Amended in Assembly April 25, 2016

California Legislature—2015–16 Regular Session

Assembly Bill No. 2751

Introduced by Assembly Member Brown

February 19, 2016

An act to amend Sections 25100 and 25102 of the Corporations Code, relating to securities.

LEGISLATIVE COUNSEL’S DIGEST

AB 2751, as amended, Brown. Securities: qualification: exemptions.

Existing law, the Corporate Securities Law of 1968, requires the offer and sale of securities in the state to be qualified with the Commissioner of Business Oversight, unless exempt. That law exempts specific securities or transactions from qualification, including, among others, any security other than evidences of indebtedness of an issuer organized exclusively for specified begin delete non profit end delete begin insert nonprofit end insert purposes or as a chamber of commerce or trade or professional association.

This bill would also exempt from qualification any security that is evidence of indebtedness of an issuer organized exclusively for specified begin delete non profit end delete begin insert nonprofit end insert purposes or as a chamber of commerce or trade or professional association.

This bill would exempt from qualification the offer or sale of any security in begin delete three end delete additional transactions that meet specified requirements that include, among others: begin delete that the aggregate amount of securities sold to all investors in a 12-month period does not exceed $500,000; end delete that the aggregate amount of securities of an issuer that is a specified agricultural enterprise that are begin delete used for specified purposes end delete sold to all investors in a 12-month period does not exceed $2,000,000 begin insert , and a specified amount of the proceeds are used for agricultural purposes, as provided end insert ; that the aggregate begin delete mount end delete begin insert amount end insert of securities of an issuer that is a cooperative corporation, nonprofit or mutual benefit corporation, or an entity controlled by tenants in multitenant housing that are sold to all investors in a 12-month period does not exceed begin delete $2,000,000; end delete begin insert $2,000,000, and a specified amount of the proceeds are used end insert to purchase solar photovoltaic panels, wind turbines, or other necessary equipment or begin delete labor. end delete begin insert labor, as provided. end insert The bill would change references throughout these provisions from husband and wife to spouses, generally.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

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

SECTION 1.  

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 Business Oversight 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 that 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 Business Oversight 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 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 begin delete exchange end delete begin insert exchange, end insert
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:

(A) 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.

(B) If the number of shares publicly held (excluding the holdings
of officers, directors, controlling begin delete shareholders end delete begin insert shareholders, end insert and
other concentrated or family holdings) is less than 150,000.

(C) 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.

(D) If the aggregate market value of shares publicly held is less
than seven hundred fifty thousand dollars ($750,000).

(E) 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). This exemption does
not apply to the shares or memberships of that corporation if any
promoter thereof expects or intends to make a profit directly or
indirectly from any business or activity associated with the
corporation or the operation of the corporation or from
remuneration, other than reasonable salary, received from the
corporation. This exemption does not apply to nonvoting shares
or memberships of that corporation issued to any person who does
not possess, and who will not acquire in connection with the
issuance of nonvoting shares or memberships, voting power
(Section 12253) in the corporation. This exemption also does not
apply to shares or memberships issued by a nonprofit cooperative
corporation organized to facilitate the creation of an unincorporated
interindemnity arrangement that provides indemnification for
medical malpractice to its physician and surgeon members as set
forth in subdivision (q).

(s) Any security consisting of or representing an interest in a
pool of mortgage loans that meets each of the following
requirements:

(1) The pool consists of whole mortgage loans or participation
interests in those loans, which loans were originated or acquired
in the ordinary course of business by a national bank or federal
savings association or federal savings bank having its principal
office in this state, by a bank incorporated under the laws of this
state or by a savings association as defined in subdivision (a) of
Section 5102 of the Financial Code and which is subject to the
supervision and regulation of the Commissioner of Financial
Institutions, and each of which at the time of transfer to the pool
is an authorized investment for the originating or acquiring
institution.

(2) The pool of mortgage loans is held in trust by a trustee which
is a financial institution specified in paragraph (1) as trustee or
otherwise.

(3) The loans are serviced by a financial institution specified in
paragraph (1).

(4) The security is not offered in amounts of less than
twenty-five thousand dollars ($25,000) in the aggregate to any one
purchaser.

(5) The security is offered pursuant to a registration under the
Securities Act of 1933, or pursuant to an exemption under
Regulation A under that act, or in the opinion of counsel for the
issuer, is offered pursuant to an exemption under Section 4(2) of
that act.

(t) (1) Any security issued or guaranteed by and representing
an interest in or a direct obligation of an industrial loan company
incorporated under the laws of the state and authorized by the
Commissioner of Financial Institutions to engage in industrial loan
business.

(2) Any investment certificate in or issued by any industrial
loan company that is organized under the laws of a state of the
United States other than this state, that is insured by the Federal
Deposit Insurance Corporation, and that maintains a branch office
in this state.

SEC. 2.  

Section 25102 of the Corporations Code is amended
to read:

25102.  

The following transactions are exempted from the
provisions of Section 25110:

(a) Any offer (but not a sale) not involving any public offering
and the execution and delivery of any agreement for the sale of
securities pursuant to the offer if (1) the agreement contains
substantially the following provision: “The sale of the securities
that are the subject of this agreement has not been qualified with
the Commissioner of Corporations of the State of California and
the issuance of the securities or the payment or receipt of any part
of the consideration therefor prior to the qualification is unlawful,
unless the sale of securities is exempt from the qualification by
Section 25100, 25102, or 25105 of the California Corporations
Code. The rights of all parties to this agreement are expressly
conditioned upon the qualification being obtained, unless the sale
is so exempt”; and (2) no part of the purchase price is paid or
received and none of the securities are issued until the sale of the
securities is qualified under this law unless the sale of securities
is exempt from the qualification by this section, Section 25100,
or 25105.

(b) Any offer (but not a sale) of a security for which a
registration statement has been filed under the Securities Act of
1933 but has not yet become effective, or for which an offering
statement under Regulation A has been filed but has not yet been
qualified, if no stop order or refusal order is in effect and no public
proceeding or examination looking towards an order is pending
under Section 8 of the act and no order under Section 25140 or
subdivision (a) of Section 25143 is in effect under this law.

(c) Any offer (but not a sale) and the execution and delivery of
any agreement for the sale of securities pursuant to the offer as
may be permitted by the commissioner upon application. Any
negotiating permit under this subdivision shall be conditioned to
the effect that none of the securities may be issued and none of
the consideration therefor may be received or accepted until the
sale of the securities is qualified under this law.

(d) Any transaction or agreement between the issuer and an
underwriter or among underwriters if the sale of the securities is
qualified, or exempt from qualification, at the time of distribution
thereof in this state, if any.

(e) Any offer or sale of any evidence of indebtedness, whether
secured or unsecured, and any guarantee thereof, in a transaction
not involving any public offering.

(f) Any offer or sale of any security in a transaction (other than
an offer or sale to a pension or profit-sharing trust of the issuer)
that meets each of the following criteria:

(1) Sales of the security are not made to more than 35 persons,
including persons not in this state.

(2) All purchasers either have a preexisting personal or business
relationship with the offer or any of its partners, officers, directors
or controlling persons, or managers (as appointed or elected by
the members) if the offeror is a limited liability company, or by
reason of their business or financial experience or the business or
financial experience of their professional advisers who are
unaffiliated with and who are not compensated by the issuer or
any affiliate or selling agent of the issuer, directly or indirectly,
could be reasonably assumed to have the capacity to protect their
own interests in connection with the transaction.

(3) Each purchaser represents that the purchaser is purchasing
for the purchaser’s own account (or a trust account if the purchaser
is a trustee) and not with a view to or for sale in connection with
any distribution of the security.

(4) The offer and sale of the security is not accomplished by
the publication of any advertisement. The number of purchasers
referred to above is exclusive of any described in subdivision (i),
any officer, director, or affiliate of the issuer, or manager (as
appointed or elected by the members) if the issuer is a limited
liability company, and any other purchaser who the commissioner
designates by rule. For purposes of this section, spouses (together
with any custodian or trustee acting for the account of their minor
children) are counted as one person and a partnership, corporation,
or other organization that was not specifically formed for the
purpose of purchasing the security offered in reliance upon this
exemption, is counted as one person. The commissioner shall by
rule require the issuer to file a notice of transactions under this
subdivision.

The failure to file the notice or the failure to file the notice within
the time specified by the rule of the commissioner shall not affect
the availability of the exemption. Any issuer that fails to file the
notice as provided by rule of the commissioner shall, within 15
business days after discovery of the failure to file the notice or
after demand by the commissioner, whichever occurs first, file the
notice and pay to the commissioner a fee equal to the fee payable
had the transaction been qualified under Section 25110. Neither
the filing of the notice nor the failure by the commissioner to
comment thereon precludes the commissioner from taking any
action that the commissioner deems necessary or appropriate under
this division with respect to the offer and sale of the securities.

(g) Any offer or sale of conditional sale agreements, equipment
trust certificates, or certificates of interest or participation therein
or partial assignments thereof, covering the purchase of railroad
rolling stock or equipment or the purchase of motor vehicles,
aircraft, or parts thereof, in a transaction not involving any public
offering.

(h) Any offer or sale of voting common stock by a corporation
incorporated in any state if, immediately after the proposed sale
and issuance, there will be only one class of stock of the
corporation outstanding that is owned beneficially by no more than
35 persons, provided all of the following requirements have been
met:

(1) The offer and sale of the stock is not accompanied by the
publication of any advertisement, and no selling expenses have
been given, paid, or incurred in connection therewith.

(2) The consideration to be received by the issuer for the stock
to be issued consists of any of the following:

(A) Only assets (which may include cash) of an existing business
enterprise transferred to the issuer upon its initial organization, of
which all of the persons who are to receive the stock to be issued
pursuant to this exemption were owners during, and the enterprise
was operated for, a period of not less than one year immediately
preceding the proposed issuance, and the ownership of the
enterprise immediately prior to the proposed issuance was in the
same proportions as the shares of stock are to be issued.

(B) Only cash or cancellation of indebtedness for money
borrowed, or both, upon the initial organization of the issuer,
provided all of the stock is issued for the same price per share.

(C) Only cash, provided the sale is approved in writing by each
of the existing shareholders and the purchaser or purchasers are
existing shareholders.

(D) In a case where after the proposed issuance there will be
only one owner of the stock of the issuer, only any legal
consideration.

(3) No promotional consideration has been given, paid, or
incurred in connection with the issuance. Promotional consideration
means any consideration paid directly or indirectly to a person
who, acting alone or in conjunction with one or more other persons,
takes the initiative in founding and organizing the business or
enterprise of an issuer for services rendered in connection with the
founding or organizing.

(4) A notice in a form prescribed by rule of the commissioner,
signed by an active member of the State Bar of California, is filed
with or mailed for filing to the commissioner not later than 10
business days after receipt of consideration for the securities by
the issuer. That notice shall contain an opinion of the member of
the State Bar of California that the exemption provided by this
subdivision is available for the offer and sale of the securities. The
failure to file the notice as required by this subdivision and the
rules of the commissioner shall not affect the availability of this
exemption. An issuer who fails to file the notice within the time
specified by this subdivision shall, within 15 business days after
discovery of the failure to file the notice or after demand by the
commissioner, whichever occurs first, file the notice and pay to
the commissioner a fee equal to the fee payable had the transaction
been qualified under Section 25110. The notice, except when filed
on behalf of a California corporation, shall be accompanied by an
irrevocable consent, in the form that the commissioner by rule
prescribes, appointing the commissioner or his or her successor in
office to be the issuer’s attorney to receive service of any lawful
process in any noncriminal suit, action, or proceeding against it
or its successor that arises under this law or any rule or order
hereunder after the consent has been filed, with the same force and
validity as if served personally on the issuer. An issuer on whose
behalf a consent has been filed in connection with a previous
qualification or exemption from qualification under this law (or
application for a permit under any prior law if the application or
notice under this law states that the consent is still effective) need
not file another. Service may be made by leaving a copy of the
process in the office of the commissioner, but it is not effective
unless (A) the plaintiff, who may be the commissioner in a suit,
action, or proceeding instituted by him or her, forthwith sends
notice of the service and a copy of the process by registered or
certified mail to the defendant or respondent at its last address on
file with the commissioner, and (B) the plaintiff’s affidavit of
compliance with this section is filed in the case on or before the
return day of the process, if any, or within the further time as the
court allows.

(5) Each purchaser represents that the purchaser is purchasing
for the purchaser’s own account, or a trust account if the purchaser
is a trustee, and not with a view to or for sale in connection with
any distribution of the stock.

For the purposes of this subdivision, all securities held by
spouses, whether or not jointly, shall be considered to be owned
by one person, and all securities held by a corporation that has
issued stock pursuant to this exemption shall be considered to be
held by the shareholders to whom it has issued the stock.

