BILL NUMBER: AB 1688 AMENDED BILL TEXT AMENDED IN SENATE AUGUST 16, 1999 INTRODUCED BY Committee on Banking and Finance (Papan (Chair), Cox (Vice Chair), Alquist, Campbell, Florez, Frusetta, Gallegos, Machado, Mazzoni, Pescetti, and Washington) MARCH 18, 1999 An act to amend Sections2115 and 22001300, 2115, 2200, and 25219 of the Corporations Code, to amend Section 45308.5 of the Government Code, to amend Section 1170.3 of the Harbors and Navigation Code, to amend Sections 1792.2 and 25112.5 of the Health and Safety Code, and to amend Sections 1192.8 and 11521.2 of the Insurance Code, relating to foreign corporations. LEGISLATIVE COUNSEL'S DIGEST AB 1688, as amended, Committee on Banking and Finance. Foreign corporations: California law. (1) Existing law provides that a foreign corporation is subject to specified requirements of California law regarding corporate organization, liability, distributions, shareholder remedies, and other matters, if more than 1/2 of the outstanding voting securities are held of record by persons with addresses in this state, and the average of the property factor, the payroll factor, and the sales factor with respect to the corporation, as defined, is more than 50% during the latest full income year. Existing law also provides that these provisions do not apply to any corporation with outstanding securities that are listed on the New York or American Stock Exchanges, designated as qualified for trading on the NASDAQ provided that there are at least 800 shareholders thereof as specified, or that are all owned directly or indirectly by a corporation or corporations not subject to these provisions. Existing law also specifies the beginning and ending periods for which these requirements are applicable, based upon a defined time period following an income year in which the above tests are met or not met, or alternatively upon a final order by a court of competent jurisdiction declaring whether or not the corporation meets these tests. This bill would provide that for the purpose of determining whether a foreign corporation is subject to these requirements, the address of a shareholder shall be determined as of the record date for the latest meeting of shareholders held during the latest full income year, or if no meeting was held that year, as of the date of the last day of the latest full income year. This bill would also eliminate the requirement that a corporation have at least 800 shareholders of record in order to be exempted from these provisions on the basis that its securities are qualified for trading on the NASDAQ.This bill would also amend the list of specified requirements applicable to a foreign corporation meeting these tests to expressly exclude the personal liability of directors in connection with illegal distributions or the making of any loan or guaranty without the approval of a majority of shareholders, as specified. This bill would also exclude from these requirements a statutorily required construction of incorporation articles resulting in additional indemnification of directors and officers for breaches of corporate duty. This bill would state that internal cross-references to other provisions of the Corporations Code found in provisions listed in the above requirements shall be deemed to refer to an equivalent provision of law in the foreign corporation's state of incorporation, or the applicable law of another state to which the corporation is subject, that imposes the same or comparable requirements, unless the provision in question concerns a number of specified subjects, including limitations on the power of a corporation to eliminate or indemnify directors or agents or to provide for the reorganization of the board into staggered classes or for the use of cumulative voting, provisions regulating shareholder notice of specified categories of mergers and shareholder approval of specified asset sales, and provisions imposing specified penalties to be paid to shareholders by a corporation that neglects, fails, or refuses to keep or maintain required shareholder records or to prepare and submit financial statements and other specified information subject to written request and inspection by shareholders.(2) Existing law generally requires corporations to send to its shareholders an annual report, and additionally requires a corporation to comply with written shareholder requests for specified financial information. Existing law provides that these provisions may be enforced by a court of competent jurisdiction, and, under certain circumstances, the shareholder may be reimbursed for reasonable expenses, including attorney's fees, incurred in connection with such an action. This bill would provide that a foreign corporation that is subject to specified provisions of California law as discussed above, upon written request, shall, within 30 days, advise any shareholder of record, officer, director, employee, agent, or creditor of the corporation whether or not the corporation is subject to those provisions at the time the request is received. The bill would provide that any party who obtains a final determination by a court of competent jurisdiction that the corporation failed to provide this information or provided information that was incorrect, may be awarded court costs and reasonable attorney's fees to the extent they relate to obtaining that final determination. The bill would also provide that existing statutory damages provisions would apply in this situation and would run from the date the written request for information is received by the corporation, and that no additional request for information need be made for this statutory penalty to attach. (3) The bill would additionally incorporate and make applicable to securities listed on the National Market System of the NASDAQ Stock Market various provisions of state law relating to the following: the purchase of dissenting shares in connection with a corporate reorganization; the suspension of over-the-counter trading by agents and broker-dealers; a conflict of interest code for pilots involving the ownership of tugboats; the composition of reserves required to be maintained by entities executing or assuming continuing care contracts; the submission of disclosure statements by hazardous waste control applicants; authorized excess funds investments for domestic life insurers; authorized investments for reserves of annuity contracts; and authorized investments by certain governmental retirement systems in common and preferred stock, as specified. Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 1300 of the Corporations Code is amended to read: 1300. (a) If the approval of the outstanding shares (Section 152) of a corporation is required for a reorganization under subdivisions (a) and (b) or subdivision (e) or (f) of Section 1201, each shareholder of the corporation entitled to vote on the transaction and each shareholder of a subsidiary corporation in a short-form merger may, by complying with this chapter, require the corporation in which the shareholder holds shares to purchase for cash at their fair market value the shares owned by the shareholder which are dissenting shares as defined in subdivision (b). The fair market value shall be determined as of the day before the first announcement of the terms of the proposed reorganization or short-form merger, excluding any appreciation or depreciation in consequence of the proposed action, but adjusted for any stock split, reverse stock split, or share dividend which becomes effective thereafter. (b) As used in this chapter, "dissenting shares" means shares which come within all of the following descriptions: (1) Which were not immediately prior to the reorganization or short-form merger either (A) listed on any national securities exchange certified by the Commissioner of Corporations under subdivision (o) of Section 25100 or (B) listed on thelist of OTC margin stocks issued by the Board of Governors of the Federal Reserve SystemNational Market System of the NASDAQ Stock Market , and the notice of meeting of shareholders to act upon the reorganization summarizes this section and Sections 1301, 1302, 1303 and 1304; provided, however, that this provision does not apply to any shares with respect to which there exists any restriction on transfer imposed by the corporation or by any law or regulation; and provided, further, that this provision does not apply to any class of shares described in subparagraph (A) or (B) if demands for payment are filed with respect to 5 percent or more of the outstanding shares of that class. (2) Which were outstanding on the date for the determination of shareholders entitled to vote on the reorganization and (A) were not voted in favor of the reorganization or, (B) if described in subparagraph (A) or (B) of paragraph (1) (without regard to the provisos in that paragraph), were voted against the reorganization, or which were held of record on the effective date of a short-form merger; provided, however, that subparagraph (A) rather than subparagraph (B) of this paragraph applies in any case where the approval required by Section 1201 is sought by written consent rather than at a meeting. (3) Which the dissenting shareholder has demanded that the corporation purchase at their fair market value, in accordance with Section 1301. (4) Which the dissenting shareholder has submitted for endorsement, in accordance with Section 1302. (c) As used in this chapter, "dissenting shareholder" means the recordholder of dissenting shares and includes a transferee of record. SEC. 2. Section 2115 of the Corporations Code is amended to read: 2115. (a) A foreign corporation (other than a foreign association or foreign nonprofit corporation but including a foreign parent corporation even though it does not itself transact intrastate business) is subject to the requirements of subdivision (b), commencing on the date specified in subdivision (d) and continuing until the date specified in subdivision (e), if , with respect to a full income year : (1) the average of the property factor, the payroll factor, and the sales factor (as defined in Sections 25129, 25132, and 25134 of the Revenue and Taxation Code) with respect to it is more than 50 percent duringits latestthe full income year ; and (2) more than one-half of its outstanding voting securities are held of record by persons having addresses in this state appearing on the books of the corporation on the record date for the latest meeting of shareholders held duringits latestthe full income year, or, if no meeting of shareholders was held during that year, on the date specified in the articles of incorporation or bylaws for the holding of the annual meeting of shareholders during that year, or, if that date is not specified, on the last day ofits latestthe full income year. The property factor, payroll factor, and sales factor shall be those used in computing the portion of its income allocable to this state in its franchise tax return or, with respect to corporations the allocation of whose income is governed by special formulas or that are not required to file separate or any tax returns, which would have been so used if they were governed by this three-factor formula. The determination of these factors with respect to any parent corporation shall be made on a consolidated basis, including in a unitary computation (after elimination of intercompany transactions) the property, payroll, and sales of the parent and all of its subsidiaries in which it owns directly or indirectly more than 50 percent of the outstanding shares entitled to vote for the election of directors, but deducting a percentage of the property, payroll, and sales of any subsidiary equal to the percentage minority ownership, if any, in the subsidiary. For the purpose of this subdivision, any securities held to the knowledge of the issuer in the names of broker-dealers, nominees for broker-dealers (including clearing corporations), or banks, associations, or other entities holding securities in a nominee name or otherwise on behalf of a beneficial owner (collectively "Nominee Holders"), shall not be considered