Amended in Assembly April 30, 2015

Amended in Assembly April 13, 2015

California Legislature—2015–16 Regular Session

Assembly Bill No. 816

Introduced by Assembly Member Bonta

February 26, 2015

An act to amend Sections 12200, 12238, 12243, 12253, 12310, 12404, 12420, 12431, 12460, 12461, 12530, 12653, begin delete 25017, 25019, end delete and 25100 of, to amend the heading of Part 2 (commencing with Section 12200) of Division 3 of Title 1 of, and to add Sections 12201.5, 12228.3, 12230.5, 12253.5, 12310.5, 12317, 12404.5, 12454.5, 12460.5, 12530.5, and 12656.5 to, the Corporations Code, relating to cooperative corporations.

LEGISLATIVE COUNSEL’S DIGEST

AB 816, as amended, Bonta. Cooperative corporations: worker cooperatives.

Existing law, the Consumer Cooperative Corporation Law, governs the organization and operation of consumer cooperative corporations. The law specifies the provisions that may be set forth in the articles of incorporation of a consumer cooperative. Existing law provides for, among other things, information to be included in a corporation’s bylaws, definitions necessary for purposes of defining patrons, and requirements as to voting rights of members. Except as specified, existing law requires that the voting power of members having voting rights in a cooperative corporation be equal. Existing law also requires cooperative corporations to hold a meeting of members annually. Existing law makes the violation of specified provisions a crime.

This bill would rename the law the General Cooperative Corporation Law, and authorize a cooperative corporation to elect to designate itself as a worker cooperative in its articles of incorporation. The bill would require that 51% of the workers shall be worker-members or eligible for membership within 2 years of having become a worker. begin delete The bill would authorize a worker cooperative to suspend a worker-member without prior notice if specified requirements are met. end delete The bill would authorize a worker cooperative to apportion and distribute its net earnings and losses at the time and in the manner specified in the articles of incorporation or bylaws. The bill would require a worker cooperative to only make patronage distributions to the worker-member class. The bill would define the patrons of a worker cooperative as worker-members and authorize their patronage to be measured by work performed or personal services contributed. The bill would authorize a worker cooperative to issue an indivisible membership having the rights, privileges, preferences, restrictions or conditions as provided in the articles or bylaws.

This bill would also authorize a worker cooperative to establish itself as a capital account cooperative in its articles or bylaws, in which case the entire net book value of the corporation would be reflected in member capital accounts, one for each member, and an unallocated capital account, if any, as specified.

This bill would also authorize a worker cooperative to establish itself as a collective board worker cooperative, in which all worker members serve on the board. A collective board worker cooperative would not be required to hold an annual meeting of members.

This bill would authorize begin delete two end delete begin insert 2 end insert or more worker cooperatives to consolidate, as specified, prescribe the actions to be taken upon the dissolution of a worker cooperative, and make other conforming changes.

The Corporate Securities Law of 1968 generally regulates the offer and sale of securities in this state. That law requires the offer and sale of securities to be qualified with the Commissioner of Business Oversight, and exempts specified transactions or securities from the qualification, and certain interests from the definition of a security. That law makes it unlawful for a person in connection with the offer or sale of a security to engage in fraudulent or misleading acts of omissions.

The issuance of shares or memberships by a corporation subject to the Consumer Cooperative Corporation Law is exempt from, the qualification requirement, if the investment does not exceed $300.

The bill would increase the investment limitation of the above-referenced exemption from qualification from $300 to $1,000. begin delete The bill would exclude any written notice of allocation, as defined, issued by a specified type of organization, and a membership interest in a collective board worker cooperative, from the definition of a security. The bill would exclude shares or memberships issued by a worker cooperative from qualification, provided that the aggregate investment of any shareholder or member does not exceed $5,000. end delete

begin delete

Because this bill would change the definition of existing crimes, this bill would create a state-mandated local program.

end delete begin delete

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

end delete begin delete

This bill would provide that no reimbursement is required by this act for a specified reason.

end delete

Vote: majority. Appropriation: no. Fiscal committee:  begin delete yes end delete begin insert no end insert . State-mandated local program:  begin delete yes end delete begin insert no end insert .

The people of the State of California do enact as follows:

SECTION 1.  

