2009 California Corporations Code - Section 25110-25118 :: Chapter 2. Issuer Transactions

CORPORATIONS CODE
SECTION 25110-25118

25110.  It is unlawful for any person to offer or sell in this state
any security in an issuer transaction (other than in a transaction
subject to Section 25120), whether or not by or through underwriters,
unless such sale has been qualified under Section 25111, 25112 or
25113 (and no order under Section 25140 or subdivision (a) of Section
25143 is in effect with respect to such qualification) or unless
such security or transaction is exempted or not subject to
qualification under Chapter 1 (commencing with Section 25100) of this
part. The offer or sale of such a security in a manner that varies
or differs from, exceeds the scope of, or fails to conform with
either a material term or material condition of qualification of the
offering as set forth in the permit or qualification order, or a
material representation as to the manner of offering which is set
forth in the application for qualification, shall be an unqualified
offer or sale.

25111.  (a) Any security for which a registration statement has been
filed under the Securities Act of 1933 in connection with the same
offering may be qualified by coordination under this section either
in an issuer or nonissuer transaction. The term "registration
statement" as used in this section includes an offering statement as
defined by Rule 252(a) under Regulation A (17 C.F.R. 230.252(a))
under the Securities Act of 1933, as amended. The term "effective,"
as used in this section in connection with an offering statement,
means an offering statement that has been qualified under Regulation
A of the Securities Act of 1933.
   (b) Except as provided in subdivision (d), an application for
qualification under this section shall contain the following
information and be accompanied by the following documents, in
addition to the information specified in Section 25160 and the
consent to service of process required by Section 25165: (1) a copy
of the registration statement under the Securities Act of 1933,
together with all exhibits (other than exhibits incorporated by
reference and those specified by rule of the commissioner, unless
requested by the commissioner); (2) an undertaking to forward to the
commissioner all future amendments to the registration statement
under the Securities Act of 1933, other than an amendment that merely
delays the effective date of the registration statement, promptly
and in any event not later than the first business day after the day
they are forwarded to or filed with the Securities and Exchange
Commission, whichever first occurs; and (3) other information
required to evidence compliance with any rules of the commissioner.
The application must be filed with the commissioner not later than
the fifth business day following filing of the registration statement
with the Securities and Exchange Commission, unless that time is
extended by rule or order of the commissioner.
   (c) Except as provided in subdivision (d), qualification of the
sale of securities under this section automatically becomes effective
(and the securities may be offered and sold in accordance with the
terms of the application as amended) at the moment the federal
registration statement becomes effective if all the following
conditions are satisfied: (1) no stop order or order under
subdivision (a) of Section 25143 is in effect under this law; (2) the
application has been on file with the commissioner for at least 10
days; and (3) a statement of the maximum and minimum proposed
offering prices and the maximum underwriting discounts and
commissions has been on file for two business days or such shorter
period as the commissioner permits by rule or order and the offering
is made within those limitations. The applicant shall promptly notify
the commissioner by telephone or telegram of the date and time when
the federal registration statement became effective and the content
of the price amendment, if any, and shall promptly file a
posteffective amendment to the application containing the information
and documents in the price amendment. "Price amendment" means the
final federal amendment that includes a statement of the offering
price, underwriting and selling discounts or commissions, amount of
proceeds, interest, dividend or conversion rates, call prices and
other matters related to the offering price. Upon failure to receive
the required notification and posteffective amendment with respect to
