BILL NUMBER: AB 991 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY APRIL 20, 2009
INTRODUCED BY Assembly Member Silva
FEBRUARY 27, 2009
An act to amend Sections 301.5, 1300,
301.7, 1300, 1301, 1502.1, 2115, 2117.1, 25014.7, 25100, 25101,
25117, 25211, 25219, 25231, and 25247 of the Corporations Code,
relating to corporations.
LEGISLATIVE COUNSEL'S DIGEST
AB 991, as amended, Silva. Corporations: NASDAQ: national
securities exchange.
Existing law regulates the operations of corporations, including,
without limitation, elections of boards of directors and
qualification with the Commissioner of Corporations of securities
offerings in specified transactions, based on, among other things,
whether a security is traded on a national securities exchange or is
listed on the National Market System of the NASDAQ Stock Market.
Existing law governing broker-dealers, investment advisers, and
investment adviser representatives references the National
Association of Securities Dealers.
This bill would change references to the NASDAQ Stock Market to
reflect existing federal law designating that market as a national
securities exchange. T he bill would change
references to the American Stock Exchange to reflect its
current name, the NYSE Amex . The bill would also
change references to the National Association of Securities Dealers
to reflect its current name, the Financial Industry Regulatory
Authority, and make other technical and conforming changes.
Vote: majority. Appropriation: no. Fiscal committee: no.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 301.5 of the Corporations Code is amended to
read:
301.5. (a) A listed corporation may, by amendment of its articles
or bylaws, adopt provisions to divide the board of directors into
two or three classes to serve for terms of two or three years
respectively, or to eliminate cumulative voting, or both. After the
issuance of shares, a corporation that is not a listed corporation
may, by amendment of its articles or bylaws, adopt provisions to be
effective when the corporation becomes a listed corporation to divide
the board of directors into two or three classes to serve for terms
of two or three years respectively, or to eliminate cumulative
voting, or both. An article or bylaw amendment providing for division
of the board of directors into classes, or any change in the number
of classes, or the elimination of cumulative voting may only be
adopted by the approval of the board and the outstanding shares
(Section 152) voting as a single class, notwithstanding Section 903.
(b) If the board of directors is divided into two classes pursuant
to subdivision (a), the authorized number of directors shall be no
less than six and one-half of the directors or as close an
approximation as possible shall be elected at each annual meeting of
shareholders. If the board of directors is divided into three
classes, the authorized number of directors shall be no less than
nine and one-third of the directors or as close an approximation as
possible shall be elected at each annual meeting of shareholders.
Directors of a listed corporation may be elected by classes at a
meeting of shareholders at which an amendment to the articles or
bylaws described in subdivision (a) is approved, but the extended
terms for directors are contingent on that approval, and in the case
of an amendment to the articles, the filing of any necessary
amendment to the articles pursuant to Section 905 or 910.
(c) If directors for more than one class are to be elected by the
shareholders at any one meeting of shareholders and the election is
by cumulative voting pursuant to Section 708, votes may be cumulated
only for directors to be elected within each class.
(d) For purposes of this section, a "listed corporation" means a
corporation with outstanding shares listed on the New York Stock
Exchange, the American Stock Exchange, or
NYSE Amex, the NASDAQ Global Market , or the NASDAQ
Capital Market .
(e) Subject to subdivision (h), if a listed corporation having a
board of directors divided into classes pursuant to subdivision (a)
ceases to be a listed corporation for any reason, unless the articles
of incorporation or bylaws of the corporation provide for the
elimination of classes of directors at an earlier date or dates, the
board of directors of the corporation shall cease to be divided into
classes as to each class of directors on the date of the expiration
of the term of the directors in that class and the term of each
director serving at the time the corporation ceases to be a listed
corporation (and the term of each director elected to fill a vacancy
resulting from the death, resignation, or removal of any of those
directors) shall continue until its expiration as if the corporation
had not ceased to be a listed corporation.
(f) Subject to subdivision (h), if a listed corporation having a
provision in its articles or bylaws eliminating cumulative voting
pursuant to subdivision (a) or permitting noncumulative voting in the
election of directors pursuant to that subdivision, or both, ceases
to be a listed corporation for any reason, the shareholders shall be
entitled to cumulate their votes pursuant to Section 708 at any
election of directors occurring while the corporation is not a listed
corporation notwithstanding that provision in its articles of
incorporation or bylaws.
(g) Subject to subdivision (i), if a corporation that is not a
listed corporation adopts amendments to its articles of incorporation
or bylaws to divide its board of directors into classes or to
eliminate cumulative voting, or both, pursuant to subdivision (a) and
then becomes a listed corporation, unless the articles of
incorporation or bylaws provide for those provisions to become
effective at some other time and, in cases where classes of directors
are provided for, identify the directors who, or the directorships
that, are to be in each class or the method by which those directors
or directorships are to be identified, the provisions shall become
effective for the next election of directors after the corporation
becomes a listed corporation at which all directors are to be
elected.
(h) If a corporation ceases to be a listed corporation on or after
the record date for a meeting of shareholders and prior to the
conclusion of the meeting, including the conclusion of the meeting
after an adjournment or postponement that does not require or result
in the setting of a new record date, then, solely for purposes of
subdivisions (e) and (f), the corporation shall not be deemed to have
ceased to be a listed corporation until the conclusion of the
meeting of shareholders.
(i) If a corporation becomes a listed corporation on or after the
record date for a meeting of shareholders and prior to the conclusion
of the meeting, including the conclusion of the meeting after an
adjournment or postponement that does not require or result in the
setting of a new record date, then, solely for purposes of
subdivision (g), the corporation shall not be deemed to have become a
listed corporation until the conclusion of the meeting of
shareholders.
(j) If an article amendment referred to in subdivision (a) is
adopted by a listed corporation, the certificate of amendment shall
include a statement of the facts showing that the corporation is a
listed corporation within the meaning of subdivision (d). If an
article or bylaw amendment referred to in subdivision (a) is adopted
by a corporation which is not a listed corporation, the provision, as
adopted, shall include the following statement or the substantial
equivalent: "This provision shall become effective only when the
corporation becomes a listed corporation within the meaning of
Section 301.5 of the Corporations Code."
SEC. 2. Section 301.7 of the
Corporations Code is amended to read:
301.7. (a) A listed corporation engaged in business limited to
the operation and maintenance of a recreation venture having golf and
tennis facilities and ancillary dining and beverage services may, by
amendment of its articles or bylaws, adopt provisions allowing
division of its board of directors into two classes, with one-half of
the directors or as close an approximation as possible to be elected
at each annual meeting of shareholders, provided that the
corporation's bylaws or articles limit each holder of the securities
to no more than five shares and require some of those holders to
occupy dwellings immediately contiguous to the real property of the
corporation. An article or bylaw amendment providing for division of
the board of directors into classes may only be adopted by the
approval of the board and the outstanding shares (Section 152) voting
as a single class, notwithstanding Section 903. Directors of a
listed corporation that meet these conditions may be elected by
classes at a meeting of shareholders at which an amendment to the
articles or bylaws described in this paragraph is approved, but the
extended terms for directors are contingent on that approval, and in
the case of an amendment to the articles, the filing of any necessary
amendment to the articles pursuant to Section 905 or 910.
(b) For purposes of this section, a "listed corporation" means a
corporation described in paragraph (1) or (2) of
subdivision (d) of Section 301.5 , except that a corporation
described in paragraph (2) of subdivision (d) of that section shall
be required to only have at least 600 holders of its equity
securities as of the record date of the corporation's most recent
annual meeting of shareholders as long as it meets all other
requirements of that paragraph .
(c) If an article amendment referred to in subdivision (a) is
adopted by a listed corporation, the certificate of amendment shall
include a statement of the facts showing that the corporation is a
listed corporation within the meaning of subdivision (b).