outstanding. However, if the foreign corporation requests all Nominee Holders to certify, with respect to all beneficial owners for whom securities are held, the number of shares held for those beneficial owners having addresses (as shown on the records of the Nominee Holder) in this state and outside of this state, then all shares so certified shall be considered outstanding and held of record by persons having addresses either in this state or outside of this state as so certified, provided that the certification so provided shall be retained with the record of shareholders and made available for inspection and copying in the same manner as is provided in Section 1600 with respect to that record. A current list of beneficial owners of a foreign corporation's securities provided to the corporation by one or more Nominee Holders or their agent pursuant to the requirements of Rule 14b-1(b)(3) or 14b-2(b)(3) as adopted on January 6, 1992, promulgated under the Securities Exchange Act of 1934, shall constitute an acceptable certification with respect to beneficial owners for the purposes of this subdivision. (b)(1) Subject to the provisions of paragraphs (2) and (3), and exceptExcept as provided in subdivision (c), the following chapters and sections of this division shall apply to a foreign corporation as defined in subdivision (a) (to the exclusion of the law of the jurisdiction in which it is incorporated): Chapter 1 (general provisions and definitions), to the extent applicable to the following provisions; Section 301 (annual election of directors); Section 303 (removal of directors without cause); Section 304 (removal of directors by court proceedings); Section 305, subdivision (c) (filling of director vacancies where less than a majority in office elected by shareholders); Section 309 (directors' standard of care); Section 316 (excluding paragraph (3) of subdivision(a), paragraph (3) of subdivision (c), the references to illegal loan or guaranty in subdivision (d), and paragraph(a) and paragraph (3) of subdivision (f)) (liability of directors for unlawful distributions); Section 317(excluding the third sentence of subdivision (g))(indemnification of directors, officers, and others); Sections 500 to 505, inclusive (limitations on corporate distributions in cash or property); Section 506 (liability of shareholder who receives unlawful distribution); Section 600, subdivisions (b) and (c) (requirement for annual shareholders' meeting and remedy if same not timely held); Section 708, subdivisions (a), (b), and (c) (shareholder's right to cumulate votes at any election of directors); Section 710 (supermajority vote requirement); Section 1001, subdivision (d) (limitations on sale of assets); Section 1101 (provisions following subdivision (e)) (limitations on mergers); Chapter 12 (commencing with Section 1200) (reorganizations); Chapter 13 (commencing with Section 1300) (dissenters' rights); Sections 1500 and 1501 (records and reports); Section 1508 (action by Attorney General); Chapter 16 (commencing with Section 1600) (rights of inspection).(2) Except as provided in subparagraphs (A) to (H), inclusive, the references in the sections of this code specified in paragraph (1) to other sections of this code (collective referred to herein as the "cross-referenced sections") or portions thereof not specified in that paragraph (collectively referred to herein as the "secondary cross-referenced sections") shall not subject a foreign corporation to the requirements of the cross-referenced sections or secondary cross-referenced sections, but instead shall be deemed to refer to the provisions of law of the state of incorporation of the foreign corporation (or the applicable law of any other state to which the foreign corporation is subject) dealing with the same or comparable subject matter or imposing the same or comparable requirements as those referred to by the cross-referenced sections or secondary cross-referenced sections. (A) The limitation on the power of a corporation to eliminate or limit the personal liability of a director for monetary damages set forth in paragraph (10) of subdivision (a) of Section 204 shall apply, for purposes of Section 309, to foreign corporations subject to paragraph (1), provided that the limitation on this power shall apply even though the foreign corporation does not have language in its articles of incorporation as specified in paragraph (10) of subdivision (a) of Section 204. (B) The limitation on the power of a corporation to provide indemnification of any agent set forth in paragraph (11) of subdivision (a) of Section 204 shall apply, for purposes of Section 317, to foreign corporations subject to paragraph (1), provided that the limitation on this power shall apply even though the foreign corporation does not have language in its articles of incorporation as specified in paragraph (11) of subdivision (a) of Section 204. (C) Section 301.5 shall apply, for the limited purposes of Sections 301, 303, and 708, to foreign corporations subject to paragraph (1) that are also "listed corporations" as defined in Section 301.5. (D) Section 605 shall apply, for purposes of Sections 710, 1203, and 1501, to foreign corporations subject to paragraph (1). (E) The reference in subdivision (d) of Section 1001 to a sale of assets pursuant to subdivision (a) of Section 1001 or subdivision (g) of Section 2001 shall apply to any such sale by a foreign corporation subject to paragraph (1) that has the control relationship specified in subdivision (d) of Section 1001. (F) Section 407 shall apply, for the purposes of Section 1101, to foreign corporations subject to paragraph (1) to the extent that Section 407 does not permit disregarding or rounding of fractional shares or payment of cash for fractional shares. (G) Subdivision (i) of Section 1110 shall apply, for the purposes of the last sentence of subdivision (b) of Section 1301 and subdivision (c) of Section 1309, to foreign corporations subject to paragraph (1) if the laws of the state of incorporation of the foreign corporation (or the applicable laws of any other state to which the foreign corporation is subject) do not require the giving of notice at least 20 days prior to the effective date of a merger described in subdivision (i) of Section 1110. (H) Section 2200 shall apply, for the purposes of subdivision (e) of Section 1501, to foreign corporations subject to paragraph (1). (3) No reference to Section 301.5 in any of the sections of this code specified in paragraph (1) shall affect the exclusion from the provisions of this section provided by subdivision (c).