Bill Text: CA SB577 | 2015-2016 | Regular Session | Amended
NOTE: There are more recent revisions of this legislation. Read Latest Draft
Bill Title: Securities: qualification: exemptions.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Failed) 2016-02-01 - Returned to Secretary of Senate pursuant to Joint Rule 56. [SB577 Detail]
Download: California-2015-SB577-Amended.html
Bill Title: Securities: qualification: exemptions.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Failed) 2016-02-01 - Returned to Secretary of Senate pursuant to Joint Rule 56. [SB577 Detail]
Download: California-2015-SB577-Amended.html
BILL NUMBER: SB 577 AMENDED
BILL TEXT
AMENDED IN SENATE APRIL 6, 2015
INTRODUCED BY Senator Hueso
FEBRUARY 26, 2015
An act to amend Sections 25100 and 25102 of the Corporations Code,
relating to securities.
LEGISLATIVE COUNSEL'S DIGEST
SB 577, as amended, Hueso. Securities: qualification: exemptions.
Existing law, the Corporate Securities Law of 1968, requires the
offer and sale of securities in the state to be qualified with the
Commissioner of Business Oversight, unless exempt. That law exempts
specific securities or transactions from qualification, including,
among others, any shares or memberships issued by a consumer
cooperative corporation, provided the aggregate investment of any
shareholder or member does not exceed $300.
This bill would increase the aggregate investment amount for the
exemption for qualification of shares or memberships in a consumer
cooperative corporation from $300 to $1,000. The bill would
exempt from qualification the offer or sale of a portion of a future
crop, animal production, or both, of a community-supported
agriculture program, as defined, provided that the aggregate purchase
by a natural person does not exceed $1,000. The bill would
exempt from qualification the offer or sale of evidence of
indebtedness, whether secured or unsecured, any
security in a transaction that meets specified requirements
that include, among others, that the aggregate amount sold to all
investors within 12 months does not exceed $100,000 or
$500,000, or a percentage of the amounts raised by the
offering be allocated to acquiring either an interest in real
property used for agricultural purposes or to purchase solar
photovoltaic panels, wind turbines, and related equipment. The bill
would authorize the commissioner to by rule require specified issuers
to file a notice of transaction, and if the issuer fails to file
that notice, to pay a specified fee to the commissioner. The bill
would change references throughout these provisions from husband and
wife to spouses, generally.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 25100 of the Corporations Code is amended to
read:
25100. The following securities are exempted from Sections 25110,
25120, and 25130:
(a) Any security (including a revenue obligation) issued or
guaranteed by the United States, any state, any city, county, city
and county, public district, public authority, public corporation,
public entity, or political subdivision of a state or any agency or
corporate or other instrumentality of any one or more of the
foregoing; or any certificate of deposit for any of the foregoing.
(b) Any security issued or guaranteed by Canada, any Canadian
province, any political subdivision or municipality of that province,
or by any other foreign government with which the United States
currently maintains diplomatic relations, if the security is
recognized as a valid obligation by the issuer or guarantor; or any
certificate of deposit for any of the foregoing.
(c) Any security issued or guaranteed by and representing an
interest in or a direct obligation of a national bank or a bank or
trust company incorporated under the laws of this state, and any
security issued by a bank to one or more other banks and representing
an interest in an asset of the issuing bank.
(d) Any security issued or guaranteed by a federal savings
association or federal savings bank or federal land bank or joint
land bank or national farm loan association or by any savings
association, as defined in subdivision (a) of Section 5102 of the
Financial Code, which is subject to the supervision and regulation of
the Commissioner of Business Oversight of this state.
(e) Any security (other than an interest in all or portions of a
parcel or parcels of real property which are subdivided land or a
subdivision or in a real estate development), the issuance of which
is subject to authorization by the Insurance Commissioner, the Public
Utilities Commission, or the Real Estate Commissioner of this state.
(f) Any security consisting of any interest in all or portions of
a parcel or parcels of real property that are subdivided lands or a
subdivision or in a real estate development; provided that the
exemption in this subdivision shall not be applicable to: (1) any
investment contract sold or offered for sale with, or as part of,
that interest, or (2) any person engaged in the business of selling,
distributing, or supplying water for irrigation purposes or domestic
use that is not a public utility except that the exemption is
applicable to any security of a mutual water company (other than an
investment contract as described in paragraph (1)) offered or sold in
connection with subdivided lands pursuant to Chapter 2 (commencing
with Section 14310) of Part 7 of Division 3 of Title 1.
(g) Any mutual capital certificates or savings accounts, as
defined in the Savings Association Law, issued by a savings
association, as defined by subdivision (a) of Section 5102 of the
Financial Code, and holding a license or certificate of authority
then in force from the Commissioner of Business Oversight of this
state.
(h) Any security issued or guaranteed by any federal credit union,
or by any credit union organized and supervised, or regulated, under
the Credit Union Law.
(i) Any security issued or guaranteed by any railroad, other
common carrier, public utility, or public utility holding company
which is (1) subject to the jurisdiction of the Interstate Commerce
Commission or its successor or (2) a holding company registered with
the Securities and Exchange Commission under the Public Utility
Holding Company Act of 1935 or a subsidiary of that company within
the meaning of that act or (3) regulated in respect of the issuance
or guarantee of the security by a governmental authority of the
United States, of any state, of Canada or of any Canadian province;
and the security is subject to registration with or authorization of
issuance by that authority.
(j) Any security (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, if the exchange has been
certified by rule or order of the commissioner and any warrant or
right to purchase or subscribe to the security. The exemption
afforded by this subdivision does not apply to securities listed or
approved for listing upon notice of issuance on a national securities
exchange, in a rollup transaction unless the rollup transaction is
an eligible rollup transaction as defined in Section 25014.7.
That certification of any exchange shall be made by the
commissioner upon the written request of the exchange if the
commissioner finds that the exchange, in acting on applications for
listing of common stock, substantially applies the minimum standards
set forth in either subparagraph (A) or (B) of paragraph (1), and, in
considering suspension or removal from listing, substantially
applies each of the criteria set forth in paragraph (2).
(1) Listing standards:
(A) (i) Shareholders' equity of at least four million dollars
($4,000,000).
(ii) Pretax income of at least seven hundred fifty thousand
dollars ($750,000) in the issuer's last fiscal year or in two of its
last three fiscal years.
(iii) Minimum public distribution of 500,000 shares (exclusive of
the holdings of officers, directors, controlling shareholders, and
other concentrated or family holdings), together with a minimum of
800 public holders or minimum public distribution of 1,000,000 shares
together with a minimum of 400 public holders. The exchange may also
consider the listing of a company's securities if the company has a
minimum of 500,000 shares publicly held, a minimum of 400
shareholders and daily trading volume in the issue has been
approximately 2,000 shares or more for the six months preceding the
date of application. In evaluating the suitability of an issue for
listing under this trading provision, the exchange shall review the
nature and frequency of that activity and any other factors as it may
determine to be relevant in ascertaining whether the issue is
suitable for trading. A security that trades infrequently shall not
be considered for listing under this paragraph even though average
daily volume amounts to 2,000 shares per day or more.
Companies whose securities are concentrated in a limited
geographical area, or whose securities are largely held in block by
institutional investors, normally may not be considered eligible for
listing unless the public distribution appreciably exceeds 500,000
shares.
(iv) Minimum price of three dollars ($3) per share for a
reasonable period of time prior to the filing of a listing
application; provided, however, in certain instances an exchange may
favorably consider listing an issue selling for less than three
dollars ($3) per share after considering all pertinent factors,
including market conditions in general, whether historically the
issue has sold above three dollars ($3) per share, the applicant's
capitalization, and the number of outstanding and publicly held
shares of the issue.
(v) An aggregate market value for publicly held shares of at least
three million dollars ($3,000,000).