SEC. 2. SEC. 3. Section 1300 of the
Corporations Code is amended to read:
1300. (a) If the approval of the outstanding shares (Section 152)
of a corporation is required for a reorganization under subdivisions
(a) and (b) or subdivision (e) or (f) of Section 1201, each
shareholder of the corporation entitled to vote on the transaction
and each shareholder of a subsidiary corporation in a short-form
merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their
fair market value the shares owned by the shareholder which are
dissenting shares as defined in subdivision (b). The fair market
value shall be determined as of the day before the first announcement
of the terms of the proposed reorganization or short-form merger,
excluding any appreciation or depreciation in consequence of the
proposed action, but adjusted for any stock split, reverse stock
split, or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares
which come within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o)
of Section 25100, and the notice of meeting of shareholders to act
upon the reorganization summarizes this section and Sections 1301,
1302, 1303 and 1304; provided, however, that this provision does not
apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply
to any class of shares if demands for payment are filed with respect
to 5 percent or more of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not
voted in favor of the reorganization or, (B) if described in
paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or were held of record on the
effective date of a short-form merger; provided, however, that
subparagraph (A) rather than subparagraph (B) of this paragraph
applies in any case where the approval required by Section 1201 is
sought by written consent rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the
corporation purchase at their fair market value, in accordance with
Section 1301.
(4) Which the dissenting shareholder has submitted for
endorsement, in accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of
record.
SEC. 4. Section 1301 of the
Corporations Code is amended to read:
1301. (a) If, in the case of a reorganization, any shareholders
of a corporation have a right under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision (b) thereof, to
require the corporation to purchase their shares for cash, that
corporation shall mail to each such shareholder a notice of the
approval of the reorganization by its outstanding shares (Section
152) within 10 days after the date of that approval, accompanied by a
copy of Sections 1300, 1302, 1303, and 1304 and this section, a
statement of the price determined by the corporation to represent the
fair market value of the dissenting shares, and a brief description
of the procedure to be followed if the shareholder desires to
exercise the shareholder's right under those sections. The statement
of price constitutes an offer by the corporation to purchase at the
price stated any dissenting shares as defined in subdivision (b) of
Section 1300, unless they lose their status as dissenting shares
under Section 1309.
(b) Any shareholder who has a right to require the corporation to
purchase the shareholder's shares for cash under Section 1300,
subject to compliance with paragraphs (3) and (4) of subdivision (b)
thereof, and who desires the corporation to purchase shares shall
make written demand upon the corporation for the purchase of those
shares and payment to the shareholder in cash of their fair market
value. The demand is not effective for any purpose unless it is
received by the corporation or any transfer agent thereof (1) in the
case of shares described in clause(A) or (B) of paragraph
(1) of subdivision (b) of Section 1300 (without regard to
the provisos in that paragraph), not later than the date of the
shareholders' meeting to vote upon the reorganization, or (2) in any
other case within 30 days after the date on which the notice of the
approval by the outstanding shares pursuant to subdivision (a) or the
notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder.
(c) The demand shall state the number and class of the shares held
of record by the shareholder which the shareholder demands that the
corporation purchase and shall contain a statement of what that
shareholder claims to be the fair market value of those shares as of
the day before the announcement of the proposed reorganization or
short-form merger. The statement of fair market value constitutes an
offer by the shareholder to sell the shares at that price.
SEC. 3. SEC. 5. Section 1502.1 of
the Corporations Code is amended to read:
1502.1. (a) In addition to the statement required pursuant to
Section 1502, every publicly traded corporation shall file annually,
within 150 days after the end of its fiscal year, a statement, on a
form prescribed by the Secretary of State, that includes all of the
following information:
(1) The name of the independent auditor that prepared the most
recent auditor's report on the corporation's annual financial
statements.
(2) A description of other services, if any, performed for the
corporation during its two most recent fiscal years and the period
between the end of its most recent fiscal year and the date of the
statement by the foregoing independent auditor, by its parent
corporation, or by a subsidiary or corporate affiliate of the
independent auditor or its parent corporation.
(3) The name of the independent auditor employed by the
corporation on the date of the statement, if different from the
independent auditor listed pursuant to paragraph (1).
(4) The compensation for the most recent fiscal year of the
corporation paid to each member of the board of directors and paid to
each of the five most highly compensated executive officers of the
corporation who are not members of the board of directors, including
the number of any shares issued, options for shares granted, and
similar equity-based compensation granted to each of those persons.
If the chief executive officer is not among the five most highly
compensated executive officers of the corporation, the compensation
paid to the chief executive officer shall also be included.
(5) A description of any loan, including the amount and terms of
the loan, made to any member of the board of directors by the
corporation during the corporation's two most recent fiscal years at
an interest rate lower than the interest rate available from
unaffiliated commercial lenders generally to a similarly-situated
borrower.
(6) A statement indicating whether an order for relief has been
entered in a bankruptcy case with respect to the corporation, its
executive officers, or members of the board of directors of the
corporation during the 10 years preceding the date of the statement.
(7) A statement indicating whether any member of the board of
directors or executive officer of the corporation was convicted of
fraud during the 10 years preceding the date of the statement, if the
conviction has not been overturned or expunged.
(8) A description of any material pending legal proceedings, other
than ordinary routine litigation incidental to the business, to
which the corporation or any of its subsidiaries is a party or of
which any of their property is the subject, as specified by Item 103
of Regulation S-K of the Securities Exchange Commission (Section
229.103 of Title 12 of the Code of Federal Regulations). A
description of any material legal proceeding during which the
corporation was found legally liable by entry of a final judgment or
final order that was not overturned on appeal during the five years
preceding the date of the statement.
(b) For purposes of this section, the following definitions apply:
(1) "Publicly traded corporation" means a corporation, as defined
in Section 162, that is an issuer as defined in Section 3 of the
Securities Exchange Act of 1934, as amended (15 U.S.C. Sec. 78c), and
has at least one class of securities listed or admitted for trading
on a national securities exchange, on the OTC Bulletin Board, or on
the electronic service operated by Pink Sheets LLC.
OTC Markets Inc.
(2) "Executive officer" means the chief executive officer,
president, any vice president in charge of a principal business unit,
division, or function, any other officer of the corporation who
performs a policymaking function, or any other person who performs
similar policymaking functions for the corporation.
(3) "Compensation" as used in paragraph (4) of subdivision (a)
means all plan and nonplan compensation awarded to, earned by, or
paid to the person for all services rendered in all capacities to the
corporation and to its subsidiaries, as the compensation is
specified by Item 402 of Regulation S-K of the Securities and
Exchange Commission (Section 229.402 of Title 17 of the Code of
Federal Regulations).
(4) "Loan" as used in paragraph (5) of subdivision (a) excludes an
advance for expenses permitted under subdivision (d) of Section 315,
the corporation's payment of life insurance premiums permitted under
subdivision (e) of Section 315, and an advance of expenses permitted
under Section 317.
(c) This statement shall be available and open to the public for
inspection. The Secretary of State shall provide access to all
information contained in this statement by means of an online
database.
(d) A corporation shall certify that the information it provides
pursuant to this section is true and correct. No claim may be made
against the state for inaccurate information contained in statements
filed under this section with the Secretary of State.
