Administrative History Effective date: May 15, 1969 —————— Chapter recodified from COMAR 09.30.38 to COMAR 31.04.10 effective September 7, 1998 (25:18 Md. R. 1439) Authority Insurance Article, §§ 2-109 and 3-119 , Annotated Code of Maryland

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.01 General. The purchase and sale of equity securities issued by domestic stock insurance companies or their affiliates by the beneficial owners, directors, or officers of these companies are subject to regulation under these regulations. In respect of "short-swing" purchase and sale, or sale and purchase, of equity securities by persons regulated by Insurance Article, §3-119, Annotated Code of Maryland , the basic purpose is to prevent "insiders" from retaining profits realized on the equity securities, usually stocks, on the basis of information not available to others but Insurance Article, §3-119, Annotated Code of Maryland , is so worded as to apply whether or not in a particular transaction the "insider" has any "inside" information and without consideration of any intention he may have as to holding the security bought or repurchasing the security sold.

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.02 Conformity to Federal Rule. Any beneficial owners, directors, or officers of the insurer satisfying the requirements of the U.S. Securities & Exchange Commission on insider trading (see SEC reg. 240.16b-1 et seq.) will be considered to have complied with the "insider" provisions and requirements of this chapter and of Insurance Article, §3-119(e), Annotated Code of Maryland .

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.03 Exemption from Insurance Article, §3-119(e), Annotated Code of Maryland, 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 Insurance Article, §3-119(e), Annotated Code of Maryland , to the extent specified in this chapter, as not comprehended within the purpose of Insurance Article, §3-119(e), 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 this business, in the distribution of the block of securities; (2) The security involved in the transaction is: (a) A part of the block of securities and is acquired by the person effecting the transaction, with a view to distribution thereof, from the issuer or other person on whose behalf the securities are being distributed or from a person who is participating in good faith in the distribution of the 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 the distribution: and (3) Other persons not within the purview of Insurance Article, §3-119(e), Annotated Code of Maryland , are participating in the distribution of the block of securities on terms at least as favorable as those on which the person is participating and to an extent at least equal to the aggregate participation of all persons exempted from the provisions of Insurance Article, §3-119(e), by this section of this regulation. However, the performance of the functions of manager of a distributing group and the receipt of a bona fide payment for performing these functions may not preclude an exemption which would otherwise be available under this section of this regulation. B. The exemption of a transaction pursuant to this regulation with respect to the participation therein of one party thereto may not render the transaction exempt with respect to participation of any other party therein unless the other party also meets the conditions of this regulation.

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.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."

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.05 Exemption from Insurance Article, §3-119(e), Annotated Code of Maryland, 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 issuer issuing the security shall be exempt from the operation of Insurance Article, §3-119(e), Annotated Code of Maryland , upon condition that: A. The equity security is acquired by way of redemption of another security of an issuer substantially all of whose assets other than cash (or government bonds) consist of securities of the issuer of the equity security so acquired, and which: (1) Represented substantially and in practical effect a stated or readily ascertainable amount of the equity security; (2) Had a value which was substantially determined by the value of the equity security; and (3) Conferred upon the holder the right to receive the 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 6 months before the redemption or is acquired within 6 months after the redemption; C. The issuer of the equity security acquired has recognized the applicability of §A of this regulation by appropriate corporate action.

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.06 Exemption from Insurance Article, §3-119(e), Annotated Code of Maryland, of Long-Term Profits Incident to Sales within 6 Months of the Exercise of an Option. A. To the extent specified in §B of this regulation , the Insurance Commissioner hereby exempts as not comprehended within the purposes of Insurance Article, §3-119(e), Annotated Code of Maryland , any transaction or transactions involving the purchase and sale, or sale and purchase, of any equity security if the purchase is pursuant to the exercise of an option or similar right either acquired: (1) More than 6 months before its exercise; or (2) Pursuant to the terms of an employment contract entered into more than 6 months before its exercise. B. In respect of transactions specified in §A of this regulation , the profits inuring to the issuer may not exceed the difference between the process of the sale and the lowest market price of any security of the same class within 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 the issuer in the absence of this regulation. C. The Insurance Commissioner also hereby exempts, as not comprehended within the purposes of Insurance Article, §3-119(e), Annotated Code of Maryland , the disposition of a security, purchased in a transaction specified in §A of this regulation pursuant to a plan or agreement for merger or consolidation, or reclassification of the issuer'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 §368(c) of the Internal Revenue Code of 1954, of a person which has acquired its assets, when the terms of the plan or agreement are binding upon all stockholders of the issuer 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 provided by this regulation may not apply to any transaction made unlawful by Insurance Article, §3-119(f), Annotated Code of Maryland , or by any regulations thereunder. E. The burden of establishing the market price of a security for the purpose of this regulation shall rest upon the person claiming the exemption. F. The exemption granted pursuant to this regulation shall apply to any liability under Insurance Article, §3-119(e), Annotated Code of Maryland , existing at or after the effective date of this regulation, but may not be deemed to affect judgments rendered before that date.

