BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                     AB 816


                                                                    Page  1





          Date of Hearing:  April 27, 2015


                      ASSEMBLY COMMITTEE ON BANKING AND FINANCE


                               Matthew Dababneh, Chair


          AB 816  
          (Bonta) - As Amended April 13, 2015


          SUBJECT:  Cooperative corporations:  worker cooperatives


          SUMMARY:  Renames the Consumer Cooperative Corporation Law to  
          the General Cooperative Corporation Law.  Specifically, this  
          bill:  


          1)Defines "worker cooperative" or "employment cooperative" as a  
            corporation formed 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. 


          2)Requires at least 51% of the workers shall be worker-members  
            or eligible for membership within 2 years of becoming a  
            worker.  


          3)Authorizes a worker cooperative to suspend 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  








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            within 5 days after the suspension.


          4)Authorizes 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.  


          5)Requires a worker cooperative to only make patronage  
            distributions to the worker-member class.  


          6)Defines the patrons of a worker cooperative as worker-members  
            and authorizes their patronage to be measured by work  
            performed or personal services contributed, including wages  
            earned, number of hours worked, number of jobs created, or  
            some combinations of these measures.  


          7)Allows a worker cooperative to create an indivisible reserves  
            account that shall not be distributed to the members.  


             a)   Funds in the indivisible reserves account can be used as  
               capital for the worker cooperative.  


          8)Allows a worker cooperative to call a special meeting with 20%  
            or more of the worker-members.  


          9)Defines a "capital account cooperative" as 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.  


          10)Defines a "collective board worker cooperative" as a worker  
            cooperative in which there is only one class of members  








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            consisting of worker-members, all of whom are members of the  
            board.  


             a)   The collective board worker cooperative is not required  
               to hold an annual meeting of the members.  


          11)Defines "worker-member" as a member who is a natural person  
            and also a patron of a worker cooperative.  


          12)Defines "non-worker-member" as a member of a worker  
            cooperative who is not a worker member.  


          13)Provides non-worker-member 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.  


          14) Allows a worker cooperative to create an indivisible  
            reserves account that shall not be distributed to members.   
            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.


          15)Provides that a worker cooperative that has not revoked its  
            election to be governed as a worker cooperative 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.


          16)Requires a worker cooperative to provide notice of a meeting  








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            not less than 48 hours before the meeting if the meeting  
            involves only worker-members.  


          17)Exempts a membership or share interest in a collective board  
            worker cooperative from the definition of security.  


          18)Increases the investment limitation for Consumer Cooperatives  
            under California's Corporate Securities Law of 1968 exemption  
            from qualification from $300 to $1,000.


          19)Excludes shares or memberships issued by worker cooperative  
            from qualification, provided that the aggregate investment of  
            any shareholder or member does not exceed $5,000. 


          20)Makes finding and declarations. 


          EXISTING LAW:  


          1)Establishes the Consumer Cooperative Cooperation Law which  
            allows corporations to form as a cooperative corporation.   
            (Corporations Code, Section 12200 et seq.)

          2)Provides that it is unlawful for any person to offer or sell  
            any security in this state, unless such offering or sale has  
            been qualified by the commissioner, as specified, or unless  
            the offering or sale is covered by an express exemption. Caps  
            the maximum aggregate investment that may be made by a  
            shareholder in shares or by a member in memberships in a  
            consumer cooperative corporation.  As long as this cap is not  
            exceeded, sales of those shares or memberships are exempt from  
            state securities permitting laws.  The cap of $300 was placed  
            in California law, effective January 1, 1984.  (Corporations  
            Code, Section 25110)








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          FISCAL EFFECT:  Unknown.  


          COMMENTS:  


          The findings and declarations in the bill states:


          "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 development.


          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."


          Cooperatives:


          


          AB 816 makes substantive and historical changes to the  
          California Consumer Cooperative Corporation Law.  The  
          Legislature, in 1982 created the Consumer Cooperative Law which  
          provides a framework for establishing and operating  
          cooperatives.  California cooperatives can trace their history  
          back to 1844, when a group of cotton mill weavers in England  
          organized, called themselves the Rochdale Society.  The Rochdale  
          Society adopted several principles that have become the basis of  








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          most cooperatives.  These principles include: open membership;  
          one member, one vote; cash-only trading at market prices;  
          patronage refunds proportional to each member's use of the  
          cooperative's services; and limited return of interest on  
          contributed capital.  





