BILL NUMBER: AB 1895 INTRODUCED
BILL TEXT
INTRODUCED BY Assembly Member Ackerman
FEBRUARY 10, 2000
An act to amend Sections 158, 202, 301.5, 305, 306, 503, 602, 603,
2115, 5220, 5512, 7220, 7512, 9220, 9412, 12360, 12462, 25014.7,
25100, 25101, 25102, and 25117 of, and to add Section 163.1 to, the
Corporations Code, relating to corporations.
LEGISLATIVE COUNSEL'S DIGEST
AB 1895, as introduced, Ackerman. Corporations.
Existing law sets forth organizational procedures and filing
requirements for corporations. Existing law also regulates the
ownership and sale of, and investment in, securities registered on a
national securities exchange, as provided by federal law.
This bill would make various changes relating to corporations and
securities, including the following:
(1) Adds a definition of "cumulative dividends in arrears" for
shareholder distributions.
(2) Revises the provision regarding professional corporations.
(3) Changes a reference to securities listed on the National
Market System of the NASDAQ Stock Market in various provisions of
law.
(4) Specifies the conditions regarding election of a director to
fill a vacancy not created by removal of a director.
(5) Authorizes a superior court to appoint directors of various
types of nonprofit corporations if the corporation has no
shareholders or initial directors have not been named and all of the
directors die, resign, or become incompetent.
(7) Specifies the conditions of a board's approval of business
items if members leave before a vote.
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 158 of the Corporations Code is amended to
read:
158. (a) "Close corporation" means a corporation whose articles
contain, in addition to the provisions required by Section 202, a
provision that all of the corporation's issued shares of all classes
shall be held of record by not more than a specified number of
persons, not exceeding 35, and a statement "This corporation is a
close corporation."
(b) The special provisions referred to in subdivision (a) may be
included in the articles by amendment, but if such amendment is
adopted after the issuance of shares only by the affirmative vote of
all of the issued and outstanding shares of all classes.
(c) The special provisions referred to in subdivision (a) may be
deleted from the articles by amendment, or the number of shareholders
specified may be changed by amendment, but if such amendment is
adopted after the issuance of shares only by the affirmative vote of
at least two-thirds of each class of the outstanding shares;
provided, however, that the articles may provide for a lesser vote,
but not less than a majority of the outstanding shares, or may deny a
vote to any class, or both.
(d) In determining the number of shareholders for the purposes of
the provision in the articles authorized by this section, a husband
and wife and the personal representative of either shall be counted
as one regardless of how shares may be held by either or both of
them, a trust or personal representative of a decedent holding shares
shall be counted as one regardless of the number of trustees or
beneficiaries and a partnership or corporation or business
association holding shares shall be counted as one (except that any
such trust or entity the primary purpose of which was the acquisition
or voting of the shares shall be counted according to the number of
beneficial interests therein).
(e) A corporation shall cease to be a close corporation upon the
filing of an amendment to its articles pursuant to subdivision (c) or
if it shall have more than the maximum number of holders of record
of its shares specified in its articles as a result of an inter vivos
transfer of shares which is not void under subdivision (d) of
Section 418, the transfer of shares on distribution by will or
pursuant to the laws of descent and distribution, the dissolution of
a partnership or corporation or business association or the
termination of a trust which holds shares, by court decree upon
dissolution of a marriage or otherwise by operation of law. Promptly
upon acquiring more than the specified number of holders of record
of its shares, a close corporation shall execute and file an
amendment to its articles deleting the special provisions referred to
in subdivision (a) and deleting any other provisions not permissible
for a corporation which is not a close corporation, which amendment
shall be promptly approved and filed by the board and need not be
approved by the outstanding shares.
(f) Nothing contained in this section shall invalidate any
agreement among the shareholders to vote for the deletion from the
articles of the special provisions referred to in subdivision (a)
upon the lapse of a specified period of time or upon the occurrence
of a certain event or condition or otherwise.
(g) The following sections contain specific references to close
corporations: 186, 202, 204, 300, 418, 421, 706,
1111, 1201, 1800 and 1904.
SEC. 2. Section 163.1 is added to the Corporations Code, to read:
163.1. For purposes of Section 503, "cumulative dividends in
arrears" means only cumulative dividends that have not been paid as
required on a scheduled payment date set forth in, or determined
pursuant to, the articles of incorporation, regardless of whether
those dividends had been declared prior to that scheduled payment
date.
SEC. 3. Section 202 of the Corporations Code is amended to read:
202. The articles of incorporation shall set forth:
(a) The name of the corporation; provided, however, that in order
for the corporation to be subject to the provisions of this division
applicable to a close corporation (Section 158), the name of the
corporation must contain the word "corporation", "incorporated" or
"limited" or an abbreviation of one of such words.
(b) (1) The applicable one of the following statements:
(i) The purpose of the corporation is to engage in any lawful act
or activity for which a corporation may be organized under the
General Corporation Law of California other than the banking
business, the trust company business or the practice of a profession
permitted to be incorporated by the California Corporations Code; or
(ii) The purpose of the corporation is to engage in the profession
of ____ (with the insertion of a profession permitted to be
incorporated by the California Corporations Code) and any other
lawful activities (other than the banking or trust company business)
not prohibited to a corporation engaging in such profession by
applicable laws and regulations.
(2) In case the corporation is a corporation subject to the
Banking Law, the articles shall set forth a statement of purpose
which is prescribed in the applicable provision of the Banking Law.
(3) In case the corporation is a corporation subject to the
Insurance Code as an insurer, the articles shall additionally state
that the business of the corporation is to be an insurer.
(4) If the corporation is intended to be a "professional
corporation" within the meaning of the Moscone-Knox Professional
Corporation Act (Part 4 (commencing with Section 13400) of Division
3), the articles shall additionally contain the statement required by
Section 13404.
The articles shall not set forth any further or additional
statement with respect to the purposes or powers of the corporation,
except by way of limitation or except as expressly required by any
law of this state other than this division or any federal or other
statute or regulation (including the Internal Revenue Code and
regulations thereunder as a condition of acquiring or maintaining a
particular status for tax purposes).
(c) The name and address in this state of the corporation's
initial agent for service of process in accordance with subdivision
(b) of Section 1502.
(d) If the corporation is authorized to issue only one class of
shares, the total number of shares which the corporation is
authorized to issue.
(e) If the corporation is authorized to issue more than one class
of shares, or if any class of shares is to have two or more series:
(1) The total number of shares of each class the corporation is
authorized to issue, and the total number of shares of each series
which the corporation is authorized to issue or that the board is
authorized to fix the number of shares of any such series;
(2) The designation of each class, and the designation of each
series or that the board may determine the designation of any such
series; and
(3) The rights, preferences, privileges and restrictions granted
to or imposed upon the respective classes or series of shares or the
holders thereof, or that the board, within any limits and
restrictions stated, may determine or alter the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly
unissued class of shares or any wholly unissued series of any class
of shares. As to any series the number of shares of which is
authorized to be fixed by the board, the articles may also authorize
the board, within the limits and restrictions stated therein or
stated in any resolution or resolutions of the board originally
fixing the number of shares constituting any series, to increase or
decrease (but not below the number of shares of such series then
outstanding) the number of shares of any such series subsequent to
the issue of shares of that series. In case the number of shares of
any series shall be so decreased, the shares constituting such
decrease shall resume the status which they had prior to the adoption
of the resolution originally fixing the number of shares of such
series.
SEC. 4. Section 301.5 of the Corporations Code is amended to read:
301.5. (a) A listed corporation may, by amendment of its articles
or bylaws, adopt provisions to divide the board of directors into
two or three classes to serve for terms of two or three years
respectively, or to eliminate cumulative voting, or both. After the
issuance of shares, a corporation which is not a listed corporation
may, by amendment of its articles or bylaws, adopt provisions to be
effective when the corporation becomes a listed corporation to divide
the board of directors into two or three classes to serve for terms
of two or three years respectively, or to eliminate cumulative
voting, or both. An article or bylaw amendment providing for
division of the board of directors into classes, or any change in the
number of classes, or the elimination of cumulative voting may only
be adopted by the approval of the board and the outstanding shares
(Section 152) voting as a single class, notwithstanding Section 903.
(b) If the board of directors is divided into two classes pursuant
to subdivision (a), the authorized number of directors shall be no
less than six and one-half of the directors or as close an
approximation as possible shall be elected at each annual meeting of
shareholders. If the board of directors is divided into three
classes, the authorized number of directors shall be no less than
nine and one-third of the directors or as close an approximation as
possible shall be elected at each annual meeting of shareholders.
Directors of a listed corporation may be elected by classes at a
meeting of shareholders at which an amendment to the articles or
bylaws described in subdivision (a) is approved, but the extended
terms for directors are contingent on that approval, and in the case
of an amendment to the articles, the filing of any necessary
amendment to the articles pursuant to Section 905 or 910.
(c) If directors for more than one class are to be elected by the
shareholders at any one meeting of shareholders and the election is
by cumulative voting pursuant to Section 708, votes may be cumulated
only for directors to be elected within each class.
(d) For purposes of this section, a "listed corporation" means any
of the following:
(1) A corporation with outstanding shares listed on the New York
Stock Exchange or the American Stock Exchange.
(2) A corporation with outstanding securities designated
as qualified for trading as a national market system security on the
National Association Quotation System (or any successor national
market system) listed on the National Market System of
the Nasdaq Stock Market (or any successor to that entity) .
(e) Subject to subdivision (h), if a listed corporation having a
board of directors divided into classes pursuant to subdivision (a)
ceases to be a listed corporation for any reason, unless the articles
of incorporation or bylaws of the corporation provide for the
elimination of classes of directors at an earlier date or dates, the
board of directors of the corporation shall cease to be divided into
classes as to each class of directors on the date of the expiration
of the term of the directors in that class and the term of each
director serving at the time the corporation ceases to be a listed
corporation (and the term of each director elected to fill a vacancy
resulting from the death, resignation, or removal of any of those
directors) shall continue until its expiration as if the corporation
had not ceased to be a listed corporation.
(f) Subject to subdivision (h), if a listed corporation having a
provision in its articles or bylaws eliminating cumulative voting
pursuant to subdivision (a) or permitting noncumulative voting in the
election of directors pursuant to that subdivision, or both, ceases
to be a listed corporation for any reason, the shareholders shall be
entitled to cumulate their votes pursuant to Section 708 at any
election of directors occurring while the corporation is not a listed
corporation notwithstanding that provision in its articles of
incorporation or bylaws.
(g) Subject to subdivision (i), if a corporation that is not a
listed corporation adopts amendments to its articles of incorporation
or bylaws to divide its board of directors into classes or to
eliminate cumulative voting, or both, pursuant to subdivision (a) and
then becomes a listed corporation, unless the articles of
incorporation or bylaws provide for those provisions to become
effective at some other time and, in cases where classes of directors
are provided for, identify the directors who, or the directorships
that, are to be in each class or the method by which those directors
or directorships are to be identified, the provisions shall become
effective for the next election of directors after the corporation
becomes a listed corporation at which all directors are to be
elected.
(h) If a corporation ceases to be a listed corporation on or after
the record date for a meeting of shareholders and prior to the
conclusion of the meeting, including the conclusion of the meeting
after an adjournment or postponement that does not require or result
in the setting of a new record date, then, solely for purposes of
subdivisions (e) and (f), the corporation shall not be deemed to have
ceased to be a listed corporation until the conclusion of the
meeting of shareholders.
(i) If a corporation becomes a listed corporation on or after the
record date for a meeting of shareholders and prior to the conclusion
of the meeting, including the conclusion of the meeting after an
adjournment or postponement that does not require or result in the
setting of a new record date, then, solely for purposes of
subdivision (g), the corporation shall not be deemed to have become a
listed corporation until the conclusion of the meeting of
shareholders.
(j) If an article amendment referred to in subdivision (a) is
adopted by a listed corporation, the certificate of amendment shall
include a statement of the facts showing that the corporation is a
listed corporation within the meaning of subdivision (d). If an
article or bylaw amendment referred to in subdivision (a) is adopted
by a corporation which is not a listed corporation, the provision, as
adopted, shall include the following statement or the substantial
equivalent: "This provision shall become effective only when the
corporation becomes a listed corporation within the meaning of
Section 301.5 of the Corporations Code."
SEC. 5. Section 305 of the Corporations Code is amended to read:
305. (a) Unless otherwise provided in the articles or bylaws and
except for a vacancy created by the removal of a director, vacancies
on the board may be filled by approval of the board (Section 151) or,
if the number of directors then in office is less than a quorum, by
(1) the unanimous written consent of the directors then in office,
(2) the affirmative vote of a majority of the directors then in
office at a meeting held pursuant to notice or waivers of notice
complying with Section 307 or (3) a sole remaining director. Unless
the articles or a bylaw adopted by the shareholders provide that the
board may fill vacancies occurring in the board by reason of the
removal of directors, such vacancies may be filled only by approval
of the shareholders (Section 153).
(b) The shareholders may elect a director at any time to fill any
vacancy not filled by the directors. Any such election by written
consent other than to fill a vacancy created by removal , which
requires the unanimous consent of all shares entitled to vote for the
election of directors, requires the consent of a majority of
the outstanding shares entitled to vote.
(c) If, after the filling of any vacancy by the directors, the
directors then in office who have been elected by the shareholders
shall constitute less than a majority of the directors then in
office, then both of the following shall be applicable:
(1) Any holder or holders of an aggregate of 5 percent or more of
the total number of shares at the time outstanding having the right
to vote for those directors may call a special meeting of
shareholders, or
(2) The superior court of the proper county shall, upon
application of such shareholder or shareholders, summarily order a
special meeting of shareholders, to be held to elect the entire
board. The term of office of any director shall terminate upon that
election of a successor.
The hearing on any application filed pursuant to this subdivision
shall be held on not less than 10 business days notice to the
corporation. If the corporation intends to oppose the application,
it shall file with the court a notice of opposition not later than
five business days prior to the date set for the hearing. The
application and any notice of opposition shall be supported by
appropriate affidavits and the court's determination shall be made on
the basis of the papers in the record; but, for good cause shown,
the court may receive and consider at the hearing additional
evidence, oral or documentary, and additional points and authorities.
The hearing shall take precedence over all other matters not of a
similar nature pending on the date set for the hearing.
(d) Any director may resign effective upon giving written notice
to the chairman of the board, the president, the secretary or the
board of directors of the corporation, unless the notice specifies a
later time for the effectiveness of such resignation. If the
resignation is effective at a future time, a successor may be elected
to take office when the resignation becomes effective.
SEC. 6. Section 306 of the Corporations Code is amended to read:
306. If (a) a corporation has not issued shares and
all the directors resign, die , or become incompetent,
or (b) a corporation's initial directors have not been named in
the articles, and all the incorporators resign, die, or become
incompetent prior to the election of the initial directors, the
superior court of any county may appoint directors of the
corporation upon application by any party in interest.
SEC. 7. Section 503 of the Corporations Code is amended to read:
503. Neither a corporation nor any of its subsidiaries shall make
any distribution to the corporation's shareholders (Section 166) on
any shares of its stock of any class or series that are junior to
outstanding shares of any other class or series with respect to
payment of dividends , and as to which senior class or series
the corporation has cumulative dividends in arrears, unless the
amount of the retained earnings of the corporation immediately prior
thereto equals or exceeds the amount of the proposed distribution
plus the aggregate amount of the cumulative dividends in arrears on
all shares having a preference with respect to payment of dividends
over the class or series to which the distribution is made; provided,
however, that for the purpose of applying this section to a
distribution by a corporation of cash or property in payment by the
corporation in connection with the purchase of its shares, there
shall be added to retained earnings all amounts that had been
previously deducted therefrom with respect to obligations incurred in
connection with the corporation's repurchase of its shares and
reflected on the corporation's balance sheet, but not in excess of
the principal of the obligations that remain unpaid immediately prior
to the distribution; provided, further, that no addition to retained
earnings shall occur on account of any obligation that is a
distribution to the corporation's shareholders (Section 166) at the
time the obligation is incurred.
SEC. 8. Section 602 of the Corporations Code is amended to read:
602. (a) Unless otherwise provided in the articles, a majority of
the shares entitled to vote, represented in person or by proxy,
shall constitute a quorum at a meeting of the
shareholders, but in no event shall a quorum consist of less than
one-third (or, in the case of a mutual water company, 20 percent) of
the shares entitled to vote at the meeting or, except in the case of
a close corporation, of more than a majority of the shares entitled
to vote at the meeting. Except as provided in subdivision (b), the
affirmative vote of a majority of the shares represented and voting
at a duly held meeting at which a quorum is present (which shares
voting affirmatively also constitute at least a majority of the
required quorum) shall be the act of the shareholders, unless the
vote of a greater number or voting by classes is required by this
division or the articles.
(b) The shareholders present at a duly called or held meeting at
which a quorum is present may continue to transact business until
adjournment notwithstanding the withdrawal of enough shareholders to
leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares
required to constitute a quorum or, if required by this division
or the articles, the vote of a greater number or voting by classes
.
(c) In the absence of a quorum, any meeting of shareholders may be
adjourned from time to time by the vote of a majority of the shares
represented either in person or by proxy, but no other business may
be transacted, except as provided in subdivision (b).
SEC. 9. Section 603 of the Corporations Code is amended to read:
603. (a) Unless otherwise provided in the articles, any action
which may be taken at any annual or special meeting of shareholders
may be taken without a meeting and without prior notice, if a consent
in writing, setting forth the action so taken, shall be signed by
the holders of outstanding shares having not less than the minimum
number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were
present and voted.
(b) Unless the consents of all shareholders entitled to vote have
been solicited in writing, (1) Notice of any shareholder approval
pursuant to Section 310, 317, 1201 or 2007 without a meeting by less
than unanimous written consent shall be given at least 10 days before
the consummation of the action authorized by such approval, and
(2) Prompt notice shall be given of the taking of any other corporate
action approved by shareholders without a meeting by less than
unanimous written consent, to those shareholders entitled to vote who
have not consented in writing. Subdivision (b) of Section 601
applies to such notice.
(c) Any shareholder giving a written consent, or the shareholder's
proxyholders, or a transferee of the shares or a personal
representative of the shareholder or their respective proxyholders,
may revoke the consent by a writing received by the corporation prior
to the time that written consents of the number of shares required
to authorize the proposed action have been filed with the secretary
of the corporation, but may not do so thereafter. Such revocation is
effective upon its receipt by the secretary of the corporation.
(d) Notwithstanding subdivision (a), subject to
subdivision (b) of Section 305 directors may not be elected
by written consent except by unanimous written consent of all shares
entitled to vote for the election of directors ; provided that
the shareholders may elect a director to fill a vacancy, other than a
vacancy created by removal, by the written consent of a majority of
the outstanding shares entitled to vote .
SEC. 10. 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) if 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 during
its latest full income year and if more than one-half of its
outstanding voting securities are held of record by persons having
addresses in this state. 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) Except 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) and
paragraph (3) of subdivision (f)) (liability of directors for
unlawful distributions);
Section 317 (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).
(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 as a national market security on
the National Association of Securities Dealers Automatic Quotation
System listed on the National Market System of the
Nasdaq Stock Market (or any successor national market
system to that entity) if the corporation has at
least 800 holders of its equity securities as of the record date of
its most recent annual meeting of shareholders, 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. For purposes of determining the number of holders
of a corporation's equity securities under clause (2) of this
subdivision, there shall be included, in addition to the number of
recordholders reflected on the corporation's stock records, the
number of holders of the equity securities held in the name of any
Nominee Holder that furnishes the corporation with a certification
pursuant to subdivision (a) provided that the corporation retains the
certification with the record of shareholders and makes it available
for inspection and copying in the same manner as is provided in
Section 1600 with respect to that record.
(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
following the latest 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 following the latest 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.
SEC. 11. Section 5220 of the Corporations Code is amended to read:
5220. (a) Except as provided in subdivision (d), directors shall
be elected for such terms, not longer than three years, as are fixed
in the articles or bylaws. However, the terms of directors of a
corporation without members may be up to six years. In the absence
of any provision in the articles or bylaws, the term shall be one
year. The articles or bylaws may provide for staggering the terms of
directors by dividing the total number of directors into groups of
one or more directors. The terms of office of the several groups and
the number of directors in each group need not be uniform. No
amendment of the articles or bylaws may extend the term of a director
beyond that for which the director was elected, nor may any bylaw
provision increasing the terms of directors be adopted without
approval of the members (Section 5034).
(b) Unless the articles or bylaws otherwise provide, each
director, including a director elected to fill a vacancy, shall hold
office until the expiration of the term for which elected and until a
successor has been elected and qualified.
(c) The articles or bylaws may provide for the election of one or
more directors by the members of any class voting as a class.
(d) Subdivisions (a) through (c) notwithstanding, all or any
portion of the directors authorized in the articles or bylaws of a
corporation may hold office by virtue of designation or selection as
provided by the articles or bylaws rather than by election by a
member or members. Such directors shall continue in office for the
term prescribed by the governing article or bylaw provision, or, if
there is no term prescribed, until the governing article or bylaw
provision is duly amended or repealed, except as provided in
subdivision (e) of Section 5222. A bylaw provision authorized by
this subdivision may be adopted, amended, or repealed only by
approval of the members (Section 5034), subject, if so provided in
the bylaws, to the consent of the person or persons entitled to
designate or select any such director or directors.
(e) If a corporation has not issued memberships and (1) all the
directors resign, die, or become incompetent, or (2) a corporation's
initial directors have not been named in the articles and all
incorporators resign, die, or become incompetent before the election
of the initial directors, the superior court of any county may
appoint directors of the corporation upon application by any party in
interest.
SEC. 12. Section 5512 of the Corporations Code is amended to read:
5512. (a) One-third of the voting power, represented in person or
by proxy, shall constitute a quorum at a meeting of members, but,
subject to subdivisions (b) and (c), a bylaw may set a different
quorum. Any bylaw amendment to increase the quorum may be adopted
only by approval of the members (Section 5034). If a quorum is
present, the affirmative vote of the majority of the voting power
represented at the meeting, entitled to vote, and voting on any
matter shall be the act of the members, unless the vote of a greater
number or voting by classes is required by this part or the articles
or bylaws.
(b) Where a bylaw authorizes a corporation to conduct a meeting
with a quorum of less than one-third of the voting power, then the
only matters that may be voted upon at any regular meeting actually
attended, in person or by proxy, by less than one-third of the voting
power are matters notice of the general nature of which was given,
pursuant to the first sentence of subdivision (a) of Section 5511.
(c) Subject to subdivision (b), the members present at a duly
called or held meeting at which a quorum is present may continue to
transact business until adjournment notwithstanding the withdrawal of
enough members to leave less than a quorum, if any action taken
(other than adjournment) is approved by at least a majority of the
members required to constitute a quorum or, if required by this
division or the articles or the bylaws, the vote of a greater number
or voting by classes .
(d) In the absence of a quorum, any meeting of members may be
adjourned from time to time by the vote of a majority of the votes
represented either in person or by proxy, but no other business may
be transacted, except as provided in subdivision (c).
SEC. 13. Section 7220 of the Corporations Code is amended to read:
7220. (a) Except as provided in subdivision (d), directors shall
be elected for such terms, not longer than four years, as are fixed
in the articles or bylaws. However, the terms of directors of a
corporation without members may be up to six years. In the absence
of any provision in the articles or bylaws, the term shall be one
year. The articles or bylaws may provide for staggering the terms of
directors by dividing the total number of directors into groups of
one or more directors. The terms of office of the several groups and
the number of directors in each group need not be uniform. No
amendment of the articles or bylaws may extend the term of a director
beyond that for which the director was elected, nor may any bylaw
provision increasing the terms of directors be adopted without
approval of the members (Section 5034).
(b) Unless the articles or bylaws otherwise provide, each
director, including a director elected to fill a vacancy, shall hold
office until the expiration of the term for which elected and until a
successor has been elected and qualified.
(c) The articles or bylaws may provide for the election of one or
more directors by the members of any class voting as a class.
(d) Subdivisions (a) through (c) notwithstanding, all or any
portion of the directors authorized in the articles or bylaws of a
corporation may hold office by virtue of designation or selection as
provided by the articles or bylaws rather than by election by a
member or members. Such directors shall continue in office for the
term prescribed by the governing article or bylaw provision, or, if
there is no term prescribed, until the governing article or bylaw
provision is duly amended or repealed, except as provided in
subdivision (e) of Section 7222. A bylaw provision authorized by
this subdivision may be adopted, amended, or repealed only by
approval of the members (Section 5034).
(e) If a corporation has not issued memberships and (1) all the
directors resign, die, or become incompetent, or (2) a corporation's
initial directors have not been named in the articles and all
incorporators resign, die, or become incompetent before the election
of the initial directors, the superior court of any county may
appoint directors of the corporation upon application by any party in
interest.
SEC. 14. Section 7512 of the Corporations Code is amended to read:
7512. (a) One-third of the voting power, represented in person or
by proxy, shall constitute a quorum at a meeting of members, but,
subject to subdivisions (b) and (c), a bylaw may set a different
quorum. Any bylaw amendment to increase the quorum may be adopted
only by approval of the members (Section 5034). If a quorum is
present, the affirmative vote of the majority of the voting power
represented at the meeting, entitled to vote, and voting on any
matter shall be the act of the members unless the vote of a greater
number or voting by classes is required by this part or the articles
or bylaws.
(b) Where a bylaw authorizes a corporation to conduct a meeting
with a quorum of less than one-third of the voting power, then the
only matters that may be voted upon at any regular meeting actually
attended, in person or by proxy, by less than one-third of the voting
power are matters notice of the general nature of which was given,
pursuant to the first sentence of subdivision (a) of Section 7511.
