1) Definition of certain items.
(a) "Insurer" means any domestic stock
insurance company with an equity security subject to the provisions of
KRS
304.26-020 to
304.26-090,
and not exempt thereunder.
(b)
"Act" means KRS Chapter 304, Subtitle 26.
(c) "Officer" means a president, vice
president, treasurer, actuary, secretary, controller, and any other person who
performs for the insurer functions corresponding to those performed by the
foregoing officers.
(d) "Equity
security" means any stock or similar security; or any voting trust certificate
of deposit for such a security; or any security convertible, with or without
consideration, into such a security, or carrying any warrant or right to
subscribe to or purchase such a security; or any such warrant or
right.
(e) Securities "held of
record."
1. For the purpose of determining
whether the equity securities of an insurer are held of record by 100 or more
persons, securities shall be deemed to be "held of record" by each person who
is identified as the owner of such securities on records of security holders
maintained by or on behalf of the insurer, subject to the following:
a. In any case where the records of security
holders have not been maintained in accordance with accepted practice, any
additional person who would be identified as such an owner on such records if
they had been maintained in accordance with accepted practice shall be included
as a holder of record.
b.
Securities identified as held of record by a corporation, a partnership, a
trust whether or not the trustees are named, or other organization shall be
included as so held by one (1) person.
c. Securities identified as held of record by
one (1) or more persons as trustees, executors, guardians, custodians or in
other fiduciary capacities with respect to a single trust, estate or account
shall be included as held of record by one (1) person.
d. Securities held by two (2) or more persons
as co-owners shall be included as held by one (1) person.
e. Each outstanding unregistered or bearer
certificate shall be included as held of record by a separate person, except to
the extent that the insurer can establish that, if such securities were
registered, they would be held of record, under the provisions of this rule, by
a lesser number of persons.
f.
Securities registered in substantially similar names where the insurer has
reasons to believe because of the address or other indications that such names
represent the same person, may be included as held of record by one (1)
person.
2.
Notwithstanding subparagraph 1 of this paragraph:
a. Securities held, to the knowledge of the
insurer, subject to a voting trust, deposit agreement or similar arrangement
shall be included as held of record by the record holders of the voting trust
certificates, certificates of deposit, receipts or similar evidences of
interest in such securities; provided however, that the insurer may rely in
good faith on such information as it is received in response to its request
from a nonaffiliated insurer of the certificates or evidences of
interest.
b. If the insurer knows
or has reason to know that the form of holding securities of record is used
primarily to circumvent the provisions of the Act, the beneficial owners of
such securities shall be deemed to be the record owners thereof.
c. "Class" means all securities of an insurer
which are of substantially similar character and the holders of which enjoy
substantially similar rights and privileges.
(2) Transactions exempted from the
operation of
KRS
304.26-040(2) and (3). Any
acquisition or disposition of any equity security by a director or officer of
an insurer within six (6) months prior to the date on which the Act shall first
become applicable with respect to the equity securities of such insurer shall
not be subject to the operation of
KRS
304.26-040(2) and
(3).
Section 2. Administrative Regulations under
KRS
304.26-030.
(1) Filing of statements. Initial statements
of beneficial ownership of equity securities required by
KRS
304.26-030 shall be filed on Form I-G-22,
herein filed by reference. Statements of changes in such beneficial ownership
required by
KRS
304.26-030 shall be filed on Form I-G-22-1,
herein filed by reference. All such statements shall be prepared and filed in
accordance with the requirements of the applicable form.
(2) Ownership of more than ten (10) percent
of an equity security.
(a) In determining, for
the purpose of
KRS
304.26-030 whether a person is the beneficial
owner, directly, or indirectly, of more than ten (10) percent of any class of
any equity security, such class shall be deemed to consist of the total amount
of such class outstanding, exclusive of any securities of such class held by or
for the account of the insurer or a subsidiary of the insurer; except that for
the purpose of determining percentage ownership of note voting trust
certificates or certificates of deposit for equity securities, the class of
voting trust certificates or certificates of deposit shall be deemed to consist
of the amount of voting trust certificates of deposit issuable with respect to
the total amount of outstanding equity securities of the class which may be
deposited under the voting trust agreement or deposit agreement in question,
whether or not all of such outstanding securities have been so deposited. For
the purpose of this section a person acting in good faith may rely on the
information contained in the latest convention form statement filed with the
commissioner with respect to the amount of securities of a class outstanding or
in the case of voting trust certificates or certificates of deposit the amount
thereof issuable.
(b) In
determining for the purpose of
KRS
304.26-030 whether a person is the beneficial
owner, directly, or indirectly, of more than ten (10) percent of any class of
equity securities, such person shall be deemed to be the beneficial owner of
securities of such class which such person has the right to acquire through the
exercise of presently exercisable options, warrants or rights or through the
conversion of presently convertible securities. The securities subject to such
options, warrants, rights or conversion privileges held by a person shall be
deemed to be outstanding for the purpose of computing, in accordance with
paragraph (a) of this subsection, the percentage of outstanding securities of
the class owned by such person but shall not be deemed outstanding for the
purpose of computing the percentage of the class owned by any other person.
This paragraph shall not be construed to relieve any person of any duty to
comply with the Act with respect to any equity securities consisting of
options, warrants, rights or convertible securities which are otherwise subject
as a class to the Act.
(3) Disclaimer of beneficial ownership. Any
person filing a statement may expressly declare therein that the filing of such
statement shall not be construed as an admission that such person is, for the
purpose of the Act, the beneficial owner of any equity securities covered by
the statement.
(4) Exemptions from
KRS
304.26-030 and
304.26-040.
(a) During the period of twelve (12) months
following their appointment and qualification, securities held by the following
persons shall be exempt from
KRS
304.26-030 and
304.26-040:
1. Executors or administrators of the estate
of a decedent;
2. Guardians or
committees for an incompetent; and
3. Receivers, trustees in bankruptcy,
assignees for the benefit of creditors, conservators, liquidating agents, or
other similar persons duly authorized by law to administer the estate or assets
of other persons.
(b)
After the twelve (12) month period following their appointment or qualification
the foregoing persons shall be required to file reports with respect to the
securities held by the estates which they administer under
KRS
304.26-030 and shall be liable for profits
realized from trading in such securities pursuant to
KRS
304.26-040 only when the estate being
administered is a beneficial owner of more than ten (10) percent of any class
of equity security of an insurer subject to the Act.
(c) Securities reacquired by or for the
account of an insurer and held by it for its account shall be exempt from
KRS
304.26-030 and during the time they are held
by the insurer.
(5)
Exemption from the Act of securities purchased or sold by odd-lot dealers.
Securities purchased or sold by an odd-lot dealer in odd lots so far as
reasonably necessary to carry on odd-lot transactions, or in round lots to
offset odd-lot transactions previously or simultaneously executed or reasonably
anticipated in the usual course of business, shall be exempt from the
provisions of the administrative regulation with respect to participation by
such odd-lot dealer in such transactions.
(6) Certain transactions subject to
KRS
304.26-030. The acquisition or disposition of
any transferable option, put, call, spread, or straddle shall be deemed such a
change in the beneficial ownership of the security to which such privilege
relates as to require the filing of a statement reflecting the acquisition or
disposition of such privilege. Nothing in this section, however, shall exempt
any person from filing the statements required upon the exercise of such
option, put, call, spread or straddle.
(7) Ownership of securities held in trust.
(a) Beneficial ownership of a security for
the purpose of
KRS
304.26-030 shall include:
1. The ownership of securities as a trustee
where either the trustee or members of his immediate family have a vested
interest in the income or corpus of trust.
2. The ownership of a vested beneficial
interest in a trust, and
3. The
ownership of securities as a settler of a trust in which the settler has the
power to revoke the trust without obtaining the consent of all the
beneficiaries.