(c) This section does not apply to any corporation (1) with outstanding securities listed on the New York Stock Exchange or the American Stock Exchange, or (2) with outstanding securities designated as qualified for trading on the NASDAQ National Market (or any successor thereto), of the NASDAQ Stock Market operated by the NASDAQ Stock Market Inc., or (3) if all of its voting shares (other than directors' qualifying shares) are owned directly or indirectly by a corporation or corporations not subject to this section. (d) For purposes of subdivision (a), the requirements of subdivision (b) shall become applicable to a foreign corporation only upon the first day of the first income year of the corporation (i) commencing on or after the 135th day of the income year immediately followingthe latesta full income year with respect to which the tests referred to in subdivision (a) have been met or (ii) commencing on or after the entry of a final order by a court of competent jurisdiction declaring that those tests have been met. (e) For purposes of subdivision (a), the requirements of subdivision (b) shall cease to be applicable to a foreign corporation (i) at the end of the first income year of the corporation immediately followingthe latesta full income year with respect to which at least one of the tests referred to in subdivision (a) is not met or (ii) at the end of the income year of the corporation during which a final order has been entered by a court of competent jurisdiction declaring that one of those tests is not met, provided that a contrary order has not been entered before the end of the income year. (f) Any foreign corporation that is subject to the requirements of paragraph (1) of subdivision (b) shall advise any shareholder of record, any officer, director, employee, or other agent (within the meaning of Section 317) and any creditor of the corporation, in writing, within 30 days after receipt of a written request for that information, whether or not it is subject to paragraph (1) of subdivision (b) at the time the request is received. If any party obtains a final determination in a court of competent jurisdiction that the corporation failed to provide to that party information required to be provided under this subdivision, or provided information that was incorrect, then the court, in its discretion, may include in its judgment recovery by that party from the corporation of all court costs and reasonable attorney's fees incurred in that legal proceeding to the extent they relate to obtaining that final determination.SEC. 2.SEC. 3. Section 2200 of the Corporations Code is amended to read: 2200. Every corporation which neglects, fails or refuses: (a) to keep or cause to be kept or maintained the record of shareholders or books of account required by this division to be kept or maintained, (b) to prepare or cause to be prepared or submitted the financial statements required by this division to be prepared or submitted, or (c) to give any shareholder of record the advice required by subdivision (f) of Section 2115, is subject to penalty as provided in this section. The penalty shall be twenty-five dollars ($25) for each day that such failure or refusal continues, up to a maximum of one thousand five hundred dollars ($1,500), beginning 30 days after receipt of written request that the duty be performed from one entitled to make the request, except that, in the case of a failure to give advice required by subdivision (f) of Section 2115, the 30-day period shall run from the date of receipt of the request made pursuant to that subdivision and no additional request shall be required by this section. The penalty shall be paid to the shareholder or shareholders jointly making the request for performance of the duty and damaged by the neglect, failure or refusal, if suit therefor is commenced within 90 days after the written request is made, including any request made pursuant to subdivision (f) of Section 2115; but the maximum daily penalty because of failure to comply with any number of separate requests made on any one day or for the same act shall be two hundred fifty dollars ($250). SEC. 4. Section 25219 of the Corporations Code is amended to read: 25219. Notwithstanding any other provision of this division, if in his or her opinion the public interest and the protection of investors so require, the commissioner is authorized summarily to suspend all over-the-counter trading in this state by broker-dealers and agents in any security or summarily to suspend all trading on a national securities exchange located in this state in any security (provided, in the case of trading on such exchange, that the security is not listed on the National Market System of the NASDAQ Stock Market any national securities exchange located outside this state on which trading has not been suspended) for a period not exceeding 90 days, and for successive periods of 90 days. No broker-dealer or agent shall effect any transaction (other than an unsolicited brokerage transaction effected on the National Market System of the NASDAQ Stock Market or on a national securities exchange located outside this state) in, or induce or attempt to induce the purchase or sale of, any security in this state in which trading is in any manner suspended under this section, except in performance of a contract previously entered into. SEC. 5. Section 45308.5 of the Government Code is amended to read: 45308.5. Notwithstanding Section 45308.1, in addition tosuchany other investments as are authorized by this article, city retirement systems may in their discretion under the advice of proper counsel invest the assets of the retirement fund in an amount, determined on the basis of cost, not to exceed 10 percent of the assets in the first two years after the effective date of this section, not to exceed 15 percent during the third year after the effective date of this section, and not to exceed 25 percent thereafter, in common stock or shares, and not to exceed 2 percent of the assets in the first year after the effective date of this section, not to exceed 3 percent during the second year after the effective date of this section, and not to exceed 5 percent thereafter, in preferred stock or shares, of corporations created or existing under the laws of the United States, or any state, district, or territory thereof; provided that (a)SuchThe stock is registered on a national securities exchange, as provided in the "Securities Exchange Act of 1934" as amended as listed on the National Market System of the NASDAQ Stock Market .SuchThe registration shall not be required with respect to the following stocks: (1) The common stock of a bank which is a member of the Federal Deposit Insurance Corporation and has capital funds, represented by capital, surplus, and undivided profits, of at least fifty million dollars ($50,000,000); (2) The common stock of an insurance company which has capital funds, represented by capital, special surplus funds, and unassigned surplus, of at least fifty million dollars ($50,000,000); (3) Any preferred stock. (b)SuchThe corporation has total assets of at least one hundred million dollars ($100,000,000); (c) Bonds ofsuch athat corporation, if any are outstanding, qualify for investment of the retirement fund, and that there are no arrears of dividend payments on its preferred stock; (d)SuchThe corporation has paid a cash dividend on its common stock in at least 8 of the 10 years next preceding the date of investment, and the aggregate net earnings available for dividends on the common stock ofsuchthe corporation for the whole ofsuchthat period have been equal to the amount ofsuchthe dividends paid, andsuchthe corporation has paid an earned cash dividend in each of the last three years; (e)SuchThe investment in any one company may not exceed 5 percent of the common shares outstanding; and (f) No single common stock investment, based on cost, may exceed 2 percent of the assets of the fund. SEC. 6. Section 1170.3 of the Harbors and Navigation Code is amended to read: 1170.3. (a) The board shall adopt, by regulation, a pilot's conflict-of-interest code which shall include, but not be limited to, a provision specifying that a pilot shall not have any interest in, or derive any income from, any tugboat in operation on the Bays of San Francisco, San Pablo, and Suisun. This requirement of divestiture does not apply to the ownership of barges and vessels similar to barges. (b) The conflict-of-interest code shall not prohibit the ownership of stock in any corporation registered on a national securities exchange or on the National Market System of the NASDAQ Stock Market , pursuant to Section 78f of Title 15 of the United States Code, which may own tugboats in operation on the Bays of San Francisco, San Pablo, and Suisun. SEC. 7. Section 1792.2 of the Health and Safety Code is amended to read: 1792.2. (a) Any entity that has executed or assumed continuing care contracts shall maintain reserves covering obligations thereunder. (b) The following assumptions shall be used when calculating the reserves: (1) The following life expectancy table shall be used in connection with all continuing care contracts: Age Females Males Age Females Males 55 26.323 23.635 83 7.952 6.269 56 25.526 22.863 84 7.438 5.854 57 24.740 22.101 85 6.956 5.475 58 23.964 21.350 86 6.494 5.124 59 23.199 20.609 87 6.054 4.806 60 22.446 19.880 88 5.613 4.513 61 21.703 19.163 89 5.200 4.236 62 20.972 18.457 90 4.838 3.957 63 20.253 17.764 91 4.501 3.670 64 19.545 17.083 92 4.175 3.388 65 18.849 16.414 93 3.862 3.129 66 18.165 15.759 94 3.579 2.903 67 17.493 15.116 95 3.329 2.705 68 16.832 14.486 96 3.109 2.533 69 16.182 13.869 97 2.914 2.384 70 15.553 13.268 98 2.741 2.254 71 14.965 12.676 99 2.584 2.137 72 14.367 12.073 100 2.433 2.026 73 13.761 11.445 101 2.289 1.919 74 13.189 10.830 102 2.152 1.818 75 12.607 10.243 103 2.022 1.723 76 12.011 9.673 104 1.899 1.637 77 11.394 9.139 105 1.784 1.563 78 10.779 8.641 106 1.679 1.510 79 10.184 8.159 107 1.588 1.500 80 9.620 7.672 108 1.522 1.500 81 9.060 7.188 109 1.500 1.500 82 8.501 6.719 110 1.500 1.500 The life expectancy table set forth in this paragraph shall be used until this section is amended. (2) For residents over 110 years of age use 1.500 for computing the statutory reserve requirements. (3) If a continuing care retirement community has contracted with a resident under 55 years of age, provide the department with the methodology used to determine that resident's life expectancy. (4) A zero interest assumption shall be used to adjust resident life expectancies in conjunction with the computation of the statutory reserve requirement. (c) The reserves shall be calculated by progressing through each of the following steps: (1) Compute net cash per capita costs: (A) Cash operating expenses: Deduct: depreciation and other noncash expenses; processing fees; community services; expenses that will not be incurred in future years; reimbursements for services to nonresidents; donated services, if included as an operating expense on the income statement; investment income; contributions received; and other items that the continuing care retirement community reasonably believes should be deducted with accompanying explanation. For a continuing care retirement community in its first year of operation or following a major addition to an existing continuing care retirement community, cash operating expenses for calculating reserve requirements may be classified as fixed or variable and totaled separately. (B) Mean number of residents by level of care: List the number of residents for each level of care separately at the beginning of the fiscal year. Add the number of residents for each level of care separately at the end of the fiscal year. Divide the total for each level of care by two. (C) Total mean number of residents: Add the total number of residents at the beginning of the fiscal year to the total number of residents at the end of the fiscal year and divide by two. For continuing care retirement communities wherein resident population fluctuates significantly from month to month and for continuing care retirement communities in their first year of operation, the mean number of residents by level of care or the total mean number may be computed by adding the number of residents at the end of each month in the fiscal year and dividing by the total number of months included. The daily attendance for the fiscal year may also be used to determine the mean number of residents. (D) Net cash per capita cost: Cash operating expenses divided by the mean number of residents. It is acceptable, but not required, to compute net cash per capita for various levels of care, based on allocated expenses and contributions from consolidated financial statements. Allocation methods shall be subject to the approval of the department, and schedules shall be prepared for all levels of care, including any levels not covered by continuing care contracts. For a continuing care retirement community in its first year of operation or following a major addition to an existing continuing care retirement community, net cash per capita cost for calculating reserve requirements may be the sum of the figures determined by dividing fixed cash operating expenses by the number of residents at the end of the fiscal year, and dividing variable cash operating expenses by the mean number of residents. (2) Compute projected life cost: (A) Compute aggregate life expectancies: For each resident, compare age against the life expectancy table and total all life expectancies. (B) Multiply net cash per capita costs by aggregate life expectancies. (3) Compute five-year plan residents: Determine the maximum annual total of SSI/SSP payments for the year of entry for each resident. If that amount is greater than the amount of the entrance fee paid by a resident, the resident is designated a "Five-year Plan Resident" and the entrance fee is amortized over five years. No reserves are required for these residents after the fifth year. (4) Compute projected life revenue: (A) Annual fee: Multiply by 12 each monthly fee paid by residents, including payments to be made by third-party payers on behalf of the resident, including SSI/SSP and Medi-Cal, and contributions, donations, or endowments, that the provider actually used for operating expenditures for continuing care contracts during the fiscal year. (B) Continuing care residents requiring full reserves: Enter the number of continuing care residents for each annual fee, excluding five-year plan residents. (C) Aggregate life expectancies: For each resident, compare age against the life expectancy table and total all life expectancies for each annual fee. (D) Total projected life revenue: Multiply each annual fee by aggregate life expectancies. Total the products obtained. (5) Compute statutory reserve: (A) Reserves not including five-year plan residents: Deduct the projected life revenue from the projected life cost. If the remainder is less than zero, use zero. (B) Total statutory reserves: Add the total unamortized balance for five-year plan residents to the remainder in paragraph (A) above. (6) Compute liquid asset portion of statutory reserve: For providers that have executed monthly fee contracts with at least one-half of the residents, compute 5 percent of the total statutory reserves. For providers that have executed prepaid contracts with at least one-half of the residents, compute 25 percent of the total statutory reserves. (d) At least 25 percent of the statutory reserve shall consist of liquid assets, as defined in paragraph (8) of subdivision (e), except that a 5 percent requirement shall apply to the continuing care retirement communities that have executed monthly fee contracts with at least 50 percent of the residents. (e) The assets available for reserves shall consist of the following: (1) Deposits in commercial and savings accounts with California banks that are members of the Federal Deposit Insurance Corporation. (2) Notes receivable by the continuing care retirement community, that are secured by first deeds of trust and first mortgages on property not owned by the provider or its affiliates. (3) Stocks, bonds, and securities, at current market value unless otherwise specified, shall meet the following criteria to be approved as assets available for statutory reserves: (A) Highly liquid money securities, including, but not limited to, United States Treasury Bills, prime banker's acceptances, negotiable time certificates of deposit, and short-term tax-exempt notes. (B) Common stocks rated "above average" or higher by any national rating agency. For example, a rating of A+, A, or A- by Standard and Poor's Corporation is required for common stock. (C) Bonds issued by the United States government or federal agencies. (D) Nonfederal bonds that have a current rating of at least "A" by Moody's Investors Service, Standard and Poor's Corporation, or Fitch Investors Service, and are listed on a national securities exchange or on the National Market System of the NASDAQ Stock Market . (E) Bonds that are not listed on a national securities exchange or on the National Market System of the NASDAQ Stock Market , but are traded over-the-counter and have a current rating of at least "Aa" by Moody's Investors Service or at least "AA" by Standard and Poor's Corporation or Fitch's Investors Service. (F) The security interest in the cash surrender value of life insurance policies assigned by residents to the continuing care retirement community. (4) Stocks, bonds, and securities that do not meet the approval criteria may be retained as part of the reserves with the specific approval of the department. If necessary