The Legislature finds and declares all of the
following:

(a) A worker cooperative has the purpose of creating and
maintaining sustainable jobs and generating wealth in order to
improve the quality of life of its worker-members, dignify human
work, allow workers’ democratic self-management, and promote
community and local begin delete development. end delete begin insert development in this state. end insert

(b) The purpose of this act is to amend the Consumer
Cooperative Corporation Law to clarify that the law applies to
cooperatives in general, not just consumer cooperatives, and to
create more visibility for worker cooperatives. This act is intended
to provide a definition of worker cooperative for purposes of this
act, and not for purposes of other laws.

SEC. 2.  

The heading of Part 2 (commencing with Section
12200) of Division 3 of Title 1 of the Corporations Code is
amended to read:

 

PART 2.  GENERAL COOPERATIVE CORPORATIONS

 

SEC. 3.  

Section 12200 of the Corporations Code is amended
to read:

12200.  

This part shall be known as the General Cooperative
Corporation Law. This part is intended primarily to apply to the
organization and operation of cooperatives, including, but not
limited to, consumer cooperatives, worker cooperatives, and
cooperatives formed for the purpose of recycling or treating
hazardous waste that elect to incorporate under its provisions.

SEC. 4.  

Section 12201.5 is added to the Corporations Code,
to read:

12201.5.  

(a) Notwithstanding Section 12201, the net earnings
and losses of a worker cooperative shall be apportioned and
distributed at the time and in the manner specified in the articles
of incorporation or bylaws.

(b) Net earnings declared as patronage distributions with respect
to a period of time, and paid to a creditor or member, shall be
apportioned among the members in accordance with the ratio that
each member’s patronage during the period bears to total patronage
by all members during the period.

(c) The apportionment, distribution, and payment of net earnings
required by subdivision (a) may be paid in cash, credits, written
notices of allocation, or capital stock issued by the worker
cooperative.

SEC. 5.  

Section 12228.3 is added to the Corporations Code,
to read:

12228.3.  

“Capital account cooperative” is a worker cooperative
in which the entire net book value is reflected in member capital
accounts, one for each member, and an unallocated capital account,
if any.

SEC. 6.  

Section 12230.5 is added to the Corporations Code,
to read:

12230.5.  

“Collective board worker cooperative” means a
worker cooperative in which there is only one class of members
consisting of worker-members, all of whom are members of the
board.

SEC. 7.  

Section 12238 of the Corporations Code is amended
to read:

12238.  

(a) “Member” means any person who, pursuant to a
specific provision of a corporation’s articles or bylaws, has the
right to vote for the election of a director or directors, or possesses
proprietary interests in the corporation.

(b) The articles or bylaws may confer some or all of the rights
of a member, set forth in this part, upon any person or persons who
do not have any of the voting rights referred to in subdivision (a).

(c) Where a member of a corporation is not a natural person,
such member may authorize in writing one or more natural persons
to vote on its behalf on any or all matters which may require a vote
of the members.

(d) A person is not a member by virtue of any of the following:

(1) Any rights such person has as a delegate.

(2) Any rights such person has to designate or select a director
or directors.

(3) Any rights such person has as a director.

(e) “Worker-member” means a member who is a natural person
and also a patron of a worker begin delete cooperative, as defined in subdivision
(b) of Section 12243. end delete begin insert cooperative. end insert

(f)  begin delete “Non-worker-member” end delete begin insert “Nonworker-member” end insert means a
member of a worker cooperative who is not a worker member.

begin insert

(g) “Worker” means a natural person contributing labor or
services. A worker who is being considered for membership, as
defined in the corporation’s articles or bylaws, shall be referred
to as a “candidate.”

end insert

SEC. 8.  

Section 12243 of the Corporations Code is amended
to read:

12243.  

(a) (1) If the corporation is organized to provide goods
or services to its members, the corporation’s “patrons” are those
who purchase those types of goods from, or use those types of
services of, the corporation. If the corporation is organized to
market, process or otherwise handle its members’ products or
services, the corporation’s “patrons” are those persons whose
products or services are so marketed, processed, or handled by the
corporation.

(2) “Patronage” of a patron is measured by the volume or value,
or both, of a patron’s purchases of products from, and use of
services furnished by, the corporation, and by products and services
provided by the patron to the corporation for marketing.

(b) (1) If the corporation is organized as a worker cooperative,
the corporation’s “patrons” are its worker-members.

(2) If the corporation is organized as a worker cooperative,
“patronage” may be measured by work performed or personal
services contributed, including wages earned, number of hours
worked, number of jobs created, or some combination of these
measures.

SEC. 9.  

Section 12253 of the Corporations Code is amended
to read:

12253.  