(b)
Except as provided in paragraph (c) of this subsection, beneficial ownership of
securities solely as a settler or beneficiary of a trust shall be exempt from
the provisions of
KRS
304.26-030 where less than twenty (20)
percent in market value of the securities having a readily ascertainable market
value held by such trust, determined as of the end of the preceding fiscal year
of the trust, consist of equity securities with respect to which reports would
otherwise be required. Exemption is likewise accorded from
KRS
304.26-030 with respect to any obligation
which would otherwise be imposed solely by reason of ownership as settler or
beneficiary of securities held in trust, where the ownership, acquisition, or
disposition of such securities by the trust is made without prior approval by
the settler or beneficiary. No exemption pursuant to this subsection shall,
however, be acquired or lost solely as a result of changes in the value of the
trust assets during any fiscal year or during any time when there is no
transaction by the trust in the securities otherwise subject to the reporting
requirements of
KRS
304.26-030.
(c) In the event that ten (10) percent of any
class of any equity security of an insurer is held in a trust, that trust and
the trustee thereof as such shall be deemed a person required to file the
reports specified in
KRS
304.26-030.
(d) Not more than one (1) report need be
filed to report any holdings or with respect to any transaction in securities
held by a trust, regardless of the number of officers, directors or ten (10)
percent stockholders who are either trustees, settlers, or beneficiaries of a
trust, provided that the report filed shall disclose the names of all trustees,
settlers, and beneficiaries who are officers, directors or ten (10) percent
stockholders. A person having an interest only as a beneficiary of a trust
shall not be required to file any such report so long as he relies in good
faith upon an understanding that the trustee of such trust will file whatever
reports might otherwise be required of such beneficiary.
(e) As used in this section the "immediate
family" of a trustee means:
1. A son or
daughter of the trustee, or a descendant of either,
2. A stepson or stepdaughter of the
trustee,
3. The father or mother of
the trustee, or an ancestor of either,
4. A stepfather or stepmother of the
trustee,
5. A spouse of the
trustee.
(f) In
determining, for the purposes of
KRS
304.26-030, whether a person is the
beneficial owner, directly, or indirectly, of more than ten (10) percent of the
class of any equity security, the interest of such person in the remainder of a
trust shall be excluded from the computation.
(g) No report shall be required by any
person, whether or not otherwise subject to the requirement of filing reports
under
KRS
304.26-030, with respect to his indirect
interest in portfolio securities held by:
1. A
pension or retirement plan holding securities of an insurer whose employees
generally are the beneficiaries of the plan.
2. A business trust with over twenty-five
(25) beneficiaries.
(h)
Nothing in this section shall be deemed to impose any duties or liabilities
with respect to reporting any transaction or holding prior to its effective
date.
(8) Exemption for
small transactions.
(a) Any acquisition of
securities shall be exempt from
KRS
304.26-030 where:
1. The person effecting the acquisition does
not within six (6) months thereafter effect any disposition, otherwise than by
way of gift, of securities of the same class, and
2. The person effecting such acquisition does
not participate in acquisitions or in dispositions of securities of the same
class having a total market value in excess of $3,000 for any six (6) month
period during which the acquisition occurs.
(b) Any acquisition or disposition of
securities by way of gift, where the total amount of such gifts does not exceed
$3,000 in market value for any six (6) month period, shall be exempt from
KRS
304.26-030 and may be excluded from the
computations prescribed in paragraph (a)2 of this subsection.
(c) Any person exempted by paragraphs (a) or
(b) of this subsection shall include in the first report filed by him after a
transaction within the exemption a statement showing his acquisitions and
dispositions for each six (6) month period or portion thereof which has lapsed
since his last filing.
(9) Exemption from
KRS
304.26-040 of transactions which need not be
reported under
KRS
304.26-030. Any transaction which has been or
shall be exempted from the requirements of
KRS
304.26-030 shall, insofar as it is otherwise
subject to the provisions of
KRS
304.26-040, be likewise exempted from
KRS
304.26-040.
Section 3. Administrative Regulations under
KRS
304.26-040.
(1) Exemption from
KRS
304.26-040 of certain transactions effected
in connection with a distribution.
