BILL NUMBER: SB 1837 CHAPTERED
BILL TEXT
CHAPTER 705
FILED WITH SECRETARY OF STATE SEPTEMBER 27, 2000
APPROVED BY GOVERNOR SEPTEMBER 25, 2000
PASSED THE SENATE AUGUST 31, 2000
PASSED THE ASSEMBLY AUGUST 29, 2000
AMENDED IN ASSEMBLY AUGUST 18, 2000
AMENDED IN ASSEMBLY AUGUST 10, 2000
AMENDED IN SENATE MARCH 28, 2000
INTRODUCED BY Senator Figueroa
FEBRUARY 24, 2000
An act to amend Sections 25010, 25019, 25102, and 29530 of, and to
add Sections 25023, 25209, and 25508.5 to, the Corporations Code,
relating to securities.
LEGISLATIVE COUNSEL'S DIGEST
SB 1837, Figueroa. Securities: viatical settlement contracts:
commodities transactions.
The Corporate Securities Law of 1968 provides for the regulation
of securities and issuers of securities subject to that law.
Existing law defines "viatical settlement" for the purposes of the
Insurance Code to mean an agreement between a person owning a life
insurance policy upon the life of a person with a catastrophic or
life-threatening illness or condition and another person by which the
policy owner receives compensation or anything of value less than
the death benefits in return for an assignment, transfer, sale,
devise, or bequest of the death benefits or ownership of the
insurance policy, but excludes from this definition the assignment of
a life insurance policy to certain financial institutions as
collateral for a loan. Existing law provides for the regulation of
viatical settlements and the licensing of persons entering into or
soliciting those settlements by the Insurance Commissioner.
This bill, for the purposes of the Corporate Securities Law of
1968, would define "viatical settlement contract" and "life
settlement contract" to mean an agreement for the purchase, sale,
assignment, transfer, devise, or bequest of any portion of the death
benefit or ownership of a life insurance policy or certificate that
is less than the expected death benefit of the life insurance policy
or certificate, but would exclude from this definition the
assignment, transfer, sale, devise, or bequest of a death benefit,
life insurance policy, or certificate of insurance by an insured or
an original owner, as specified, to a person licensed under the
Insurance Code. It would also exclude from that definition the
assignment of a life insurance policy to a financial institution as
security for a loan and the exercise of accelerated benefits under
the terms of a life insurance policy, as specified. This bill, for
the purposes of the Corporate Securities Law of 1968, would define
"security" to include a viatical settlement contract or a
fractionalized or pooled interest in a viatical settlement contract
and a life settlement contract or a fractionalized or pooled interest
in a life settlement contract. This bill would also define "issuer"
with respect to a viatical settlement contract for the purposes of
that law.
Existing law provides that certain securities transactions are
exempt from qualification by the Department of Corporations.
This bill would provide that offers or sales of viatical or life
settlement contracts are exempt from qualification, as specified.
Existing law exempts from qualification by the Department of
Corporations 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 when the stock purchase or option plan or
agreement is exempt pursuant to specified federal law and specified
regulations are met.
The bill would apply the exemptions to any security issued
pursuant to a purchase or option plan or agreement by a limited
liability company. The bill would apply the exemption from
qualification to an offer or sale of a security issued pursuant to a
purchase or option plan or agreement when the security meets the
conditions for the exemption at the time of issuance or grant.
Existing law provides for the licensing of broker-dealers engaging
in securities transactions. This bill would exempt agents engaging
in transactions involving viatical or life settlement contracts from
that requirement if the agents are licensed life agents.
Existing law provides for the enforcement of actions for
violations of the Corporate Securities Act of 1968 provisions.
This bill would permit a viatical or life settlement contract to
be cancelled or rescinded for any reason and within 7 calendar days
of remitting consideration for the transaction to the issuer or the
issuer's agent.
The California Commodity Law of 1990 prohibits a person from
selling or purchasing, or offering to sell or purchase, any commodity
under any commodity contract or under any commodity option unless
the person is exempted from this prohibition. Among those exempted
from the prohibition is a person who is a member of a contract market
designated by the Commodity Futures Trading Commission or any
clearinghouse thereof.
