Cal. Code Regs. tit. 10, § 2682.15 – Exemption of Long Term Profits Incident to Sales Within Six Months of the Exercise of an Option.

(a) To the extent specified in paragraph (b) of this section, there is hereby exempted, as not comprehended within the purposes of Section 1104.3 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. (1) acquired more than six months before its exercise, or
2. (2) acquired pursuant to the terms of an employment contract entered into more than six months before its exercise.
(b) In respect of transactions specified in paragraph (a) 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 months before or after the date of the sale. Nothing in this section shall be deemed to enlarge the amount of profit which would inure to such insurer in the absence of this section.
(c) There is also exempted, as not comprehended within the purposes of Section 1104.3, the disposition of a security, purchased in a transaction specified in paragraph (a) of this section, 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 contained in the certificate of incorporation, to receive the appraised or fair value of their holdings.
(d) The exemptions proved by this section shall not apply to any transaction made unlawful by Section 1104.4 or by any rules and regulations thereunder.
(e) The burden of establishing market price of a security for the purpose of this section shall rest upon the person claiming the exemption.