SEC. 4. SEC. 6. Section 2115 of the
Corporations Code is amended to read:
2115. (a) A foreign corporation (other than a foreign association
or foreign nonprofit corporation but including a foreign parent
corporation even though it does not itself transact intrastate
business) is subject to the requirements of subdivision (b)
commencing on the date specified in subdivision (d) and continuing
until the date specified in subdivision (e) if:
(1) The average of the property factor, the payroll factor, and
the sales factor (as defined in Sections 25129, 25132, and 25134 of
the Revenue and Taxation Code) with respect to it is more than 50
percent during its latest full income year and
(2) more than one-half of its outstanding voting securities are
held of record by persons having addresses in this state appearing on
the books of the corporation on the record date for the latest
meeting of shareholders held during its latest full income year or,
if no meeting was held during that year, on the last day of the
latest full income year. The property factor, payroll factor, and
sales factor shall be those used in computing the portion of its
income allocable to this state in its franchise tax return or, with
respect to corporations the allocation of whose income is governed by
special formulas or that are not required to file separate or any
tax returns, which would have been so used if they were governed by
this three-factor formula. The determination of these factors with
respect to any parent corporation shall be made on a consolidated
basis, including in a unitary computation (after elimination of
intercompany transactions) the property, payroll, and sales of the
parent and all of its subsidiaries in which it owns directly or
indirectly more than 50 percent of the outstanding shares entitled to
vote for the election of directors, but deducting a percentage of
the property, payroll, and sales of any subsidiary equal to the
percentage minority ownership, if any, in the subsidiary. For the
purpose of this subdivision, any securities held to the knowledge of
the issuer in the names of broker-dealers, nominees for
broker-dealers (including clearing corporations), or banks,
associations, or other entities holding securities in a nominee name
or otherwise on behalf of a beneficial owner (collectively "nominee
holders"), shall not be considered outstanding. However, if the
foreign corporation requests all nominee holders to certify, with
respect to all beneficial owners for whom securities are held, the
number of shares held for those beneficial owners having addresses
(as shown on the records of the nominee holder) in this state and
outside of this state, then all shares so certified shall be
considered outstanding and held of record by persons having addresses
either in this state or outside of this state as so certified,
provided that the certification so provided shall be retained with
the record of shareholders and made available for inspection and
copying in the same manner as is provided in Section 1600 with
respect to that record. A current list of beneficial owners of a
foreign corporation's securities provided to the corporation by one
or more nominee holders or their agent pursuant to the requirements
of Rule 14b-1(b)(3) or 14b-2(b)(3) as adopted on January 6, 1992,
promulgated under the Securities Exchange Act of 1934, shall
constitute an acceptable certification with respect to beneficial
owners for the purposes of this subdivision.
(b) Except as provided in subdivision (c), the following chapters
and sections of this division shall apply to a foreign corporation as
defined in subdivision (a) (to the exclusion of the law of the
jurisdiction in which it is incorporated):
Chapter 1 (general provisions and definitions), to the extent
applicable to the following provisions;
Section 301 (annual election of directors);
Section 303 (removal of directors without cause);
Section 304 (removal of directors by court proceedings);
Section 305, subdivision (c) (filling of director vacancies where
less than a majority in office elected by shareholders);
Section 309 (directors' standard of care);
Section 316 (excluding paragraph (3) of subdivision (a) and
paragraph (3) of subdivision (f)) (liability of directors for
unlawful distributions);
Section 317 (indemnification of directors, officers, and others);
Sections 500 to 505, inclusive (limitations on corporate
distributions in cash or property);
Section 506 (liability of shareholder who receives unlawful
distribution);
Section 600, subdivisions (b) and (c) (requirement for annual
shareholders' meeting and remedy if same not timely held);
Section 708, subdivisions (a), (b), and (c) (shareholder's right
to cumulate votes at any election of directors);
Section 710 (supermajority vote requirement);
Section 1001, subdivision (d) (limitations on sale of assets);
Section 1101 (provisions following subdivision (e)) (limitations
on mergers);
Section 1151 (first sentence only) (limitations on conversions);
Section 1152 (requirements of conversions);
Chapter 12 (commencing with Section 1200) (reorganizations);
Chapter 13 (commencing with Section 1300) (dissenters' rights);
Sections 1500 and 1501 (records and reports);
Section 1508 (action by Attorney General);
Chapter 16 (commencing with Section 1600) (rights of inspection).
(c) This section does not apply to any corporation (1) with
outstanding securities listed on the New York Stock Exchange, the
American Stock Exchange, or NYSE Amex,
the NASDAQ Global Market, or the NASDAQ Capital Market, or
(2) if all of its voting shares (other than directors' qualifying
shares) are owned directly or indirectly by a corporation or
corporations not subject to this section.
(d) For purposes of subdivision (a), the requirements of
subdivision (b) shall become applicable to a foreign corporation only
upon the first day of the first income year of the corporation (1)
commencing on or after the 135th day of the income year immediately
following the latest income year with respect to which the tests
referred to in subdivision (a) have been met or (2) commencing on or
after the entry of a final order by a court of competent jurisdiction
declaring that those tests have been met.
(e) For purposes of subdivision (a), the requirements of
subdivision (b) shall cease to be applicable to a foreign corporation
(1) at the end of the first income year of the corporation
immediately following the latest income year with respect to which at
least one of the tests referred to in subdivision (a) is not met or
(2) at the end of the income year of the corporation during which a
final order has been entered by a court of competent jurisdiction
declaring that one of those tests is not met, provided that a
contrary order has not been entered before the end of the income
year.
(f) Any foreign corporation that is subject to the requirements of
subdivision (b) shall advise any shareholder of record, any officer,
director, employee, or other agent (within the meaning of Section
317) and any creditor of the corporation in writing, within 30 days
of receipt of written request for that information, whether or not it
is subject to subdivision (b) at the time the request is received.
Any party who obtains a final determination by a court of competent
jurisdiction that the corporation failed to provide to the party
information required to be provided by this subdivision or provided
the party information of the kind required to be provided by this
subdivision that was incorrect, then the court, in its discretion,
shall have the power to include in its judgment recovery by the party
from the corporation of all court costs and reasonable attorneys'
fees incurred in that legal proceeding to the extent they relate to
obtaining that final determination.
SEC. 5. SEC. 7. Section 2117.1 of the
Corporations Code is amended to read:
2117.1. (a) In addition to the statement required pursuant to
Section 2117, every publicly traded foreign corporation shall file
annually, within 150 days after the end of its fiscal year, on a form
prescribed by the Secretary of State, a statement that includes all
of the following information:
(1) The name of the independent auditor that prepared the most
recent auditor's report on the publicly traded foreign corporation's
annual financial statements.
(2) A description of other services, if any, performed for the
publicly traded foreign corporation during its two most recent fiscal
years and the period between the end of its most recent fiscal year
and the date of the statement by the foregoing independent auditor,
by its parent corporation, or by a subsidiary or corporate affiliate
of the independent auditor or its parent corporation.
(3) The name of the independent auditor employed by the foreign
corporation on the date of the statement, if different from the
independent auditor listed pursuant to paragraph (1).
(4) The compensation for the most recent fiscal year of the
publicly traded foreign corporation paid to each member of the board
of directors and paid to each of the five most highly compensated
executive officers of the foreign corporation who are not members of
the board of directors, including the number of any shares issued,
options for shares granted, and similar equity-based compensation
granted to each of those persons. If the chief executive officer is
not among the five most highly compensated executive officers of the
corporation, the compensation paid to the chief executive officer
shall also be included.
(5) A description of any loan, including the amount and terms of
the loans, made to any member of the board of directors by the
publicly traded foreign corporation during the foreign corporation's
two most recent fiscal years at an interest rate lower than the
interest rate available from unaffiliated commercial lenders
generally to a similarly situated borrower.
(6) A statement indicating whether an order for relief has been
entered in a bankruptcy case with respect to the foreign corporation,
its executive officers, or members of the board of directors of the
foreign corporation during the 10 years preceding the date of the
statement.
(7) A statement indicating whether any member of the board of
directors or executive officer of the publicly traded foreign
corporation was convicted of fraud during the 10 years preceding the
date of the statement, which conviction has not been overturned or
expunged.
(8) A description of any material pending legal proceedings, other
than ordinary routine litigation incidental to the business, to
which the corporation or any of its subsidiaries is a party or of
which any of their property is the subject, as specified by Item 103
of Regulation S-K of the Securities Exchange Commission (Section
229.103 of Title 12 of the Code of Federal Regulations). A
description of any material legal proceeding during which the
corporation was found legally liable by entry of a final judgment or
final order that was not overturned on appeal during the five years
preceding the date of the statement.
(b) For purposes of this section, the following definitions apply:
(1) "Publicly traded foreign corporation" means a foreign
corporation, as defined in Section 171, that is an issuer as defined
in Section 3 of the Securities Exchange Act of 1934, as amended (15
U.S.C. Sec. 78c), and has at least one class of securities listed or
admitted for trading on a national securities exchange, on the OTC
Bulletin Board, or on the electronic service operated by Pink
Sheets LLC. OTC Markets Inc.
(2) "Executive officer" means the chief executive officer,
president, any vice president in charge of a principal business unit,
division, or function, any other officer of the corporation who
performs a policymaking function, or any other person who performs
similar policymaking functions for the corporation.
(3) "Compensation" as used in paragraph (4) of subdivision (a)
means all plan and nonplan compensation awarded to, earned by, or
paid to the person for all services rendered in all capacities to the
corporation and to its subsidiaries, as the compensation is
specified by Item 402 of Regulation S-K of the Securities and
Exchange Commission (Section 229.402 of Title 17 of the Code of
Federal Regulations).
(4) "Loan" as used in paragraph (5) of subdivision (a) excludes an
advance for expenses, the foreign corporation's payment of life
insurance premiums, and an advance of litigation expenses, in each
instance as permitted according to the applicable law of the state or
place of incorporation or organization of the foreign corporation.
(c) This statement shall be available and open to the public for
inspection. The Secretary of State shall provide access to all
information contained in this statement by means of an online
database.
(d) A foreign corporation shall certify that the information it
provides pursuant to this section is true and correct. No claim may
be made against the state for inaccurate information contained in
statements filed under this section with the Secretary of State.
SEC. 6. SEC. 8. Section 25014.7 of
the Corporations Code is amended to read:
25014.7. (a) "Eligible rollup transaction" means a rollup
transaction in which the new securities issued are listed or approved
for listing on a national securities exchange which has been
certified by the commissioner under subdivision (o) of Section 25100,
if the exchange requires as a condition to listing or designation
that the rollup transaction be conducted in accordance with
procedures to protect the rights of limited partners.
(b) The rights of limited partners will be presumed to be
protected if the rollup transaction provides for the right of
dissenting limited partners:
(1) To receive compensation for their limited partnership units
based on an appraisal of the limited partnership assets performed by
an independent appraiser unaffiliated with the sponsor or general
partner of the limited partnership and which value the assets as if
sold in an orderly manner in a reasonable period of time, plus or
minus other balance sheet items, and less the cost of sale or
refinancing. Compensation to dissenting limited partners of rollup
transactions may be cash, secured debt instruments, unsecured debt
instruments, or freely tradeable securities; provided, however, that:
(A) Rollups which utilize debt instruments as compensation provide
for a trustee and an indenture to protect the rights of the debt
holders and provide a rate of interest based upon, but not less than,
the then applicable federal rate as determined in accordance with
Section 1274 of the Internal Revenue Code of 1986.
(B) Rollups which utilize unsecured debt instruments as
compensation, in addition to the requirements of subparagraph (A),
limit total leverage to 70 percent of the appraised value of the
assets.
(C) All debt securities have a term no greater than seven years
and provide for prepayment with 80 percent of the net proceeds of any
sale or refinancing of the assets previously owned by the entity or
any part thereof.
(D) Freely tradeable securities utilized as compensation to
dissenting limited partners must be issued by an issuer whose
securities are listed on a national securities exchange that has been
certified for at least one year prior to the transaction, and the
number of securities to be received in return for limited partnership
interests must be determined by an appraisal of limited partnership
assets, conducted in a manner consistent with this paragraph, in
relation to the average last sale price of the freely tradeable
securities in the 20-day period following the transaction. If the
issuer of the freely tradeable securities is affiliated with the
sponsor or general partner, newly issued securities to be utilized as
compensation to dissenting limited partners shall not represent more
than 20 percent of the issued and outstanding shares of that class
of securities after giving effect to the issuance. For the purposes
of the preceding sentence, a sponsor or general partner is
"affiliated" with the issuer of the freely tradeable securities if
the sponsor or general partner receives any material compensation
from the issuer or its affiliates in conjunction with the rollup
transaction or the purchase of the general partner's interest;
provided, however, that nothing herein shall restrict the ability of
a sponsor or general partner to receive any payment for its equity
interests and compensation as otherwise provided by this section.
(2) To receive or retain a security with substantially the same
terms and conditions as the security originally held, provided that
the receipt or retention of that security is not a step in a series
of subsequent transactions that directly or indirectly through
acquisition or otherwise involves future combinations or
reorganizations of one or more rollup participants. Securities
received or retained will be considered to have the same terms and
conditions as the security originally held if:
(A) There is no material adverse change to dissenting limited
partners' rights, including, but not limited to, rights with respect
to voting, the business plan, or the investment, distribution,
management compensation and liquidation policies of the limited
partnership or resulting entity.
(B) The dissenting limited partners receive the same preferences,
privileges, and priorities as they had pursuant to the security
originally held.
The rights set forth in paragraphs (1) and (2) are the only rights
of dissenting limited partners to which the presumption under this
subdivision applies. A general partner or sponsor shall file an
application for qualification pursuant to Section 25110 or Section
25120 with respect to any other rights proposed to be offered to
dissenting limited partners.
At the time a registration statement is filed with the Securities
and Exchange Commission with respect to an eligible rollup
transaction, a general partner or sponsor shall notify, to the
maximum extent permitted by the federal securities laws, each limited
partner who has an address in this state by certified mail of the
following: That a registration statement has been filed with the
Securities and Exchange Commission with respect to a rollup
transaction; that the general partner or sponsor claims an exemption
from the review process under the law by virtue of Section 25014.7,
which defines "eligible rollup transaction"; that the general partner
or sponsor has the burden of proof under the law that the
transaction meets the definition of eligible rollup transaction; and
that the commissioner does not recommend or endorse the transaction.
(c) The rights of limited partners shall be presumed not to be
protected if the general partner:
(1) Converts an equity interest in the limited partnerships
subject to a rollup for which consideration was not paid and which
was not otherwise provided for in the limited partnership agreement
and disclosed to limited partners, into a voting interest in the new
entity, provided, however, an interest originally obtained in order
to comply with the provisions of Internal Revenue Service Revenue
Proclamation 89-12 may be converted.
(2) Fails to follow the valuation provisions in the limited
partnership agreements of the subject limited partners when valuing
their limited partnership interests.
(3) Utilizes a future value of their equity interest rather than
the current value of their equity interest, as determined by an
appraisal conducted in a manner consistent with paragraph (1) of
subdivision (b), when determining their interest in the new entity.
(d) The rights of limited partners shall be presumed not to be
protected as to voting rights, if:
(1) The voting rights in the entity resulting from a rollup do not
generally follow the original voting rights of the limited
partnerships participating in the rollup transaction.
(2) A majority of the interest in an entity resulting from a
rollup transaction may not, without concurrence by the sponsor,
general partners, board of directors or trustee, depending on the
form of entity, vote to:
(A) Amend the limited partnership agreement, articles of
incorporation or bylaws, or indenture.
(B) Dissolve the entity.
(C) Remove management and elect new management.
(D) Approve or disapprove the sale of substantially all of the
assets of the entity.
(3) The general partner or sponsor proposing a rollup is not
required to provide each person whose equity interest is subject to
the rollup transaction with a document which instructs the person on
the proper procedure for voting against or dissenting from the rollup
transaction.
(4) The general partner or sponsor does not utilize an independent
third party to receive and tabulate all votes and dissents, and
require that the third party make the tabulation available to the
general partner and any limited partner upon request at any time
during and after voting occurs.