(c) Subject to subdivision (b), the members present at a duly
called or held meeting at which a quorum is present may continue to
transact business until adjournment notwithstanding the withdrawal of
enough members to leave less than a quorum, if any action taken
(other than adjournment) is approved by at least a majority of the
members required to constitute a quorum or, if required by this
division, or by the articles or the bylaws, the vote of the greater
number or voting by classes .
(d) In the absence of a quorum, any meeting of members may be
adjourned from time to time by the vote of a majority of the votes
represented either in person or by proxy, but no other business may
be transacted, except as provided in subdivision (c).
SEC. 15. Section 9220 of the Corporations Code is amended to read:
9220. (a) The articles or bylaws may provide for the tenure,
election, selection, designation, removal, and resignation of
directors.
(b) In the absence of any provision in the articles or bylaws, the
term of directors shall be one year.
(c) Unless the articles or bylaws otherwise provide, each
director, including a director elected to fill a vacancy, shall hold
office until the expiration of the term for which elected and until a
successor has been elected and qualified.
(d) If a corporation has not issued memberships and (1) all the
directors resign, die, or become incompetent, or (2) a corporation's
initial directors have not been named in the articles and all
incorporators resign, die, or become incompetent before the election
of the initial directors, the superior court of any county may
appoint directors of the corporation upon application by any party in
interest.
SEC. 16. Section 9412 of the Corporations Code is amended to read:
9412. (a) One-third of the voting power, represented in person,
by written ballot, or by proxy, shall constitute a quorum at a
meeting of members. If a quorum is present, the affirmative vote of
the majority of the voting power represented at the meeting, entitled
to vote, and voting on any matter shall be the act of the members.
(b) The members present at a duly called or held meeting at which
a quorum is present may continue to transact business until
adjournment notwithstanding the withdrawal of enough members to leave
less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the members required to constitute
a quorum or, if required by this division, or by the articles
or the bylaws, the vote of the greater number or voting by classes
.
(c) In the absence of a quorum, any meeting of members may be
adjourned from time to time by the vote of a majority of the votes
represented either in person or by proxy, but no other business may
be transacted, except as provided in subdivision (b).
SEC. 17. Section 12360 of the Corporations Code is amended to
read:
12360. (a) Except as provided in subdivision (d), directors shall
be elected for such terms, not longer than four years, as are fixed
in the articles or bylaws. In the absence of any provision in the
articles or bylaws, the terms shall be one year. No amendment of the
articles or bylaws may extend the term of a director beyond that for
which the director was elected, nor may any bylaw provision
increasing the terms of directors be adopted without approval of the
members.
(b) Unless the articles or bylaws otherwise provide, each
director, including a director elected to fill a vacancy, shall hold
office until the expiration of the term for which elected and until a
successor has been elected and qualified.
(c) The articles or bylaws may prescribe requirements for
eligibility for election as a director.
(d) Subdivisions (a) through (c) notwithstanding, all or any
portion of the directors authorized in the articles or bylaws of a
corporation may hold office by virtue of designation or selection as
provided by the articles or bylaws rather than by election by a
member or members. Such directors shall continue in office for the
term prescribed by the governing article or bylaw provision, or, if
there is no term prescribed, until the governing article or bylaw
provision is duly amended or repealed, except as provided in
subdivision (f) of Section 12362. A bylaw provision authorized by
this subdivision may be adopted, amended, or repealed only by
approval of the members (Section 12224).
(e) If a corporation has not issued memberships and (1) all the
directors resign, die, or become incompetent, or (2) a corporation's
initial directors have not been named in the articles and all
incorporators resign, die, or become incompetent before the election
of the initial directors, the superior court of any county may
appoint directors of the corporation upon application by any party in
interest.
SEC. 18. Section 12462 of the Corporations Code is amended to
read:
12462. (a) The lesser of 250 members or members representing 5
percent of the voting power, shall constitute a quorum at a meeting
of members, but, subject to subdivisions (b) and (c), a bylaw may set
a different quorum. Any bylaw amendment to increase the quorum may
be adopted only by approval of the members (Section 12224). If a
quorum is present, the affirmative vote of the majority of the voting
power represented at the meeting, entitled to vote, and voting on
any matter shall be the act of the members unless the vote of a
greater number or voting by classes is required by this part or the
articles or bylaws.
(b) Where a corporation is authorized to conduct a meeting with a
quorum of less than one-third of the voting power, then the only
matters that may be voted upon at any regular meeting actually
attended by less than one-third of the voting power are matters
notice of the general nature of which was given, pursuant to the
first sentence of subdivision (a) of Section 12461.
(c) Subject to subdivision (b), the members present at a duly
called or held meeting at which a quorum is present may continue to
transact business until adjournment notwithstanding the withdrawal of
enough members to leave less than a quorum, if any action taken
(other than adjournment) is approved by at least a majority of the
members required to constitute a quorum or, if required by this
division or the articles or the bylaws, the vote of the greater
number or voting by classes .
(d) In the absence of a quorum, any meeting of members may be
adjourned from time to time by the vote of a majority of the votes
represented in person, but no other business may be transacted,
except as provided in subdivision (c).
SEC. 19. Section 25014.7 of the Corporations Code is amended to
read:
25014.7. (a) "Eligible rollup transaction" means a rollup
transaction in which the new securities issued are either listed or
approved for listing on a national securities exchange or
designated or approved for designation upon notice of issuance as a
national market system security on an interdealer quotation system by
the National Association of Securities Dealers, Inc.
on the National Market System of the Nasdaq Stock Market (or any
successor to that entity) , where the national securities
exchange and the interdealer quotation system
Nasdaq Stock Market (or its successor) have been certified by
the commissioner under subdivision (o) of Section 25100, if the
exchange or association Nasdaq Stock Market
(or its successor) requires as a condition to listing or
designation that the rollup transaction be conducted in accordance
with procedures to protect the rights of limited partners .
(b) The rights of limited partners will be presumed to be
protected if the rollup transaction provides for the right of
dissenting limited partners:
(1) To receive compensation for their limited partnership units
based on an appraisal of the limited partnership assets performed by
an independent appraiser unaffiliated with the sponsor or general
partner of the limited partnership and which value the assets as if
sold in an orderly manner in a reasonable period of time, plus or
minus other balance sheet items, and less the cost of sale or
refinancing. Compensation to dissenting limited partners of rollup
transactions may be cash, secured debt instruments, unsecured debt
instruments, or freely tradeable securities; provided, however, that:
(A) Rollups which utilize debt instruments as compensation provide
for a trustee and an indenture to protect the rights of the debt
holders and provide a rate of interest based upon, but not less than,
the then applicable federal rate as determined in accordance with
Section 1274 of the Internal Revenue Code of 1986.