the price amendment, the commissioner may enter a stop order,
without notice or hearing, retroactively denying effectiveness to the
application for qualification or suspending its effectiveness until
compliance with this subdivision, if he or she promptly notifies the
applicant by telephone or telegram (and promptly confirms by letter
or telegram when he or she notifies by telephone) of the issuance of
the order. If the applicant proves compliance with the requirements
of this subdivision as to notice and posteffective amendment, the
stop order is void as of the time of its entry. The commissioner may
by rule or order waive either or both of the conditions specified in
clauses (2) and (3) of this subdivision. If the federal registration
statement becomes effective before all the conditions in this
subdivision are satisfied and they are not waived, the application
for qualification automatically becomes effective as soon as all the
conditions are satisfied. If the applicant advises the commissioner
of the date when the federal registration statement is expected to
become effective, the commissioner shall promptly advise the
applicant by telephone or telegram, at the applicant's expense,
whether all the conditions are satisfied and whether he or she then
contemplates the institution of a proceeding under Section 25140 or
25143; but this advice by the commissioner does not preclude the
institution of such a proceeding at any time.
   (d) (1) An open-end investment company or a unit investment trust
that has previously qualified the sale of its securities pursuant to
this section shall, in lieu of filing the application specified in
subdivision (b), file pursuant to this subdivision if it has made no
material change in its offering and if it is in compliance with all
terms of its prior qualification. An application filed pursuant to
this subdivision shall contain the following information and be
accompanied by the following documents, in addition to the
information specified in Section 25160 and the consent to service of
process required by Section 25165: (A) a statement that the applicant
has made no material change in its offering and that it is in
compliance with the terms of its qualification; and (B) a copy of its
current registration statement under the Securities Act of 1933.
   If no stop order or orders under subdivision (a) of Section 25143
are in effect under this law, qualification of the sale of securities
under this subdivision automatically becomes effective (and the
securities may be offered and sold in accordance with the terms of
the application) upon the day following the expiration of its prior
qualification pursuant to this section or, if that qualification has
expired, upon the first business day following the filing of the
application pursuant to this subdivision. Nothing contained in this
subdivision shall restrict the authority of the commissioner pursuant
to Section 25140 or 25143.
   (2) A unit investment trust that has not previously applied to
qualify the sale of its securities pursuant to this section but that
is substantially the same as one or more unit investment trusts
previously qualified under this section by the same sponsor, shall
file pursuant to this subdivision if it can make the statements
specified below. An application filed pursuant to this subdivision
shall contain the following information and be accompanied by the
following documents, in addition to the information specified in
Section 25160 and the consent to service of process required by
Section 25165: (A) a statement that the applicant, in its
organization, its plan of business, its securities and its offering,
is substantially the same as a unit investment trust previously
qualified under this section by the same sponsor; (B) a statement
that those previously qualified unit investment trusts are in
compliance with the terms of their qualifications and (C) a copy of
its current registration statement under the Securities Act of 1933.
If no stop order or orders under subdivision (a) of Section 25143 are
in effect under this law, qualification of the sale of securities
under this subdivision automatically becomes effective (and the
security may be offered and sold in accordance with the terms of the
application) at the moment the federal registration becomes effective
or, if the registration is effective when the application is filed,
upon the first business day following the filing of the application
pursuant to this subdivision.