(a) “Voting power” means the power to vote for the
election of directors at the time any determination of voting power
is made and does not include the right to vote upon the happening
of some condition or event that has not yet occurred.

(b) If different classes of memberships are entitled to vote as
separate classes for different members of the board, the
determination of percentage of voting power shall be made on the
basis of the percentage of the total number of authorized directors
that the memberships in question (whether of one or more classes)
have the power to elect in an election at which all memberships
then entitled to vote for the election of any directors are voted.

(c)  begin delete Non-worker-member end delete begin insert Nonworker-member end insert voting power in
a worker cooperative shall be provided in the articles or bylaws,
and is limited to approval rights only over a merger, sale of major
assets, reorganization, or dissolution. Approval rights shall not
include the right to propose any action.

SEC. 10.  

Section 12253.5 is added to the Corporations Code,
to read:

12253.5.  

“Worker cooperative” or “employment cooperative”
means a corporation formed under this part that includes a class
of worker-members who are natural persons whose patronage
consists of labor contributed to, personal services performed for,
or other work performed for the corporation. Election to be
organized as a worker cooperative or an employment cooperative
does not create a presumption that workers are employees of the
corporation for any purposes. At least 51 percent of the workers
shall be worker-members, or begin delete eligible end delete begin insert candidates end insert for membership
within two years of becoming a worker.

SEC. 11.  

Section 12310 of the Corporations Code is amended
to read:

12310.  

The articles of incorporation of a corporation formed
under this part shall set forth:

(a) The name of the corporation.

(b) The following statement:

“This corporation is a cooperative corporation organized under
the General Cooperative Corporation Law. The purpose of this
corporation is to engage in any lawful act or activity for which a
corporation may be organized under the law.”

[The articles may include a further description of the
corporation’s purpose.]

(c) The name and street address in this state of the corporation’s
initial agent for service of process in accordance with subdivision
(b) of Section 12570.

(d) The initial street address of the corporation.

(e) The initial mailing address of the corporation, if different
from the initial street address.

(f) Whether the voting power or the proprietary interests of the
members are equal or unequal. If the voting power or proprietary
interests of the members are unequal, the articles shall state either
(i) the general rule or rules by which the voting power and
proprietary interests of the members shall be determined or (ii)
that such rule or rules shall be prescribed in the corporation’s
bylaws. Equal voting power means voting power apportioned on
the basis of one vote for each member. Equal proprietary rights
means property rights apportioned on the basis of one proprietary
unit for each member.

(g) Pursuant to Section 12310.5, the articles of incorporation
may state whether the cooperative has elected to be governed as
a worker cooperative.

SEC. 12.  

Section 12310.5 is added to the Corporations Code,
to read:

12310.5.  

(a) A corporation organized under this part may elect
to be governed as a worker cooperative by making the following
statement in its articles of incorporation or its amended articles of
incorporation:

“This corporation is a worker cooperative corporation organized
under the General Cooperative Corporation Law.”

(b) A corporation that makes the election to be governed as a
worker cooperative, unless expressly exempted, shall be governed
by all the provisions of this part.

SEC. 13.  

Section 12317 is added to the Corporations Code, to
read:

12317.  

(a) A worker cooperative may, in its articles or bylaws,
establish itself as a capital account cooperative.

(b) The articles or bylaws of a capital account cooperative may
authorize assignment of a portion of retained net earnings and net
losses to an unallocated capital account. The unallocated capital
account in a capital account cooperative shall reflect any paid-in
capital, net losses, and retained net earnings not allocated to
individual members. Earnings assigned to the unallocated capital
account may be used for any and all corporate purposes, as
determined by the board of directors.

(c) The system of member and unallocated capital accounts may
be used to determine the redemption price of member shares,
capital stock, and written notices of allocation. The articles or
bylaws may provide for the capital account cooperative worker
cooperative to pay or credit interest on the balance in each
member’s capital account.

(d) The articles or bylaws of a capital account cooperative may
permit the periodic redemption of written notices of allocation and
capital stock and shall provide for recall and redemption of
membership shares upon termination of membership in the
cooperative. However, no redemption may occur that would result
in the liability of any director or officer pursuant to Article 2
(commencing with Section 12370) of Chapter 2.

(e) As used in this section, “written notice of allocation” has
the same meaning as defined in Section 1388 (b) of the Internal
Revenue Code.

SEC. 14.  

Section 12404 of the Corporations Code is amended
to read:

12404.  