This bill would require that for the member to come within the
exemption, the commodity transaction at issue must require membership
in and be subject to the regulatory jurisdiction of that contract
market.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 25010 of the Corporations Code is amended to
read:
25010. "Issuer" means any person who issues or proposes to issue
any security, except that:
(a) With respect to certificates of deposit, voting trust
certificates or collateral-trust certificates, or with respect to
certificates of interest or shares in an unincorporated investment
trust not having a board of directors or persons performing similar
functions or of the fixed, restricted management or unit type,
"issuer" means the person or persons performing the acts and assuming
the duties of depositor or manager pursuant to the provisions of the
trust or other agreement or instrument under which the security is
issued. However, with respect to equipment-trust certificates or
like securities, "issuer" means the person by whom the equipment or
property is or is to be used.
(b) With respect to certificates of interest or participation in
oil, gas or mining titles or leases or in payments out of production
under those titles or leases, "issuer" means the person or persons in
active control of the exploration or development of the property who
sell those interests or participations or payments or any person or
persons who subdivide and sell those interests or participations or
payments. The determination of the person or persons in active
control of the exploration or development of the property shall be
made on the basis of the actual relationship of the parties and not
on the basis of the legal designation of a person's interest.
(c) With respect to a fractional or pooled interest in a viatical
or life settlement contract, "issuer" means the person who creates,
for the purposes of sale, the fractional or pooled interest. In the
case of a viatical or life settlement contract that is not
fractionalized or pooled, "issuer" means the person effecting the
transactions with the investors in those contracts.
(d) In the case of an unincorporated association which provides by
its articles for limited liability of any or all of its members, or
in the case of a trust, committee, or other legal entity, the
trustees or members thereof shall not be individually liable as
issuers of any security issued by the association, trust, committee,
or other legal entity.
SEC. 2. Section 25019 of the Corporations Code is amended to read:
25019. "Security" means any note; stock; treasury stock;
membership in an incorporated or unincorporated association; bond;
debenture; evidence of indebtedness; certificate of interest or
participation in any profit-sharing agreement; collateral trust
certificate; preorganization certificate or subscription;
transferable share; investment contract; viatical settlement contract
or a fractionalized or pooled interest therein; life settlement
contract or a fractionalized or pooled interest therein; voting trust
certificate; certificate of deposit for a security; interest in a
limited liability company and any class or series of those interests
(including any fractional or other interest in that interest), except
a membership interest in a limited liability company in which the
person claiming this exception can prove that all of the members are
actively engaged in the management of the limited liability company;
provided that evidence that members vote or have the right to vote,
or the right to information concerning the business and affairs of
the limited liability company, or the right to participate in
management, shall not establish, without more, that all members are
actively engaged in the management of the limited liability company;
certificate of interest or participation in an oil, gas or mining
title or lease or in payments out of production under that title or
lease; put, call, straddle, option, or privilege on any security,
certificate of deposit, or group or index of securities (including
any interest therein or based on the value thereof); or any put,
call, straddle, option, or privilege entered into on a national
securities exchange relating to foreign currency; any beneficial
interest or other security issued in connection with a funded
employees' pension, profit sharing, stock bonus, or similar benefit
plan; or, in general, any interest or instrument commonly known as a
"security"; or any certificate of interest or participation in,
temporary or interim certificate for, receipt for, guarantee of, or
warrant or right to subscribe to or purchase, any of the foregoing.
All of the foregoing are securities whether or not evidenced by a
written document. "Security" does not include: (1) any beneficial
interest in any voluntary inter vivos trust which is not created for
the purpose of carrying on any business or solely for the purpose of
voting, or (2) any beneficial interest in any testamentary trust, or
(3) any insurance or endowment policy or annuity contract under which
an insurance company admitted in this state promises to pay a sum of
money (whether or not based upon the investment performance of a
segregated fund) either in a lump sum or periodically for life or
some other specified period, or (4) any franchise subject to
registration under the Franchise Investment Law (Division 5
(commencing with Section 31000)), or exempted from registration by
Section 31100 or 31101.
SEC. 3. Section 25023 is added to the Corporations Code, to read:
25023. (a) Except as provided in subdivision (b), "viatical
settlement contract" means an agreement as defined in paragraph (1)
of subdivision (a) of Section 10113.1 of the Insurance Code and "life
settlement contract" means an agreement, other than a viatical
settlement contract, for the purchase, sale, assignment, transfer,
devise, or bequest of any portion of the death benefit or ownership
of a life insurance policy or certificate for consideration that is
less than the expected death benefit of the life insurance policy or
certificate.
(b) "Viatical settlement contract" and "life settlement contract"
do not include any of the following:
(1) The assignment, transfer, sale, devise, or bequest of a death
benefit, life insurance policy, or certificate of insurance by the
insured or the original owner to any person if the assignment,
transfer, sale, devise, or bequest (A) is not accompanied by the
publication of any advertisement and (B) is not effected by or
through a broker-dealer (Section 25004).
(2) The assignment of a life insurance policy to a bank, savings
bank, savings association, credit union, or other lender (either
licensed or not required to be licensed) as collateral for a loan, or
to a stop-loss insurer or reinsurer.
(3) The exercise of accelerated benefits pursuant to the terms of
a life insurance policy issued in accordance with the insurance laws
of this state.
(4) The assignment, transfer, sale, devise or bequest of any
undivided death benefit, life insurance policy, or certificate of
insurance by an entity licensed pursuant to Section 10113.2 of the
Insurance Code, or a viatical or life settlement provider licensed
from another state, to one individual or entity, provided that the
individual or entity represents that the individual or entity is
purchasing for its own account (or trust account, if the entity is a
trustee) and not with a view to or for sale in connection with a
distribution of the individual death benefit, life insurance policy,
or certificate of insurance.
SEC. 4. 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 adviser, who is unaffiliated
with and who is not compensated, directly or indirectly, by the
issuer or any affiliate or selling agent of the issuer, can be
reasonably assumed to have the capacity to protect his or her
interests in connection with the transaction. The amount of the
investment of each natural person shall not exceed 10 percent of the
net worth, as determined by this subparagraph, of that natural
person.
(F) Any other purchaser designated as qualified by rule of the
commissioner.
(3) Each purchaser represents that the purchaser is purchasing for
the purchaser's own account (or trust account, if the purchaser is a
trustee) and not with a view to or for sale in connection with a
distribution of the security.
(4) Each natural person purchaser, including a corporation,
partnership, or other organization specifically formed by natural
persons for the purpose of acquiring the securities offered by the
issuer, receives, at least five business days before securities are
sold to, or a commitment to purchase is accepted from, the purchaser,
a written offering disclosure statement that shall meet the
disclosure requirements of Regulation D (17 C.F.R. 230.501 et seq.),
and any other information as may be prescribed by rule of the
commissioner, provided that the issuer shall not be obligated
pursuant to this paragraph to provide this disclosure statement to a
natural person qualified under Section 260.102.13 of Title 10 of the
California Code of Regulations. The offer or sale of securities
pursuant to a disclosure statement required by this paragraph that is
in violation of Section 25401, or that fails to meet the disclosure
requirements of Regulation
D (17 C.F.R. 230.501 et seq.), shall not render unavailable to the
issuer the claim of an exemption from Section 25110 afforded by this
subdivision. This paragraph does not impose, directly or indirectly,
any additional disclosure obligation with respect to any other
exemption from qualification available under any other provision of
this section.
(5) (A) A general announcement of proposed offering may be
published by written document only, provided that the general
announcement of proposed offering sets forth the following required
information:
(i) The name of the issuer of the securities.
(ii) The full title of the security to be issued.
(iii) The anticipated suitability standards for prospective
purchasers.
(iv) A statement that (I) no money or other consideration is being
solicited or will be accepted, (II) an indication of interest made
by a prospective purchaser involves no obligation or commitment of
any kind, and, if the issuer is required by paragraph (4) to deliver
a disclosure statement to prospective purchasers, (III) no sales will
be made or commitment to purchase accepted until five business days
after delivery of a disclosure statement and subscription information
to the prospective purchaser in accordance with the requirements of
this subdivision.
(v) Any other information required by rule of the commissioner.
(vi) The following legend: "For more complete information about
(Name of Issuer) and (Full Title of Security), send for additional
information from (Name and Address) by sending this coupon or calling
(Telephone Number)."
(B) The general announcement of proposed offering referred to in
subparagraph (A) may also set forth the following information:
(i) A brief description of the business of the issuer.
(ii) The geographic location of the issuer and its business.