to meet reserve requirements, stocks, bonds, and securities that are not approved by the department may be disposed of in a gradual manner, to avoid loss to certificate holders. (5) Real estate used to provide care and housing for holders of continuing care contracts, or real estate, or equities therein, owned by the entity as an investment, the rents from which are used to discharge obligations to holders of continuing care contracts or to reinvest as a part of the reserves. These investments may be located outside the State of California. (A) The value of this real estate shall be based on 70 percent of the net equity thereof, which shall be the book value, assessed value, or current appraised value within 12 months prior to the end of the fiscal year, less all encumbrances, depreciation, and the amount required for reserves for refundable contracts under Section 1793, all according to audited financial statements acceptable to the department. (B) All appraisals shall be prepared by either a member of the American Institute of Appraisers or a member of the Society of Real Estate Appraisers, or the county assessor. The department may require technical reports to be verified or certified, or both. The expense of any technical reports or any verifications thereof shall be borne by the provider. (6) Seventy percent of the net equity in furniture and equipment situated on property used to provide care and housing for holders of continuing care contracts. (7) Investment certificates or shares in open end investment trusts, that meet all of the following requirements: (A) The trust management shall have experience either managing another mutual fund registered under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1 et seq.), or have been registered as an investment adviser under the Investment Advisors Act of 1940 (15 U.S.C. Sec. 80b-1 et seq.), and in either case shall currently have at least one hundred million dollars ($100,000,000) under its supervision. (B) Qualified for sale in California. (C) Has at least 40 percent of its directors or trustees not affiliated with the fund's management company or principal underwriter or any of their affiliates. (D) Is registered under the Investment Company Act of 1940. (E) Is a fund listed as qualifying under rules maintained by the Commissioner of Corporations in cooperation with the Department of Insurance. (8) Liquid assets, if any, shall consist of the following: (A) Listed bonds, stocks, and commercial and savings accounts. (B) A sinking fund comprised of liquid assets, if it is a replacement fund subject to disbursement for items, including, but not limited to, payment of principal and interest on the mortgage or for operations during the succeeding year. Replacement funds, that may only be used for capital improvements or repairs, shall not be included in liquid reserves. (9) Deposits made prior to signing a continuing care contract represent liabilities and shall be offset against liquid assets, if any, otherwise against any other assets. (10) Deposits that represent funds turned over to the continuing care retirement community by residents for safekeeping without relinquishing control thereof shall be offset against liquid assets, if any, otherwise against other assets. SEC. 8. Section 25112.5 of the Health and Safety Code is amended to read: 25112.5. "Disclosure statement" means either of the following: (a) A statement submitted to the department by an applicant, signed by the applicant under penalty of perjury, which includes all of the following information: (1) The full name, business address, social security number, and driver's license number of all of the following: (A) The applicant. (B) Any officers, directors, or partners, if the applicant is a business concern. (C) All persons or any officers, partners, or any directors if there are no officers, of business concerns holding more than 5 percent of the equity in, or debt liability of the applicant, except that if the debt liability is held by a lending institution, the applicant shall only supply the name and address of the lending institution. (2) The following persons listed on the disclosure statement shall submit properly completed fingerprint cards: (A) The sole proprietor. (B) The partners. (C) Other persons listed in subparagraph (C) of paragraph (1) and any officers or directors of the applicant company as required by the department. (3) Fingerprint cards submitted for any person required by paragraph (2) shall only be submitted once. Fingerprint cards shall be completed and submitted for any additional person only if there is a change in the person serving in a position for which fingerprint cards are required to be submitted pursuant to paragraph (2). The department shall use the information required by paragraph (2) to positively identify the applicant. (4) The full name and business address of any company which generates, transports, treats, stores, recycles, disposes of, or handles hazardous waste and hazardous materials in which the applicant holds at least a 5 percent debt liability or equity interest. (5) A description of any local, state, or federal licenses, permits, or registrations for the generation, transportation, treatment, storage, recycling, disposal, or handling of hazardous waste or hazardous materials applied for, or possessed by the applicant, or by the applicant under any previous name or names, in the three years preceding the filing of the statement, or, if the applicant is a business concern, by the officers, directors, or partners of the business concern, including the name and address of the issuing agency. (6) A listing and explanation of any final administrative orders or license revocations or suspensions issued or initiated by any local, state, or federal authority, in the three years immediately preceding the filing of the statement, or any civil or criminal prosecutions filed in the three years immediately preceding, or pending at the time of, the filing of the statement, with any remedial actions or resolutions if applicable, relating to the