West Virginia Code of State Rules
Agency 114 - Insurance Commission
Title 114 - LEGISLATIVE RULE INSURANCE COMMISSIONER
Series 114-04 - Insider Trading Of Equity Securities Of A Domestic Stock Insurer
Section 114-4-4 - Regulations Under Subsection (b) Of West Virginia Code Section Thirty, Article Five, Chapter Thirty-three

Universal Citation: 114 WV Code of State Rules 114-4-4

Current through Register Vol. XLI, No. 38, September 20, 2024

4.1. Exemption from subsection (b) of the Act 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 subsection (b) of the Act, to the extent specified in this section as not comprehended within the purpose of said subsection 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 the 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 over-allotment or other short position created in connection with such distribution; and

(3) Other persons not within the purview of subsection (b) of the Act 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 subsection (b) of the Act 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.

4.2. Exemption from subsection (b) of the Act 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 restricted stock option pursuant to a qualified or restricted stock option plan, or a 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 subsection (b) of the Act 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 duly held in accordance with the applicable laws of the State of West Virginia, or (2) by the written consent of the holders of a majority of the securities of such insurer entitled to vote: Provided, That if such 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 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 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 (i) the date the Act first applies to such insurer, or (ii) 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 of 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 manner are disinterested persons; or

(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 or such 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 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

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 paragraph shall not apply with respect to any option granted, or other equity security acquired, prior to the date that subsections (a), (b), and (c) of the Act 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 fixed or maximum dollar amount 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 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 Section 4.2 of these rules shall have the same meaning as in the Act and in Section 2.1 of these regulations. 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 (1) 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, 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 of the first paragraph of this section shall not include (i) the making of any election to receive under any plan an award of compensation in the form of stock or credits therefore: Provided, That such election is made prior to the making of the award: Provided, however, That such election is irrevocable until at least six (6) months after termination of employment; (ii) the subsequent crediting of such stock; (iii) the making of any election as to a time for delivery of such stock after termination of employment: Provided further, That such election is made at least six (6) months prior to any such delivery; (iv) the fulfillment of any condition to the absolute right to receive such stock; or (v) the acceptance of certificates for shares of such stock.

4.3. Exemption from subsection (b) of the Act 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 an insurer issuing such security shall be exempt from the operation of subsection (b) of the Act 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 (or 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;

(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 Paragraph (a) of this section by appropriate corporation action.

4.4. 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 section, the Commissioner hereby exempts as not comprehended within the purposes of subsection (b) of the Act any transaction or transactions involving the purchase and sale, or sale and purchase, of any equity security where such purchase is pursuant to the exercise of an option or similar right either (1) acquired more than six (6) months before its exercise, or (2) acquired pursuant to the terms of an employment contract entered into more than six (6) months before its exercise.

(b) In respect of transactions specified in Paragraph (a) of this section 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 Section 4.4 of these rules shall be deemed to enlarge the amount of profit which would inure to such insurer in the absence of Section 4.4 of these rules.

(c) The Commissioner also hereby exempts, as not comprehended within the purposes of subsection (b) of the Act, the disposition of a security, purchased in a transaction specified in Paragraph (a) of Section 4.4 of these rules, 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 Section 4.4 of these rules shall not apply to any transaction made unlawful by subsection (c) of the Act or by any rules and regulations thereunder.

(e) The burden of establishing market price of a security for the purpose of Section 4.4 of these rules shall rest upon the person claiming the exemption.

4.5. Exemption from subsection (b) of the Act of certain acquisitions and dispositions of securities pursuant to merger or consolidations.

(a) The following transactions shall be exempt from the provisions of subsection (b) of the Act as not comprehended within the purpose of said subsection:

(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 percent (85%) 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;

(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 percent (85%) 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 percent (85%) 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, of an insurer which, prior to said merger or consolidation, held over eighty-five percent (85%) of the combined assets of all the companies undergoing merger or consolidation, computed according to their book values 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 Section 4.5 of these rules 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 Section 4.5 of these rules) of a security in any company involved in the merger or consolidation and any sale (other than a sale exempted by Section 4.5 of these rules) 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 Section 4.5 of these rules shall be unavailable to such officer, director or stockholder.

4.6. Exemption from subsection (b) of the Act of certain securities received upon surrender of similar equity securities. -- 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 subsection (b) of the Act 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, That Section 4.6 of these rules 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 a purchase of any certificate representing an equity security of such class (otherwise than in a transaction involved in such deposit or withdrawal or in a transaction exempted by any other provision of the regulations under subsection (b) of the Act) within a period of less than six (6) months which includes the date of the deposit or withdrawal.

4.7. Exemption from subsection (b) of the Act of certain transactions involving an exchange of similar 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 subsection (b) of the Act: Provided, That Section 4.7 of these rules 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 regulations under subsection (b) of the Act) within a period of less than six (6) months which includes the date of conversion.

(b) For the purpose of Section 4.7 of these rules, 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 percent (15%) of the value of the equity security issued upon conversion.

(c) For the purpose of Section 4.7 of these rules, 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.

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