(B) Rollups which utilize unsecured debt instruments as
compensation, in addition to the requirements of subparagraph (A) of
paragraph (1), limit total leverage to 70 percent of the appraised
value of the assets.
(C) All debt securities have a term no greater than seven years
and provide for prepayment with 80 percent of the net proceeds of any
sale or refinancing of the assets previously owned by the entity or
any part thereof.
(D) Freely tradeable securities utilized as compensation to
dissenting limited partners must be issued by an issuer whose
securities are listed on a certified national securities exchange or
designated as a national market system security on an
interdealer quotation system by the National Association of
Securities Dealers, Inc. listed on the National Market
System of the Nasdaq Market System (or its successor), if so
certified , for at least one year prior to the transaction, and
the number of securities to be received in return for limited
partnership interests must be determined by an appraisal of limited
partnership assets, conducted in a manner consistent with paragraph
(1) of subdivision (b), in relation to the average last sale price of
the freely tradeable securities in the 20-day period following the
transaction. If the issuer of the freely tradeable securities is
affiliated with the sponsor or general partner, newly issued
securities to be utilized as compensation to dissenting limited
partners shall not represent more than 20 percent of the issued and
outstanding shares of that class of securities after giving effect to
the issuance. For the purposes of the preceding sentence, a sponsor
or general partner is "affiliated" with the issuer of the freely
tradeable securities if the sponsor or general partner receives any
material compensation from the issuer or its affiliates in
conjunction with the rollup transaction or the purchase of the
general partner's interest; provided, however, that nothing herein
shall restrict the ability of a sponsor or general partner to receive
any payment for its equity interests and compensation as otherwise
provided by this section.
(2) To receive or retain a security with substantially the same
terms and conditions as the security originally held, provided that
the receipt or retention of that security is not a step in a series
of subsequent transactions that directly or indirectly through
acquisition or otherwise involves future combinations or
reorganizations of one or more rollup participants. Securities
received or retained will be considered to have the same terms and
conditions as the security originally held if:
(A) There is no material adverse change to dissenting limited
partners' rights, including, but not limited to, rights with respect
to voting, the business plan, or the investment, distribution,
management compensation and liquidation policies of the limited
partnership or resulting entity.
(B) The dissenting limited partners receive the same preferences,
privileges, and priorities as they had pursuant to the security
originally held.
The rights set forth in paragraphs (1) and (2) are the only rights
of dissenting limited partners to which the presumption under
subdivision (b) applies. A general partner or sponsor shall file an
application for qualification pursuant to Section 25110 or Section
25120 with respect to any other rights proposed to be offered to
dissenting limited partners.
At the time a registration statement is filed with the Securities
and Exchange Commission with respect to an eligible rollup
transaction, a general partner or sponsor shall notify, to the
maximum extent permitted by the federal securities laws, each limited
partner who has an address in this state by certified mail of the
following: That a registration statement has been filed with the
Securities and Exchange Commission with respect to a rollup
transaction; that the general partner or sponsor claims an exemption
from the review process under the law by virtue of Section 25014.7,
which defines "eligible rollup transaction"; that the general partner
or sponsor has the burden of proof under the law that the
transaction meets the definition of eligible rollup transaction; and
that the commissioner does not recommend or endorse the transaction.
(c) The rights of limited partners shall be presumed not to be
protected if the general partner:
(1) Converts an equity interest in the limited partnerships
subject to a rollup for which consideration was not paid and which
was not otherwise provided for in the limited partnership agreement
and disclosed to limited partners, into a voting interest in the new
entity, provided, however, an interest originally obtained in order
to comply with the provisions of Internal Revenue Service Revenue
Proclamation 89-12 may be converted.
(2) Fails to follow the valuation provisions in the limited
partnership agreements of the subject limited partners when valuing
their limited partnership interests.
(3) Utilizes a future value of their equity interest rather than
the current value of their equity interest, as determined by an
appraisal conducted in a manner consistent with paragraph (1) of
subdivision (b), when determining their interest in the new entity.
(d) The rights of limited
partners shall be presumed not to be protected as to voting rights,
if:
(1) The voting rights in the entity resulting from a rollup do not
generally follow the original voting rights of the limited
partnerships participating in the rollup transaction.
(2) A majority of the interest in an entity resulting from a
rollup transaction may not, without concurrence by the sponsor,
general partners, board of directors or trustee, depending on the
form of entity, vote to:
(A) Amend the limited partnership agreement, articles of
incorporation or bylaws, or indenture.
(B) Dissolve the entity.
(C) Remove management and elect new management.
(D) Approve or disapprove the sale of substantially all of the
assets of the entity.
(3) The general partner or sponsor proposing a rollup is not
required to provide each person whose equity interest is subject to
the rollup transaction with a document which instructs the person on
the proper procedure for voting against or dissenting from the rollup
transaction.
(4) The general partner or sponsor does not utilize an independent
third party to receive and tabulate all votes and dissents, and
require that the third party make the tabulation available to the
general partner and any limited partner upon request at any time
during and after voting occurs.
(e) The rights of limited partners shall be presumed not to be
protected as to transaction costs if:
(1) Limited partners bear an unfair portion of the transaction
costs of a proposed rollup transaction that is rejected. For
purposes of this provision, transaction costs are defined as the
costs of printing and mailing the proxy, prospectus, or other
documents; legal fees not related to the solicitation of votes or
tenders; financial advisory fees; investment banking fees; appraisal
fees; accounting fees; independent committee expenses; travel
expenses; and all other fees related to the preparatory work of the
transaction, but not including costs that would have otherwise been
incurred by the subject limited partnerships in the ordinary course
of business, or solicitation expenses.
(2) Transaction costs of a rejected rollup transaction are not
apportioned between general and limited partners of the subject
limited partnerships according to the final vote on the proposed
transaction as follows:
(A) The general partner or sponsor bears all rollup transaction
costs in proportion to the number of votes to reject the rollup
transaction.
(B) Limited partners bear transaction costs in proportion to the
number of votes to approve the rollup transaction.
(3) The dissenting limited partnership is required to pay any of
the costs of the rollup transaction and the general partner or
sponsor is not required to pay the rollup transaction costs on behalf
of the dissenting limited partnerships in a rollup in which one or
more limited partnerships determines not to approve the transaction,
but where the rollup transaction is consummated with respect to one
or more approving limited partnerships.
(f) The rights of limited partners shall be presumed not to be
protected as to fees of general partners and sponsors, if:
(1) General partners and sponsors are not prevented from receiving
both unearned management fees discounted to a present value, if
those fees were not previously provided for in the limited
partnership agreement and disclosed to limited partners, and new
asset-based fees.
(2) Property management fees and other management fees are not
appropriate, not reasonable and greater than what would be paid to
third parties for performing similar services.
(3) Changes in fees which are substantial and adverse to limited
partners are not approved by an independent committee according to
the facts and circumstances of each transaction.
(g) A general partner or sponsor proposing a rollup transaction
shall pay all solicitation expenses related to the transaction,
including all preparatory work related thereto, in the event the
rollup transaction is not approved. For purposes of this section,
"solicitation expenses" include direct marketing expenses such as
telephone calls, broker-dealer fact sheets, legal and other fees
related to the solicitation, as well as direct solicitation
compensation to brokers and dealers.
(h) A broker or dealer may not receive compensation for soliciting
votes or tenders from limited partners in connection with a rollup
transaction unless that compensation:
(1) Is payable and equal in amount regardless of whether the
limited partner votes affirmatively or negatively in the proposed
rollup.
(2) In the aggregate, does not exceed 2 percent of the exchange
value of the newly created securities.
(3) Is paid regardless of whether the limited partners reject the
proposed rollup transaction.
(i) As used in this section, the following terms have the
following meanings:
(1) "Limited partnership" includes any entity determined to be a
"partnership" pursuant to Section 14(h)(4)(B) of the Securities
Exchange Act of 1934 or such other entity having a substantially
economically equivalent form of ownership instrument.
(2) "Dissenting limited partner" means a holder or a beneficial
interest in a limited partnership that is the subject of a rollup
transaction who casts a vote against the rollup transaction, except
that for purposes of an exchange or tender offer dissenting limited
partner means any person who files a dissent from the terms of the
transaction with the party responsible for tabulating the votes or
tenders, to be received in connection with the transaction during the
period in which the offer is outstanding.
(3) "Management fee" means a fee paid to the sponsor, general
partner, their affiliates, or other persons for management and
administration of the limited partnership.
SEC. 20. 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 Financial Institutions 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 which 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 Financial Institutions of this
state.
(h) Any security issued or guaranteed by any federal credit union,
or by any credit union organized and supervised, or regulated, under
the Credit Union Law.
(i) Any security issued or guaranteed by any railroad, other
common carrier, public utility, or public utility holding company
which is (1) subject to the jurisdiction of the Interstate Commerce
Commission or its successor or (2) a holding company registered with
the Securities and Exchange Commission under the Public Utility
Holding Company Act of 1935 or a subsidiary of that company within
the meaning of that act or (3) regulated in respect of the issuance
or guarantee of the security by a governmental authority of the
United States, of any state, of Canada or of any Canadian province;
and the security is subject to registration with or authorization of
issuance by that authority.
(j) Any security (except evidences of indebtedness, whether
interest bearing or not) of an issuer (1) organized exclusively for
educational, benevolent, fraternal, religious, charitable, social, or
reformatory purposes and not for pecuniary profit, if no part of the
net earnings of the issuer inures to the benefit of any private
shareholder or individual, or (2) organized as a chamber of commerce
or trade or professional association. The fact that amounts received
from memberships or dues or both will or may be used to construct or
otherwise acquire facilities for use by members of the nonprofit
organization does not disqualify the organization for this exemption.
This exemption does not apply to the securities of any nonprofit
organization if any promoter thereof expects or intends to make a
profit directly or indirectly from any business or activity
associated with the organization or operation of that nonprofit
organization or from remuneration received from that nonprofit
organization.
(k) Any agreement, commonly known as a "life income contract," of
an issuer (1) organized exclusively for educational, benevolent,
fraternal, religious, charitable, social, or reformatory purposes and
not for pecuniary profit and (2) which the commissioner designates
by rule or order, with a donor in consideration of a donation of
property to that issuer and providing for the payment to the donor or
persons designated by him or her of income or specified periodic
payments from the donated property or other property for the life of
the donor or those other persons.
(l) Any note, draft, bill of exchange, or banker's acceptance
which is freely transferable and of prime quality, arises out of a
current transaction or the proceeds of which have been or are to be
used for current transactions, and which evidences an obligation to
pay cash within nine months of the date of issuance, exclusive of
days of grace, or any renewal of that paper which is likewise
limited, or any guarantee of that paper or of that renewal, provided
that the paper is not offered to the public in amounts of less than
twenty-five thousand dollars ($25,000) in the aggregate to any one
purchaser. In addition, the commissioner may, by rule or order,
exempt any issuer of any notes, drafts, bills of exchange or banker's
acceptances from qualification of those securities when the
commissioner finds that the qualification is not necessary or
appropriate in the public interest or for the protection of
investors.
(m) Any security issued by any corporation organized and existing
under the provisions of Chapter 1 (commencing with Section 54001) of
Division 20 of the Food and Agricultural Code.
(n) Any beneficial interest in an employees' pension,
profit-sharing, stock bonus or similar benefit plan which meets the
requirements for qualification under Section 401 of the federal
Internal Revenue Code or any statute amendatory thereof or
supplementary thereto. A determination letter from the Internal
Revenue Service stating that an employees' pension, profit-sharing,
stock bonus or similar benefit plan meets those requirements shall be
conclusive evidence that the plan is an employees' pension,
profit-sharing, stock bonus or similar benefit plan within the
meaning of the first sentence of this subdivision until the date the
determination letter is revoked in writing by the Internal Revenue
Service, regardless of whether or not the revocation is retroactive.
(o) Any security listed or approved for listing upon notice of
issuance on a national securities exchange or designated or
approved for designation upon notice of issuance as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. on the
National Market System of the Nasdaq Stock Market (or any successor
to that entity) , if the exchange or interdealer
quotation system Nasdaq Stock Market (or its
successor) 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 designated, or approved
for listing or designation upon notice of issuance
on a national securities exchange or on the National Market
System of the Nasdaq Stock Market (or its successor) , in a
rollup transaction unless the rollup transaction is an eligible
rollup transaction as defined in Section 25014.7.