(B) (i) Shareholders' equity of at least four million dollars
($4,000,000).
(ii) Minimum public distribution set forth in clause (iii) of
subparagraph (A) of paragraph (1).
(iii) Operating history of at least three years.
(iv) An aggregate market value for publicly held shares of at
least fifteen million dollars ($15,000,000).
(2) Criteria for consideration of suspension or removal from
listing:
(i) If a company that (A) has shareholders' equity of less than
one million dollars ($1,000,000) has sustained net losses in each of
its two most recent fiscal years, or (B) has net tangible assets of
less than three million dollars ($3,000,000) and has sustained net
losses in three of its four most recent fiscal years.
(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, certified by rule or order of the
commissioner under this subdivision, shall file annual reports when
requested to do so by the commissioner. The annual reports shall
contain, by issuer: the variances granted to an exchange's listing
standards, including variances from corporate governance and voting
rights' standards, for any security of that issuer; the reasons for
the variances; a discussion of the review procedure instituted by the
exchange to determine the effect of the variances on investors and
whether the variances should be continued; and any other information
that the commissioner deems relevant. The purpose of these reports is
to assist the commissioner in determining whether the quantitative
and qualitative requirements of this subdivision are substantially
being met by the exchange in general or with regard to any particular
security.
The commissioner after appropriate notice and opportunity for
hearing in accordance with the provisions of the Administrative
Procedure Act, Chapter 5 (commencing with Section 11500) of Part 1 of
Division 3 of Title 2 of the Government Code, may, in his or her
discretion, by rule or order, decertify any exchange previously
certified that ceases substantially to apply the minimum standards or
criteria as set forth in paragraphs (1) and (2).
A rule or order of certification shall conclusively establish that
any security listed or approved for listing upon notice of issuance
on any exchange named in a rule or order of certification, and any
warrant or right to purchase or subscribe to that security, is exempt
under this subdivision until the adoption by the commissioner of any
rule or order decertifying the exchange.
(p) A promissory note secured by a lien on real property, which is
neither one of a series of notes of equal priority secured by
interests in the same real property nor a note in which beneficial
interests are sold to more than one person or entity.
(q) Any unincorporated interindemnity or reciprocal or
interinsurance contract, that qualifies under the provisions of
Section 1280.7 of the Insurance Code, between members of a
cooperative corporation, organized and operating under Part 2
(commencing with Section 12200) of Division 3 of Title 1, and whose
members consist only of physicians and surgeons licensed in
California, which contracts indemnify solely in respect to medical
malpractice claims against the members, and which do not collect in
advance of loss any moneys other than contributions by each member to
a collective reserve trust fund or for necessary expenses of
administration.
(1) Whenever it appears to the commissioner that any person has
engaged or is about to engage in any act or practice constituting a
violation of any provision of Section 1280.7 of the Insurance Code,
the commissioner may, in the commissioner's discretion, bring an
action in the name of the people of the State of California in the
superior court to enjoin the acts or practices or to enforce
compliance with Section 1280.7 of the Insurance Code. Upon a proper
showing a permanent or preliminary injunction, a restraining order,
or a writ of mandate shall be granted and a receiver or conservator
may be appointed for the defendant or the defendant's assets.
(2) The commissioner may, in the commissioner's discretion, (A)
make public or private investigations within or outside of this state
as the commissioner deems necessary to determine whether any person
has violated or is about to violate any provision of Section 1280.7
of the Insurance Code or to aid in the enforcement of Section 1280.7,
and (B) publish information concerning the violation of Section
1280.7.
(3) For the purpose of any investigation or proceeding under this
section, the commissioner or any officer designated by the
commissioner may administer oaths and affirmations, subpoena
witnesses, compel their attendance, take evidence, and require the
production of any books, papers, correspondence, memoranda,
agreements, or other documents or records which the commissioner
deems relevant or material to the inquiry.
(4) In case of contumacy by, or refusal to obey a subpoena issued
to, any person, the superior court, upon application by the
commissioner, may issue to the person an order requiring the person
to appear before the commissioner, or the officer designated by the
commissioner, to produce documentary evidence, if so ordered, or to
give evidence touching the matter under investigation or in question.
Failure to obey the order of the court may be punished by the court
as a contempt.
(5) No person is excused from attending or testifying or from
producing any document or record before the commissioner or in
obedience to the subpoena of the commissioner or any officer
designated by the commissioner, or in any proceeding instituted by
the commissioner, on the ground that the testimony or evidence
(documentary or otherwise), required of the person may tend to
incriminate the person or subject the person to a penalty or
forfeiture, but no individual may be prosecuted or subjected to any
penalty or forfeiture for or on account of any transaction, matter,
or thing concerning which the person is compelled, after validly
claiming the privilege against self-incrimination, to testify or
produce evidence (documentary or otherwise), except that the
individual testifying is not exempt from prosecution and punishment
for perjury or contempt committed in testifying.
(6) The cost of any review, examination, audit, or investigation
made by the commissioner under Section 1280.7 of the Insurance Code
shall be paid to the commissioner by the person subject to the
review, examination, audit, or investigation, and the commissioner
may maintain an action for the recovery of these costs in any court
of competent jurisdiction. In determining the cost, the commissioner
may use the actual amount of the salary or other compensation paid to
the persons making the review, examination, audit, or investigation
plus the actual amount of expenses including overhead reasonably
incurred in the performance of the work.
The recoverable cost of each review, examination, audit, or
investigation made by the commissioner under Section 1280.7 of the
Insurance Code shall not exceed twenty-five thousand dollars
($25,000), except that costs exceeding twenty-five thousand dollars
($25,000) shall be recoverable if the costs are necessary to prevent
a violation of any provision of Section 1280.7 of the Insurance Code.
(r) Any shares or memberships issued by any corporation organized
and existing pursuant to the provisions of Part 2 (commencing with
Section 12200) of Division 3 of Title 1, provided the aggregate
investment of any shareholder or member in shares or memberships sold
pursuant to this subdivision does not exceed one thousand dollars
($1,000). This exemption does not apply to the shares or memberships
of that corporation if any promoter thereof expects or intends to
make a profit directly or indirectly from any business or activity
associated with the corporation or the operation of the corporation
or from remuneration, other than reasonable salary, received from the
corporation. This exemption does not apply to nonvoting shares or
memberships of that corporation issued to any person who does not
possess, and who will not acquire in connection with the issuance of
nonvoting shares or memberships, voting power (Section 12253) in the
corporation. This exemption also does not apply to shares or
memberships issued by a nonprofit cooperative corporation organized
to facilitate the creation of an unincorporated interindemnity
arrangement that provides indemnification for medical malpractice to
its physician and surgeon members as set forth in subdivision (q).
(s) Any security consisting of or representing an interest in a
pool of mortgage loans that meets each of the following requirements:
(1) The pool consists of whole mortgage loans or participation
interests in those loans, which loans were originated or acquired in
the ordinary course of business by a national bank or federal savings
association or federal savings bank having its principal office in
this state, by a bank incorporated under the laws of this state or by
a savings association as defined in subdivision (a) of Section 5102
of the Financial Code and which is subject to the supervision and
regulation of the Commissioner of Financial Institutions, and each of
which at the time of transfer to the pool is an authorized
investment for the originating or acquiring institution.
(2) The pool of mortgage loans is held in trust by a trustee which
is a financial institution specified in paragraph (1) as trustee or
otherwise.
(3) The loans are serviced by a financial institution specified in
paragraph (1).
(4) The security is not offered in amounts of less than
twenty-five thousand dollars ($25,000) in the aggregate to any one
purchaser.
(5) The security is offered pursuant to a registration under the
Securities Act of 1933, or pursuant to an exemption under Regulation
A under that act, or in the opinion of counsel for the issuer, is
offered pursuant to an exemption under Section 4(2) of that act.