(iii) The price of the security to be issued, or, if the price is
not known, the method of its determination or the probable price
range as specified by the issuer, and the aggregate offering price.
(C) The general announcement of proposed offering shall contain
only the information that is set forth in this paragraph.
(D) Dissemination of the general announcement of proposed offering
to persons who are not qualified purchasers, without more, shall not
disqualify the issuer from claiming the exemption under this
subdivision.
(6) No telephone solicitation shall be permitted until the issuer
has determined that the prospective purchaser to be solicited is a
qualified purchaser.
(7) The issuer files a notice of transaction under this
subdivision both (A) concurrent with the publication of a general
announcement of proposed offering or at the time of the initial offer
of the securities, whichever occurs first, accompanied by a filing
fee, and (B) within 10 business days following the close or
abandonment of the offering, but in no case more than 210 days from
the date of filing the first notice. The first notice of transaction
under subparagraph (A) shall contain an undertaking, in a form
acceptable to the commissioner, to deliver any disclosure statement
required by paragraph (4) to be delivered to prospective purchasers,
and any supplement thereto, to the commissioner within 10 days of the
commissioner's request for the information. The exemption from
qualification afforded by this subdivision is unavailable if an
issuer fails to file the first notice required under subparagraph (A)
or to pay the filing fee. The commissioner has the authority to
assess an administrative penalty of up to one thousand dollars
($1,000) against an issuer that fails to deliver the disclosure
statement required to be delivered to the commissioner upon the
commissioner's request within the time period set forth above.
Neither the filing of the disclosure statement nor the failure by the
commissioner to comment thereon precludes the commissioner from
taking any action deemed necessary or appropriate under this division
with respect to the offer and sale of the securities.
(o) An offer or sale of any security issued by a corporation or
limited liability company pursuant to a purchase plan or agreement,
or issued pursuant to an option plan or agreement, where the security
at the time of issuance or grant is exempt from registration under
the Securities Act of 1933, as amended, pursuant to Rule 701 adopted
pursuant to that act (17 C.F.R. 230.701), the provisions of which are
hereby incorporated by reference into this section, provided that
(1) the terms of any purchase plan or agreement shall comply with
Sections 260.140.42, 260.140.45, and 260.140.46 of Title 10 of the
California Code of Regulations, (2) the terms of any option plan or
agreement shall comply with Sections 260.140.41, 260.140.45, and
260.140.46 of Title 10 of the California Code of Regulations, and (3)
the issuer files a notice of transaction in accordance with rules
adopted by the commissioner no later than 30 days after the initial
issuance of any security under that plan, accompanied by a filing fee
as prescribed by subdivision (y) of Section 25608.
Offers and sales exempt pursuant to this subdivision shall be
deemed to be part of a single, discrete offering and are not subject
to integration with any other offering or sale, whether qualified
under Chapter 2 (commencing with Section 25110), or otherwise exempt,
or not subject to qualification.
(p) An offer or sale of nonredeemable securities to accredited
investors (Section 28031) by a person licensed under the Capital
Access Company Law (Division 3 (commencing with Section 28000) of
Title 4). 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.
(q) Any offer or sale of any viatical or life settlement contract
or fractionalized or pooled interest therein in a transaction that
meets all of the following criteria:
(1) Sales of securities described in this subdivision are made
only to qualified purchasers or other persons the issuer reasonably
believes, after reasonable inquiry, to be qualified purchasers. A
corporation, partnership, or other organization specifically formed
for the purpose of acquiring the securities offered by the issuer in
reliance upon this exemption may be a qualified purchaser only if
each of the equity owners of the corporation, partnership, or other
organization is a qualified purchaser. Qualified purchasers include
the following:
(A) A person designated in Section 260.102.13 of Title 10 of the
California Code of Regulations.
(B) A person designated in subdivision (i) or any rule of the
commissioner adopted thereunder.
(C) A pension or profit-sharing trust of the issuer, a
self-employed individual retirement plan, or an individual retirement
account, if the investment decisions made on behalf of the trust,
plan, or account are made solely by persons who are qualified
purchasers.
(D) An organization described in Section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust,
or partnership, each with total assets in excess of five million
dollars ($5,000,000) according to its most recent audited financial
statements.