          Cooperatives are enterprises in which individuals or businesses  
          organize to furnish themselves services that the members need.   
          They seek to provide services more efficiently and at lower cost  
          compared to paying third parties or to each member's performing  
          the service individually.  Unlike corporations, in cooperatives,  
          ownership and control are equal among members.  Cooperatives  
          operate according to the democratic principle of one member, one  
          vote.  Unlike business corporations, cooperatives do not seek to  
          generate profit but rather seek to save money for their members.  
           Similarly, members do not seek or obtain increased capital  
          value but rather cost savings and efficiency.  In contrast to  
          stock in a corporation, membership in a cooperative is not a  
          saleable commodity.  Cooperatives exist in many forms such as  
          agricultural, financial institutions, housing, utility, consumer  
          to name a few. 



          Cooperatives generally share the following principles:

           Democratic Governance - Cooperatives generally have a one  
            member, one vote rule. This is different from traditional  
            business models, which often weight each owner's vote by the  
            amount of that person's stake in the business. However, some  
            cooperatives have an elected board of directors to oversee the  
            day-to-day operations of the business, leaving strategic  
            decisions to members as a whole.










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           Consensus Building - While each member has one vote,  
            cooperatives encourage members to work with one another in  
            their decision-making progress. If members want the  
            cooperative to take a certain action, they must collaborate  
            and gather most, if not, all members to agree.



           Community-Centric - Most cooperatives have members from the  
            same area. Because members live where they work, they are more  
            likely to invest there. As cooperatives become a significant  
            part of a community, they have less incentive to leave.



           Member Satisfaction Superior to Capital - Cooperatives must  
            earn a profit in order to survive as a business. However,  
            member wellbeing is valued above earning more money. Many  
            cooperatives have rules that keep the workplace fair, and  
            preserve the workers' due process rights and safety.



           Self-Determination - Members are more likely to invest their  
            time and energy in the cooperative because they have input in  
            its decisions and would share any wealth that comes from it.  
            While traditional business models limit decision-making to its  
            senior leadership, cooperatives give each member a stake in  
            its future.



           Training - Cooperatives usually have an apprenticeship program  
            or other training that prepares new members to participate in  
            the business. For cooperatives to survive, they must recruit,  
            train, and continually develop their members.










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           Open Membership - Cooperatives generally allow any person to  
            join regardless of gender, race, religion, political, or  
            social status. To become a member, many cooperatives require  
            an entry-level training program, an initial capital  
            investment, and final approval by the membership.



          Although worker cooperatives are currently regulated and created  
          under the Consumer Cooperative Corporation Law, AB 816 attempts  
          to create a new framework specific to worker cooperatives within  
          the existing Consumer Cooperative Corporation Law.  





          The chart below lays out the differences between existing law  
          and AB 816:








           ----------------------------------------------------------------- 
          |                     |Existing CA Law      |AB 816               |
          |                     |                     |                     |
          |                     |                     |                     |
          |---------------------+---------------------+---------------------|
          |Name                 |Consumer Cooperative |General Cooperative  |
          |                     |Corporation Law      |Corporations Law     |
          |                     |                     |                     |
          |                     |                     |                     |
          |---------------------+---------------------+---------------------|
          |Intentions           |This part is         |This part is         |








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          |                     |intended to          |intended to apply to |
          |                     |primarily apply to   |the organization and |
          |                     |the organization and |operation of         |
          |                     |operation of         |cooperatives,        |
          |                     |consumer             |including but not    |
          |                     |cooperatives.  It is |limited to consumer  |
          |                     |also applicable to   |cooperatives, worker |
          |                     |other cooperatives   |cooperatives and     |
          |                     |including but not    |cooperatives formed  |
          |                     |limited to,          |for the purpose of   |
          |                     |cooperatives formed  |recycling or         |
          |                     |for the purpose of   |treating hazardous   |
          |                     |recycling or         |wastes, which elect  |
          |                     |treating hazardous   |to incorporate under |
          |                     |wastes, which elect  |it.                  |
          |                     |to incorporate under |                     |
          |                     |it.                  |                     |
          |                     |                     |                     |
          |                     |                     |                     |
          |---------------------+---------------------+---------------------|
          |Securities           |Qualification        |Increases the        |
          |Requirements         |requirements exempt  |exemption amount to  |
          |                     |the shares or        |$1,000.  In          |
          |                     |memberships in a     |addition, the        |
          |                     |cooperative          |investment of the    |
          |                     |corporation if the   |worker member class  |
          |                     |investment does not  |in a worker          |
          |                     |exceed $300          |cooperative are      |
          |                     |                     |exempt from          |
          |                     |                     |registration up to   |
          |                     |                     |$5,000.              |
          |                     |                     |                     |
          |                     |                     |                     |
          |---------------------+---------------------+---------------------|
          |Definition of        |N/A                  |A worker cooperative |
          |worker-cooperative   |                     |is a corporation     |
          |                     |                     |formed under this    |
          |                     |                     |part which includes  |
          |                     |                     |a class of           |