25112.  (a) Any security issued by a person which is the issuer of
any security registered under Section 12 of the Securities Exchange
Act of 1934 or issued, by an investment company registered under the
Investment Company Act of 1940, and which is not eligible for
qualification under Section 25111, may be qualified by notification
under this section.
   (b) An application for qualification under this section shall
contain such information and be accompanied by such documents as
shall be required by rule of the commissioner, in addition to the
information specified in Section 25160 and the consent to service of
process required by Section 25165. For this purpose, the commissioner
may classify issuers and types of securities.
   (c) If no stop order or order under subdivision (a) of Section
25143 is in effect under this law, qualification of the sale of the
securities under this section automatically becomes effective (and
the securities may be offered and sold in accordance with the terms
of the application as amended) at 12 o'clock noon California time of
the 10th business day after the filing of the application or the last
amendment thereto or at such earlier time as the commissioner
determines.

25113.  (a) All securities, whether or not eligible for
qualification by coordination under Section 25111 or qualification by
notification under Section 25112, may be qualified by permit under
this section.
   (b) (1) An application for a permit under this section shall
contain any information and be accompanied by any documents as shall
be required by rule of the commissioner, in addition to the
information specified in Section 25160 and the consent to service of
process required by Section 25165. For this purpose, the commissioner
may classify issuers and types of securities.
   (2) An applicant may file a small company application for permit
under this section if it meets all of the following conditions:
   (A) The applicant is: (i) a California corporation or a foreign
corporation, which at the time of filing an application under this
subdivision is subject to Section 2115, and neither corporation is a
"blind pool" company, as that term is defined by the commissioner;
(ii) not engaged in oil and gas exploration or production, or mining
or other extractive industries; (iii) not an investment company
subject to the Investment Company Act of 1940; and (iv) not subject
to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934.
   (B) The total offering of voting common stock and preferred stock
by the applicant to be sold in a 12-month period, within or outside
this state, is limited to one million dollars ($1,000,000), less the
aggregate offering price for all securities sold (within the 12
months before the start, and during the offering, of the voting
common stock or preferred stock) under Rule 504 of the Securities and
Exchange Commission, in reliance on any exemption under subdivision
(b) of Section 3 of the Securities Act of 1933, or in violation of
subdivision (a) of Section 5 of that act, and immediately after the
proposed sale and issuance there will be only one class of voting
common stock.
   (C) The minimum offering price of the voting common stock and
preferred stock (and the conversion price if the preferred stock is
convertible into the voting common stock) to be sold is two dollars
($2) per share and the applicant files an undertaking with the
commissioner that there will be no stock splits, stock dividends,
spinoffs, or mergers for a period of two years from the close of the
offering. The undertaking notwithstanding, the commissioner may
approve a spinoff or merger pursuant to an application for
qualification filed by an applicant.
   (D) The net proceeds from the offering are to be expended in the
operations of the business.
   (E) The offering is made pursuant to a Small Corporate Offering
Registration disclosure document based on the Form U-7 as adopted by
the North American Securities Administrators Association and any
additional requirements as the commissioner shall prescribe, that may
include, but not be limited to, investor suitability and due
diligence investigation requirements.
   (F) The application and disclosure document is reviewed and signed
by a majority of the members of the board of directors of the
applicant.
   (G) The application shall contain that information and be
accompanied by those documents required by rule of the commissioner,
in addition to the information specified in Section 25610 and the
consent to service of process required by Section 25165.
   (c) Qualification of securities under this section becomes
effective upon the commissioner issuing a permit authorizing the
issuance of those securities.

25114.  Every qualification under this chapter is effective for 12
months from its effective date, unless the commissioner by order or
rule specifies a different period, except during the time an order
under Section 25140 or subdivision (a) of Section 25143 is in effect.

25115.  Every application for qualification of an issuer transaction
under this chapter shall be signed and verified by the issuer; every
application for qualification of a nonissuer transaction under
Section 25111 shall be signed and verified by the person on whose
behalf the offering is being made or by the issuer on behalf of such
person.

25116.  (a) An evidence of indebtedness issued pursuant to a
qualification under this chapter or Chapter 3 (commencing with
Section 25120), and the purchasers or holders thereof, shall be
exempt from the usury provisions of the Constitution, subject to
compliance by the issuer and purchaser with the terms and
requirements that may be imposed by the commissioner as a condition
of the qualification. This section creates and authorizes a class of
transactions and persons pursuant to Section 1 of Article XV of the
Constitution.
   (b) Any evidence of indebtedness issued in compliance with this
section shall be entitled to the benefits of the usury exemption
contained in this section regardless of whether subsequent to its
issuance the evidence of indebtedness is determined by a court of
competent jurisdiction to be a "security."

25117.  (a) An evidence of indebtedness, and the purchasers or
holders thereof, shall be exempt from the usury provisions of Section
1 of Article XV of the California Constitution if (1) the evidence
of indebtedness is rated or provisionally rated by Standard & Poor's
Corporation as AAA, AA, A, BBB, or investment grade commercial paper,
or by Moody's Investors Service, Inc. as Aaa, Aa, A, