BILL ANALYSIS Date of Hearing: July 12, 1995 SB 261 SENATE COMMITTEE ON FINANCE, INVESTMENT, AND INTERNATIONAL TRADE LUCY KILLEA, CHAIR SB 261 (Campbell) as amended July 3, 1995 Prior Action: None Fiscal Committee: Yes Summary: This bill exempts offers or sales of a security under a stock purchase or stock option plan that complies with the requirements of federal law, revises the provisions to exempt certain exchanges involved in a merger or sale of assets, provides for a minimum offering price of $2 per share of voting common stock, and preferred stock and imposes a fee for filing the notice of transactions relating to the offer or sales of securities. Digest: Existing law: 1. Makes it unlawful to offer or sell a security unless it is qualified or exempt from the Department of Corporations qualification requirements; 2. Exempts certain transactions from the qualification requirement applicable to offers or sales in an issuer transaction or in connection with certain reorganizations; 3. Exempts certain exchanges incident to a merger or sale of corporate assets from qualification requirements of federal law applicable to limited offers or certain SENATE COMMITTEE ON FINANCE, INVESTMENT AND INTERNATIONAL TRADE PAGE 1 HEARING: JULY 12, 1995 CAMPBELL - SB 261 compensatory benefit plans: 4. Permits a security for which a registration statement has been filed under the federal Securities Act of 1933 in connection with the same offering to be qualified under a specified federal securities regulation. 5. Provides for the qualification of certain securities by permit. Provides for the filing of a small company application for permit if it meets certain statutory requirements. These requirements include a minimum offering price of voting common stock of $5 per share and the submission of an application and disclosure document that has been reviewed and signed by each member of the board of directors. 6. Imposes various fees in connection with securities-related actions by the Commissioner of Corporations. This bill: 1. Additionally exempts offers and sales of a security under a stock purchase plan or stock option that complies with the requirements of federal law that is applicable to limited offer or certain compensatory benefit plans; 2. Revises the provisions to exempt certain exchanges incident to a merger, consolidation, or sale of assets concerning the issuance of equity securities of another entity if certain requirements are met; 3. Provides that the term oregistration statemento include an offering statement as defined under federal securities regulation; SENATE COMMITTEE ON FINANCE, INVESTMENT AND INTERNATIONAL TRADE PAGE 2 HEARING: JULY 12, 1995 CAMPBELL - SB 261 4. Provides for a minimum offering price of $2 per share of voting common stock, preferred stock, and the conversion of preferred stock into voting common stock; 5. Requires the application and disclosure document to be reviewed and signed by a majority of the members of the board of directors rather than each member; 6. Imposes a fee for filing the notice of transactions under provisions related to the offer or sale of securities under limited offers or certain compensatory benefit plans. This bill would increase the fee for filing a notice of an exchange incident to a merger, consolidation, or sale. Comments: This bill seeks to make a number of amendments to the California Securities Law. The supporters of this bill contend this is needed to increase options for capital access for small businesses. The supporters claim this bill would simplify the private offering procedure and would bring California rules into conformity with those of other states and federal securities law while reducing the cost of compliance and permit more companies to access the private capital markets. This bill provides for the following reforms to the California Securities Law: 1. An exemption from the qualification requirements of the California Securities Law for certain qualified employee stock purchase and stock option plans; 2. An exemption from the qualification requirements of the California Securities Law for certain mergers and reorganization based on the proposal originally set forth in Senate Bill 141 (Beverly); SENATE COMMITTEE ON FINANCE, INVESTMENT AND INTERNATIONAL TRADE PAGE 3 HEARING: JULY 12, 1995 CAMPBELL - SB 261 3. Elimination of the one class voting common stock restriction for certain small company applications under the California Securities Law; 4. Replacement of the requirement that all directors review and sign the application and disclosure document for certain small company applications under the California Securities Law with a provision that only a majority of the directors need to take such action; 5. Reduction of the minimum per share offering price restriction from $5 to $2 for certain small company applications under the California Securities Law; and 6. Qualification by coordination for federal Regulation A offerings. The proponents also believe the amendments to the California Securities Law will provide some of the needed reforms to improve and facilitate the California capital formation procedural and regulatory structure while increasing and optimizing investor fraud prevention and protection. This bill has been substantially amended since it was heard in this committee. The Department of Corporations provided technical assistance in the form of amendments to the author and committee staff. This bill in its present form balances the Department of Corporations historic policy of protecting investors with the public policy of facilitating capital formation. Support: Environmental Capital Corporation California State Bar Business Law Section Opposition: None reported to date: July 11, 1995 SENATE COMMITTEE ON FINANCE, INVESTMENT AND INTERNATIONAL TRADE PAGE 4 HEARING: JULY 12, 1995 CAMPBELL - SB 261 Contact: Jan L. Owen 445-6306 SENATE COMMITTEE ON FINANCE, INVESTMENT AND INTERNATIONAL TRADE PAGE 5 HEARING: JULY 12, 1995 CAMPBELL - SB 261