(t) (1) Any security issued or guaranteed by and representing an
interest in or a direct obligation of an industrial loan company
incorporated under the laws of the state and authorized by the
Commissioner of Financial Institutions to engage in industrial loan
business.
(2) Any investment certificate in or issued by any industrial loan
company that is organized under the laws of a state of the United
States other than this state, that is insured by the Federal Deposit
Insurance Corporation, and that maintains a branch office in this
state.
SEC. 2. Section 25102 of the Corporations Code is amended to read:
25102. The following transactions are exempted from the
provisions of Section 25110:
(a) Any offer (but not a sale) not involving any public offering
and the execution and delivery of any agreement for the sale of
securities pursuant to the offer if (1) the agreement contains
substantially the following provision: "The sale of the securities
that are the subject of this agreement has not been qualified with
the Commissioner of Corporations of the State of California and the
issuance of the securities or the payment or receipt of any part of
the consideration therefor prior to the qualification is unlawful,
unless the sale of securities is exempt from the qualification by
Section 25100, 25102, or 25105 of the California Corporations Code.
The rights of all parties to this agreement are expressly conditioned
upon the qualification being obtained, unless the sale is so exempt"
; and (2) no part of the purchase price is paid or received and none
of the securities are issued until the sale of the securities is
qualified under this law unless the sale of securities is exempt from
the qualification by this section, Section 25100, or 25105.
(b) Any offer (but not a sale) of a security for which a
registration statement has been filed under the Securities Act of
1933 but has not yet become effective, or for which an offering
statement under Regulation A has been filed but has not yet been
qualified, if no stop order or refusal order is in effect and no
public proceeding or examination looking towards an order is pending
under Section 8 of the act and no order under Section 25140 or
subdivision (a) of Section 25143 is in effect under this law.
(c) Any offer (but not a sale) and the execution and delivery of
any agreement for the sale of securities pursuant to the offer as may
be permitted by the commissioner upon application. Any negotiating
permit under this subdivision shall be conditioned to the effect that
none of the securities may be issued and none of the consideration
therefor may be received or accepted until the sale of the securities
is qualified under this law.
(d) Any transaction or agreement between the issuer and an
underwriter or among underwriters if the sale of the securities is
qualified, or exempt from qualification, at the time of distribution
thereof in this state, if any.
(e) Any offer or sale of any evidence of indebtedness, whether
secured or unsecured, and any guarantee thereof, in a transaction not
involving any public offering.
(f) Any offer or sale of any security in a transaction (other than
an offer or sale to a pension or profit-sharing trust of the issuer)
that meets each of the following criteria:
(1) Sales of the security are not made to more than 35 persons,
including persons not in this state.
(2) All purchasers either have a preexisting personal or business
relationship with the 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 advisers
who are unaffiliated with and who are not compensated by the issuer
or any affiliate or selling agent of the issuer, directly or
indirectly, could be reasonably assumed to have the capacity to
protect their own interests in connection with the transaction.
(3) Each purchaser represents that the purchaser is purchasing for
the purchaser's own account (or a trust account if the purchaser is
a trustee) and not with a view to or for sale in connection with any
distribution of the security.
(4) The offer and sale of the security is not accomplished by the
publication of any advertisement. The number of purchasers referred
to above is exclusive of any described in subdivision (i), any
officer, director, or affiliate of the issuer, or manager (as
appointed or elected by the members) if the issuer is a limited
liability company, and any other purchaser who the commissioner
designates by rule. For purposes of this section, spouses (together
with any custodian or trustee acting for the account of their minor
children) are counted as one person and a partnership, corporation,
or other organization that was not specifically formed for the
purpose of purchasing the security offered in reliance upon this
exemption, is counted as one person. The commissioner shall by rule
require the issuer to file a notice of transactions under this
subdivision.
The failure to file the notice or the failure to file the notice
within the time specified by the rule of the commissioner shall not
affect the availability of the exemption. Any issuer that fails to
file the notice as provided by rule of the commissioner shall, within
15 business days after discovery of the failure to file the notice
or after demand by the commissioner, whichever occurs
first, file the notice and pay to the
commissioner a fee equal to the fee payable had the transaction been
qualified under Section 25110. Neither the filing of the notice nor
the failure by the commissioner to comment thereon precludes the
commissioner from taking any action that the commissioner deems
necessary or appropriate under this division with respect to the
offer and sale of the securities.
(g) Any offer or sale of conditional sale agreements, equipment
trust certificates, or certificates of interest or participation
therein or partial assignments thereof, covering the purchase of
railroad rolling stock or equipment or the purchase of motor
vehicles, aircraft, or parts thereof, in a transaction not involving
any public offering.
(h) Any offer or sale of voting common stock by a corporation
incorporated in any state if, immediately after the proposed sale and
issuance, there will be only one class of stock of the corporation
outstanding that is owned beneficially by no more than 35 persons,
provided all of the following requirements have been met:
(1) The offer and sale of the stock is not accompanied by the
publication of any advertisement, and no selling expenses have been
given, paid, or incurred in connection therewith.
(2) The consideration to be received by the issuer for the stock
to be issued consists of any of the following:
(A) Only assets (which may include cash) of an existing business
enterprise transferred to the issuer upon its initial organization,
of which all of the persons who are to receive the stock to be issued
pursuant to this exemption were owners during, and the enterprise
was operated for, a period of not less than one year immediately
preceding the proposed issuance, and the ownership of the enterprise
immediately prior to the proposed issuance was in the same
proportions as the shares of stock are to be issued.
(B) Only cash or cancellation of indebtedness for money borrowed,
or both, upon the initial organization of the issuer, provided all of
the stock is issued for the same price per share.
(C) Only cash, provided the sale is approved in writing by each of
the existing shareholders and the purchaser or purchasers are
existing shareholders.
(D) In a case where after the proposed issuance there will be only
one owner of the stock of the issuer, only any legal consideration.
(3) No promotional consideration has been given, paid, or incurred
in connection with the issuance. Promotional consideration means any
consideration paid directly or indirectly to a person who, acting
alone or in conjunction with one or more other persons, takes the
initiative in founding and organizing the business or enterprise of
an issuer for services rendered in connection with the founding or
organizing.
(4) A notice in a form prescribed by rule of the commissioner,
signed by an active member of the State Bar of California, is filed
with or mailed for filing to the commissioner not later than 10
business days after receipt of consideration for the securities by
the issuer. That notice shall contain an opinion of the member of the
State Bar of California that the exemption provided by this
subdivision is available for the offer and sale of the securities.
The failure to file the notice as required by this subdivision and
the rules of the commissioner shall not affect the availability of
this exemption. An issuer who fails to file the notice within the
time specified by this subdivision shall, within 15 business days
after discovery of the failure to file the notice or after demand by
the commissioner, whichever occurs first, file the notice and pay to
the commissioner a fee equal to the fee payable had the transaction
been qualified under Section 25110. The notice, except when filed on
behalf of a California corporation, shall be accompanied by an
irrevocable consent, in the form that the commissioner by rule
prescribes, appointing the commissioner or his or her successor in
office to be the issuer's attorney to receive service of any lawful
process in any noncriminal suit, action, or proceeding against it or
its successor that arises under this law or any rule or order
hereunder after the consent has been filed, with the same force and
validity as if served personally on the issuer. An issuer on whose
behalf a consent has been filed in connection with a previous
qualification or exemption from qualification under this law (or
application for a permit under any prior law if the application or
notice under this law states that the consent is still effective)
need not file another. Service may be made by leaving a copy of the
process in the office of the commissioner, but it is not effective
unless (A) the plaintiff, who may be the commissioner in a suit,
action, or proceeding instituted by him or her, forthwith sends
notice of the service and a copy of the process by registered or
certified mail to the defendant or respondent at its last address on
file with the commissioner, and (B) the plaintiff's affidavit of
compliance with this section is filed in the case on or before the
return day of the process, if any, or within the further time as the
court allows.