Except as permitted in Sections 12314 and 12404.5,
the voting power of members having voting rights shall be equal.

SEC. 15.  

Section 12404.5 is added to the Corporations Code,
to read:

12404.5.  

(a) The worker-members of a worker cooperative
shall have voting power as provided in subdivision (a) of Section
12253.

(b)  begin delete Non-worker-member end delete begin insert Nonworker-members end insert have voting
power only as provided in subdivision (c) of Section 12253.

SEC. 16.  

Section 12420 of the Corporations Code is amended
to read:

12420.  

(a) Except as provided in subdivision (b), a corporation
may issue memberships having different rights, privileges,
preferences, restrictions, or conditions, as provided in its articles
or bylaws. If the articles or bylaws authorize at least one class of
voting memberships, a corporation may also authorize and issue
additional classes of memberships, preferred or otherwise, that are
divisible into a series or are nonvoting or both.

(b) All worker-members shall have the rights, privileges,
preferences, restrictions, or conditions as provided in the articles
or bylaws. This membership shall be indivisible.

(c) A worker cooperative shall only make patronage distributions
to the worker-member class.

SEC. 17.  

Section 12431 of the Corporations Code is amended
to read:

12431.  

(a) No member may be expelled or suspended, and no
membership or memberships may be terminated or suspended,
except according to procedures satisfying the requirements of this
section. An expulsion, termination, or suspension not in accord
with this section shall be void and without effect.

(b) Any expulsion, suspension, or termination must be done in
good faith and in a fair and reasonable manner. Any procedure
that conforms to the requirements of subdivision (c) or (d) is fair
and reasonable, but a court may also find other procedures to be
fair and reasonable when the full circumstances of the suspension,
termination, or expulsion are considered.

(c) A procedure is fair and reasonable when:

(1) The provisions of the procedure have been set forth in the
articles or bylaws, or copies of such provisions are sent annually
to all the members as required by the articles or bylaws;

(2) It provides the giving of 15 days’ prior notice of the
expulsion, suspension, or termination and the reasons therefor;
and

(3) It provides an opportunity for the member to be heard, orally
or in writing, not less than five days before the effective date of
the expulsion, suspension, or termination by a person or body
authorized to decide that the proposed expulsion, termination, or
suspension not take place.

begin delete

(d) Notwithstanding subdivision (a), in the case of a worker
cooperative, the articles of incorporation or bylaws may provide
for suspension of a worker-member without prior notice if the
worker-member is given notice and the opportunity to be heard or
to provide a written response within five days after the effective
date of the suspension.

end delete begin delete

(e)

end delete

begin insert (d) end insert  Any notice required under this section may be given by any
method reasonably calculated to provide actual notice. Any notice
given by mail must be given by first-class or registered mail sent
to the last address of the members shown on the corporation’s
records.

begin delete

(f)

end delete

begin insert (e) end insert  Any action challenging an expulsion, suspension or
termination of membership, including any claim alleging defective
notice, must be commenced within one year after the date of the
expulsion, suspension or termination. In the event such an action
is successful the court may order any relief, including
reinstatement, it finds equitable under the circumstances, but no
vote of the members or of the board may be set aside solely because
a person was at the time of the vote wrongfully excluded by virtue
of the challenged expulsion, suspension or termination, unless the
court finds further that the wrongful expulsion, suspension or
termination was in bad faith and for the purpose, and with the
effect, of wrongfully excluding the member from the vote or from
the meeting at which the vote took place, so as to affect the
outcome of the vote.

begin delete

(g)

end delete

begin insert (f) end insert  This section governs only the procedures for expulsion,
suspension or termination and not the substantive grounds therefor.
An expulsion, suspension or termination based upon substantive
grounds which violate contractual or other rights of the member
or are otherwise unlawful is not made valid by compliance with
this section.

begin delete

(h)

end delete

begin insert (g) end insert  A member who is expelled or suspended or whose
membership is terminated shall be liable for any charges incurred,
services or benefits actually rendered, dues, assessments or fees
incurred before expulsion, suspension or termination or arising
from contract or otherwise.

SEC. 18.  

Section 12454.5 is added to the Corporations Code,
to read:

12454.5.  

(a) A worker cooperative may create an indivisible
reserves account that shall not be distributed to members.

(b) Funds in the indivisible reserves account shall, in a manner
provided in the articles or bylaws, or by the board, be used as
capital for the cooperative.

SEC. 19.  

Section 12460 of the Corporations Code is amended
to read:

12460.  