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          |                     |                     |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 this    |
          |                     |                     |corporation for any  |
          |                     |                     |purposes.  Requires  |
          |                     |                     |at least 51% of the  |
          |                     |                     |workers shall be     |
          |                     |                     |worker members or    |
          |                     |                     |eligible for         |
          |                     |                     |membership within 2  |
          |                     |                     |years of becoming a  |
          |                     |                     |worker.              |
          |                     |                     |                     |
          |                     |                     |                     |
          |---------------------+---------------------+---------------------|
          |Definition of        |N/A                  |Worker member means  |
          |worker-member        |                     |a member who is a    |
          |                     |                     |natural person and   |
          |                     |                     |also a patron of a   |
          |                     |                     |worker cooperative.  |
          |                     |                     |                     |
          |                     |                     |                     |
          |---------------------+---------------------+---------------------|
          |Definition of        |N/A                  |Non-worker member    |
          |non-worker member    |                     |means a member of a  |








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          |                     |                     |worker cooperative   |
          |                     |                     |who is not a worker  |
          |                     |                     |member.              |
          |                     |                     |                     |
          |                     |                     |                     |
          |---------------------+---------------------+---------------------|
          |Articles of          |N/A                  |Corporation must     |
          |Incorporation        |                     |state whether it is  |
          |                     |                     |a worker cooperative |
          |                     |                     |                     |
          |                     |                     |                     |
          |---------------------+---------------------+---------------------|
          |Collective Board     |N/A                  |Defined as only one  |
          |Worker Cooperative   |                     |class of members     |
          |                     |                     |which is the worker  |
          |                     |                     |member class and all |
          |                     |                     |worker members are   |
          |                     |                     |on the board.        |
          |                     |                     |                     |
          |                     |                     |                     |
          |                     |                     |While most           |
          |                     |                     |cooperatives are     |
          |                     |                     |required to meet on  |
          |                     |                     |an annual basis-     |
          |                     |                     |this requirement     |
          |                     |                     |does not apply to a  |
          |                     |                     |collective board     |
          |                     |                     |worker cooperative.  |
          |                     |                     |Provides an          |
          |                     |                     |exclusion from       |
          |                     |                     |definition of        |
          |                     |                     |security for         |
          |                     |                     |managing members.    |
          |                     |                     |                     |
          |                     |                     |                     |
          |---------------------+---------------------+---------------------|
          |Patronage            |If a corporation is  |If the corporation   |
          |                     |organized to provide |is organized as a    |
          |                     |goods or services to |worker cooperative,  |








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          |                     |its member, the      |the corporation's    |
          |                     |corporation's        |patrons are its      |
          |                     |patrons are those    |worker-members.  The |
          |                     |who purchase those   |corporation may be   |
          |                     |types of goods from, |measured by work     |
          |                     |or use those type    |performed or         |
          |                     |services of, the     |personal services    |
          |                     |corporation.         |contributed,         |
          |                     |                     |including wages      |
          |                     |                     |earned, number of    |
          |                     |                     |hours worked, number |
          |                     |                     |of jobs created, or  |
          |                     |                     |some combination of  |
          |                     |                     |these measures.      |
          |                     |                     |                     |
          |                     |                     |                     |
          |---------------------+---------------------+---------------------|
          |Capital Account      |N/A                  |Defined as a worker  |
          |Cooperative          |                     |cooperative whose    |
          |                     |                     |entire net book      |
          |                     |                     |value is reflected   |
          |                     |                     |in member capital    |
          |                     |                     |accounts, one for    |
          |                     |                     |each member, and an  |
          |                     |                     |unallocated capital  |
          |                     |                     |account.  Each       |
          |                     |                     |member only has one  |
          |                     |                     |vote in any matter   |
          |                     |                     |requiring voting by  |
          |                     |                     |a member.            |
          |                     |                     |                     |
          |                     |                     |                     |
          |---------------------+---------------------+---------------------|
                                                                                     |Voting Power         |Defined as the power |Provides non worker  |
          |                     |to vote for the      |member voting power  |
          |                     |election of          |in a worker          |
          |                     |directors at the     |cooperative shall be |
          |                     |time any             |provided in the      |
          |                     |determination of     |articles or bylaw    |