All stock issued by a corporation pursuant to this subdivision as
it existed prior to the effective date of the amendments to this
section made during the 1996 portion of the 1995-96 Regular
Session that required the issuer to have stamped or printed
prominently on the face of the stock certificate a legend in a form
prescribed by rule of the commissioner restricting transfer of the
stock in a manner provided for by that rule shall not be subject to
the transfer restriction legend requirement and, by operation of
law, the corporation is authorized to remove that transfer restriction
legend from the certificates of those shares of stock issued by the
corporation pursuant to this subdivision as it existed prior to the
effective date of the amendments to this section made during the
1996 portion of the 1995-96 Regular Session.

(i) Any offer or sale (1) to a bank, savings and loan association,
trust company, insurance company, investment company registered
under the Investment Company Act of 1940, pension or
profit-sharing trust (other than a pension or profit-sharing trust of
the issuer, a self-employed individual retirement plan, or individual
retirement account), or other institutional investor or governmental
agency or instrumentality that the commissioner may designate
by rule, whether the purchaser is acting for itself or as trustee, or
(2) to any corporation with outstanding securities registered under
Section 12 of the Securities Exchange Act of 1934 or any wholly
owned subsidiary of the corporation that after the offer and sale
will own directly or indirectly 100 percent of the outstanding
capital stock of the issuer, provided the purchaser represents that
it is purchasing for its own account (or for the trust account) for
investment and not with a view to or for sale in connection with
any distribution of the security.

(j) Any offer or sale of any certificate of interest or participation
in an oil or gas title or lease (including subsurface gas storage and
payments out of production) if either of the following apply:

(1) All of the purchasers meet one of the following requirements:

(A) Are and have been during the preceding two years engaged
primarily in the business of drilling for, producing, or refining oil
or gas (or whose corporate predecessor, in the case of a corporation,
has been so engaged).

(B) Are persons described in paragraph (1) of subdivision (i).

(C) Have been found by the commissioner upon written
application to be substantially engaged in the business of drilling
for, producing, or refining oil or gas so as not to require the
protection provided by this law (which finding shall be effective
until rescinded).

(2) The security is concurrently hypothecated to a bank in the
ordinary course of business to secure a loan made by the bank,
provided that each purchaser represents that it is purchasing for
its own account for investment and not with a view to or for sale
in connection with any distribution of the security.

(k) Any offer or sale of any security under, or pursuant to, a
plan of reorganization under Chapter 11 of the federal bankruptcy
law that has been confirmed or is subject to confirmation by the
decree or order of a court of competent jurisdiction.

(l) Any offer or sale of an option, warrant, put, call, or straddle,
and any guarantee of any of these securities, by a person who is
not the issuer of the security subject to the right, if the transaction,
had it involved an offer or sale of the security subject to the right
by the person, would not have violated Section 25110 or 25130.

(m) Any offer or sale of a stock to a pension, profit-sharing,
stock bonus, or employee stock ownership plan, provided that (1)
the plan meets the requirements for qualification under Section
401 of the Internal Revenue Code, and (2) the employees are not
required or permitted individually to make any contributions to
the plan. The exemption provided by this subdivision shall not be
affected by whether the stock is contributed to the plan, purchased
from the issuer with contributions by the issuer or an affiliate of
the issuer, or purchased from the issuer with funds borrowed from
the issuer, an affiliate of the issuer, or any other lender.

(n) Any offer or sale of any security in a transaction, other than
an offer or sale of a security in a rollup transaction, that meets all
of the following criteria:

(1) The issuer is (A) a California corporation or foreign
corporation that, at the time of the filing of the notice required
under this subdivision, is subject to Section 2115, or (B) any other
form of business entity, including without limitation a partnership
or trust organized under the laws of this state. The exemption
provided by this subdivision is not available to a “blind pool”
issuer, as that term is defined by the commissioner, or to an
investment company subject to the Investment Company Act of
1940.

(2) Sales of securities are made only to qualified purchasers or
other persons the issuer reasonably believes, after reasonable
inquiry, to be qualified purchasers. A corporation, partnership, or
other organization specifically formed for the purpose of acquiring
the securities offered by the issuer in reliance upon this exemption
may be a qualified purchaser if each of the equity owners of the
corporation, partnership, or other organization is a qualified
purchaser. Qualified purchasers include the following:

(A) A person designated in Section 260.102.13 of Title 10 of
the California Code of Regulations.

(B) A person designated in subdivision (i) or any rule of the
commissioner adopted thereunder.

(C) A pension or profit-sharing trust of the issuer, a
self-employed individual retirement plan, or an individual
retirement account, if the investment decisions made on behalf of
the trust, plan, or account are made solely by persons who are
qualified purchasers.

(D) An organization described in Section 501(c)(3) of the
Internal Revenue Code, corporation, Massachusetts or similar
business trust, or partnership, each with total assets in excess of
five million dollars ($5,000,000) according to its most recent
audited financial statements.

(E) With respect to the offer and sale of one class of voting
common stock of an issuer or of preferred stock of an issuer
entitling the holder thereof to at least the same voting rights as the
issuer’s one class of voting common stock, provided that the issuer
has only one-class voting common stock outstanding upon
consummation of the offer and sale, a natural person who, either
individually or jointly with the person’s spouse, (i) has a minimum
net worth of two hundred fifty thousand dollars ($250,000) and
had, during the immediately preceding tax year, gross income in
excess of one hundred thousand dollars ($100,000) and reasonably
expects gross income in excess of one hundred thousand dollars
($100,000) during the current tax year or (ii) has a minimum net
worth of five hundred thousand dollars ($500,000). “Net worth”
shall be determined exclusive of home, home furnishings, and
automobiles. Other assets included in the computation of net worth
may be valued at fair market value.

Each natural person specified above, by reason of his or her
business or financial experience, or the business or financial
experience of his or her professional adviser, who is unaffiliated
with and who is not compensated, directly or indirectly, by the
issuer or any affiliate or selling agent of the issuer, can be
reasonably assumed to have the capacity to protect his or her
interests in connection with the transaction. The amount of the
investment of each natural person shall not exceed 10 percent of
the net worth, as determined by this subparagraph, of that natural
person.

(F) Any other purchaser designated as qualified by rule of the
commissioner.

(3) Each purchaser represents that the purchaser is purchasing
for the purchaser’s own account (or trust account, if the purchaser
is a trustee) and not with a view to or for sale in connection with
a distribution of the security.

