§ 2608.01. Officers, Directors and Employee Stock Option Plans.

Stock options of this nature are generally looked upon with favor where they conform to the following specifications:

A. They are provided for by a fair and reasonable plan to be fairly administered which has been submitted to and approved by the directors and stockholders. The Commissioner will insist on proof that a full and fair disclosure of outstanding options, the details of the plan and its intended operation has been made to applicant's stockholders, and that adoption thereof was in accordance with any applicable statutes.

B. The granting thereof bears a reasonable incentive relationship to the continued employment of the optionee.

C. They are for a stated number of shares, to be paid for in cash.

D. They are for 100% of the fair market value of the shares optioned as of the time they are granted, if issued pursuant to a plan which is by law subject to such requirement. If the stock is not widely traded, they are for a lawful price fixed by company's board of directors and concurred in by the Commissioner. If issued pursuant to an employees' stock purchase plan available to all of applicant's employees, they are for a price of not less than 85% of fair market value of the shares optioned as of the time they are granted. (Cf. Cal. Rev. & T.C. Sections 17534 and 17632)

E. They fully set forth employment qualifications, conditions for complete exercise of the option, conditions under which cessation of employment will terminate the option, the effect of death, resignation, etc.

F. They contain an anti-dilution or pro-ration clause in substance to the effect that the number of shares allocated to the Plan and the number of shares covered by each individual option, and the price per share, all shall be proportionately adjusted automatically for any increase or decrease in the number of issued and outstanding shares of the corporation accomplished without a corresponding increase or decrease in the corporation's paid-in capital.

G. Only the optionee (or a court appointed guardian) can exercise the option during the optionee's lifetime, and only his heirs, administrator or executor for a limited time after his death.

H. They provide in substance that the company will diligently endeavor to comply with all applicable securities laws before any such options are issued and before any shares will be issued pursuant to such options.

I. The term thereof is for not longer than five years.

J. The total number of shares set aside at any one time for such purpose or expected to be optioned for such purpose within the foreseeable future is not inequitably disparate to the number of shares issued and outstanding. Refer to Section 2608.04, infra. (Sects. 839, 843)