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          |                     |voting power is made |and is limited to    |
          |                     |and does not include |approval rights only |
          |                     |the right to vote    |over a merger, sale  |
          |                     |upon the happening   |of major assets,     |
          |                     |of some condition or |reorganization, or   |
          |                     |event that has yet   |dissolution.         |
          |                     |occurred.            |Approval rights      |
          |                     |                     |shall not include    |
          |                     |                     |the right to propose |
          |                     |                     |any action.          |
          |                     |                     |                     |
          |                     |                     |                     |
          |---------------------+---------------------+---------------------|
          |Member Meeting       |Requires written     |Reduces the          |
          |Notification         |notification at      |time-frame to at     |
          |                     |least 10 days in     |least 48 hours       |
          |                     |advance of a meeting |before the meeting   |
          |                     |                     |if the meeting       |
          |                     |                     |involves only worker |
          |                     |                     |members.             |
          |                     |                     |                     |
          |                     |                     |                     |
          |---------------------+---------------------+---------------------|
          |Expelling or         |Requires 15 day      |Allows a worker      |
          |suspending members   |prior notice of the  |cooperative to       |
          |                     |expulsion,           |suspend a worker     |
          |                     |suspension or        |member without prior |
          |                     |termination and the  |notice if the worker |
          |                     |reasons and allows   |member is given      |
          |                     |an opportunity for   |notice and the       |
          |                     |the member to        |opportunity to be    |
          |                     |respond at least 5   |heard within 5 days  |
          |                     |days prior to the    |after the            |
          |                     |expulsion,           |suspension.          |
          |                     |suspension, or       |                     |
          |                     |termination.         |                     |
          |                     |                     |                     |
          |                     |                     |                     |
          |---------------------+---------------------+---------------------|








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          |Merger               |N/A                  |Prohibits a worker   |
          |                     |                     |cooperative from     |
          |                     |                     |consolidate or merge |
          |                     |                     |with another         |
          |                     |                     |corporation other    |
          |                     |                     |than another worker  |
          |                     |                     |cooperative.  Two or |
          |                     |                     |more worker          |
          |                     |                     |cooperatives may     |
          |                     |                     |merge or             |
          |                     |                     |consolidate.         |
          |                     |                     |                     |
          |                     |                     |                     |
          |---------------------+---------------------+---------------------|
          |Indivisible Reserves |N/A                  |Allows a worker      |
          |Account              |                     |cooperative to       |
          |                     |                     |create an            |
          |                     |                     |indivisible reserves |
          |                     |                     |account that shall   |
          |                     |                     |not be distributed   |
          |                     |                     |to its members.      |
          |                     |                     |Allows the account   |
          |                     |                     |to be used as        |
          |                     |                     |capital for the      |
          |                     |                     |cooperative.         |
          |                     |                     |                     |
          |                     |                     |                     |
          |---------------------+---------------------+---------------------|
          |Special Meetings     |Allows a special     |A special meeting of |
          |                     |meeting to be called |a worker cooperative |
          |                     |by the board if at   |may be called only   |
          |                     |least 5% or more of  |by 20% or more of    |
          |                     |the members call it. |the worker-members.  |
          |                     |                     |                     |
          |                     |                     |                     |
          |                     |                     |                     |
           ----------------------------------------------------------------- 
          









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          Need for the bill:





          According to the Author,





           "California's existing cooperative law is the Consumer  
          Cooperative Corporations statute. Although worker cooperatives  
          may form under that statute, it contains no provisions specific  
          to the formation and governance of worker cooperatives. The  
          existing statute does not include labor in its definition of  
          patronage, it does not provide for member capital accounts, and  
          its lengthy notice requirement for member meetings does not suit  
          worker cooperatives. Further, the current $300 securities  
          exemption for members is too small to allow worker cooperatives  
          to raise capital for their business."