(5) Each purchaser represents that the purchaser is purchasing for
the purchaser's own account, or a trust account if the purchaser is
a trustee, and not with a view to or for sale in connection with any
distribution of the stock.
For the purposes of this subdivision, all securities held by
spouses, whether or not jointly, shall be considered to be owned by
one person, and all securities held by a corporation that has issued
stock pursuant to this exemption shall be considered to be held by
the shareholders to whom it has issued the stock.
All stock issued by a corporation pursuant to this subdivision as
it existed prior to the effective date of the amendments to this
section made during the 1996 portion of the 1995-96 Regular Session
that required the issuer to have stamped or printed prominently on
the face of the stock certificate a legend in a form prescribed by
rule of the commissioner restricting transfer of the stock in a
manner provided for by that rule shall not be subject to the transfer
restriction legend requirement and, by operation of law, the
corporation is authorized to remove that transfer restriction legend
from the certificates of those shares of stock issued by the
corporation pursuant to this subdivision as it existed prior to the
effective date of the amendments to this section made during the 1996
portion of the 1995-96 Regular Session.
(i) Any offer or sale (1) to a bank, savings and loan association,
trust company, insurance company, investment company registered
under the Investment Company Act of 1940, pension or profit-sharing
trust (other than a pension or profit-sharing trust of the issuer, a
self-employed individual retirement plan, or individual retirement
account), or other institutional investor or governmental agency or
instrumentality that the commissioner may designate by rule, whether
the purchaser is acting for itself or as trustee, or (2) to any
corporation with outstanding securities registered under Section 12
of the Securities Exchange Act of 1934 or any wholly owned subsidiary
of the corporation that after the offer and sale will own directly
or indirectly 100 percent of the outstanding capital stock of the
issuer, provided the purchaser represents that it is purchasing for
its own account (or for the trust account) for investment and not
with a view to or for sale in connection with any distribution of the
security.
(j) Any offer or sale of any certificate of interest or
participation in an oil or gas title or lease (including subsurface
gas storage and payments out of production) if either of the
following apply:
(1) All of the purchasers meet one of the following requirements:
(A) Are and have been during the preceding two years engaged
primarily in the business of drilling for, producing, or refining oil
or gas (or whose corporate predecessor, in the case of a
corporation, has been so engaged).
(B) Are persons described in paragraph (1) of subdivision (i).
(C) Have been found by the commissioner upon written application
to be substantially engaged in the business of drilling for,
producing, or refining oil or gas so as not to require the protection
provided by this law (which finding shall be effective until
rescinded).
(2) The security is concurrently hypothecated to a bank in the
ordinary course of business to secure a loan made by the bank,
provided that each purchaser represents that it is purchasing for its
own account for investment and not with a view to or for sale in
connection with any distribution of the security.
(k) Any offer or sale of any security under, or pursuant to, a
plan of reorganization under Chapter 11 of the federal bankruptcy law
that has been confirmed or is subject to confirmation by the decree
or order of a court of competent jurisdiction.
( l ) Any offer or sale of an option, warrant, put,
call, or straddle, and any guarantee of any of these securities, by a
person who is not the issuer of the security subject to the right,
if the transaction, had it involved an offer or sale of the security
subject to the right by the person, would not have violated Section
25110 or 25130.
(m) Any offer or sale of a stock to a pension, profit-sharing,
stock bonus, or employee stock ownership plan, provided that (1) the
plan meets the requirements for qualification under Section 401 of
the Internal Revenue Code, and (2) the employees are not required or
permitted individually to make any contributions to the plan. The
exemption provided by this subdivision shall not be affected by
whether the stock is contributed to the plan, purchased from the
issuer with contributions by the issuer or an affiliate of the
issuer, or purchased from the issuer with funds borrowed from the
issuer, an affiliate of the issuer, or any other lender.
(n) Any offer or sale of any security in a transaction, other than
an offer or sale of a security in a rollup transaction, that meets
all of the following criteria:
(1) The issuer is (A) a California corporation or foreign
corporation that, at the time of the filing of the notice required
under this subdivision, is subject to Section 2115, or (B) any other
form of business entity, including without limitation a partnership
or trust organized under the laws of this state. The exemption
provided by this subdivision is not available to a "blind pool"
issuer, as that term is defined by the commissioner, or to an
investment company subject to the Investment Company Act of 1940.
(2) Sales of securities are made only to qualified purchasers or
other persons the issuer reasonably believes, after reasonable
inquiry, to be qualified purchasers. A corporation, partnership, or
other organization specifically formed for the purpose of acquiring
the securities offered by the issuer in reliance upon this exemption
may be a qualified purchaser if each of the equity owners of the
corporation, partnership, or other organization is a qualified
purchaser. Qualified purchasers include the following:
(A) A person designated in Section 260.102.13 of Title 10 of the
California Code of Regulations.
(B) A person designated in subdivision (i) or any rule of the
commissioner adopted thereunder.
(C) A pension or profit-sharing trust of the issuer, a
self-employed individual retirement plan, or an individual retirement
account, if the investment decisions made on behalf of the trust,
plan, or account are made solely by persons who are qualified
purchasers.
(D) An organization described in Section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust,
or partnership, each with total assets in excess of five million
dollars ($5,000,000) according to its most recent audited financial
statements.
(E) With respect to the offer and sale of one class of voting
common stock of an issuer or of preferred stock of an issuer
entitling the holder thereof to at least the same voting rights as
the issuer's one class of voting common stock, provided that the
issuer has only one-class voting common stock outstanding upon
consummation of the offer and sale, a natural person who, either
individually or jointly with the person's spouse, (i) has a minimum
net worth of two hundred fifty thousand dollars ($250,000) and had,
during the immediately preceding tax year, gross income in excess of
one hundred thousand dollars ($100,000) and reasonably expects gross
income in excess of one hundred thousand dollars ($100,000) during
the current tax year or (ii) has a minimum net worth of five hundred
thousand dollars ($500,000). "Net worth" shall be determined
exclusive of home, home furnishings, and automobiles. Other assets
included in the computation of net worth may be valued at fair market
value.
Each natural person specified above, by reason of his or her
business or financial experience, or the business or financial
experience of his or her professional adviser, who is unaffiliated
with and who is not compensated, directly or indirectly, by the
issuer or any affiliate or selling agent of the issuer, can be
reasonably assumed to have the capacity to protect his or her
interests in connection with the transaction. The amount of the
investment of each natural person shall not exceed 10 percent of the
net worth, as determined by this subparagraph, of that natural
person.
(F) Any other purchaser designated as qualified by rule of the
commissioner.
(3) Each purchaser represents that the purchaser is purchasing for
the purchaser's own account (or trust account, if the purchaser is a
trustee) and not with a view to or for sale in connection with a
distribution of the security.
(4) Each natural person purchaser, including a corporation,
partnership, or other organization specifically formed by natural
persons for the purpose of acquiring the securities offered by the
issuer, receives, at least five business days before securities are
sold to, or a commitment to purchase is accepted from, the purchaser,
a written offering disclosure statement that shall meet the
disclosure requirements of Regulation D (17 C.F.R. 230.501 et seq.),
and any other information as may be prescribed by rule of the
commissioner, provided that the issuer shall not be obligated
pursuant to this paragraph to provide this disclosure statement to a
natural person qualified under Section 260.102.13 of Title 10 of the
California Code of Regulations. The offer or sale of securities
pursuant to a disclosure statement required by this paragraph that is
in violation of Section 25401, or that fails to meet the disclosure
requirements of Regulation D (17 C.F.R. 230.501 et seq.), shall not
render unavailable to the issuer the claim of an exemption from
Section 25110 afforded by this subdivision. This paragraph does not
impose, directly or indirectly, any additional disclosure obligation
with respect to any other exemption from qualification available
under any other provision of this section.
(5) (A) A general announcement of proposed offering may be
published by written document only, provided that the general
announcement of proposed offering sets forth the following required
information:
(i) The name of the issuer of the securities.
(ii) The full title of the security to be issued.
(iii) The anticipated suitability standards for prospective
purchasers.
(iv) A statement that (I) no money or other consideration is being
solicited or will be accepted, (II) an indication of interest made
by a prospective purchaser involves no obligation or commitment of
any kind, and, if the issuer is required by paragraph (4) to deliver
a disclosure statement to prospective purchasers, (III) no sales will
be made or commitment to purchase accepted until five business days
after delivery of a disclosure statement and subscription information
to the prospective purchaser in accordance with the requirements of
this subdivision.
(v) Any other information required by rule of the commissioner.
(vi) The following legend: "For more complete information about
(Name of Issuer) and (Full Title of Security), send for additional
information from (Name and Address) by sending this coupon or calling
(Telephone Number)."
(B) The general announcement of proposed offering referred to in
subparagraph (A) may also set forth the following information:
(i) A brief description of the business of the issuer.
(ii) The geographic location of the issuer and its business.
(iii) The price of the security to be issued, or, if the price is
not known, the method of its determination or the probable price
range as specified by the issuer, and the aggregate offering price.
(C) The general announcement of proposed offering shall contain
only the information that is set forth in this paragraph.
(D) Dissemination of the general announcement of proposed offering
to persons who are not qualified purchasers, without more, shall not
disqualify the issuer from claiming the exemption under this
subdivision.
(6) No telephone solicitation shall be permitted until the issuer
has determined that the prospective purchaser to be solicited is a
qualified purchaser.
(7) The issuer files a notice of transaction under this
subdivision both (A) concurrent with the publication of a general
announcement of proposed offering or at the time of the initial offer
of the securities, whichever occurs first, accompanied by a filing
fee, and (B) within 10 business days following the close or
abandonment of the offering, but in no case more than 210 days from
the date of filing the first notice. The first notice of transaction
under subparagraph (A) shall contain an undertaking, in a form
acceptable to the commissioner, to deliver any disclosure statement
required by paragraph (4) to be delivered to prospective purchasers,
and any supplement thereto, to the commissioner within 10 days of the
commissioner's request for the information. The exemption from
qualification afforded by this subdivision is unavailable if an
issuer fails to file the first notice required under subparagraph (A)
or to pay the filing fee. The commissioner has the authority to
assess an administrative penalty of up to one thousand dollars
($1,000) against an issuer that fails to deliver the disclosure
statement required to be delivered to the commissioner upon the
commissioner's request within the time period set forth above.
Neither the filing of the disclosure statement nor the failure by the
commissioner to comment thereon precludes the commissioner from
taking any action deemed necessary or appropriate under this division
with respect to the offer and sale of the securities.
(o) An offer or sale of any security issued by a corporation or
limited liability company pursuant to a purchase plan or agreement,
or issued pursuant to an option plan or agreement, where the security
at the time of issuance or grant is exempt from registration under
the Securities Act of 1933, as amended, pursuant to Rule 701 adopted
pursuant to that act (17 C.F.R. 230.701), the provisions of which are
hereby incorporated by reference into this section, provided that
(1) the terms of any purchase plan or agreement shall comply with
Sections 260.140.42, 260.140.45, and 260.140.46 of Title 10 of the
California Code of Regulations, (2) the terms of any option plan or
agreement shall comply with Sections 260.140.41, 260.140.45, and
260.140.46 of Title 10 of the California Code of Regulations, and (3)
the issuer files a notice of transaction in accordance with rules
adopted by the commissioner no later than 30 days after the initial
issuance of any security under that plan, accompanied by a filing fee
as prescribed by subdivision (y) of Section 25608. The failure to
file the notice of transaction within the time specified in this
subdivision shall not affect the availability of this exemption. An
issuer that fails to file the notice shall, within 15 business days
after discovery of the failure to file the notice or after demand by
the commissioner, whichever occurs first, file the notice and pay the
commissioner a fee equal to the maximum aggregate fee payable had
the transaction been qualified under Section 25110.
Offers and sales exempt pursuant to this subdivision shall be
deemed to be part of a single, discrete offering and are not subject
to integration with any other offering or sale, whether qualified
under Chapter 2 (commencing with Section 25110), or otherwise exempt,
or not subject to qualification.
(p) An offer or sale of nonredeemable securities to accredited
investors (Section 28031) by a person licensed under the Capital
Access Company Law (Division 3 (commencing with Section 28000) of
Title 4), provided that all purchasers either (1) have a preexisting
personal or business relationship with the offeror or any of its
partners, officers, directors, controlling persons, or managers (as
appointed or elected by the members), or (2) by reason of their
business or financial experience or the business or financial
experience of their professional advisers who are unaffiliated with
and who are not compensated by the issuer or any affiliate or selling
agent of the issuer, directly or indirectly, could be reasonably
assumed to have the capacity to protect their own interests in
connection with the transaction. All nonredeemable securities shall
be evidenced by certificates that shall have stamped or printed
prominently on their face a legend in a form to be prescribed by rule
or order of the commissioner restricting transfer of the securities
in the manner as the rule or order provides. The exemption under this
subdivision shall not be available for any offering that is exempt
or asserted to be exempt pursuant to Section 3(a)(11) of the
Securities Act of 1933 (15 U.S.C. Sec. 77c(a)(11)) or Rule 147 (17
C.F.R. 230.147) thereunder or otherwise is conducted by means of any
form of general solicitation or general advertising.
(q) Any offer or sale of any viatical or life settlement contract
or fractionalized or pooled interest therein in a transaction that
meets all of the following criteria:
(1) Sales of securities described in this subdivision are made
only to qualified purchasers or other persons the issuer reasonably
believes, after reasonable inquiry, to be qualified purchasers. A
corporation, partnership, or other organization specifically formed
for the purpose of acquiring the securities offered by the issuer in
reliance upon this exemption may be a qualified purchaser only if
each of the equity owners of the corporation, partnership, or other
organization is a qualified purchaser. Qualified purchasers include
the following:
(A) A person designated in Section 260.102.13 of Title 10 of the
California Code of Regulations.
(B) A person designated in subdivision (i) or any rule of the
commissioner adopted thereunder.
(C) A pension or profit-sharing trust of the issuer, a
self-employed individual retirement plan, or an individual retirement
account, if the investment decisions made on behalf of the trust,
plan, or account are made solely by persons who are qualified
purchasers.
(D) An organization described in Section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust,
or partnership, each with total assets in excess of five million
dollars ($5,000,000) according to its most recent audited financial
statements.
(E) A natural person who, either individually or jointly with the
person's spouse, (i) has a minimum net worth of one hundred fifty
thousand dollars ($150,000) and had, during the immediately preceding
tax year, gross income in excess of one hundred thousand dollars
($100,000) and reasonably expects gross income in excess of one
hundred thousand dollars ($100,000) during the current tax year or
(ii) has a minimum net worth of two hundred fifty thousand dollars
($250,000). "Net worth" shall be determined exclusive of home, home
furnishings, and automobiles. Other assets included in the
computation of net worth may be valued at fair market value.
Each natural person specified above, by reason of his or her
business or financial experience, or the business or financial
experience of his or her professional adviser, who is unaffiliated
with and who is not compensated, directly or indirectly, by the
issuer or any affiliate or selling agent of the issuer, can be
reasonably assumed to have the capacity to protect his or her
interests in connection with the transaction.
The amount of the investment of each natural person shall not
exceed 10 percent of the net worth, as determined by this
subdivision, of that natural person.