(e) The rights of limited partners shall be presumed not to be
protected as to transaction costs if:
(1) Limited partners bear an unfair portion of the transaction
costs of a proposed rollup transaction that is rejected. For purposes
of this provision, transaction costs are defined as the costs of
printing and mailing the proxy, prospectus, or other documents; legal
fees not related to the solicitation of votes or tenders; financial
advisory fees; investment banking fees; appraisal fees; accounting
fees; independent committee expenses; travel expenses; and all other
fees related to the preparatory work of the transaction, but not
including costs that would have otherwise been incurred by the
subject limited partnerships in the ordinary course of business, or
solicitation expenses.
(2) Transaction costs of a rejected rollup transaction are not
apportioned between general and limited partners of the subject
limited partnerships according to the final vote on the proposed
transaction as follows:
(A) The general partner or sponsor bears all rollup transaction
costs in proportion to the number of votes to reject the rollup
transaction.
(B) Limited partners bear transaction costs in proportion to the
number of votes to approve the rollup transaction.
(3) The dissenting limited partnership is required to pay any of
the costs of the rollup transaction and the general partner or
sponsor is not required to pay the rollup transaction costs on behalf
of the dissenting limited partnerships in a rollup in which one or
more limited partnerships determines not to approve the transaction,
but where the rollup transaction is consummated with respect to one
or more approving limited partnerships.
(f) The rights of limited partners shall be presumed not to be
protected as to fees of general partners and sponsors, if:
(1) General partners and sponsors are not prevented from receiving
both unearned management fees discounted to a present value, if
those fees were not previously provided for in the limited
partnership agreement and disclosed to limited partners, and new
asset-based fees.
(2) Property management fees and other management fees are not
appropriate, not reasonable and greater than what would be paid to
third parties for performing similar services.
(3) Changes in fees which are substantial and adverse to limited
partners are not approved by an independent committee according to
the facts and circumstances of each transaction.
(g) A general partner or sponsor proposing a rollup transaction
shall pay all solicitation expenses related to the transaction,
including all preparatory work related thereto, in the event the
rollup transaction is not approved. For purposes of this section,
"solicitation expenses" include direct marketing expenses such as
telephone calls, broker-dealer fact sheets, legal and other fees
related to the solicitation, as well as direct solicitation
compensation to brokers and dealers.
(h) A broker or dealer may not receive compensation for soliciting
votes or tenders from limited partners in connection with a rollup
transaction unless that compensation:
(1) Is payable and equal in amount regardless of whether the
limited partner votes affirmatively or negatively in the proposed
rollup.
(2) In the aggregate, does not exceed 2 percent of the exchange
value of the newly created securities.
(3) Is paid regardless of whether the limited partners reject the
proposed rollup transaction.
(i) As used in this section, the following terms have the
following meanings:
(1) "Limited partnership" includes any entity determined to be a
"partnership" pursuant to Section 14(h)(4)(B) of the Securities
Exchange Act of 1934 or such other entity having a substantially
economically equivalent form of ownership instrument.
(2) "Dissenting limited partner" means a holder or a beneficial
interest in a limited partnership that is the subject of a rollup
transaction who casts a vote against the rollup transaction, except
that for purposes of an exchange or tender offer dissenting limited
partner means any person who files a dissent from the terms of the
transaction with the party responsible for tabulating the votes or
tenders, to be received in connection with the transaction during the
period in which the offer is outstanding.
(3) "Management fee" means a fee paid to the sponsor, general
partner, their affiliates, or other persons for management and
administration of the limited partnership.
SEC. 7. SEC. 9. Section 25100 of the
Corporations Code is amended to read:
25100. The following securities are exempted from Sections 25110,
25120, and 25130:
(a) Any security (including a revenue obligation) issued or
guaranteed by the United States, any state, any city, county, city
and county, public district, public authority, public corporation,
public entity, or political subdivision of a state or any agency or
corporate or other instrumentality of any one or more of the
foregoing; or any certificate of deposit for any of the foregoing.
(b) Any security issued or guaranteed by Canada, any Canadian
province, any political subdivision or municipality of that province,
or by any other foreign government with which the United States
currently maintains diplomatic relations, if the security is
recognized as a valid obligation by the issuer or guarantor; or any
certificate of deposit for any of the foregoing.
(c) Any security issued or guaranteed by and representing an
interest in or a direct obligation of a national bank or a bank or
trust company incorporated under the laws of this state, and any
security issued by a bank to one or more other banks and representing
an interest in an asset of the issuing bank.
(d) Any security issued or guaranteed by a federal savings
association or federal savings bank or federal land bank or joint
land bank or national farm loan association or by any savings
association, as defined in subdivision (a) of Section 5102 of the
Financial Code, which is subject to the supervision and regulation of
the Commissioner of Financial Institutions of this state.
(e) Any security (other than an interest in all or portions of a
parcel or parcels of real property which are subdivided land or a
subdivision or in a real estate development), the issuance of which
is subject to authorization by the Insurance Commissioner, the Public
Utilities Commission, or the Real Estate Commissioner of this state.
(f) Any security consisting of any interest in all or portions of
a parcel or parcels of real property which are subdivided lands or a
subdivision or in a real estate development; provided that the
exemption in this subdivision shall not be applicable to: (1) any
investment contract sold or offered for sale with, or as part of,
that interest, or (2) any person engaged in the business of selling,
distributing, or supplying water for irrigation purposes or domestic
use that is not a public utility except that the exemption is
applicable to any security of a mutual water company (other than an
investment contract as described in paragraph (1)) offered or sold in
connection with subdivided lands pursuant to Chapter 2 (commencing
with Section 14310) of Part 7 of Division 3 of Title 1.
(g) Any mutual capital certificates or savings accounts, as
defined in the Savings Association Law, issued by a savings
association, as defined by subdivision (a) of Section 5102 of the
Financial Code, and holding a license or certificate of authority
then in force from the Commissioner of Financial Institutions of this
state.
(h) Any security issued or guaranteed by any federal credit union,
or by any credit union organized and supervised, or regulated, under
the Credit Union Law.
(i) Any security issued or guaranteed by any railroad, other
common carrier, public utility, or public utility holding company
which is (1) subject to the jurisdiction of the Interstate Commerce
Commission or its successor or (2) a holding company registered with
the Securities and Exchange Commission under the Public Utility
Holding Company Act of 1935 or a subsidiary of that company within
the meaning of that act or (3) regulated in respect of the issuance
or guarantee of the security by a governmental authority of the
United States, of any state, of Canada or of any Canadian province;
and the security is subject to registration with or authorization of
issuance by that authority.
(j) Any security (except evidences of indebtedness, whether
interest bearing or not) of an issuer (1) organized exclusively for
educational, benevolent, fraternal, religious, charitable, social, or
reformatory purposes and not for pecuniary profit, if no part of the
net earnings of the issuer inures to the benefit of any private
shareholder or individual, or (2) organized as a chamber of commerce
or trade or professional association. The fact that amounts received
from memberships or dues or both will or may be used to construct or
otherwise acquire facilities for use by members of the nonprofit
organization does not disqualify the organization for this exemption.
This exemption does not apply to the securities of any nonprofit
organization if any promoter thereof expects or intends to make a
profit directly or indirectly from any business or activity
associated with the organization or operation of that nonprofit
organization or from remuneration received from that nonprofit
organization.
(k) Any agreement, commonly known as a "life income contract," of
an issuer (1) organized exclusively for educational, benevolent,
fraternal, religious, charitable, social, or reformatory purposes and
not for pecuniary profit and (2) which the commissioner designates
by rule or order, with a donor in consideration of a donation of
property to that issuer and providing for the payment to the donor or
persons designated by him or her of income or specified periodic
payments from the donated property or other property for the life of
the donor or those other persons.