(a) Meetings of members may be held at a place within
or without this state that is stated in or fixed in accordance with
the bylaws. If no other place is so stated or fixed, meetings of
members shall be held at the principal executive office of the
corporation. Unless prohibited by the bylaws of the corporation,
if authorized by the board of directors in its sole discretion, and
subject to the requirement of consent in clause (b) of Section 20
and those guidelines and procedures as the board of directors may
adopt, members not physically present in person at a meeting of
members may, by electronic transmission by and to the corporation
(Sections 20 and 21) or by electronic video screen communication,
participate in a meeting of members, be deemed present in person,
and vote at a meeting of members whether that meeting is to be
held at a designated place or in whole or in part by means of
electronic transmission by and to the corporation or by electronic
video screen communication, in accordance with subdivision (f).

(b) Except as provided in Section 12460.5, a regular meeting
of members shall be held annually. In any year in which directors
are elected, the election shall be held at the regular meeting unless
the directors are chosen in some other manner authorized by law.
Any other proper business may be transacted at the meeting.

(c) If a corporation fails to hold the regular meeting for a period
of 60 days after the date designated therefor or, if no date has been
designated, for a period of 15 months after the formation of the
corporation or after its last regular meeting, or if the corporation
fails to hold a written ballot for a period of 60 days after the date
designated therefor, then the superior court of the proper county
may summarily order the meeting to be held or the ballot to be
conducted upon the application of a member, after notice to the
corporation giving it an opportunity to be heard.

(d) The votes represented at a meeting called or by written ballot
ordered pursuant to subdivision (c) and entitled to be cast on the
business to be transacted shall constitute a quorum, notwithstanding
any provision of the articles or bylaws or provision in this part to
the contrary. The court may issue such orders as may be appropriate
including, without limitation, orders designating the time and place
of the meeting, the record date for determination of members
entitled to vote, and the form of notice of the meeting.

(e) Special meetings of members for any lawful purpose may
be called by the board, the chairman of the board, the president,
or other persons, if any, as are specified in the bylaws. In addition,
special meetings of members for any lawful purpose may be called
by 5 percent or more of the members, however, begin delete a special meeting
of a worker cooperative may be called only by 20 percent or more
of the worker-members. end delete begin insert in a worker cooperative with more than
four worker-members, a special meeting may only be called by
the greater of three worker-members or 5 percent of the
worker-members. In a worker cooperative with fewer than four
worker end insert begin insert -members, special meetings may be called by 5 percent of
the worker-members. end insert

(f) A meeting of the members may be conducted, in whole or
in part, by electronic transmission by and to the corporation or by
electronic video screen communication (1) if the corporation
implements reasonable measures to provide members a reasonable
opportunity to participate in the meeting and to vote on matters
submitted to the members, including an opportunity to read or hear
the proceedings of the meeting concurrently with those
proceedings, and (2) if any member votes or takes other action at
the meeting by means of electronic transmission to the corporation
or electronic video screen communication, a record of that vote or
action is maintained by the corporation. Any request by a
corporation to a member pursuant to clause (b) of Section 20 for
consent to conduct a meeting of members by electronic
transmission by and to the corporation, shall include a notice that
absent consent of the member pursuant to clause (b) of Section
20, the meeting shall be held at a physical location in accordance
with subdivision (a).

SEC. 20.  

Section 12460.5 is added to the Corporations Code,
to read:

12460.5.  

Notwithstanding Section 12460, a collective board
worker cooperative shall not be required to hold an annual meeting
of members.

SEC. 21.  

Section 12461 of the Corporations Code is amended
to read:

12461.  

(a) Whenever members are required or permitted to
take any action at a meeting, a written notice of the meeting shall
be given not less than 10 nor more than 90 days before the date of
the meeting to each member who, on the record date for notice of
the meeting, is entitled to vote thereat; provided, however, that if
notice is given by mail, and the notice is not mailed by first-class,
registered, or certified mail, that notice shall be given not less than
20 days before the meeting. A worker cooperative shall provide
notice of the meeting not less than 48 hours before the meeting if
the meeting begin delete involves end delete begin insert is a meeting of end insert only begin delete worker members. end delete
begin insert worker end insert begin insert -members, provided that the notice is delivered personally. end insert
Subject to subdivision (f), and subdivision (b) of Section 12462,
that notice shall state the place, date and time of the meeting, the
means of electronic transmission by and to the corporation
(Sections 20 and 21) or electronic video screen communication,
if any, by which members may participate in that meeting, and (1)
in the case of a special meeting, the general nature of the business
to be transacted, and no other business may be transacted, or (2)
in the case of the regular meeting, those matters which the board,
at the time the notice is given, intends to present for action by the
members, but, except as provided in subdivision (b) of Section
12462, any proper matter may be presented at the meeting for such
action. The notice of any meeting at which directors are to be
elected shall include the names of all those who are nominees at
the time the notice is given to members.