(4) Each natural person purchaser, including a corporation,
partnership, or other organization specifically formed by natural
persons for the purpose of acquiring the securities offered by the
issuer, receives, at least five business days before securities are
sold to, or a commitment to purchase is accepted from, the
purchaser, a written offering disclosure statement that shall meet
the disclosure requirements of Regulation D (17 C.F.R. 230.501
et seq.), and any other information as may be prescribed by rule
of the commissioner, provided that the issuer shall not be obligated
pursuant to this paragraph to provide this disclosure statement to
a natural person qualified under Section 260.102.13 of Title 10 of
the California Code of Regulations. The offer or sale of securities
pursuant to a disclosure statement required by this paragraph that
is in violation of Section 25401, or that fails to meet the disclosure
requirements of Regulation D (17 C.F.R. 230.501 et seq.), shall
not render unavailable to the issuer the claim of an exemption from
Section 25110 afforded by this subdivision. This paragraph does
not impose, directly or indirectly, any additional disclosure
obligation with respect to any other exemption from qualification
available under any other provision of this section.

(5) (A) A general announcement of proposed offering may be
published by written document only, provided that the general
announcement of proposed offering sets forth the following
required information:

(i) The name of the issuer of the securities.

(ii) The full title of the security to be issued.

(iii) The anticipated suitability standards for prospective
purchasers.

(iv) A statement that (I) no money or other consideration is
being solicited or will be accepted, (II) an indication of interest
made by a prospective purchaser involves no obligation or
commitment of any kind, and, if the issuer is required by paragraph
(4) to deliver a disclosure statement to prospective purchasers,
(III) no sales will be made or commitment to purchase accepted
until five business days after delivery of a disclosure statement
and subscription information to the prospective purchaser in
accordance with the requirements of this subdivision.

(v) Any other information required by rule of the commissioner.

(vi) The following legend: “For more complete information
about (Name of Issuer) and (Full Title of Security), send for
additional information from (Name and Address) by sending this
coupon or calling (Telephone Number).”

(B) The general announcement of proposed offering referred
to in subparagraph (A) may also set forth the following
information:

(i) A brief description of the business of the issuer.

(ii) The geographic location of the issuer and its business.

(iii) The price of the security to be issued, or, if the price is not
known, the method of its determination or the probable price range
as specified by the issuer, and the aggregate offering price.

(C) The general announcement of proposed offering shall
contain only the information that is set forth in this paragraph.

(D) Dissemination of the general announcement of proposed
offering to persons who are not qualified purchasers, without more,
shall not disqualify the issuer from claiming the exemption under
this subdivision.

(6) No telephone solicitation shall be permitted until the issuer
has determined that the prospective purchaser to be solicited is a
qualified purchaser.

(7) The issuer files a notice of transaction under this subdivision
both (A) concurrent with the publication of a general announcement
of proposed offering or at the time of the initial offer of the
securities, whichever occurs first, accompanied by a filing fee, and
(B) within 10 business days following the close or abandonment
of the offering, but in no case more than 210 days from the date
of filing the first notice. The first notice of transaction under
subparagraph (A) shall contain an undertaking, in a form acceptable
to the commissioner, to deliver any disclosure statement required
by paragraph (4) to be delivered to prospective purchasers, and
any supplement thereto, to the commissioner within 10 days of
the commissioner’s request for the information. The exemption
from qualification afforded by this subdivision is unavailable if
an issuer fails to file the first notice required under subparagraph
(A) or to pay the filing fee. The commissioner has the authority
to assess an administrative penalty of up to one thousand dollars
($1,000) against an issuer that fails to deliver the disclosure
statement required to be delivered to the commissioner upon the
commissioner’s request within the time period set forth above.
Neither the filing of the disclosure statement nor the failure by the
commissioner to comment thereon precludes the commissioner
from taking any action deemed necessary or appropriate under this
division with respect to the offer and sale of the securities.

(o) An offer or sale of any security issued by a corporation or
limited liability company pursuant to a purchase plan or agreement,
or issued pursuant to an option plan or agreement, where the
security at the time of issuance or grant is exempt from registration
under the Securities Act of 1933, as amended, pursuant to Rule
701 adopted pursuant to that act (17 C.F.R. 230.701), the provisions
of which are hereby incorporated by reference into this section,
provided that (1) the terms of any purchase plan or agreement shall
comply with Sections 260.140.42, 260.140.45, and 260.140.46 of
Title 10 of the California Code of Regulations, (2) the terms of
any option plan or agreement shall comply with Sections
260.140.41, 260.140.45, and 260.140.46 of Title 10 of the
California Code of Regulations, and (3) the issuer files a notice of
transaction in accordance with rules adopted by the commissioner
no later than 30 days after the initial issuance of any security under
that plan, accompanied by a filing fee as prescribed by subdivision
(y) of Section 25608. The failure to file the notice of transaction
within the time specified in this subdivision shall not affect the
availability of this exemption. An issuer that fails to file the notice
shall, within 15 business days after discovery of the failure to file
the notice or after demand by the commissioner, whichever occurs
first, file the notice and pay the commissioner a fee equal to the
maximum aggregate fee payable had the transaction been qualified
under Section 25110.

Offers and sales exempt pursuant to this subdivision shall be
deemed to be part of a single, discrete offering and are not subject
to integration with any other offering or sale, whether qualified
under Chapter 2 (commencing with Section 25110), or otherwise
exempt, or not subject to qualification.

(p) An offer or sale of nonredeemable securities to accredited
investors (Section 28031) by a person licensed under the Capital
Access Company Law (Division 3 (commencing with Section
28000) of Title 4), provided that all purchasers either (1) have a
preexisting personal or business relationship with the offeror or
any of its partners, officers, directors, controlling persons, or
managers (as appointed or elected by the members), or (2) by
reason of their business or financial experience or the business or
financial experience of their professional advisers who are
unaffiliated with and who are not compensated by the issuer or
any affiliate or selling agent of the issuer, directly or indirectly,
could be reasonably assumed to have the capacity to protect their
own interests in connection with the transaction. All nonredeemable
securities shall be evidenced by certificates that shall have stamped
or printed prominently on their face a legend in a form to be
prescribed by rule or order of the commissioner restricting transfer
of the securities in the manner as the rule or order provides. The
exemption under this subdivision shall not be available for any
offering that is exempt or asserted to be exempt pursuant to Section
3(a)(11) of the Securities Act of 1933 (15 U.S.C. Sec. 77c(a)(11))
or Rule 147 (17 C.F.R. 230.147) thereunder or otherwise is
conducted by means of any form of general solicitation or general
advertising.