          Background:


          


          A worker cooperative is a business democratically owned and  
          governed by its worker-owners.  A worker cooperative is distinct  
          from other kinds of cooperatives (consumer, producer, housing,  
          financial, etc.) in that its members are its workers.  Worker  
          cooperatives are well established throughout Europe and Latin  








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          America but they are less common in the United States.  The U.S.  
          Federation of Worker Cooperatives estimates that there are  
          currently about 350 worker cooperatives in the United States,  
          employing over 5,000 people and account for $500 million in  
          annual revenue.  According to the U.S. Federation of Worker  
          Cooperatives, California has approximately 50 established worker  
          cooperatives.





          The US Federation of Worker Cooperatives determines whether a  
          cooperative is a worker cooperative based on basic standards for  
          worker cooperatives established in the World Declaration on  
          Cooperative Worker Ownership (also known as the Oslo  
          Declaration) at a meeting in Oslo, Norway in 2003 of the  
          International Organization of Industrial, Artisanal and Service  
          Producers' Cooperatives (CICOPA).  





          Almost any business can be organized as a worker cooperative.  
          Examples include restaurants, bakeries and retail stores. Some  
          well-known worker cooperatives are Equal Exchange headquartered  
          in Massachusetts, a fair trade importer of chocolate and coffee  
          and MONDRAGON Corporation located in Spain, one of the world's  
          largest worker cooperatives that employs over 80,000 workers. 





          Other States:











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          Eleven other states have enacted worker cooperative specific  
          statutes.  These states include: Alabama, Connecticut, Delaware,  
          Maine, Massachusetts, Oregon, Vermont, New York, Washington,  
          Pennsylvania and Colorado.  





          Related Legislation:


          


          SB 577 (Hueso) Authorizes three new securities permitting  
          exemptions, as specified, and increases, from $300 to $1,000,  
          the maximum allowable aggregate investment of any shareholder in  
          shares of a consumer cooperative corporation or member in  
          memberships of a consumer cooperative corporation.  Pending in  
          Senate Judiciary Committee. 


          Previous Legislation:


          AB 1161 (Skinner) 2011 Legislative Year.  This measure would  
          have renamed the Cooperative Corporation Law, as well as, make  
          other significant changes.  Died in the Assembly Banking and  
          Finance Committee.  


          AB 2525 (Bonta) 2014 Legislation Year.  This bill would have  
          created a special purpose limited liability company.  Died in  
          the Assembly Banking and Finance Committee.  










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          Amendments:


          A number of amendments are recommended below in order to  
          maintain some consistency through the cooperative law.  Some of  
          the amendments are technical while others provide clarification  
          of the author's intent. 


          1)On page 3, line 7, add after development "in this state."



          2)On page 5, line 20, insert "Worker" is a natural person  
            contributing labor or services."



          3)On page 5, line 20, insert, "Candidate" means a worker who is  
            being considered for membership, as defined in the  
            corporation's articles or bylaws.  



          4)On page 6, line 33, delete "eligible" and insert "candidates"



          5)On page 10, delete lines 12-17



          6)On page 12, delete lines 28 & 29 and insert "in a worker  
            cooperative with more than four worker-members, a special  
            meeting may only be called by the greater of 3 worker-members  
            or 5% of the worker-members.  For a worker cooperative with  
            fewer than 4 members, special meetings may be called by 5% of  
            the worker-members."









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          7)On page 13, on line 24, add after members, insert, "provided  
            that such notice is delivered personally."



          8)On page 18, delete lines 1-6 and insert, "Subdivision (a)  
            shall not apply to any amounts in the indivisible reserve  
            account.  Any amount in the indivisible reserve account shall,  
            upon dissolution, be allocated to a cooperative development  
            organization designated in the articles of incorporation or  
            the bylaws."



          9)On page 21, line 9, delete "Financial Institutions" and insert  
            "Business Oversight"



          10)On page 21, line 17, delete "which" and insert "that"



          11)On page 21, line 33, delete "Financial Institutions" and  
            insert "Business Oversight"



          12)Take out Sections 26 & 27 in the measure



          13)On page 28, line 20, delete "In the case of a worker"



          14)On page 28, delete lines 21-25








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          15)On page 28, line 26, delete "be qualified or filed as a sale  
            of securities under this title."
          REGISTERED SUPPORT / OPPOSITION:




          Support


          Ease Bay Community Law Center (Co-Sponsor)


          Roots of Change


          2 Individuals




          Opposition


          2 Individuals




          Analysis Prepared by:Kathleen O'Malley / B. & F. / (916)  
          319-3081













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