(b) Notice of a members’ meeting or any report shall be given
personally, by electronic transmission by the corporation, or by
mail or other means of written communication, addressed to a
member at the address of such member appearing on the books of
the corporation or given by the member to the corporation for
purpose of notice; or if no such address appears or is given, at the
place where the principal office of the corporation is located or by
publication at least once in a newspaper of general circulation in
the county in which the principal office is located. An affidavit of
giving of any notice or report in accordance with the provisions
of this part, executed by the secretary, assistant secretary or any
transfer agent, shall be prima facie evidence of the giving of the
notice or report.

If any notice or report addressed to the member at the address
of such member appearing on the books of the corporation is
returned to the corporation by the United States Postal Service
marked to indicate the United States Postal Service is unable to
deliver the notice or report to the member at such address, all future
notices or reports shall be deemed to have been duly given without
further mailing if the same shall be available for the member upon
written demand of the member at the principal office of the
corporation for a period of one year from the date of the giving of
the notice or report to all other members.

Notice given by electronic transmission by the corporation under
this subdivision shall be valid only if it complies with Section 20.
Notwithstanding the foregoing, notice shall not be given by
electronic transmission by the corporation under this subdivision
after either of the following:

(1) The corporation is unable to deliver two consecutive notices
to the member by that means.

(2) The inability to so deliver the notices to the member becomes
known to the secretary, any assistant secretary, the transfer agent,
or other person responsible for the giving of the notice.

(c) Upon request in writing to the corporation addressed to the
attention of the chairman of the board, president, vice president
or secretary by any person (other than the board) entitled to call a
special meeting of members, the officer forthwith shall cause notice
to be given to the members entitled to vote that a meeting will be
held at a time fixed by the board not less than 35 nor more than
90 days after the receipt of the request. If the notice is not given
within 20 days after receipt of the request, the persons entitled to
call the meeting may give the notice or the superior court of the
proper county shall summarily order the giving of the notice, after
notice to the corporation giving it an opportunity to be heard. The
court may issue such orders as may be appropriate, including,
without limitation, orders designating the time and place of the
meeting, the record date for determination of members entitled to
vote and the form of notice.

(d) When a members’ meeting is adjourned to another time or
place, unless the bylaws otherwise require and except as provided
in this subdivision, notice need not be given of the adjourned
meeting if the time and place thereof (or the means of electronic
transmission by and to the corporation or electronic video screen
communication, if any, by which members may participate) are
announced at the meeting at which the adjournment is taken. At
the adjourned meeting the corporation may transact any business
which might have been transacted at the original meeting. If the
adjournment is for more than 45 days or if after the adjournment
a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each member of record
entitled to vote at the meeting.

(e) The transactions of any meeting of members however called
and noticed, and wherever held, are as valid as though had at a
meeting duly held after regular call and notice, if a quorum is
present, and if, either before or after the meeting, each of the
persons entitled to vote, not present in person, provides a waiver
of notice or consent to the holding of the meeting or an approval
of the minutes thereof in writing. All such waivers, consents and
approvals shall be filed with the corporate records or made a part
of the minutes of the meeting. Attendance of a person at a meeting
shall constitute a waiver of notice of and presence at such meeting,
except when the person objects, at the beginning of the meeting,
to the transaction of any business because the meeting is not
lawfully called or convened and except that attendance at a meeting
is not a waiver of any right to object to the consideration of matters
required by this part to be included in the notice but not so
included, if such objection is expressly made at the meeting.
Neither the business to be transacted at nor the purpose of any
regular or special meeting of members need be specified in any
written waiver of notice, consent to the holding of the meeting or
approval of the minutes thereof, unless otherwise provided in the
articles or bylaws, except as provided in subdivision (f).

(f) Any approval of the members required under Section 12362,
12364, 12373, 12502 or 12658 other than unanimous approval by
those entitled to vote, shall be valid only if the general nature of
the proposal so approved was stated in the notice of meeting or in
any written waiver of notice.

(g) A court may find that notice not given in conformity with
this section is still valid, if it was given in a fair and reasonable
manner.