(q) Any offer or sale of any viatical or life settlement contract
or fractionalized or pooled interest therein in a transaction that
meets all of the following criteria:

(1) Sales of securities described in this subdivision are made
only to qualified purchasers or other persons the issuer reasonably
believes, after reasonable inquiry, to be qualified purchasers. A
corporation, partnership, or other organization specifically formed
for the purpose of acquiring the securities offered by the issuer in
reliance upon this exemption may be a qualified purchaser only if
each of the equity owners of the corporation, partnership, or other
organization is a qualified purchaser. Qualified purchasers include
the following:

(A) A person designated in Section 260.102.13 of Title 10 of
the California Code of Regulations.

(B) A person designated in subdivision (i) or any rule of the
commissioner adopted thereunder.

(C) A pension or profit-sharing trust of the issuer, a
self-employed individual retirement plan, or an individual
retirement account, if the investment decisions made on behalf of
the trust, plan, or account are made solely by persons who are
qualified purchasers.

(D) An organization described in Section 501(c)(3) of the
Internal Revenue Code, corporation, Massachusetts or similar
business trust, or partnership, each with total assets in excess of
five million dollars ($5,000,000) according to its most recent
audited financial statements.

(E) A natural person who, either individually or jointly with the
person’s spouse, (i) has a minimum net worth of one hundred fifty
thousand dollars ($150,000) and had, during the immediately
preceding tax year, gross income in excess of one hundred thousand
dollars ($100,000) and reasonably expects gross income in excess
of one hundred thousand dollars ($100,000) during the current tax
year or (ii) has a minimum net worth of two hundred fifty thousand
dollars ($250,000). “Net worth” shall be determined exclusive of
home, home furnishings, and automobiles. Other assets included
in the computation of net worth may be valued at fair market value.

Each natural person specified above, by reason of his or her
business or financial experience, or the business or financial
experience of his or her professional adviser, who is unaffiliated
with and who is not compensated, directly or indirectly, by the
issuer or any affiliate or selling agent of the issuer, can be
reasonably assumed to have the capacity to protect his or her
interests in connection with the transaction.

The amount of the investment of each natural person shall not
exceed 10 percent of the net worth, as determined by this
subdivision, of that natural person.

(F) Any other purchaser designated as qualified by rule of the
commissioner.

(2) Each purchaser represents that the purchaser is purchasing
for the purchaser’s own account (or trust account, if the purchaser
is a trustee) and not with a view to or for sale in connection with
a distribution of the security.

(3) Each natural person purchaser, including a corporation,
partnership, or other organization specifically formed by natural
persons for the purpose of acquiring the securities offered by the
issuer, receives, at least five business days before securities
described in this subdivision are sold to, or a commitment to
purchase is accepted from, the purchaser, the following information
in writing:

(A) The name, principal business and mailing address, and
telephone number of the issuer.

(B) The suitability standards for prospective purchasers as set
forth in paragraph (1) of this subdivision.

(C) A description of the issuer’s type of business organization
and the state in which the issuer is organized or incorporated.

(D) A brief description of the business of the issuer.

(E) If the issuer retains ownership or becomes the beneficiary
of the insurance policy, an audit report of an independent certified
public accountant together with a balance sheet and related
statements of income, retained earnings, and cashflows that reflect
the issuer’s financial position, the results of the issuer’s operations,
and the issuer’s cashflows as of a date within 15 months before
the date of the initial issuance of the securities described in this
subdivision. The financial statements listed in this subparagraph
shall be prepared in conformity with generally accepted accounting
principles. If the date of the audit report is more than 120 days
before the date of the initial issuance of the securities described
in this subdivision, the issuer shall provide unaudited interim
financial statements.

(F) The names of all directors, officers, partners, members, or
trustees of the issuer.

(G) A description of any order, judgment, or decree that is final
as to the issuing entity of any state, federal, or foreign country
governmental agency or administrator, or of any state, federal, or
foreign country court of competent jurisdiction (i) revoking,
suspending, denying, or censuring for cause any license, permit,
or other authority of the issuer or of any director, officer, partner,
member, trustee, or person owning or controlling, directly or
indirectly, 10 percent or more of the outstanding interest or equity
securities of the issuer, to engage in the securities, commodities,
franchise, insurance, real estate, or lending business or in the offer
or sale of securities, commodities, franchises, insurance, real estate,
or loans, (ii) permanently restraining, enjoining, barring,
suspending, or censuring any such person from engaging in or
continuing any conduct, practice, or employment in connection
with the offer or sale of securities, commodities, franchises,
insurance, real estate, or loans, (iii) convicting any such person
of, or pleading nolo contendere by any such person to, any felony
or misdemeanor involving a security, commodity, franchise,
insurance, real estate, or loan, or any aspect of the securities,
commodities, franchise, insurance, real estate, or lending business,
or involving dishonesty, fraud, deceit, embezzlement, fraudulent
conversion, or misappropriation of property, or (iv) holding any
such person liable in a civil action involving breach of a fiduciary
duty, fraud, deceit, embezzlement, fraudulent conversion, or
misappropriation of property. This subparagraph does not apply
to any order, judgment, or decree that has been vacated, overturned,
or is more than 10 years old.

(H) Notice of the purchaser’s right to rescind or cancel the
investment and receive a refund pursuant to Section 25508.5.

(I) The name, address, and telephone number of the issuing
insurance company, and the name, address, and telephone number
of the state or foreign country regulator of the insurance company.

(J) The total face value of the insurance policy and the
percentage of the insurance policy the purchaser will own.

(K) The insurance policy number, issue date, and type.

(L) If a group insurance policy, the name, address, and telephone
number of the group, and, if applicable, the material terms and
conditions of converting the policy to an individual policy,
including the amount of increased premiums.

(M) If a term insurance policy, the term and the name, address,
and telephone number of the person who will be responsible for
renewing the policy if necessary.

(N) That the insurance policy is beyond the state statute for
contestability and the reason therefor.

(O) The insurance policy premiums and terms of premium
payments.

(P) The amount of the purchaser’s moneys that will be set aside
to pay premiums.

(Q) The name, address, and telephone number of the person
who will be the insurance policy owner and the person who will
be responsible for paying premiums.

(R) The date on which the purchaser will be required to pay
premiums and the amount of the premium, if known.