() Any note, draft, bill of exchange, or banker's acceptance which
is freely transferable and of prime quality, arises out of a current
transaction or the proceeds of which have been or are to be used for
current transactions, and which evidences an obligation to pay cash
within nine months of the date of issuance, exclusive of days of
grace, or any renewal of that paper which is likewise limited, or any
guarantee of that paper or of that renewal, provided that the paper
is not offered to the public in amounts of less than twenty-five
thousand dollars ($25,000) in the aggregate to any one purchaser. In
addition, the commissioner may, by rule or order, exempt any issuer
of any notes, drafts, bills of exchange or banker's acceptances from
qualification of those securities when the commissioner finds that
the qualification is not necessary or appropriate in the public
interest or for the protection of investors.
(m) Any security issued by any corporation organized and existing
under the provisions of Chapter 1 (commencing with Section 54001) of
Division 20 of the Food and Agricultural Code.
(n) Any beneficial interest in an employees' pension,
profit-sharing, stock bonus or similar benefit plan which meets the
requirements for qualification under Section 401 of the federal
Internal Revenue Code or any statute amendatory thereof or
supplementary thereto. A determination letter from the Internal
Revenue Service stating that an employees' pension, profit-sharing,
stock bonus or similar benefit plan meets those requirements shall be
conclusive evidence that the plan is an employees' pension,
profit-sharing, stock bonus or similar benefit plan within the
meaning of the first sentence of this subdivision until the date the
determination letter is revoked in writing by the Internal Revenue
Service, regardless of whether or not the revocation is retroactive.
(o) Any security listed or approved for listing upon notice of
issuance on a national securities exchange, if the exchange has been
certified by rule or order of the commissioner and any warrant or
right to purchase or subscribe to the security. The exemption
afforded by this subdivision does not apply to securities listed or
approved for listing upon notice of issuance on a national securities
exchange, in a rollup transaction unless the rollup transaction is
an eligible rollup transaction as defined in Section 25014.7.
That certification of any exchange shall be made by the
commissioner upon the written request of the exchange if the
commissioner finds that the exchange, in acting on applications for
listing of common stock, substantially applies the minimum standards
set forth in either subparagraph (A) or (B) of paragraph (1), and, in
considering suspension or removal from listing, substantially
applies each of the criteria set forth in paragraph (2).
(1) Listing standards:
(A) (i) Shareholders' equity of at least four million dollars
($4,000,000).
(ii) Pretax income of at least seven hundred fifty thousand
dollars ($750,000) in the issuer's last fiscal year or in two of its
last three fiscal years.
(iii) Minimum public distribution of 500,000 shares (exclusive of
the holdings of officers, directors, controlling shareholders, and
other concentrated or family holdings), together with a minimum of
800 public holders or minimum public distribution of 1,000,000 shares
together with a minimum of 400 public holders. The exchange may also
consider the listing of a company's securities if the company has a
minimum of 500,000 shares
publicly held, a minimum of 400 shareholders and daily trading volume
in the issue has been approximately 2,000 shares or more for the six
months preceding the date of application. In evaluating the
suitability of an issue for listing under this trading provision, the
exchange shall review the nature and frequency of that activity and
any other factors as it may determine to be relevant in ascertaining
whether the issue is suitable for trading. A security that trades
infrequently shall not be considered for listing under this paragraph
even though average daily volume amounts to 2,000 shares per day or
more.
Companies whose securities are concentrated in a limited
geographical area, or whose securities are largely held in block by
institutional investors, normally may not be considered eligible for
listing unless the public distribution appreciably exceeds 500,000
shares.
(iv) Minimum price of three dollars ($3) per share for a
reasonable period of time prior to the filing of a listing
application; provided, however, in certain instances an exchange may
favorably consider listing an issue selling for less than three
dollars ($3) per share after considering all pertinent factors,
including market conditions in general, whether historically the
issue has sold above three dollars ($3) per share, the applicant's
capitalization, and the number of outstanding and publicly held
shares of the issue.
(v) An aggregate market value for publicly held shares of at least
three million dollars ($3,000,000).
(B) (i) Shareholders' equity of at least four million dollars
($4,000,000).
(ii) Minimum public distribution set forth in clause (iii) of
subparagraph (A) of paragraph (1).
(iii) Operating history of at least three years.
(iv) An aggregate market value for publicly held shares of at
least fifteen million dollars ($15,000,000).
(2) Criteria for consideration of suspension or removal from
listing:
(i) If a company that (A) has shareholders' equity of less than
one million dollars ($1,000,000) has sustained net losses in each of
its two most recent fiscal years, or (B) has net tangible assets of
less than three million dollars ($3,000,000) and has sustained net
losses in three of its four most recent fiscal years.
(ii) If the number of shares publicly held (excluding the holdings
of officers, directors, controlling shareholders and other
concentrated or family holdings) is less than 150,000.
(iii) If the total number of shareholders is less than 400 or if
the number of shareholders of lots of 100 shares or more is less than
300.
(iv) If the aggregate market value of shares publicly held is less
than seven hundred fifty thousand dollars ($750,000).
(v) If shares of common stock sell at a price of less than three
dollars ($3) per share for a substantial period of time and the
issuer shall fail to effectuate a reverse stock split of the shares
within a reasonable period of time after being requested by the
exchange to take that action.
A national securities exchange, certified by rule or order of the
commissioner under this subdivision, shall file annual reports when
requested to do so by the commissioner. The annual reports shall
contain, by issuer: the variances granted to an exchange's listing
standards, including variances from corporate governance and voting
rights' standards, for any security of that issuer; the reasons for
the variances; a discussion of the review procedure instituted by the
exchange to determine the effect of the variances on investors and
whether the variances should be continued; and any other information
that the commissioner deems relevant. The purpose of these reports is
to assist the commissioner in determining whether the quantitative
and qualitative requirements of this subdivision are substantially
being met by the exchange in general or with regard to any particular
security.
The commissioner after appropriate notice and opportunity for
hearing in accordance with the provisions of the Administrative
Procedure Act, Chapter 5 (commencing with Section 11500) of Part 1 of
Division 3 of Title 2 of the Government Code, may, in his or her
discretion, by rule or order, decertify any exchange previously
certified that ceases substantially to apply the minimum standards or
criteria as set forth in paragraphs (1) and (2).
A rule or order of certification shall conclusively establish that
any security listed or approved for listing upon notice of issuance
on any exchange named in a rule or order of certification, and any
warrant or right to purchase or subscribe to that security, is exempt
under this subdivision until the adoption by the commissioner of any
rule or order decertifying the exchange.
(p) A promissory note secured by a lien on real property, which is
neither one of a series of notes of equal priority secured by
interests in the same real property nor a note in which beneficial
interests are sold to more than one person or entity.
(q) Any unincorporated interindemnity or reciprocal or
interinsurance contract, that qualifies under the provisions of
Section 1280.7 of the Insurance Code, between members of a
cooperative corporation, organized and operating under Part 2
(commencing with Section 12200) of Division 3 of Title 1, and whose
members consist only of physicians and surgeons licensed in
California, which contracts indemnify solely in respect to medical
malpractice claims against the members, and which do not collect in
advance of loss any moneys other than contributions by each member to
a collective reserve trust fund or for necessary expenses of
administration.
(1) Whenever it appears to the commissioner that any person has
engaged or is about to engage in any act or practice constituting a
violation of any provision of Section 1280.7 of the Insurance Code,
the commissioner may, in the commissioner's discretion, bring an
action in the name of the people of the State of California in the
superior court to enjoin the acts or practices or to enforce
compliance with Section 1280.7 of the Insurance Code. Upon a proper
showing a permanent or preliminary injunction, a restraining order,
or a writ of mandate shall be granted and a receiver or conservator
may be appointed for the defendant or the defendant's assets.
(2) The commissioner may, in the commissioner's discretion, (A)
make public or private investigations within or outside of this state
as the commissioner deems necessary to determine whether any person
has violated or is about to violate any provision of Section 1280.7
of the Insurance Code or to aid in the enforcement of Section 1280.7,
and (B) publish information concerning the violation of Section
1280.7.