generation, transportation, treatment, storage, recycling, disposal, or handling of hazardous waste or hazardous materials by the applicant, or by the applicant under any previous name or names, or, if the applicant is a business concern, by any officer, director, or partner of the business concern. (7) A listing of any agencies outside of the state which regulate, or had regulated, the applicant's, or the applicant's under any previous name or names, generation, transportation, treatment, storage, recycling, disposal, or handling of hazardous waste or hazardous materials in the three years preceding the filing of the disclosure statement. (8) A listing and explanation of any federal or state conviction, judgment, or settlement, in the three years immediately preceding the filing of the statement, with any remedial actions or resolutions if applicable, relating to the generation, transportation, treatment, storage, recycling, disposal, or handling of hazardous waste or hazardous materials by the applicant, or by the applicant under any previous name or names, or if the applicant is a business concern, by any officer, director, or partner of the business concern. (9) A listing of all owners, officers, directors, trustees, and partners of the applicant who have owned, or been an officer, director, trustee, or partner of, any company which generated, transported, treated, stored, recycled, disposed of, or handled hazardous wastes or hazardous materials and which was the subject of any of the actions described in paragraphs (6) and (8) for the three years preceding the filing of the statement. (b) In lieu of the statement specified in subdivision (a), a corporation, the stock of which is listed on a national securities exchange or on the National Market System of the NASDAQ Stock Market and registered under the Securities Exchange Act of 1934 (15 U.S.C. Sec. 78a et seq.), or a subsidiary ofsuch athat corporation, may submit to the department copies of all periodic reports, including, but not limited to, those reports required by Section 78m of Title 15 of the United States Code and Part 229 (commencing with Section 229.10) of Chapter II of Title 17 of the Code of Federal Regulations which the corporation or subsidiary has filed with the Securities and Exchange Commission in the three years immediately preceding the submittal, if the corporation or subsidiary thereof has held a hazardous waste facility permit or operated a hazardous waste facility under interim status pursuant to Section 25200 or 25200.5 since January 1, 1984. SEC. 9. Section 1192.8 of the Insurance Code is amended to read: 1192.8. (a) A domestic life insurer having admitted assets aggregating in value not less than one hundred million dollars ($100,000,000) may make excess fund investments pursuant to this section in interest-bearing notes, bonds, or obligations issued by (1) any operating business trust or limited partnership organized under the laws of any state of the United States, the District of Columbia, the Dominion of Canada, any province of the Dominion of Canada or (2) an authority established pursuant to the California Industrial Development Financing Act, Title 10 (commencing with Section 91500) of the Government Code. The issuer of the notes, bonds, or obligations through itself or its paying agent shall be obligated thereunder to make payments, with respect to the notes, bonds, or other obligations, directly to the insurer or the insurer's nominee. (b) Except upon the prior written approval of the commissioner, an investment may not be made under the authority of this section unless the note, bond, or obligation is exchange traded. "Exchange-traded," as used in this subdivision, means listed and traded on the National Market System of the NASDAQ Stock Market or on a securities exchange subject to regulation, supervision, or control under a statute of the United States and acceptable to the commissioner. (c) Without the prior written consent of the commissioner investment made pursuant to this section shall not exceed in the aggregate 10 percent of the life insurer's policyholder surplus. (d) A request to the commissioner for (1) approval pursuant to subdivision (b) to invest in notes, bonds, or obligations that are not exchange-traded or traded on the National Market System of the NASDAQ Stock Market or (2) for consent to exceed the 10 percent limitation set forth in subdivision (c), shall be in writing and shall be accompanied by any supporting data and documentation that the commissioner may require. The commissioner shall require the payment of a five thousand dollar ($5,000) fee in advance for the determination of whether to approve or disapprove each request. Each request shall be in writing and shall be deemed approved unless the commissioner disapproves it within 60 days with respect to requests under subdivision (c) or 20 days with respect to requests under subdivision (b), after the request has been filed in the commissioner's office. (e) This section shall not be construed to increase or reduce the authority to invest in any operating business trust or limited partnership specifically permitted in other sections of this code. SEC. 10. Section 11521.2 of the Insurance Code is amended to read: 11521.2. (a) The reserve required by the table of commensurate values for each annuity contract issued must be invested in investments specified in Sections 1170 through 1182 except that a certificate holder may invest in securities listed and traded on the New York Stock Exchange, the American Stock Exchangeor, regional stock exchanges , or the National Market System of the NASDAQ Stock Market or successors tosuchthose exchanges or that market having the same qualifications, to the extent of the lesser of net worth (assets over liabilities and reserves) of the certificate holder or 10 percent of such general investments. This section does not permit investment in options or commodity exchanges. (b) The certificate holder may invest insuchany other investments as permitted by and subject to the written consent of the commissioner.