(S) A statement to the effect that any projected rate of return to
the purchaser from the purchase of a viatical or life settlement
contract or a fractionalized or pooled interest therein is based on
an estimated life expectancy for the person insured under the life
insurance policy; that the return on the purchase may vary
substantially from the expected rate of return based upon the actual
life expectancy of the insured that may be less than, equal to, or
may greatly exceed the estimated life expectancy; and that the rate
of return would be higher if the actual life expectancy were less
than, and lower if the actual life expectancy were greater begin delete than end delete begin insert than, end insert
the estimated life expectancy of the insured at the time the viatical
or life settlement contract was closed.

(T) A statement that the purchaser should consult with his or
her tax adviser regarding the tax consequences of the purchase of
the viatical or life settlement contract or fractionalized or pooled
interest therein and, if the purchaser is using retirement funds or
accounts for that purchase, whether or not any adverse tax
consequences might result from the use of those funds for the
purchase of that investment.

(U) Any other information as may be prescribed by rule of the
commissioner.

begin delete

(r) Any offer or sale of any security, that meets each of the
following criteria:

(1) The aggregate amount of securities sold to all purchasers
by the issuer pursuant to this subdivision within any 12-month
period does not exceed five hundred thousand dollars ($500,000).

(2) The aggregate amount of securities sold to any purchaser
by the issuer under this subdivision, including any amount sold
during the 12-month period preceding the date of the transaction,
does not exceed the following:

(A) One thousand dollars ($1,000), or a greater amount as the
commissioner may provide by rule or order, if the investor is not
an accredited investor, as defined in Section 230.501 of Title 17
of the Code of Federal Regulations.

(B) Five percent of the investor’s net worth, if the investor is
an accredited investor, as defined in Section 230.501 of Title 17
of the Code of Federal Regulations.

(3) Each purchaser represents that the purchaser is purchasing
for the purchaser’s own account, or a trust account if the purchaser
is a trustee, and not with a view to or for sale in connection with
any distribution of the security.

(4) For purposes of this subdivision, spouses, together with any
custodian or trustee acting for the account of their minor children,
are counted as one person, and a partnership, corporation, or other
organization that was not specifically formed for the purpose of
purchasing the security offered in reliance upon this exemption,
is counted as one person.

(5) The commissioner shall by rule require the issuer to file a
notice of transaction under this subdivision. The issuer shall file
the notice of transactions and attach all documents required in
paragraph (7).

(6) The exemption from qualification afforded by this
subdivision is unavailable if an issuer fails to file the notice within
a time period specified by the commissioner by rule. Neither the
filing of the notice nor the failure by the commissioner to comment
thereon precludes the commissioner from taking any action that
the commissioner deems necessary or appropriate under this
division with respect to the offer and sale of the securities.

(7) The issuer provides to purchasers, and makes available to
potential purchasers the following:

(A) A cover sheet or heading containing all of the following
statements, in bold typeface no smaller than 12-point type:

(i) Investment in a small business is often risky. You should not
invest any funds in this offering unless you can afford to lose your
entire investment.

(ii) Potential purchasers should review information about the
enterprise and offering, and consider the terms and risks of this
offering before investing. After reviewing the financial information,
description of the business, activities, risk factors, and development
time line, potential purchasers should consider whether success of
the enterprise is realistic.

(iii) No government regulator is recommending these securities.
No government regulator has verified that this document is accurate
or determined that it is adequate. No government regulator has
recommended or given approval to, any person, security, or
transaction associated with this offering.

(B) The issuer’s street address, telephone number, person to
contact with respect to the offering, type of securities offered,
financial terms of the offering, the minimum amount the issuer is
seeking to raise, a description of the business of the issuer, a
description of how the issuer plans to carry out its activities, a
budget for the use of proceeds of the offering, a list of the factors
that the issuer considers to be the most significant risks to an
investor, and a description in chronological order of the steps
management intends to take to achieve, maintain, or improve
profitability during the 36 months following receipt of the offering
proceeds.

(C) The income tax returns filed by the issuer for the most recent
completed year, if any.

(D) The financial statements of the issuer for the most recent
completed fiscal year, if the business has existed for one year or
longer, and the current fiscal year to date, prepared in accordance
with generally accepted accounting principles, and certified by the
principal executive officer of the issuer to be true and complete in
all material respects.

(E) A written statement of information about any material legal
proceedings involving the issuer or its officers and directors.

(8) This exemption cannot be used to raise funds for an
enterprise dependent upon the creation of a product or technology
for which no fully functional prototype has been made in advance
of the public offering of securities. Securities offerings made to
raise funds to produce a newly invented product must have a fully
functional prototype. The prototype must be demonstrated in person
to any potential investor upon request, or, to satisfy many requests
for demonstration, the issuer may schedule several demonstrations
throughout the offering and announce the dates and times in
advance to prospective purchasers along with the materials
described in paragraph (7).

(9) Issuers using this exemption may advertise the offering to
California investors only, unless the offering complies with the
securities laws of other jurisdictions. Issuers must take steps to
ensure that any public advertising indicates that the offering is
directed at California residents, or that any solicitations made to
nonresidents of California comply with applicable laws of other
individual states and the United States.

(10) The exemption from qualification afforded by this
subdivision is unavailable if an issuer or any officer, director,
partner, partial owner of 20 percent or more of the issuer, or person
in a managerial role of the issuer has been disqualified from using
any securities registration exemption under Section 230.506(d)(1)
of Title 17 of the Code of Federal Regulations.

end delete begin delete

(s)

end delete

begin insert (r) end insert  Any offer or sale of any security in a transaction that meets
each of the following criteria:

(1) At least 75 percent of the amount raised through the offering
will be reserved or allocated to any of the following for agricultural
purposes: purchase of fee title to real property, lease of 30 years
or more of real property, purchase of an easement on real property,
construction of real property, or improvement to real property.

(2) The issuer is an agricultural enterprise that is
majority-controlled by one or more individuals who will actively
farm the agricultural land to be purchased, leased, or improved
and who plan to be actively engaged in the agricultural enterprise,
the issuer is a nonprofit public benefit corporation, or the issuer is
majority-controlled by a nonprofit public benefit corporation.

(3) The aggregate amount of securities sold to all purchasers
by the issuer pursuant to this subdivision within any 12-month
period does not exceed two million dollars ($2,000,000).

(4) (A) The aggregate amount of the issuer’s securities held by
any purchaser pursuant to this subdivision does not exceed one of
the following:

(i) Two thousand dollars ($2,000).