(3) For the purpose of any investigation or proceeding under this
section, the commissioner or any officer designated by the
commissioner may administer oaths and affirmations, subpoena
witnesses, compel their attendance, take evidence, and require the
production of any books, papers, correspondence, memoranda,
agreements, or other documents or records which the commissioner
deems relevant or material to the inquiry.
(4) In case of contumacy by, or refusal to obey a subpoena issued
to, any person, the superior court, upon application by the
commissioner, may issue to the person an order requiring the person
to appear before the commissioner, or the officer designated by the
commissioner, to produce documentary evidence, if so ordered, or to
give evidence touching the matter under investigation or in question.
Failure to obey the order of the court may be punished by the court
as a contempt.
(5) No person is excused from attending or testifying or from
producing any document or record before the commissioner or in
obedience to the subpoena of the commissioner or any officer
designated by the commissioner, or in any proceeding instituted by
the commissioner, on the ground that the testimony or evidence
(documentary or otherwise), required of the person may tend to
incriminate the person or subject the person to a penalty or
forfeiture, but no individual may be prosecuted or subjected to any
penalty or forfeiture for or on account of any transaction, matter,
or thing concerning which the person is compelled, after validly
claiming the privilege against self-incrimination, to testify or
produce evidence (documentary or otherwise), except that the
individual testifying is not exempt from prosecution and punishment
for perjury or contempt committed in testifying.
(6) The cost of any review, examination, audit, or investigation
made by the commissioner under Section 1280.7 of the Insurance Code
shall be paid to the commissioner by the person subject to the
review, examination, audit, or investigation, and the commissioner
may maintain an action for the recovery of these costs in any court
of competent jurisdiction. In determining the cost, the commissioner
may use the actual amount of the salary or other compensation paid to
the persons making the review, examination, audit, or investigation
plus the actual amount of expenses including overhead reasonably
incurred in the performance of the work.
The recoverable cost of each review, examination, audit, or
investigation made by the commissioner under Section 1280.7 of the
Insurance Code shall not exceed twenty-five thousand dollars
($25,000), except that costs exceeding twenty-five thousand dollars
($25,000) shall be recoverable if the costs are necessary to prevent
a violation of any provision of Section 1280.7 of the Insurance Code.
(r) Any shares or memberships issued by any corporation organized
and existing pursuant to the provisions of Part 2 (commencing with
Section 12200) of Division 3 of Title 1, provided the aggregate
investment of any shareholder or member in shares or memberships sold
pursuant to this subdivision does not exceed three hundred dollars
($300). This exemption does not apply to the shares or memberships of
that corporation if any promoter thereof expects or intends to make
a profit directly or indirectly from any business or activity
associated with the corporation or the operation of the corporation
or from remuneration, other than reasonable salary, received from the
corporation. This exemption does not apply to nonvoting shares or
memberships of that corporation issued to any person who does not
possess, and who will not acquire in connection with the issuance of
nonvoting shares or memberships, voting power (Section 12253) in the
corporation. This exemption also does not apply to shares or
memberships issued by a nonprofit cooperative corporation organized
to facilitate the creation of an unincorporated interindemnity
arrangement that provides indemnification for medical malpractice to
its physician and surgeon members as set forth in subdivision (q).
(s) Any security consisting of or representing an interest in a
pool of mortgage loans that meets each of the following requirements:
(1) The pool consists of whole mortgage loans or participation
interests in those loans, which loans were originated or acquired in
the ordinary course of business by a national bank or federal savings
association or federal savings bank having its principal office in
this state, by a bank incorporated under the laws of this state or by
a savings association as defined in subdivision (a) of Section 5102
of the Financial Code and which is subject to the supervision and
regulation of the Commissioner of Financial Institutions, and each of
which at the time of transfer to the pool is an authorized
investment for the originating or acquiring institution.
(2) The pool of mortgage loans is held in trust by a trustee which
is a financial institution specified in paragraph (1) as trustee or
otherwise.
(3) The loans are serviced by a financial institution specified in
paragraph (1).
(4) The security is not offered in amounts of less than
twenty-five thousand dollars ($25,000) in the aggregate to any one
purchaser.
(5) The security is offered pursuant to a registration under the
Securities Act of 1933, or pursuant to an exemption under Regulation
A under that act, or in the opinion of counsel for the issuer, is
offered pursuant to an exemption under Section 4(2) of that act.
(t) (1) Any security issued or guaranteed by and representing an
interest in or a direct obligation of an industrial loan company
incorporated under the laws of the state and authorized by the
Commissioner of Financial Institutions to engage in industrial loan
business.
(2) Any investment certificate in or issued by any industrial loan
company that is organized under the laws of a state of the United
States other than this state, that is insured by the Federal Deposit
Insurance Corporation, and that maintains a branch office in this
state.
SEC. 8. SEC. 10. Section 25101 of
the Corporations Code is amended to read:
25101. The following securities are exempt from the provisions of
Section 25130:
(a) Any security issued by a person that is the issuer of any
security listed on a national securities exchange, if the exchange is
certified by rule or order of the commissioner.
(b) The exemption provided by subdivision (a) does not apply to
securities offered pursuant to a registration under the Securities
Act of 1933 or pursuant to the exemption afforded by Regulation A
under that act if the aggregate offering price of the securities
offered pursuant to that exemption exceeds fifty thousand dollars
($50,000).
SEC. 9. SEC. 11. Section 25117 of
the Corporations Code is amended to read:
25117. (a) An evidence of indebtedness, and the purchasers or
holders thereof, shall be exempt from the usury provisions of Section
1 of Article XV of the California Constitution if (1) the evidence
of indebtedness is rated or provisionally rated by Standard & Poor's
Corporation as AAA, AA, A, BBB, or investment grade commercial paper,
or by Moody's Investors Service, Inc. as Aaa, Aa, A, Baa, or
investment grade commercial paper, including any such ratings with "+"
or "--" designation or other variations that occur within these
ratings, or has a rating or a provisional rating by another
nationally recognized rating agency or system, which rating and
agency or system have been certified by rule or order of the
commissioner, or (2) the issuer thereof either (A) has any security
listed or approved for listing upon notice of issuance on a national
securities exchange, if the exchange has been certified by the
commissioner, pursuant to subdivision (o) of Section 25100, or (B)
meets each of the following requirements:
(i) The issuer is a corporation which is subject to Section 13 of
the Securities Exchange Act of 1934.
(ii) The issuer had total shareholders' equity of at least one
million dollars ($1,000,000) at the end of its most recent fiscal
year, and had consolidated net income, after all charges, including
taxes and extraordinary losses, and excluding extraordinary gains, of
at least five hundred thousand dollars ($500,000) for three of its
last four fiscal years, including its most recent fiscal year. The
determination of total shareholders' equity and net income shall be
determined in conformity with generally accepted accounting
principles applicable to that fiscal year or years, on a consolidated
basis, or (3) the evidence of indebtedness is issued by any
corporation all of the outstanding shares of which are owned by an
issuer which meets the requirements of subparagraph (A) or (B) of
paragraph (2).
(b) This section creates and authorizes a class of transactions
and persons pursuant to Section 1 of Article XV of the California
Constitution.
(c) Any evidence of indebtedness issued in compliance with this
section shall be entitled to the benefits of the usury exemption
contained in this section regardless of whether subsequent to its
issuance the evidence of indebtedness is determined by a court of
competent jurisdiction to be a "security."
SEC. 10. SEC. 12. Section 25211 of
the Corporations Code is amended to read:
25211. (a) The application for a certificate as a broker-dealer
shall be accompanied by the consent to service of process specified
in Section 25240 and, unless filed pursuant to subdivision (b), shall
contain such information in such detail relating to the applicant
and any persons associated with him or her as the commissioner may by
rule require.
