Cal. Code Regs. tit. 10, § 2607.05 – Options to Promoters.

A. Issuance of options to promoters will not be authorized except in connection with an original issue and then only when it is satisfactorily demonstrated that the promoters have rendered a genuine service of value to the company for which they have not otherwise been fully compensated.
1. 1. The issuance thereof will not ordinarily be regarded as fair, just and equitable unless:
  1. (a) The total number of shares subject to such options will not exceed 10% of the number of shares initially sold and issued for cash.
  2. (b) The exercise price stated in such options to be issued by other than a life insurer is not less than the net price at which shares are sold to the public investors at the time such options are granted, plus an increase of 5% thereof for each year thereafter elapsing during the life of such options.
  3. (c) The exercise price stated in such options to be issued by a life insurer is not less than the net price at which shares are sold to public investors at the time such options are granted, plus an increase of 10% thereof for each year thereafter elapsing during the life of such options.
  4. (d) The options are nontransferable except upon death of the optionee or by operation of law.
  5. (e) The options by their terms are not exercisable more than five years after date of issue.
B. The intention to issue such options and the approximate extent thereof shall be fully disclosed in the prospectus.
C. Such options are a form of promotional expense and must be justified as such by a showing of the nature of the service rendered or other consideration justifying the grant of the options. The aggregate of all organizational expenses and promotional expenses, including the value of such options (as determined by the Board of Directors and subject to review by the Commissioner), shall not exceed 10% of the total amount actually paid for the insurer's capital stock. (Sections 839.5, 715)