(a) Any
transaction of purchase and sale, or sale and purchase of a security which is
effected in connection with the distribution of a substantial block of
securities shall be exempt from the provisions of
KRS
304.26-040, to the extent specified in this
section as not comprehended within the purpose of said section of the Act, upon
the following conditions:
1. The person
effecting the transaction is engaged in the business of distributing securities
and is participating in good faith, in the ordinary course of such business, in
the distribution of such block of securities;
2. The security involved in the transaction
is:
a. A part of such block of securities and
is acquired by person effecting the transaction, with a view to the
distribution thereof, from the insurer or other person on whose behalf such
securities are being distributed or from a person who is participating in good
faith in the distribution of such block of securities; or
b. A security purchased in good faith by or
for the account of the person effecting the transaction for the purpose of
stabilizing the market price of securities of the class being distributed or to
cover an overallotment or other short position created in connection with such
distribution; and
3.
Other persons not within the purview of
KRS
304.26-040 are participating in the
distribution of such block of securities on terms at least as favorable as
those on which such person is participating and to an extent at least equal to
the aggregate participation of all persons exempted from the provisions of
KRS
304.26-040 by this section. However, the
performance of the functions of manager of a distributing group and the receipt
of a bona fide payment for performing such functions shall not preclude an
exemption which would otherwise be available under this section.
(b) The exemption of a transaction
pursuant to this section with respect to the participation therein of one (1)
party thereto shall not render such transaction exempt with respect to
participation of any other party therein unless such other party also meets the
conditions of this section.
(2) Exemption from
KRS
304.26-040 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 under 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 pursuant to an employee stock purchase
plan, by a director or officer of an insurer issuing such stock or stock option
shall be exempt from the operation of
KRS
304.26-040 if the plan meets the following
conditions:
(a) The plan has been approved,
directly or indirectly:
1. By the affirmative
votes of the holders of a majority of the securities of such insurer present,
or represented, and entitled to vote at a meeting held in accordance with the
applicable laws of the Commonwealth of Kentucky; or
2. By the written consent of the holders of a
majority of the securities of such insurer entitled to vote; provided, however,
that if such vote or written consent was not solicited substantially in
accordance with the proxy rules and administrative regulations prescribed by
the National Association of Insurance Commissioners, if any, in effect at the
time of such 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 such rules and administrative regulations so prescribed and in effect at
the time such 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 later of:
a. The date the Act first
applies to such insurer; or
b. The
acquisition of an equity security for which exemption is claimed. Such written
information may be furnished by mail to the last known address of the security
holders of record within thirty (30) days prior to the date of mailing. Four
(4) copies of such written information shall be filed with, or mailed for
filing to, the commissioner not later than the date on which it is first sent
or given to security holders of the insurer. For the purposes 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.
(b) If the selection of any director or
officer of the insurer 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 any such director or officer or which
may be covered by qualified, restricted or employee stock purchase plan stock
options granted to any such director or officer, is subject to the discretion
of any person, then such discretion shall be exercised only as follows:
1. With respect to the participation of
directors:
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 (3) 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, such stock 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 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.
2. With respect to the
participation of officers who are not directors:
a. By the board of directors of the insurer
or a committee of three (3) or more directors; or
b. By, or only in accordance with the
recommendation of, a committee of three (3) or more persons having full
authority to act in the matter, all of the members of which committee are
disinterested persons. For the purpose of this paragraph, a director or
committee member shall be deemed to be a disinterested person only if such
person is not at the time such discretion is exercised eligible and has not at
any time within one (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 insurer or any of its affiliates entitling the
participants therein to acquire stock or qualified, restricted or employee
stock purchase plan stock options of the insurer or any of its
affiliates.
3. The
provisions of this section shall not apply with respect to any option granted,
or other equity security acquired, prior to the date that
KRS
304.26-030,
304.26-040
and
304.26-050
first become applicable with respect to any class of equity securities of any
insurer.
(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 a
fixed or maximum dollar amounts of fixed or maximum number 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 will result in an effective and determinable limitation. Such 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 section shall have the same meaning
as in the Act and in Section 1 of this administrative regulation. In addition,
the following definitions apply:
1. The term
"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. The definition of the
terms "qualified stock option" and "employee stock purchase plan" that are set
forth in Sections 422 and 423 of the Internal Revenue Code of 1954, as amended,
are to be applied to those terms where used in this section. The term
"restricted stock option" as defined in Section 424(b) of the Internal Revenue
Code of 1954, as amended, shall be applied to that term as used in this
section; provided, however, that for the purposes of this section 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."