(F) Any other purchaser designated as qualified by rule of the
commissioner.
(2) Each purchaser represents that the purchaser is purchasing for
the purchaser's own account (or trust account, if the purchaser is a
trustee) and not with a view to or for sale in connection with a
distribution of the security.
(3) Each natural person purchaser, including a corporation,
partnership, or other organization specifically formed by natural
persons for the purpose of acquiring the securities offered by the
issuer, receives, at least five business days before securities
described in this subdivision are sold to, or a commitment to
purchase is accepted from, the purchaser, the following information
in writing:
(A) The name, principal business and mailing address, and
telephone number of the issuer.
(B) The suitability standards for prospective purchasers as set
forth in paragraph (1) of this subdivision.
(C) A description of the issuer's type of business organization
and the state in which the issuer is organized or incorporated.
(D) A brief description of the business of the issuer.
(E) If the issuer retains ownership or becomes the beneficiary of
the insurance policy, an audit report of an independent certified
public accountant together with a balance sheet and related
statements of income, retained earnings, and cashflows that reflect
the issuer's financial position, the results of the issuer's
operations, and the issuer's cashflows as of a date within 15 months
before the date of the initial issuance of the securities described
in this subdivision. The financial statements listed in this
subparagraph shall be prepared in conformity with generally accepted
accounting principles. If the date of the audit report is more than
120 days before the date of the initial issuance of the securities
described in this subdivision, the issuer shall provide unaudited
interim financial statements.
(F) The names of all directors, officers, partners,
members, or trustees of the issuer.
(G) A description of any order, judgment, or decree that is final
as to the issuing entity of any state, federal, or foreign country
governmental agency or administrator, or of any state, federal, or
foreign country court of competent jurisdiction (i) revoking,
suspending, denying, or censuring for cause any license, permit, or
other authority of the issuer or of any director, officer, partner,
member, trustee, or person owning or controlling, directly or
indirectly, 10 percent or more of the outstanding interest or equity
securities of the issuer, to engage in the securities, commodities,
franchise, insurance, real estate, or lending business or in the
offer or sale of securities, commodities, franchises, insurance, real
estate, or loans, (ii) permanently restraining, enjoining, barring,
suspending, or censuring any such person from engaging in or
continuing any conduct, practice, or employment in connection with
the offer or sale of securities, commodities, franchises, insurance,
real estate, or loans, (iii) convicting any such person of, or
pleading nolo contendere by any such person to, any felony or
misdemeanor involving a security, commodity, franchise, insurance,
real estate, or loan, or any aspect of the securities, commodities,
franchise, insurance, real estate, or lending business, or involving
dishonesty, fraud, deceit, embezzlement, fraudulent conversion, or
misappropriation of property, or (iv) holding any such person liable
in a civil action involving breach of a fiduciary duty, fraud,
deceit, embezzlement, fraudulent conversion, or misappropriation of
property. This subparagraph does not apply to any order, judgment, or
decree that has been vacated, overturned, or is more than 10 years
old.
(H) Notice of the purchaser's right to rescind or cancel the
investment and receive a refund pursuant to Section 25508.5.
(I) The name, address, and telephone number of the issuing
insurance company, and the name, address, and telephone number of the
state or foreign country regulator of the insurance company.
(J) The total face value of the insurance policy and the
percentage of the insurance policy the purchaser will own.
(K) The insurance policy number, issue date, and type.
(L) If a group insurance policy, the name, address, and telephone
number of the group, and, if applicable, the material terms and
conditions of converting the policy to an individual policy,
including the amount of increased premiums.
(M) If a term insurance policy, the term and the name, address,
and telephone number of the person who will be responsible for
renewing the policy if necessary.
(N) That the insurance policy is beyond the state statute for
contestability and the reason therefor.
(O) The insurance policy premiums and terms of premium payments.
(P) The amount of the purchaser's moneys that will be set aside to
pay premiums.
(Q) The name, address, and telephone number of the person who will
be the insurance policy owner and the person who will be responsible
for paying premiums.
(R) The date on which the purchaser will be required to pay
premiums and the amount of the premium, if known.
(S) A statement to the effect that any projected rate of return to
the purchaser from the purchase of a viatical or life settlement
contract or a fractionalized or pooled interest therein is based on
an estimated life expectancy for the person insured under the life
insurance policy; that the return on the purchase may vary
substantially from the expected rate of return based upon the actual
life expectancy of the insured that may be less than, equal to, or
may greatly exceed the estimated life expectancy; and that the rate
of return would be higher if the actual life expectancy were less
than, and lower if the actual life expectancy were greater 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 adviser regarding the tax consequences of the purchase of the
viatical or life settlement contract or fractionalized or pooled
interest therein and, if the purchaser is using retirement funds or
accounts for that purchase, whether or not any adverse tax
consequences might result from the use of those funds for the
purchase of that investment.
(U) Any other information as may be prescribed by rule of the
commissioner.
(r) Any offer or sale of any evidence of indebtedness, whether
secured or unsecured, and any guarantee thereof, that meets each of
the following criteria:
(1) The aggregate amount of securities sold to all purchasers by
the issuer pursuant to this subdivision within any 12-month period
does not exceed one hundred thousand dollars ($100,000).
(2) The aggregate amount of securities sold to any purchaser by
the issuer under this subdivision, including any amount sold during
the 12-month period preceding the date of the transaction, does not
exceed one hundred dollars ($100), or a greater amount as the
commissioner may provide by rule or order, unless the purchaser is an
accredited investor, as defined in Section 230.501 of Title 17 of
the Code of Federal Regulations.
(3) Each purchaser represents that the purchaser is purchasing for
the purchaser's own account, or a trust account if the purchaser is
a trustee, and not with a view to or for sale in connection with any
distribution of the security.
(4) For purposes of this subdivision, spouses, together with any
custodian or trustee acting for the account of their minor children,
are counted as one person, and a partnership, corporation, or other
organization that was not specifically formed for the purpose of
purchasing the security offered in reliance upon this exemption, is
counted as one person.
(5) The commissioner shall by rule require the issuer to file a
notice of transaction under this subdivision. The failure to file the
notice or the failure to file the notice within the time specified
by the rule of the commissioner shall not affect the availability of
the exemption. Any issuer that fails to file the notice as provided
by rule of the commissioner shall, within 15 business days after
discovery of the failure to file the notice or after demand by the
commissioner, whichever occurs first, file the notice and pay to the
commissioner a fee equal to the fee payable had the transaction been
qualified under Section 25110. Neither the filing of the notice nor
the failure by the commissioner to comment thereon precludes the
commissioner from taking any action that the commissioner deems
necessary or appropriate under this division with respect to the
offer and sale of the securities.
(6) 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.
(s)
(r) Any offer or sale of any evidence of indebtedness,
whether secured or unsecured, and any guarantee thereof, that meets
each of the following criteria:
(1) The aggregate amount of securities sold to all purchasers by
the issuer pursuant to this subdivision within any 12-month period
does not exceed five hundred thousand dollars ($500,000).
(2) The aggregate amount of securities sold to any purchaser by
the issuer, including any amount sold during the 12-month period
preceding the date of the transaction, does not exceed one thousand
dollars ($1000), or a greater amount as the commissioner may provide
by rule or order, unless the purchaser is an accredited investor, as
defined in Section 230.501 of Title 17 of the Code of Federal
Regulations.
(3) Each purchaser represents that the purchaser is purchasing for
the purchaser's own account, or a trust account if the purchaser is
a trustee, and not with a view to or for sale in connection with any
distribution of the security.
(4) For purposes of this section, spouses, together with any
custodian or trustee acting for the account of their minor children,
are counted as one person, and a partnership, corporation, or other
organization that was not specifically formed for the purpose of
purchasing the security offered in reliance upon this exemption, is
counted as one person.
(5) The commissioner shall by rule require the issuer to file a
notice of transactions under this subdivision. The issuer shall file
the notice of transaction and attach all documents required in
paragraph (6).
(6) The issuer provides to purchasers, and makes available to
potential purchasers on the Internet Web site of the issuer
the following:
(A) A cover sheet or heading containing all of the following
statements, in bold typeface no smaller than 12-point type:
(i) Investment in a small business is often risky. You should not
invest any funds in this offering unless you can afford to lose your
entire investment.
(ii) Potential purchasers should review information about the
enterprise and offering, and consider the terms and risks of this
offering before investing. After reviewing the financial information,
description of the business, activities, risk factors, and
development timeline, potential purchasers should consider whether
success of the enterprise is realistic.
(iii) No government regulator is recommending these securities. No
government regulator has verified that this document is accurate or
determined that it is adequate. The Commissioner of Business
Oversight has in no way passed upon the merits or qualifications of,
or recommended or given approval to, any person, security, or
transaction associated with this offering.
(B) The issuer's street address, telephone number, person to
contact with respect to offering, type of securities offered,
financial terms of the offering, the maximum
minimum amount the issuer is seeking to raise, a description of
the business of the issuer, a description of how the issuer plans to
carry out its activities, a budget for the use of proceeds of the
offering, a list of the factors that the issuer considers to be the
most significant risks to an investor, and a description in
chronological order of the steps management intends to take to
achieve, maintain, or improve profitability during the 36 months
following receipt of the offering proceeds.
(C) (i) The financial statements of the
issuer for the most recent completed fiscal year and
, if the business has existed for one year or longer,
and the current fiscal year to date, prepared in accordance
with generally accepted accounting principles, and certified by the
principal executive officer of the issuer to be true and complete in
all material respects.
(7) 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.
(ii) If the issuer's total amount raised under this exemption
exceeds three thousand dollars ($3,000), reviewed financials for the
most recently completed fiscal year shall be provided to all
prospective purchasers. If the enterprise has existed for less than
one year, reviewed financials of a partial year may be substituted
for the previous year's financial statements.
(D) A written statement of information about any material legal
proceedings involving the company or its officers and directors.
(7) This exemption cannot be used to raise funds for an enterprise
dependent upon the creation of a product or technology for which no
fully functional prototype has been made in advance of the public
offering of securities. Securities offerings made to produce a newly
invented product must have a fully functional prototype. The
prototype must be demonstrated in person to any potential investor
upon request, or, to satisfy many requests for demonstration, the
issuer may schedule several demonstrations throughout the offering
and announce the dates and times in advance to prospective purchasers
along with the materials described in paragraph (6).
(8) Issuers using this exemption may advertise the offering to
California investors only, unless the offering complies with the
securities laws of other jurisdictions. Issuers must take steps to
ensure that any public advertising indicates that the offering is
directed at California residents, or that any solicitations made to
nonresidents of California comply with applicable laws of other
individual states and the United States.
(t)
(s) Any offer or sale of any evidence of
indebtedness, whether secured or unsecured, and any guarantee
thereof, security in a transaction that meets
each of the following criteria:
(1) At least 75 percent of amounts raised through the offering
will be reserved or allocated to the purchase of fee title, leases of
30 years or more, purchase of an easement, construction of, or
improvement to real property to be used for agricultural purposes.
(2) The issuer is an agricultural enterprise that is majority
controlled by one or more individuals who are farmers and actively
engaged in the agricultural enterprise or the issuer is controlled by
a nonprofit organization.
(2)
(3) The aggregate amount of securities sold to all
purchasers by the issuer pursuant to this subdivision within any
12-month period does not exceed two million dollars ($2,000,000).
(3)
(4) (A) The aggregate amount of
the issuer's securities held by any purchaser pursuant to this
subdivision does not exceed five thousand dollars ($5,000).
($5,000), if the purchaser signs and provides to the
issuer a statement verifying that the purchaser has a minimum annual
gross income of fifty thousand dollars ($50,000) or a minimum net
worth of one hundred thousand dollars ($100,000). The aggregate
amount of securities sold pursuant to this subdivision to any
purchaser who does not sign this statement shall not exceed one
thousand dollars ($1,000).
(4) (A) Any purchaser purchasing more than one thousand dollars
($1,000) in securities shall sign and provide to the issuer a
statement verifying that the purchaser has a minimum annual gross
income of fifty thousand dollars ($50,000) or a minimum net worth of
one hundred thousand dollars ($100,000).
(B) The aggregate amount of securities sold pursuant to this
subdivision to any purchaser who does not sign a statement described
in subparagraph (A) shall not exceed one thousand dollars ($1,000).
(B) For purposes of this paragraph, net worth shall be determined
exclusive of home, home furnishings, and automobiles. Other assets
included in the computation of net worth may be valued at fair market
value.
(5) The issuer may receive a greater amount from any purchaser as
the commissioner may provide by rule or order, or as allowed by law
if the purchaser is an accredited investor, as defined in Section
230.501 of Title 17 of the Code of Federal Regulations.
(6) In the case of real property purchases of unimproved
land, the issuer sets aside in a separate third-party
escrow account all funds raised as part of the offering, to be held
in escrow until the issuer has entered into a contract to purchase a
property. If the issuer does not enter into a contract to purchase a
property within two years of the effective date of the offering, the
issuer shall return all funds to the purchasers.
(7) 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.
(8) For purposes of this subdivision, spouses, together with any
custodian or trustee acting for the account of their minor children,
are counted as one person, and a partnership, corporation, or other
organization that was not specifically formed for the purpose of
purchasing the security offered in reliance upon this exemption, is
counted as one person.
(9) The commissioner shall by rule require the issuer to file a
notice of transactions under this subdivision. The issuer shall file
the notice of transaction and attach all documents required in
paragraph (10).
(10) The issuer provides to purchasers, and makes available to
potential purchasers on the Internet Web site of the issuer
the following:
(A) A cover sheet or heading containing all of the following
statements, in bold typeface no smaller than 12-point type:
(i) Investment in a small business is often risky. You should not
invest any funds in this offering unless you can afford to lose your
entire investment.
(ii) Potential purchasers should review information about the
enterprise and offering, and consider the terms and risks of this
offering before investing. After reviewing the financial information,
description of the business, activities, risk factors, and
development timeline, potential purchasers should consider whether
success of the enterprise is realistic.
(iii) No government regulator is recommending these securities. No
government regulator has verified that this document is accurate or
determined that it is adequate. The Commissioner of Business
Oversight has in no way passed upon the merits or qualifications of,
or recommended or given approval to, any person, security, or
transaction associated with this offering.
(iv) The company described in this disclosure form is seeking to
raise a minimum offering of insert minimum offering amount].
(iv) Where the goal of the issuer in conducting the offering is to
purchase farmland, the offering must state "The company described in
this disclosure form is seeking to purchase farmland."
(v) If the sum of the investment commitments received by the
company does not equal or exceed the minimum offering amount
by insert date] your investment in the company will be returned to
you. amount to a sum suff icient to
purchase farmland by insert date two years after beginning of
offering ] , your investment in the company
will be returned to you after 60 days to the most recent address
provided.
(B) The issuer's street address, telephone number, person to
contact with respect to offering, type of securities offered,
financial terms of the offering, the maximum amount the issuer is
seeking to raise, a description of the business of the issuer, a
description of how the issuer plans to carry out its activities, a
budget for the use of proceeds of the offering, a list of the factors
that the issuer considers to be the most significant risks to an
investor, and a description of the steps management intends to take
to achieve, maintain, or improve profitability during the 36 months
following receipt of the offering proceeds.
(C) If the property to be purchased has been identified, a
description and address of the property to be purchased, an appraisal
of the property completed within the last year, and a description of
all improvements to be made on the property in order to make it
viable for agricultural use.
(D) If the property to be purchased has not been identified, a
description of the size, location, estimated costs, and
characteristics of the property that the issuer is seeking.
(E) The income tax returns filed by the issuer for the most
recently completed year, if any.
(F) The financial statements of the issuer for the most recent
completed fiscal year and , if the enterprise
has existed for one year or longer, and the current fiscal
year to date, prepared in accordance with generally accepted
accounting principles, and certified by the principal executive
officer of the issuer to be true and complete in all material
respects.
(11) 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.
(G) A written statement of information about any material legal
proceedings involving the company or its officers and directors.
(11) This exemption cannot be used to raise funds for an
enterprise dependent upon the creation of a product or technology for
which no fully functional prototype has been made in advance of the
public offering of securities. Securities offerings made to produce a
newly invented product must have a fully functional prototype. The
prototype must be demonstrated in person to any potential investor
upon request, or, to satisfy many requests for demonstration, the
issuer may schedule several demonstrations throughout the offering
and announce the dates and times in advance to prospective purchasers
along with the materials described in paragraph (10).
(12) Issuers using this exemption may advertise the offering to
California investors only, unless the offering complies with the
securities laws of other jurisdictions. Issuers must take steps to
ensure that any public advertising indicates that the offering is
directed at California residents, or that any solicitations made to
nonresidents of California comply with applicable laws of other
individual states and the United States.
(u)
(t) Any offer or sale of any cooperative
membership, nonprofit mutual benefit corporation membership, or
evidence of indebtedness, whether secured or unsecured, and any
guarantee thereof, security in a transaction
that meets each of the following criteria:
(1) At least 75 percent of amounts raised through the offering
will be reserved or allocated to the purchase of solar photovoltaic
panels and related equipment or wind turbines and related equipment.
(2) The issuer meets any one of the following qualifications:
(A) The issuer owns the land or improvements onto which the solar
panels or wind turbine will be installed and reasonably estimates
that 50 percent or more of the energy generated will be used on the
land or real property on which the improvements are located.
(B)
(A) The issuer is a cooperative corporation or a
nonprofit mutual benefit corporation with the purpose of developing
and operating one or more facilities to generate electricity for its
members to install solar panels or wind turbines for its members,
either by selling or leasing panels to members, or to arrange or
allocate net metering credits among members.
(C)
(B) The issuer is a nonprofit public benefit
corporation that is exempt from federal income taxation as an
organization described in Section 501(c)(3) or Section 501(c)(4) of
the Internal Revenue Code and the issuer is purchasing solar panels
or wind turbines primarily to meet the energy needs of the
corporation.
(D)
(C) The issuer is a nonprofit public benefit
corporation with the purpose of developing and operating one or more
facilities to generate electricity in a single city and for residents
of that city, or within a similarly limited geographic area approved
by the commissioner.
(E)
(D) The issuer is an entity owned or entirely
controlled by tenants in multitenant housing, and the issuer has
entered into a contract with the owner of the property to install
solar panels on the property on which the multitenant housing is
located.
(3) The aggregate amount of securities sold to all purchasers by
the issuer pursuant to this subdivision within any 12-month period
does not exceed two million dollars ($2,000,000).
(4) (A) The aggregate amount of the issuer's
securities held by any purchaser pursuant to this subdivision does
not exceed five thousand dollars ($5,000).
($5,000), so long as the purchaser signs and provides to the issuer a
statement verifying that the purchaser has a minimum annual gross
income of fifty thousand dollars ($50,000) or a minimum net worth of
one hundred thousand dollars ($100,000). The aggregate amount of
securities sold to any purchaser who does not sign this statement
shall not exceed one thousand dollars ($1,000).
(5) (A) Any purchaser purchasing more than one thousand dollars
($1,000) in securities shall sign and provide to the issue a
statement verifying that the purchaser has a minimum annual gross
income of fifty thousand dollars ($50,000) or a minimum net worth of
one hundred thousand dollars ($100,000).
(B) The aggregate amount of securities sold to any purchaser who
does not sign a statement described in subparagraph (A) shall not
exceed one thousand dollars ($1,000).
(B) For purposes of this paragraph, net worth shall be determined
exclusive of home, home furnishings, and automobiles. Other assets
included in the computation of net worth may be valued at fair market
value.
(6)
(5) The issuer may receive a greater amount from any
purchaser as the commissioner may provide by rule or order, or as
allowed by law if the purchaser is an accredited investor, as defined
in Section 230.501 of
Title 17 of the Code of Federal Regulations.
(7)
(6) Each purchaser represents that the purchaser is
purchasing for the purchaser's own account, or a trust account if the
purchaser is a trustee, and not with a view to or for sale in
connection with any distribution of the security.
(8)
(7) For purposes of this section, spouses, together
with any custodian or trustee acting for the account of their minor
children, are counted as one person, and a partnership, corporation,
or other organization that was not specifically formed for the
purpose of purchasing the security offered in reliance upon this
exemption, is counted as one person.
(9)
(8) The commissioner shall by rule require the issuer
to file a notice of transactions under this subdivision. The issuer
shall file the notice of transaction and attach all documents
required in paragraph (10). (9).
(10)
(9) The issuer provides to purchasers, and makes
available to potential purchasers on the Internet Web site
of the issuer the following:
(A) A cover sheet or heading containing all of the following
statements, in bold typeface no smaller than 12-point type:
(i) Investment in a small business is often risky. You should not
invest any funds in this offering unless you can afford to lose your
entire investment.
(ii) Potential purchasers should review information about the
enterprise and offering, and consider the terms and risks of this
offering before investing. After reviewing the financial information,
description of the business, activities, risk factors, and
development timeline, potential purchasers should consider whether
success of the enterprise is realistic.
(iii) No government regulator is recommending these securities. No
government regulator has verified that this document is accurate or
determined that it is adequate. The Commissioner of Business
Oversight has in no way passed upon the merits or qualifications of,
or recommended or given approval to, any person, security, or
transaction associated with this offering.
(B) The issuer's street address, telephone number, person to
contact with respect to offering, the minimum amount the issuer
is seeking to raise, type of securities offered, financial
terms of the offering, a description of the business of the issuer, a
description of how the issuer plans to carry out its activities, and
a budget for the use of proceeds of the offering.
offering, a list of the factors that the issuer considers to be
the most significant risks to an investor, and a description in
chronological order of the steps management intends to take to
achieve, maintain, or improve profitability during the 36 months
following receipt of the offering proceeds.
(C) The financial statements of the issuer for the most recent
completed fiscal year and , if the enterprise
has existed for one year or longer, and the current
fiscal year to date, prepared in accordance with generally accepted
accounting principles, and certified by the principal executive
officer of the issuer to be true and complete in all material
respects.
(10) This exemption cannot be used to raise funds for an
enterprise dependent upon the creation of a product or technology for
which no fully functional prototype has been made in advance of the
public offering of securities. Securities offerings made to produce a
newly invented product must have a fully functional prototype. The
prototype must be demonstrated in person to any potential investor
upon request, or, to satisfy many requests for demonstration, the
issuer may schedule several demonstrations throughout the offering
and announce the dates and times in advance to prospective purchasers
along with the materials described in paragraph (8).
(11) 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.
(11) Issuers using this exemption may advertise the offering to
California investors only, unless the offering complies with the
securities laws of other jurisdictions. Issuers must take steps to
ensure that any public advertising indicates that the offering is
directed at California residents, or that any solicitations made to
nonresidents of California comply with applicable laws of other
individual states and the United States.
(v) Any offer or sale of a portion of the future crop, animal
production, or both, of a community-supported agriculture program, as
defined in subdivision (a) of Section 47060 of the Food and
Agricultural Code, provided that the aggregate purchase pursuant to
this subdivision does not exceed one thousand dollars ($1,000) by any
person who is a natural person.