(ii) Five thousand dollars ($5,000), if the purchaser signs and
provides to the issuer a statement verifying that the purchaser has
a minimum annual gross income of one hundred thousand dollars
($100,000) or a minimum net worth of two hundred thousand
dollars ($200,000).

(iii) No more than 5 percent of that investor’s net worth if the
purchaser is an accredited investor, as defined in Section 230.501
of Title 17 of the Code of Federal Regulations.

(iv) A greater amount from any purchaser as the commissioner
may provide by rule or order.

(B) For purposes of this paragraph, net worth shall be
determined exclusive of home, home furnishings, and automobiles.
Other assets included in the computation of net worth may be
valued at fair market value.

(5) The issuer sets aside in a separate third-party escrow account
all funds raised as part of the offering, to be held in escrow until
the issuer has entered into a contract to purchase a property,
easement, or equipment, or to lease land in accordance with
paragraph (1). If the issuer does not enter into such a contract
within two years of the effective date of the offering, the issuer
shall return all funds to the purchasers. This required use of an
escrow account shall not apply to purchases of farmland equipment
or easements where the good faith estimated cost of the equipment
or easement does not exceed one hundred thousand dollars
($100,000) and where the total amount of the funds the issuer
raises in any 12-month period does not exceed one hundred
thousand dollars ($100,000).

(6) Each purchaser represents that the purchaser is purchasing
for the purchaser’s own account, or a trust account if the purchaser
is a trustee, and not with a view to or for sale in connection with
any distribution of the security.

(7) For purposes of this subdivision, spouses, together with any
custodian or trustee acting for the account of their minor children,
are counted as one person, and a partnership, corporation, or other
organization that was not specifically formed for the purpose of
purchasing the security offered in reliance upon this exemption,
is counted as one person.

(8) The commissioner shall by rule require the issuer to file a
notice of transaction under this subdivision. The issuer shall file
the notice of transaction and attach all documents required in
paragraph (10).

(9) The exemption from qualification afforded by this
subdivision is unavailable if an issuer fails to file the notice within
a time period specified by the commissioner by rule. Neither the
filing of the notice nor the failure by the commissioner to comment
thereon precludes the commissioner from taking any action that
the commissioner deems necessary or appropriate under this
division with respect to the offer and sale of the securities.

(10) The issuer provides to purchasers, and makes available to
potential purchasers, the following:

(A) A cover sheet or heading containing all of the following
statements, in bold typeface no smaller than 12-point type:

(i) Investment in a small business is often risky. You should not
invest any funds in this offering unless you can afford to lose your
entire investment.

(ii) Potential purchasers should review information about the
enterprise and offering, and consider the terms and risks of this
offering before investing. After reviewing the financial information,
description of the business, activities, risk factors, and development
time line, potential purchasers should consider whether success of
the enterprise is realistic.

(iii) No government regulator is recommending these securities.
No government regulator has verified that this document is accurate
or determined that it is adequate. No government regulator has
recommended or given approval to any person, security, or
transaction associated with this offering.

(iv) Unless the issuer is exempt from the escrow account
requirement pursuant to paragraph (5) the company described in
this disclosure form is seeking to raise at least [insert minimum
amount sought by issuer]. Investors’ funds will be placed into a
third-party escrow account until that minimum amount is raised.
If [insert name of issuer] does not raise [insert minimum amount
sought] by [insert date that is no greater than one year following
the start of the offering], your investment will be returned to you
within 30 days following that date. It is your responsibility to notify
the issuer if your address changes to ensure you receive any refund
due to you. Notification regarding a change in address may be
made by either of the following methods: [insert at least two
methods by which the issuer may be contacted regarding a change
in address].

(B) The issuer’s street address, telephone number, person to
contact with respect to offering, type of securities offered, financial
terms of the offering, the maximum amount the issuer is seeking
to raise, a description of the business of the issuer, a description
of how the issuer plans to carry out its activities, a budget for the
use of proceeds of the offering, a list of the factors that the issuer
considers to be the most significant risks to an investor, and a
description of the steps management intends to take to achieve,
maintain, or improve profitability during the 36 months following
receipt of the offering proceeds.

(C) If the intended use of the proceeds of the offering is to
purchase real property, and if the particular property to be
purchased has been identified, a description and address of the
property to be purchased, an appraisal of the property completed
within the last year by a California licensed or certified appraiser,
and a description of all improvements to be made on the property
in order to make it viable for agricultural use.

(D) If the intended use of the proceeds of the offering is to
purchase real property, and if the property to be purchased has not
been identified, a description of the size, location, estimated costs,
and characteristics of the property that the issuer is seeking.

(E) The income tax returns filed by the issuer for the most recent
completed year, if any.

(F) The financial statements of the issuer for the most recent
completed fiscal year, if any, and the current fiscal year to date,
prepared in accordance with generally accepted accounting
principles, and certified by the principal executive officer of the
issuer to be true and complete in all material respects.

(G) A written statement of information about any material legal
proceedings involving the company or its officers and directors.

(11) Issuers using this exemption may advertise the offering to
California investors only, unless the offering complies with the
securities laws of other jurisdictions. Issuers must take steps to
ensure that any public advertising indicates that the offering is
directed at California residents, or that any solicitations made to
nonresidents of California comply with applicable laws of other
individual states and the United States.

(12) The exemption from qualification afforded by this
subdivision is unavailable if an issuer or any officer, director,
partner, partial owner of 20 percent or more of the issuer, or person
in a managerial role of the issuer has been disqualified from using
any securities registration exemption under Section 230.506(d)(1)
of Title 17 of the Code of Federal Regulations.

begin delete

(t)

end delete

begin insert (s) end insert  Any offer or sale of any security in a transaction that meets
each of the following criteria:

(1) At least 75 percent of amounts raised through the offering
will be reserved or allocated to the purchase of solar photovoltaic
panels, wind turbines, equipment necessary for the generation,
storage, and transmission of energy generated by the solar panels
or wind turbines, or any labor necessary to install solar panels,
wind turbines, or any of the equipment necessary for the generation,
storage, and transmission of energy generated by solar panels or
wind turbines.

(2) The issuer meets any of the following qualifications:

(A) The issuer is a cooperative corporation or a nonprofit mutual
benefit corporation with one or more of the following purposes:

(i) Developing or operating facilities that produce solar or wind
energy for its members.

(ii) Selling or leasing solar photovoltaic panels or wind turbines
to its members or installing solar photovoltaic panels or wind
turbines for its members.

(iii) Allocating net metering credits among its members.