3. The term "exercise of an option, warrant
or right" contained in the parenthetical clause at the beginning of this
subsection shall not include:
a. The making
of any election to receive under any plan an award of compensation in the form
of stock or credits therefor, provided, that such election is made prior to the
making of the award; and provided further that such election is irrevocable
until at least six (6) months after termination of employment;
b. The subsequent crediting of such
stock;
c. The making of any
election as to time for delivery of such stock after termination of employment
provided that such election is made at least six (6) months prior to any such
delivery;
d. The fulfillment of any
condition to the absolute right to receive such stock; or
e. The acceptance of certificates for shares
of such stock.
(3) Exemption from
KRS
304.26-040 of certain transactions in which
securities are received by redeeming other securities. Any acquisition of an
equity security (other than a convertible security or right to purchase a
security) by a director or officer of the insurer issuing such security shall
be exempt from the operation of
KRS
304.26-040 upon condition that:
(a) The equity security is acquired by way of
redemption of another security of an insurer substantially all of whose assets
other than cash (for government bonds) consist of securities of the insurer
issuing the equity security so acquired, and which:
1. Represented substantially and in practical
effect a stated or readily ascertainable amount of such equity
security;
2. Had a value which was
substantially determined by the value of such equity security; and
3. Conferred upon the holder the right to
receive such equity security without the payment of any consideration other
than the security redeemed;
(b) No security of the same class as the
security redeemed was acquired by the director or officer within six (6) months
prior to such redemption or is acquired within six (6) months after such
redemption;
(c) The insurer issuing
the equity security acquired has recognized the applicability of this
subsection by appropriate corporate action.
(4) Exemption of long term profits incident
to sales within six (6) months of the exercise of an option:
(a) To the extent specified in paragraph (b)
of this subsection, the commissioner hereby exempts as not comprehended within
the purposes of
KRS
304.26-040 any transaction or transactions
involving the purchase and sale, or sale and purchase, or any equity security
where such purchase is pursuant to the exercise of an option or similar right
either acquired more than six (6) months before its exercise, or acquired
pursuant to the terms of an employment contract entered into more than six (6)
months before its exercise.
(b) In
respect to transactions specified in paragraph (a) of this subsection, the
profits inuring to the insurer shall not exceed the difference between the
proceeds of sale and the lowest market price of any security of the same class
within six (6) months before or after the date of sale. Nothing in this section
shall be deemed to enlarge the amount of profit which would inure to such
insurer in the absence of this section.
(c) The commissioner also hereby exempts, as
not comprehended within the purposes of
KRS
304.26-040, the disposition of a security,
purchased in a transaction specified in paragraph (a) of this subsection,
pursuant to a plan or agreement for merger or consolidation, or
reclassification of the insurer's securities, or for the exchange of its
securities for the securities of another person which has acquired its assets,
or which is in control, as defined in Section 368(c) of the Internal Revenue
Code of 1954, of a person which has acquired its assets, where the terms of
such plan or agreement are binding upon all stockholders of the insurer except
to the extent that dissenting stockholders may be entitled, under statutory
provisions or provisions contained in the certificate of incorporation, to
receive the appraised or fair value of their holdings.
(d) The exemptions proved by the section
shall not apply to any transaction made unlawful by
KRS
304.26-050, or by any rules and
administrative regulations thereunder.
(e) The burden of establishing market price
of a security for the purpose of this section shall rest upon the person
claiming the exemption.
(5) Exemption from
KRS
304.26-040 of certain acquisitions and
dispositions of securities pursuant to merger or consolidations.
(a) The following transactions shall be
exempt from the provisions of
KRS
304.26-040 as not comprehended within the
purpose of said section:
1. The acquisition of
a security of an insurer, pursuant to a merger or consolidation, in exchange
for a security of a company which, prior to said merger or consolidation owned
eighty-five (85) percent or more of the equity securities of all other
companies in the merger or consolidation except, in the case of consolidation,
the resulting company;
2. The
disposition of a security, pursuant to a merger or consolidation of an insurer
which, prior to said merger or consolidation, owned eighty-five (85) percent or
more of the equity securities of all other companies involved in the merger or
consolidation except, in the case of consolidation, the resulting
company;
3. The acquisition of a
security of an insurer, pursuant to a merger or consolidation, in exchange for
a security of a company which, prior to said merger or consolidation, held over
eighty-five (85) percent of the combined assets of all the companies undergoing
merger or consolidation, computed according to their book values prior to the
merger or consolidation as determined by reference to their most recent
available financial statements for a twelve (12) month period prior to the
merger or consolidation.