(h) Subject to the provisions of subdivision (i), and unless
prohibited by the articles or bylaws, prior to any regular or special
meeting of members, the board may authorize distribution of a
written ballot to every member entitled to vote at the meeting.
Such ballot shall set forth the action proposed to be taken at the
meeting, shall provide an opportunity to specify approval or
disapproval of the proposed action, and shall state that unless
revoked by the member voting in person at the meeting, the ballot
will be counted if received by the corporation on or before the time
of the meeting with respect to which it was sent. If ballots are so
distributed with respect to a meeting, the number of members
voting at the meeting by unrevoked written ballots shall be deemed
present at the meeting for purposes of determining the existence
of a quorum pursuant to subdivision (a) of Section 12462 but only
with respect to the proposed action referred to in the ballots. These
ballots shall be distributed in a manner consistent with the
requirements of subdivision (b) and Section 12464.

(i) Unless prohibited by the articles or bylaws, written ballots
may be distributed in a manner contemplated by subdivision (h)
with respect to the election of directors, except that no ballots may
be so distributed with respect to the election of directors if
cumulative voting is permitted pursuant to Section 12484.

SEC. 22.  

Section 12530 of the Corporations Code is amended
to read:

12530.  

Except as provided in Section 12530.5, any corporation
may merge with another domestic corporation, foreign corporation,
or other business entity. However, a merger with a nonprofit public
benefit corporation or a nonprofit religious corporation must have
the prior written consent of the Attorney General.

SEC. 23.  

Section 12530.5 is added to the Corporations Code,
to read:

12530.5.  

Notwithstanding Section 12530, a worker cooperative
that has not revoked its election to be governed as a worker
cooperative under Section 12310.5 shall not consolidate or merge
with another corporation other than another worker cooperative.
Two or more worker cooperatives may merge or consolidate in a
manner consistent with this chapter.

SEC. 24.  

Section 12653 of the Corporations Code is amended
to read:

12653.  

(a) After determining that all the known debts and
liabilities of a corporation in the process of winding up have been
paid or adequately provided for, the board shall distribute all the
remaining corporate assets in the manner provided in Sections
12655, 12656, and 12656.5.

(b) If the winding up is by court proceeding or subject to court
supervision, the distribution shall not be made until after the
expiration of any period for the presentation of claims that has
been prescribed by order of the court.

(c) Anything to the contrary notwithstanding, assets, if any, that
are not subject to attachment, execution or sale for the corporation’s
debts and liabilities may be distributed pursuant to Sections 12655,
12656, and 12656.5 even though all debts and liabilities have not
been paid or adequately provided for.

SEC. 25.  

Section 12656.5 is added to the Corporations Code,
to read:

12656.5.  

(a) After complying with the provisions of Section
12653, and except as otherwise provided in Section 12655, upon
dissolution of a worker cooperative the majority of the unallocated
capital account shall be distributed to members on the basis of the
following:

(1) Patronage.

(2) Capital contributions.

(3) A combination of patronage and capital contributions.

(b) A worker cooperative is authorized to include patronage
provided by past and current members in its distribution of the
unallocated capital account.

(c) Subdivision (a) shall not apply to any amounts in the
indivisible reserve account. Any begin delete amounts end delete begin insert amount end insert in the indivisible
reserve account shall, upon dissolution, be allocated to begin delete an
International Cooperative Alliance approved national federation
or a regional body in this state end delete begin insert a cooperative development
organization end insert designated in the articles of incorporation or the
bylaws.

begin delete

SEC. 26.  

Section 25017 of the Corporations Code is amended
to read:

25017.  

(a) “Sale” or “sell” includes every contract of sale of,
contract to sell, or disposition of, a security or interest in a security
for value. “Sale” or “sell” includes any exchange of securities and
any change in the rights, preferences, privileges, or restrictions of
or on outstanding securities.

(b) “Offer” or “offer to sell” includes every attempt or offer to
dispose of, or solicitation of an offer to buy, a security or interest
in a security for value.

(c) Any security given or delivered with, or as a bonus on
account of, any purchase of securities or any other thing constitutes
a part of the subject of the purchase and is considered to have been
offered and sold for value.

(d) A purported gift of assessable stock involves an offer and
sale.