(B) The issuer is a nonprofit public benefit corporation that is
exempt from federal income taxation as an organization described
in Section 501(c)(3) or Section 501(c)(4) of the Internal Revenue
Code and the issuer is purchasing solar panels or wind turbines
primarily to meet the energy needs of the corporation.

(C) The issuer is a cooperative corporation that is operated on
a cooperative basis in accordance with Subchapter T of the Internal
Revenue Code and the issuer is purchasing solar panels or wind
turbines primarily to meet the energy needs of the corporation.

(D) The issuer is a California nonprofit public benefit
corporation, mutual benefit corporation, or cooperative with the
purpose of developing and operating one or more facilities to
generate electricity within a single county and intended for
customers within that county, or within a similarly limited
geographic area approved by the commissioner.

(E) The issuer is an entity owned or entirely controlled by
tenants in multitenant housing, and the issuer has entered into a
contract with the owner of the property to install solar panels on
the property on which the multitenant housing is located.

(3) The aggregate amount of securities sold to all purchasers
by the issuer pursuant to this subdivision within any 12-month
period does not exceed two million dollars ($2,000,000).

(4) (A) The aggregate amount of the issuer’s securities held by
any purchaser pursuant to this subdivision does not exceed one of
the following:

(i) Two thousand dollars ($2,000).

(ii) Five thousand dollars ($5,000), if the purchaser signs and
provides to the issuer a statement verifying that the purchaser has
a minimum annual gross income of one hundred thousand dollars
($100,000) or a minimum net worth of two hundred thousand
dollars ($200,000).

(iii) No more than 5 percent of that investor’s net worth if the
purchaser is an accredited investor, as defined in Section 230.501
of Title 17 of the Code of Federal Regulations.

(iv) A greater amount from any purchaser as the commissioner
may provide by rule or order.

(B) For purposes of this paragraph, net worth shall be
determined exclusive of home, home furnishings, and automobiles.
Other assets included in the computation of net worth may be
valued at fair market value.

(5) Each purchaser represents that the purchaser is purchasing
for the purchaser’s own account, or a trust account if the purchaser
is a trustee, and not with a view to or for sale in connection with
any distribution of the security.

(6) For purposes of this section, spouses, together with any
custodian or trustee acting for the account of their minor children,
are counted as one person, and a partnership, corporation, or other
organization that was not specifically formed for the purpose of
purchasing the security offered in reliance upon this exemption,
is counted as one person.

(7) The commissioner shall by rule require the issuer to file a
notice of transactions under this subdivision. The issuer shall file
the notice of transaction and attach all documents required in
paragraph (9).

(8) The exemption from qualification afforded by this
subdivision is unavailable if an issuer fails to file the notice within
a time period specified by the commissioner by rule. Neither the
filing of the notice nor the failure by the commissioner to comment
thereon precludes the commissioner from taking any action that
the commissioner deems necessary or appropriate under this
division with respect to the offer and sale of the securities.

(9) The issuer provides to purchasers, and makes available to
potential begin delete purchasers end delete begin insert purchasers, end insert the following:

(A) A cover sheet or heading containing all of the following
statements, in bold typeface no smaller than 12-point type:

(i) Investment in a small business is often risky. You should not
invest any funds in this offering unless you can afford to lose your
entire investment.

(ii) Potential purchasers should review information about the
enterprise and offering, and consider the terms and risks of this
offering before investing. After reviewing the financial information,
description of the business, activities, risk factors, and development
time line, potential purchasers should consider whether success of
the enterprise is realistic.

(iii) No government regulator is recommending these securities.
No government regulator has verified that this document is accurate
or determined that it is adequate. No government regulator has
recommended or given approval to any person, security, or
transaction associated with this offering.

(iv) The company described in this disclosure form is seeking
to raise at least [insert minimum amount sought by issuer].
Investors’ funds will be placed into a third-party escrow account
until that minimum amount is raised. If [insert name of issuer]
does not raise [insert minimum amount sought] by [insert date that
is no greater than one year following the start of the offering], your
investment will be returned to you within 30 days following that
date. It is your responsibility to notify the issuer if your address
changes, to ensure you receive any refund due to you. Notification
regarding a change in address may be made by either of the
following methods: [insert at least two methods by which the issuer
may be contacted regarding a change in address].

(B) The issuer’s street address, telephone number, person to
contact with respect to offering, the minimum amount the issuer
is seeking to raise, type of securities offered, financial terms of
the offering, a description of the business of the issuer, a
description of how the issuer plans to carry out its activities, a
budget for the use of proceeds of the offering, a list of the factors
that the issuer considers to be the most significant risks to an
investor, and a description in chronological order of the steps
management intends to take to achieve, maintain, or improve
profitability during the 36 months following receipt of the offering
proceeds.

(C) The income tax returns filed by the issuer for the most
recently completed year, if any.

(D) The financial statements of the issuer for the most recent
completed fiscal year, if the enterprise has existed for one year or
longer, and the current fiscal year to date, prepared in accordance
with generally accepted accounting principles, and certified by the
principal executive officer of the issuer to be true and complete in
all material respects.

(E) A written statement of information about any material legal
proceedings involving the issuer or its officers and directors.

(10) The issuer sets aside in a separate third-party escrow
account all funds raised as part of the offering, to be held in escrow
until the time that the minimum offering amount is reached. If the
minimum offering amount is not reached within one year following
the effective date of the offering, the issuer shall return all funds
to investors.

(11) This exemption cannot be used to raise funds for an
enterprise dependent upon the creation of a product or technology
for which no fully functional prototype has been made in advance
of the public offering of securities. Securities offerings made to
produce a newly invented product must have a fully functional
prototype. The prototype must be demonstrated in person to any
potential investor upon request, or, to satisfy many requests for
demonstration, the issuer may schedule several demonstrations
throughout the offering and announce the dates and times in
advance to prospective purchasers along with the materials.

(12) Issuers using this exemption may advertise the offering to
California investors only, unless the offering complies with the
securities laws of other jurisdictions. Issuers must take steps to
ensure that any public advertising indicates that the offering is
directed at California residents, or that any solicitations made to
nonresidents of California comply with applicable laws of other
individual states and the United States.

(13) The exemption from qualification afforded by this
subdivision is unavailable if an issuer or any officer, director,
partner, partial owner of 20 percent or more of the issuer, or person
in a managerial role of the issuer has been disqualified from using
any securities registration exemption under Section 230.506(d)(1)
of Title 17 of the Code of Federal Regulations.