4. The
disposition of a security, pursuant to a merger or consolidation, or an insurer
which, prior to said merger or consolidation, held over eighty-five (85)
percent of the combined assets of all the companies undergoing merger or
consolidation, computed according to their book value prior to merger or
consolidation, as determined by reference to their most recent available
financial statements for a twelve (12) month period prior to the merger or
consolidation.
(b) A
merger within the meaning of this section shall include the sale or purchase of
substantially all the assets of one insurer by another in exchange for stock
which is then distributed to the security holders of the insurer which sold its
assets.
(c) Notwithstanding the
foregoing, if an officer, director or stockholder shall make any purchase
(other than a purchase exempted by this section) of a security in any company
involved in the merger or consolidation and any sale (other than a sale
exempted by this section) of a security in any other company involved in the
merger or consolidation within any period of less than six (6) months during
which the merger or consolidation took place, the exemption provided by this
section shall be unavailable to such officer, director or stockholder to the
extent of such purchase and sale.
(6) Exemption from
KRS
304.26-040 of transactions involving the
deposit or withdrawal of equity securities under a voting trust or deposit
agreement. Any acquisition or disposition of an equity security involved in the
deposit of such security under, or the withdrawal of such security from a
voting trust or deposit agreement, and the acquisition or disposition in
connection therewith of the certificate representing such security, shall be
exempt from the operation of
KRS
304.26-040 if substantially all of the assets
held under the voting trust or deposit agreement immediately after the deposit
or immediately prior to the withdrawal, as the case may be, consisted of equity
securities of the same class as the security deposited or withdrawn; provided,
however, that this section shall not apply to the extent that there shall have
been either:
(a) A purchase of an equity
security of the class deposited and a sale of any certificate representing an
equity security of such class; or
(b) A sale of an equity security of the class
deposited and purchase of any certificate representing an equity security of
such class (otherwise than a transaction involved in such deposit or withdrawal
or in a transaction exempted by any other provisions of the administrative
regulations under
KRS
304.26-040 within a period of less than six
(6) months which includes the date of the deposit or withdrawal).
(7) Exemption from
KRS
304.26-040 of certain transactions involving
the conversion of equity securities.
(a) Any
acquisition or disposition of an equity security involved in the conversion of
an equity security which, by its terms or pursuant to the terms of the
insurer's charter or other governing instruments, is convertible immediately or
after a stated period of time into another equity security of the same insurer,
shall be exempt from the operation of
KRS
304.26-040; provided, however, that this
section shall not apply to the extent that there shall have been either:
1. A purchase of any equity security of the
class convertible (including any acquisition of or change in a conversion
privilege) and a sale of any equity security of the class issuable upon
conversion; or
2. A sale of any
equity security of the class convertible and any purchase of any equity
security issuable upon conversion (otherwise than in a transaction involved in
such conversion or in a transaction exempted by any other provision of the
administrative regulations under
KRS
304.26-040) within a period of less than six
(6) months which includes the date of conversion.
(b) For the purpose of this section, an
equity security shall not be deemed to be acquired or disposed of upon
conversion of an equity security if the terms of the equity security converted
require the payment or entail the receipt, in connection with such conversion,
of cash or other property (other than equity securities involved in the
conversion) equal in value at the time of conversion to more than fifteen (15)
percent of the value of the equity security issued upon conversion.
(c) For the purpose of this section, an
equity security shall be deemed convertible if it is convertible at the option
of the holder or of some other person or by operation of the terms of the
security or the governing instruments.
(8) Exemption from
KRS
304.26-040 of certain transactions involving
the sale of subscription rights.