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.07 Exemption from Insurance Article, §3-119(e), Annotated Code of Maryland, of Certain Acquisitions and Dispositions of Securities Pursuant to Merger or Consolidations. A. The following transactions shall be exempt from the provisions of Insurance Article, §3-119(e), Annotated Code of Maryland , as not comprehended within the purpose of that statute: (1) The acquisition of a security of an issuer pursuant to a merger or consolidation, in exchange for a security of a company which, before the merger or consolidation, owned 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; (2) The disposition of a security, pursuant to a merger or consolidation of an issuer which, before the merger or consolidation, owned 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 issuer pursuant to a merger or consolidation, in exchange for a security of a company which, before the merger or consolidation, held over 85 percent of the combined assets of all the companies undergoing merger or consolidation, computed according to their book values before the merger or consolidation as determined by reference to their most recent available financial statements for a 12-month period before the merger or consolidation; or (4) The disposition of a security, pursuant to a merger or consolidation, of an issuer which, before the merger or consolidation, held over 85 percent of the combined assets of all the companies undergoing merger or consolidation, computed according to their book values before the merger or consolidation, as determined by reference to their most recent available financial statements for a 12-month period before the merger or consolidation. B. A merger within the meaning of this regulation shall include the sale or purchase of substantially all the assets of one issuer by another in exchange for stock which is then distributed to the security holders of the issuer 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 chapter or any other regulation under Insurance Article, §3-119(e), Annotated Code of Maryland , of a security in any company involved in the merger or consolidation and any sale (other than a sale exempted by this chapter or any other regulation under Insurance Article, §3-119(e), Annotated Code of Maryland , of a security in any other company involved in the merger or consolidation within any period of less than 6 months during which the merger or consolidation took place, the exemption provided by this regulation shall be unavailable to the officer, director, or stockholder to the extent of the purchase and sale.

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.08 Exemption from Insurance Article, §3-119(e), Annotated Code of Maryland, 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 the security under, or the withdrawal of the security from, a voting trust or deposit agreement, and the acquisition or disposition in connection therewith of the certificate representing the security, shall be exempt from the operation of Insurance Article, §3-119(e), Annotated Code of Maryland , if substantially all of the assets held under the voting trust or deposit agreement immediately after the deposit or immediately before the withdrawal, as the case may be, consisted of equity securities of the same class as the security deposited or withdrawn. However, this regulation does 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 the class; or B. A sale of an equity security of the class deposited and a purchase of any certificate representing an equity security of the class (otherwise than in a transaction involved in the deposit or withdrawal or in a transaction exempted by any other section of any regulation under Insurance Article, §3-119(e), Annotated Code of Maryland , within a period of less than 6 months which includes the date of the deposit or withdrawal.

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.09 Exemption from Insurance Article, §3-119(e), Annotated Code of Maryland, of 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 corporate charter or other governing instruments, is convertible immediately or after a stated period of time into another equity security of the same issuer, shall be exempt from the operation of Insurance Article, §3-119(e), Annotated Code of Maryland . However, this regulation does 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 the conversion or in a transaction exempted by any other section of any regulation under Insurance Article, §3-119(e), Annotated Code of Maryland , within a period of less than 6 months which includes the date of conversion. B. For the purpose of this regulation an equity security is not 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 the 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 15 percent of the value of the equity security issued upon conversion. C. For the purpose of this regulation 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 instrument.

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