50 Ill. Adm. Code 204.30
Regulations Under Subsection (b) of the Act
Section 204
Section 204.30 Regulations
Under Subsection (b) of the Act
a) Exemption from subsection (b) of certain transactions effected
in connection with a distribution
1) 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 the exempt from the provisions of
subsection (b) of the Act, to the extent specified in this Section 204.30 as
not comprehended within the purpose of said subsection (b) of the Act, upon the
following conditions:
A) 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;
B) The security involved in the transaction is
i) 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 company 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
ii) 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
C) 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.
2) The exemption of a transaction pursuant to this Section 204.30
with respect to the participation therein of one 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.
b) Exemption from subsection (b) of acquisitions of shares of
stocks 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 pursuant to a qualified or a restricted
stock option plan, or a stock option pursuant to an employee stock purchase
plan, by a director or officer of a company 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:
1) The plan has been approved, directly or indirectly, either by
the affirmative votes of the holders of a majority of the securities of such
company present, or represented, and entitled to vote at a meeting duly held in
accordance with the applicable laws of the State of Illinois, or by the written
consent of the holders of a majority of the securities of such company entitled
to vote: provided, however, that if such vote or written consent was not
solicited substantially in accordance with 50 Ill. Adm. Code 203, Proxies,
Consents and Authorizations of Domestic Stock Companies as prescribed by the
Director of Insurance of the Illinois Department of Insurance, in effect at
the time of such vote or written consent, the company 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 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 company, 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 30 days prior to the date of mailing. Four copies of
such written information shall be filed with, or mailed for filing to, the
Director not later than the date on which it is first sent or given to security
holders of the company. For the purposes of this paragraph, the term
"company" includes a predecessor corporation if the plan or
obligations to participate thereunder were assumed by the company in connection
with the succession.
2) If the selection of any director or officer of the company 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 of 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:
A) With respect to the participation of directors –
i) by board of directors of the company, a majority of which
board and a majority of the directors acting in the matter are disinterested
persons;
ii) 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; or
iii) otherwise in accordance with the plan, if the plan either
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 option may be acquired and exercised; or sets forth, by formula or
otherwise, effective and determinable limitations with respect to the foregoing
based upon earning of the company, 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.
B) With respect to the participation of officers who are not
directors, either by the board of directors of the company or a committee of
three or more directors; or 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.
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 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 company or any of its
affiliates entitling the participants therein to acquire stock or qualified,
restricted or employee stock purchase plan stock options of the company or any
of its affiliates.
C) 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 company.
3) 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
numbers of shares or by formulas based upon earnings of the company, 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.
4) Unless the context otherwise requires, all terms used in this
Section 204.30 shall have the same meaning as in the Act or elsewhere in these
regulations. In addition, the following definitions apply:
A) 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.
B) 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 204.10
provided, however, that for the purposes of this Section 204.30 an option which
meets all of the conditions of said Section 424(b), other than the date of
issuance shall be deemed to be a "restricted stock option."
c) Exemption from subsection (b) 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 company issuing such
security shall be exempt from the operation of subsection (b) of the Act upon
condition that
1) the equity security is acquired by way of redemption of
another security of a company substantially all of whose assets other than cash
(or Government bonds) consists of securities of the company issuing the equity
security so acquired, and which:
A) represented substantially and in practical effect a stated or
readily ascertainable amount of such equity security,
B) had a value which was substantially determined by the value of
such equity security, and
C) conferred upon the holder the right to receive such equity
security without the payment of any consideration other than the security
redeemed;
2) no security of the same class as the security redeemed was
acquired by the director or officer within six months prior to such redemption
or is acquired within six months after such redemption;
3) the company issuing the equity security acquired has
recognized the applicability of paragraph (1) of this subsection by appropriate
corporate action.
d) Exemption of long term profits incident to sales within six
months of the exercise of an option
1) To the extent specified in paragraph (c)(2) of this Section,
the Director 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
A) acquired more than six months before its exercise, or
B) acquired pursuant to the terms of an employment contract
entered into more than six months before its exercise.
2) In respect of transactions specified in paragraph (1) the
profits inuring to the company shall not exceed the difference between the
proceeds of sale and the lowest market price of any security of the same class
within six months before or after the date of sale. Nothing in this subsection
(d) shall be deemed to enlarge the amount of profit which would inure to such
company in the absence of this subsection (d).
3) The Director 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 (1) of this subsection (d),
pursuant to a plan or agreement for merger or consolidation, or
reclassification of the company'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 company 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.
4) The exemptions proved by this subsection (d) shall not apply
to any transaction made unlawful by subsection (c) of the Act or by any rules
and regulations thereunder.
5) The burden of establishing market price of a security for the
purpose of this subsection (d) shall rest upon the person claiming the
exemption.
e) Exemption from subsection (b) of certain acquisitions and
dispositions of securities pursuant to merger or consolidations
1) The following transactions shall be exempt from the provisions
of subsection (b) of the Act as not comprehended within the purpose of said
subsection:
A) The acquisition of a security of a company, pursuant to a
merger or consolidation, in exchange for a security of a company which, prior
to said 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.
B) The disposition of a security, pursuant to a merger or consolidation
of a company which, prior to said 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.
C) The acquisition of a security of a company, pursuant to a
merger or consolidation, in exchange for a security of a company which, prior
to said merger or consolidation, held over 85 per cent 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 12-month
period prior to the merger or consolidation.
D) The disposition of a security, pursuant to a merger or
consolidation, of a company which, prior to said merger or consolidation, held
over 85 per cent 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 statement for a 12-month period prior to the merger or consolidation.
2) A merger within the meaning of this subsection (e) shall
include the sale or purchase of substantially all the assets of one company by
another in exchange for stock which is then distributed to the security holders
of the company which sold its assets.
3) Notwithstanding the foregoing, if an officer, director or
stockholder shall make any purchase (other than a purchase exempted by this
subsection) of a security in any company involved in the merger or
consolidation and any sale (other than a sale exempted by this subsection) of a
security in any other company involved in the merger or consolidation within
any period of less than six months during which the merger or consolidation
took place, the exemption provided by this subsection (e) shall be unavailable
to such officer, director or stockholder.
f) Exemption from subsection (b) of certain transaction involving
an exchange of similar securities
Any
acquisition or disposition of securities made in an exchange of shares of a
class (or series thereof) of stock of a company for an equivalent number of
shares of another class (or series thereof) of stock of the same company,
pursuant to a right of conversion under the terms of the company's charter or
other governing instruments shall be exempt from the operation of subsection
(b) of the Act if –
1) The shares surrendered and those acquired in exchange therefor
evidence substantially the same rights and privileges except that, pursuant to
the provisions of the company's charter or other governing instruments, the
board of directors may declare and pay a lesser dividend per share on shares of
the class surrendered than on shares of the class acquired in exchange
therefor, or may declare and pay no dividend on shares of the class
surrendered; and
2) The transaction was effected in contemplation of a public sale
of the shares acquired in the exchange; provided, that this subsection (f)
shall not be construed to exempt from the operation of subsection (b) of the
Act any purchase or sale of shares of the class surrendered and any sale or
purchase of shares of the class acquired in the exchange (otherwise than in the
transaction of exchange exempted by this subsection) within a period of less
than six months.