(a) Any sale
of a subscription right to acquire any subject security of the same insurer
shall be exempt from the provision of
KRS
304.26-040 to the extent prescribed in this
section, as not comprehended with the purpose of said
KRS
304.26-040, if:
1. Such subscription is acquired, directly or
indirectly, from the insurer without the payment of consideration;
2. Such subscription right by its terms
expires within forty-five (45) days after the issuance thereof;
3. Such subscription right by its terms is
issued on a pro rata basis to all holders of the beneficiary security of the
insurer; and
4. A registration
statement under the Securities Act of 1933 is in effect as to each subject
security, or the applicable terms of any exemption from such registration have
been met in respect to each subject security.
(b) When used within this section the
following terms have the meaning indicated:
1. The term "subscription right" means any
warrant or certificate evidencing a right to subscribe to or otherwise acquire
an equity security;
2. The term
"beneficiary security" means a security registered pursuant to Section 12 of
the Securities Exchange Act, to the holders of which a subscription right is
granted;
3. The term "subject
security" means a security which is the subject of a subscription
right.
(c)
Notwithstanding anything contained herein to the contrary, if a person
purchases subscription rights for cash or other consideration, then a sale by
such person of subscription rights otherwise exempted by this section will not
be so exempted to the extent of such purchases within the six (6) month period
preceding or following such sale.
Section 4. Administrative Regulations under
KRS
304.26-050.
(1) Exemption of certain securities from
KRS
304.26-050. Any security shall be exempt from
the operation of
KRS
304.26-050 to the extent necessary to render
lawful under such section the execution by a broker of an order for an account
in which he has no direct or indirect interest.
(2) Exemption from
KRS
304.26-050 of certain transactions effected
in connection with a distribution. Any security shall be exempt from the
operation of
KRS
304.26-050 to the extent necessary to render
lawful under such section any sale made by or on behalf of a dealer in
connection with a distribution of substantial block of securities, upon the
following condition:
(a) The sale is
represented by an overallotment in which the dealer is participating as a
member of an underwriting group, or the dealer or person acting on his behalf
intends in good faith to offset such sale with a security to be acquired by or
on behalf of the dealer as a participant in an underwriting, selling or
soliciting-dealer group of which the dealer is a member at the time of the
sale, whether or not the security to be so acquired is subject to a prior
offering to existing holders or some other class of persons; and
(b) Other persons not within the purview of
KRS
304.26-050 are participating in the
distribution of such block of securities on terms at least as favorable as
those on which such dealer is participating and to an extent at least equal to
the aggregate participation of all persons exempted from the provisions of
KRS
304.26-050 by this section. However, the
performance of the functions of manager of a distributing group and the receipt
of a bona fide payment for performing such functions shall not preclude an
exemption which would otherwise be available under this section.
(3) Exemption from
KRS
304.26-050 of sales of securities to be
acquired.
(a) Whenever any person is
entitled, as an incident to this ownership of an issued security and without
the payment of consideration, to receive another security "when issued" or
"when distributed," the security to be acquired shall be exempt from the
operation of
KRS
304.26-050, provided that:
1. The sale is made subject to the same
conditions as those attaching to the right of acquisition, and
2. Such person exercises reasonable diligence
to deliver such security to the purchaser promptly after his right of
acquisition matures, and
3. Such
person reports the sale on the appropriate form for reporting transactions by
persons subject to
KRS
304.26-030.
(b) This section shall not be construed as
exempting transactions involving both a sale of a security "when issued" or
"when distributed" and a sale of the security by virtue of which the seller
expects to receive the "when issued" or "when distributed" security, if the two
(2) transactions combined result in a sale of more units than the aggregate of
those owned by the seller plus those to be received by him pursuant to his
right of acquisition.
Section 5. Administrative Regulation under
KRS
304.26-070. Arbitrage transactions under
KRS
304.26-070: It shall be unlawful for any
director or officer of an insurer to effect any foreign or domestic arbitrage
transaction in any equity security of such insurer, unless he shall include
such transaction in the statements required by
KRS
304.26-030 and shall account to each insurer
for the profit arising from transaction, as provided in
KRS
304.26-040. The provisions of
KRS
304.26-050 shall not apply to such arbitrage
transactions. The provisions of the Act shall not apply to any bona fide
foreign or domestic arbitrage transaction insofar as it is effected by any
person other than such director or officer of the insurer.