(b) A broker-dealer registered under the Securities Exchange Act
of 1934 who is a member of the New York Stock Exchange, the
American Stock Exchange NYSE Amex , the NYSE
Arca, or the Financial Industry Regulatory Authority, and who has not
had any certificate as a broker-dealer, investment adviser or agent
denied or revoked under this law or any predecessor statute, may be
licensed by notification pursuant to this subdivision by filing with
the commissioner an application setting forth the following
information in such form and detail as the commissioner may by rule
require:
(1) Such information as is necessary to identify the broker-dealer
and its offices in this state, and the location of its records and
principal office.
(2) Such information as is necessary to establish that the
broker-dealer meets the requirements for licensure by notification
under this subdivision.
(3) The consent to service of process specified in Section 25240.
(4) Such information as the commissioner may require as to the
jurisdictions in which the broker-dealer is licensed or registered
and as to the nature of the business conducted by the broker-dealer.
(c) Unless a proceeding has been instituted under Section 25212,
a certificate under subdivision (b) shall become effective on the
third business day after the application is filed with the
commissioner or upon the day the certificate is issued, whichever
first occurs. However, the commissioner may by order delay
effectiveness for a period not exceeding 15 business days (or for an
additional period with the consent of the applicant) if the
commissioner believes that the delay is necessary in the public
interest to determine if a proceeding should be instituted under
Section 25212. The commissioner may by rule or order waive that
provision of subdivision (b) which precludes application thereunder
by a person who has had a certificate denied or revoked under this
law or any predecessor statute if the commissioner finds the waiver
to be in the public interest. The commissioner, after appropriate
notice and opportunity for hearing in accordance with the provisions
of the Administrative Procedure Act, Chapter 5 (commencing with
Section 11500) of Part 1 of Division 3 of Title 2 of the Government
Code, may by rule or order disqualify a self-regulatory organization
specified in subdivision (b) from the provisions thereof. The
commissioner may by rule establish standards or criteria pursuant to
which disqualification may be made and he or she may disqualify upon
a finding that the self-regulatory organization fails substantially
to comply with those standards or criteria. Disqualification by the
commissioner shall not affect a certificate which has become
effective pursuant to this subdivision prior to the effective date of
that rule or order of disqualification but each person licensed
pursuant to subdivision (b) upon the basis of membership in that
organization shall, within 90 days after the effective date of that
rule or order, or such additional time as the commissioner may allow,
file with the commissioner a complete and current application in the
form required pursuant to subdivision (a). If a broker-dealer
licensed pursuant to subdivision (b) ceases to meet the
qualifications for licensing pursuant to that subdivision, he or she
shall, within 10 days after that event, file with the commissioner a
complete and current application in the form required pursuant to
subdivision (a).
(d) An application for a certificate as a broker-dealer, with
respect to a broker-dealer to be formed or organized, may be made by
a licensed broker-dealer to which the broker-dealer to be formed or
organized is to be the successor. The application shall contain such
information in such detail relating to the applicant and to the
successor and any person associated with the applicant or the
successor as the commissioner may by rule require. The application
shall become effective and the successor may transact business as a
broker-dealer 30 days after the receipt of the application by the
commissioner or within such shorter period of time as the
commissioner may determine, unless an order has been entered under
Section 25212 denying a certificate to the successor or a proceeding
looking toward an order has been instituted under that section. The
certificate shall terminate on the 45th day after the effective date
thereof, unless prior thereto the successor shall, in accordance with
such rules as the commissioner may prescribe, adopt the application
as its own and file the consent to service of process specified in
Section 25240.
SEC. 11. SEC. 13. Section 25219 of
the Corporations Code is amended to read:
25219. Notwithstanding any other provision of this division, if
in his or her opinion the public interest and the protection of
investors so require, the commissioner is authorized summarily to
suspend all over-the-counter trading in this state by broker-dealers
and agents in any security or summarily to suspend all trading on a
national securities exchange located in this state in any security
(provided, in the case of trading on that exchange, that the security
is not listed on any national securities exchange located outside
this state on which trading has not been suspended) for a period not
exceeding 90 days, and for successive periods of 90 days. No
broker-dealer or agent shall effect any transaction (other than an
unsolicited brokerage transaction effected on a national securities
exchange located outside this state) in, or induce or attempt to
induce the purchase or sale of, any security in this state in which
trading is in any manner suspended under this section, except in
performance of a contract previously entered into.
SEC. 12. SEC. 14. Section 25231 of
the Corporations Code is amended to read:
25231. (a) Any investment adviser, or any person who contemplates
becoming an investment adviser, may apply for a certificate to act
as an investment adviser by filing with the commissioner an
application. The application shall be accompanied by the consent to
service of process specified in Section 25240 and shall contain
information, in such form and detail, as the commissioner may by rule
prescribe.
(b) Unless otherwise provided by rule or order of the
commissioner, all investment adviser and investment adviser
representative applications, amendments, reports, notices, related
filings, and fees required to be filed with the commissioner pursuant
to this title shall be filed electronically with and transmitted to
the Web-based Investment Adviser Registration Depository operated by
the Financial Industry Regulatory Authority.
SEC. 13. SEC. 15. Section 25247 of
the Corporations Code is amended to read:
25247. (a) Upon written or oral request, the commissioner shall
make available to any person the information specified in Section
6254.12 of the Government Code and made available through the Public
Disclosure Program of the Financial Industry Regulatory Authority
with respect to any broker-dealer or agent licensed or regulated
under this part. The commissioner shall also make available the
current license status and the year of issuance of the license of a
broker-dealer. Any information disclosed pursuant to this subdivision
shall constitute a public record. Notwithstanding any other
provisions of law, the commissioner may disclose either orally or in
writing that information pursuant to this subdivision. There shall be
no liability on the part of and no cause of action of any nature
shall arise against the State of California, the Department of
Corporations, the Commissioner of Corporations, or any officer,
agent, or employee of the state or of the Department of Corporations
for the release of any false or unauthorized information, unless the
release of that information was done with knowledge and malice.
(b) Any broker-dealer or agent licensed or regulated under this
part shall upon request deliver a written notice to any client when a
new account is opened stating that information about the license
status or disciplinary record of a broker-dealer or an agent may be
obtained from the Department of Corporations, or from any other
source that provides substantially similar information.
(c) The notice provided under subdivision (b) shall contain the
office location or telephone number where the information may be
obtained.
(d) A broker-dealer or agent shall be exempt from providing the
notice required under subdivision (b) if a person who does not have a
financial relationship with the broker-dealer or agent, requests
only general operational information such as the nature of the
broker-dealer's or agent's business, office location, hours of
operation, basic services, and fees, but does not solicit advice
regarding investments or other services offered.
(e) Upon written or oral request, the commissioner shall make
available to any person the disciplinary records maintained on the
Investment Adviser Registration Depository and made available through
the Investment Advisor Public Disclosure Web site with respect to
any investment adviser, investment adviser representative, or
associated person of an investment adviser licensed or regulated
under this part. The commissioner shall also make available the
current license status and the year of issuance of the license of an
investment adviser. Any information disclosed pursuant to this
subdivision shall constitute a public record. Notwithstanding any
other provision of law, the commissioner may disclose that
information either orally or in writing pursuant to this subdivision.
There shall be no liability on the part of and no cause of action of
any nature shall arise against the State of California, the
Department of Corporations, the Commissioner of Corporations, or any
officer, agent, or employee of the state or of the Department of
Corporations for the release of any false or unauthorized
information, unless the release of that information was done with
knowledge and malice.
(f) Section 461 of the Business and Professions Code shall not be
applicable to the Department of Corporations when using a national,
uniform application adopted or approved for use by the Securities and
Exchange Commission, the North American Securities Administrators
Association, or the Financial Industry Regulatory Authority that is
required for participation in
the Central Registration Depository or the Investment Adviser
Registration Depository.
(g) This section shall not require the disclosure of criminal
history record information maintained by the Federal Bureau of
Investigation pursuant to Section 534 of Title 28 of the United
States Code, and the rules thereunder, or information not otherwise
subject to disclosure under the Information Practices Act of 1977.