That certification of any exchange or system
the Nasdaq Stock Market (or its successor) shall be made
by the commissioner upon the written request of the exchange or
system Nasdaq Stock Market (or its successor)
if the commissioner finds that the exchange or system
Nasdaq Stock Market (or its successor) : (i)
in acting on applications for listing of common stock substantially
applies the minimum standards set forth in either alternative (A) or
(B) of paragraph (1), and (ii) in considering suspension or removal
from listing or designation , 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 or
system Nasdaq Stock Market (or its successor)
may also consider the listing or designation
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 or
designation under this trading provision, the exchange or
system Nasdaq Stock Market (or its successor)
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 which
that trades infrequently shall not be
considered for listing or designation 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 or designation 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
or designation application; provided, however, in certain
instances an exchange or system Nasdaq Stock
Market (or its successor) may favorably consider listing an
issue selling for less than three dollars ($3) per share after
considering all pertinent factors, including market conditions in
general, whether historically the issue has sold above three dollars
($3) per share, the applicant's capitalization, and the number of
outstanding and publicly held shares of the issue.
(v) An aggregate market value for publicly held shares of at least
three million dollars ($3,000,000).
(B) (i) Shareholders' equity of at least four million dollars
($4,000,000).
(ii) Minimum public distribution set forth in clause (iii) of
subparagraph (A) of paragraph (1).
(iii) Operating history of at least three years.
(iv) An aggregate market value for publicly held shares of at
least fifteen million dollars ($15,000,000).
(2) Criteria for consideration of suspension or removal from
listing:
(i) If a company which that (A) has
shareholders' equity of less than one million dollars ($1,000,000)
has sustained net losses in each of its two most recent fiscal years,
or (B) has net tangible assets of less than three million dollars
($3,000,000) and has sustained net losses in three of its four most
recent fiscal years.
(ii) If the number of shares publicly held (excluding the holdings
of officers, directors, controlling shareholders and other
concentrated or family holdings) is less than 150,000.
(iii) If the total number of shareholders is less than 400 or if
the number of shareholders of lots of 100 shares or more is less than
300.
(iv) If the aggregate market value of shares publicly held is less
than seven hundred fifty thousand dollars ($750,000).
(v) If shares of common stock sell at a price of less than three
dollars ($3) per share for a substantial period of time and the
issuer shall fail to effectuate a reverse stock split of the shares
within a reasonable period of time after being requested by the
exchange to take that action.
A national securities exchange or interdealer quotation
system of the National Association of Securities Dealers, Inc.
Nasdaq Stock Market (or its successor),
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 or
interdealer quotation system's designation criteria
Nasdaq Stock Market's (or its successor) criteria , 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 or
interdealer quotation system Nasdaq Stock
Market (or its successor) 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
or system 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 or
interdealer quotation system Nasdaq Stock Market (or
its successor) previously certified which
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, or designated or approved for designation
upon issuance as a national market system security on any interdealer
quotation system listed on the National Market System
of the Nasdaq Stock Market (or its successor) , 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 or interdealer quotation system
the Nasdaq Stock Market (or its successor) .
(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, which 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, there 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 three hundred dollars
($300). 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 which 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. 21. Section 25101 of the Corporations Code is amended to
read:
25101. The following securities are exempt from the provisions of
Section 25130:
(a) Any security issued by a person that is the issuer of any
security listed on a national securities exchange, or
designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers,
Inc. on the National Market System of the Nasdaq Stock
Market (or any successor to that entity) , if the exchange or
system Nasdaq Stock Market (or its successor)
is certified by rule or order of the commissioner.
(b) The exemption provided by subdivision (a) does not apply to
securities offered pursuant to a registration under the Securities
Act of 1933 or pursuant to the exemption afforded by Regulation A
under that act if the aggregate offering price of the securities
offered pursuant to that exemption exceeds fifty thousand dollars
($50,000).
SEC. 22. 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 toward such 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 offeror 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 advisors
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, a husband and wife
(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 may by
rule require the issuer to file a notice of transactions under this
subdivision. However, 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 this exemption. An
issuer who fails to file the notice as provided by rule of the
commissioner shall, within 15 business days after demand by the
commissioner, file the notice and pay to the commissioner a fee equal
to the fee payable had the transaction been qualified under Section
25110.
(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.
However, 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 demand by the commissioner, 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 a
husband and wife, 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 clause (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 advisor, 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 pursuant to a stock
purchase plan or agreement, or issued pursuant to a stock option plan
or agreement, where the security 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 stock 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 stock 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 within not
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.
(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). 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.
SEC. 23. Section 25117 of the Corporations Code is amended to
read:
25117. (a) An evidence of indebtedness, and the purchasers or
holders thereof, shall be exempt from the usury provisions of Section
1 of Article XV of the California Constitution if (1) the evidence
of indebtedness is rated or provisionally rated by Standard & Poor's
Corporation as AAA, AA, A, BBB, or investment grade commercial paper,
or by Moody's Investors Service, Inc. as Aaa, Aa, A, Baa, or
investment grade commercial paper, including any such ratings with "+"
or "-" designation or other variations that occur within these
ratings, or has a rating or a provisional rating by another
nationally recognized rating agency or system, which rating and
agency or system have been certified by rule or order of the
commissioner, or (2) the issuer thereof either (A) has any security
listed or approved for listing upon notice of issuance on a national
securities exchange or designated or approved for
designation upon notice of issuance as a national market system
security on an interdealer quotation system by the National
Association of Securities Dealers on the National
Market System of the Nasdaq Stock Market (or any successor to that
entity) , if the exchange or interdealer quotation
system Nasdaq Stock Market (or its successor)
has been certified by the commissioner, pursuant to subdivision (o)
of Section 25100, or (B) meets each of the following requirements:
(i) The issuer is a corporation which is subject to Section 13 of
the Securities Exchange Act of 1934.
(ii) The issuer had total shareholders' equity of at least one
million dollars ($1,000,000) at the end of its most recent fiscal
year, and had consolidated net income, after all charges, including
taxes and extraordinary losses, and excluding extraordinary gains, of
at least five hundred thousand dollars ($500,000) for three of its
last four fiscal years, including its most recent fiscal year. The
determination of total shareholders' equity and net income shall be
determined in conformity with generally accepted accounting
principles applicable to that fiscal year or years, on a consolidated
basis, or (3) the evidence of indebtedness is issued by any
corporation all of the outstanding shares of which are owned by an
issuer which meets the requirements of subparagraph (A) or (B) of
paragraph (2).
(b) This section creates and authorizes a class of transactions
and persons pursuant to Section 1 of Article XV of the California
Constitution.
(c) Any evidence of indebtedness issued in compliance with this
section shall be entitled to the benefits of the usury exemption
contained in this section regardless of whether subsequent to its
issuance the evidence of indebtedness is determined by a court of
competent jurisdiction to be a "security."