(E) A natural person who, either individually or jointly with the
person's spouse, (i) has a minimum net worth of one hundred fifty
thousand dollars ($150,000) and had, during the immediately preceding
tax year, gross income in excess of one hundred thousand dollars
($100,000) and reasonably expects gross income in excess of one
hundred thousand dollars ($100,000) during the current tax year or
(ii) has a minimum net worth of two hundred fifty thousand dollars
($250,000). "Net worth" shall be determined exclusive of home, home
furnishings, and automobiles. Other assets included in the
computation of net worth may be valued at fair market value.
Each natural person specified above, by reason of his or her
business or financial experience, or the business or financial
experience of his or her professional 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
subdivision, of that natural person.
(F) Any other purchaser designated as qualified by rule of the
commissioner.
(2) Each purchaser represents that the purchaser is purchasing for
the purchaser's own account (or trust account, if the purchaser is a
trustee) and not with a view to or for sale in connection with a
distribution of the security.
(3) Each natural person purchaser, including a corporation,
partnership, or other organization specifically formed by natural
persons for the purpose of acquiring the securities offered by the
issuer, receives, at least five business days before securities
described in this subdivision are sold to, or a commitment to
purchase is accepted from, the purchaser, the following information
in writing:
(A) The name, principal business and mailing address, and
telephone number of the issuer.
(B) The suitability standards for prospective purchasers as set
forth in paragraph (1) of this subdivision.
(C) A description of the issuer's type of business organization
and the state in which the issuer is organized or incorporated.
(D) A brief description of the business of the issuer.
(E) If the issuer retains ownership or becomes the beneficiary of
the insurance policy, an audit report of an independent certified
public accountant together with a balance sheet and related
statements of income, retained earnings, and cash-flows that reflect
the issuer's financial position, the results of the issuer's
operations, and the issuer's cash-flows as of a date within 15 months
before the date of the initial issuance of the securities described
in this subdivision. The financial statements listed in this
subparagraph shall be prepared in conformity with generally accepted
accounting principles. If the date of the audit report is more than
120 days before the date of the initial issuance of the securities
described in this subdivision, the issuer shall provide unaudited
interim financial statements.
(F) The names of all directors, officers, partners, members, or
trustees of the issuer.
(G) A description of any order, judgment, or decree that is final
as to the issuing entity of any state, federal, or foreign country
governmental agency or administrator, or of any state, federal or
foreign country court of competent jurisdiction (i) revoking,
suspending, denying, or censuring for cause any license, permit, or
other authority of the issuer or of any director, officer, partner,
member, trustee, or person owning or controlling, directly or
indirectly, 10 percent or more of the outstanding interest or equity
securities of the issuer, to engage in the securities, commodities,
franchise, insurance, real estate, or lending business or in the
offer or sale of securities, commodities, franchises, insurance, real
estate, or loans, (ii) permanently restraining, enjoining, barring,
suspending, or censuring any such person from engaging in or
continuing any conduct, practice, or employment in connection with
the offer or sale of securities, commodities, franchises, insurance,
real estate, or loans, (iii) convicting any such person of, or
pleading nolo contendere by any such person to, any felony or
misdemeanor involving a security, commodity, franchise, insurance,
real estate, or loan, or any aspect of the securities, commodities,
franchise, insurance, real estate, or lending business, or involving
dishonesty, fraud, deceit, embezzlement, fraudulent conversion, or
misappropriation of property, or (iv) holding any such person liable
in a civil action involving breach of a fiduciary duty, fraud,
deceit, embezzlement, fraudulent conversion, or misappropriation of
property. This subparagraph does not apply to any order, judgment,
or decree that has been vacated, overturned, or is more than 10 years
old.
(H) Notice of the purchaser's right to rescind or cancel the
investment and receive a refund pursuant to Section 25508.5.
(I) The name, address, and telephone number of the issuing
insurance company, and the name, address, and telephone number of the
state or foreign country regulator of the insurance company.
(J) The total face value of the insurance policy and the
percentage of the insurance policy the purchaser will own.
(K) The insurance policy number, issue date, and type.
(L) If a group insurance policy, the name, address, and telephone
number of the group, and, if applicable, the material terms and
conditions of converting the policy to an individual policy,
including the amount of increased premiums.
(M) If a term insurance policy, the term and the name, address,
and telephone number of the person who will be responsible for
renewing the policy if necessary.