(e) Every sale or offer of a warrant or right to purchase or
subscribe to another security of the same or another issuer, as well
as every sale or offer of a security which gives the holder a present
or future right or privilege to convert the security into another
security of the same or another issuer, includes an offer and sale
of the other security only at the time of the offer or sale of the
warrant or right or convertible security; but neither the exercise
of the right to purchase or subscribe or to convert nor the issuance
of securities pursuant thereto is an offer or sale.

(f) The terms defined in this section do not include: (1) any bona
fide secured transaction in or loan of outstanding securities; (2)
any stock dividend payable with respect to common stock of a
corporation solely (except for any cash or scrip paid for fractional
shares) in shares of such common stock, if the corporation has no
other class of voting stock outstanding; provided, that shares issued
in any such dividend shall be subject to any conditions previously
imposed by the commissioner applicable to the shares with respect
to which they are issued; (3) any act incident to a transaction or
reorganization approved by a state or federal court in which
securities are issued and exchanged for one or more outstanding
securities, claims, or property interests, or partly in that exchange
and partly for cash, and nothing in this division shall be construed
to prohibit a court from applying the protections described in
Section 25014.7 or 25140 and the regulations adopted thereunder
when approving any transaction involving a rollup participant; or
(4) any written notice of allocation, as defined in Section 1388(b)
of the Internal Revenue Code, issued by an organization described
in Section 1381(a) of the Internal Revenue Code.

SEC. 27.  

Section 25019 of the Corporations Code is amended
to read:

25019.  

“Security” means any note; stock; treasury stock;
membership in an incorporated or unincorporated association;
bond; debenture; evidence of indebtedness; certificate of interest
or participation in any profit-sharing agreement; collateral trust
certificate; preorganization certificate or subscription; transferable
share; investment contract; viatical settlement contract or a
fractionalized or pooled interest therein; life settlement contract
or a fractionalized or pooled interest therein; voting trust certificate;
certificate of deposit for a security; interest in a limited liability
company and any class or series of those interests (including any
fractional or other interest in that interest), except a membership
interest in a limited liability company in which the person claiming
this exception can prove that all of the members are actively
engaged in the management of the limited liability company;
provided that evidence that members vote or have the right to vote,
or the right to information concerning the business and affairs of
the limited liability company, or the right to participate in
management, shall not establish, without more, that all members
are actively engaged in the management of the limited liability
company; certificate of interest or participation in an oil, gas, or
mining title or lease or in payments out of production under that
title or lease; put, call, straddle, option, or privilege on any security,
certificate of deposit, or group or index of securities (including
any interest therein or based on the value thereof); or any put, call,
straddle, option, or privilege entered into on a national securities
exchange relating to foreign currency; any beneficial interest or
other security issued in connection with a funded employees’
pension, profit sharing, stock bonus, or similar benefit plan; or, in
general, any interest or instrument commonly known as a
“security”; or any certificate of interest or participation in,
temporary or interim certificate for, receipt for, guarantee of, or
warrant or right to subscribe to or purchase, any of the foregoing.
All of the foregoing are securities whether or not evidenced by a
written document. “Security” does not include: (1) any beneficial
interest in any voluntary inter vivos trust which is not created for
the purpose of carrying on any business or solely for the purpose
of voting, or (2) any beneficial interest in any testamentary trust,
(3) any insurance or endowment policy or annuity contract under
which an insurance company admitted in this state promises to
pay a sum of money (whether or not based upon the investment
performance of a segregated fund) either in a lump sum or
periodically for life or some other specified period, (4) any
franchise subject to registration under the Franchise Investment
Law (Division 5 (commencing with Section 31000)), or exempted
from registration by Section 31100 or 31101, or (5) a membership
or share interest in a collective board worker cooperative, as
defined in Section 12230.5.

end delete

begin delete SEC. 28. end delete
begin insert SEC. 26. end insert   

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 begin delete Financial Institutions end delete begin insert Business Oversight end insert
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 begin delete which end delete begin insert that end insert 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 begin delete Financial Institutions end delete
begin insert Business Oversight end insert 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.

(l) 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 one thousand dollars ($1,000). begin delete In the case of a worker
cooperative, the aggregate investment of any worker member in
shares or memberships sold pursuant to this subdivision shall not
exceed five thousand dollars ($5,000). This section does not create
the presumption, if the aggregate investment of a worker-member
exceeds five thousand dollars ($5,000), that the investment must
be qualified or filed as a sale of securities under this title. end delete 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.

begin delete

SEC. 29.  

No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of
the Government Code, or changes the definition of a crime within
the meaning of Section 6 of Article XIII B of the California
Constitution.

end delete