(N) That the insurance policy is beyond the state statute for
contestability and the reason therefor.
(O) The insurance policy premiums and terms of premium payments.
(P) The amount of the purchaser's moneys that will be set aside to
pay premiums.
(Q) The name, address, and telephone number of the person who will
be the insurance policy owner and the person who will be responsible
for paying premiums.
(R) The date on which the purchaser will be required to pay
premiums and the amount of the premium, if known.
(S) A statement to the effect that any projected rate of return to
the purchaser from the purchase of a viatical or life settlement
contract or a fractionalized or pooled interest therein is based on
an estimated life expectancy for the person insured under the life
insurance policy; that the return on the purchase may vary
substantially from the expected rate of return based upon the actual
life expectancy of the insured that may be less than, equal to, or
may greatly exceed the estimated life expectancy; and that the rate
of return would be higher if the actual life expectancy were less
than, and lower if the actual life expectancy were greater than the
estimated life expectancy of the insured at the time the viatical or
life settlement contract was closed.
(T) A statement that the purchaser should consult with his or her
tax advisor regarding the tax consequences of the purchase of the
viatical or life settlement contract or fractionalized or pooled
interest therein and, if the purchaser is using retirement funds or
accounts for that purchase, whether or not any adverse tax
consequences might result from the use of those funds for the
purchase of that investment.
(U) Any other information as may be prescribed by rule of the
commissioner.
SEC. 5. Section 25209 is added to the Corporations Code, to read:
25209. Section 25210 shall not apply to an agent of an issuer
when engaged in transactions exempted by subdivision (q) of Section
25102, provided that the agent is a life agent licensed in California
or in the state of domicile of the purchaser.
SEC. 6. Section 25508.5 is added to the Corporations Code, to
read:
25508.5. In addition to any other rights provided for under this
division, including, but not limited to, Sections 25501 and 25506, or
otherwise, a person who purchases a viatical or life settlement
contract or a fractionalized or pooled interest therein may rescind
or cancel the purchase for any reason. The person may rescind or
cancel the purchase at any time before seven calendar days after the
date the person remits the required consideration to the issuer or
the issuer's agent by giving written notice of rescission or
cancellation to the issuer or the issuer's agent. No specific form
is required for the rescission or cancellation. The notice is
effective when personally delivered, deposited in the United States
mail, or deposited with a commercial courier or delivery service.
The issuer shall refund all the person's money within seven calendar
days after receiving the notice of rescission or cancellation.
SEC. 7. Section 29530 of the Corporations Code is amended to read:
29530. (a) The prohibitions in Section 29520 shall not apply to
any transaction offered by and in which any of the following persons
(or any employee, officer, or director thereof acting solely in that
capacity) is the purchaser or seller:
(1) A person registered with the Commodity Futures Trading
Commission as a futures commission merchant or as a leverage
transaction merchant whose activities require registration.
(2) A person affiliated with, and whose obligations and
liabilities under the transaction are guaranteed by, a person
referred to in subdivision (a).
(3) A person who is a member of a contract market designated by
the Commodity Futures Trading Commission (or any clearinghouse
thereof) when the transaction at issue requires membership in and is
subject to the regulatory jurisdiction of that contract market.
(4) A financial institution.
(5) A broker-dealer licensed under Section 25211, or exempt from
licensure under Section 25200, when engaging in activities subject to
the exclusive regulatory jurisdiction of the Commodity Futures
Trading Commission.
(6) A person licensed pursuant to Chapter 14 (commencing with
Section 1800) of Division 1 of the Financial Code to receive money
for transmittal to foreign countries if (A) the license has not
expired or been surrendered, suspended, or revoked, (B) the licensed
person has a tangible net worth of at least 3 million dollars
($3,000,000) according to its audited financial statements prepared
by an independent certified public accountant for each of the
immediately preceding three fiscal years, and (C) pursuant to the
provisions of subdivision (b) of Section 29531, the licensed person
issues and a purchaser receives a certificate, document of title,
confirmation, or other instrument evidencing that the purchased
quantity of precious metals or foreign currencies has been delivered
to a depository which is a financial institution located in a state
of the United States.
(b) The exemption provided by subdivision (a) shall not apply to
any transaction or activity which is prohibited by the Commodity
Exchange Act or CFTC Rule.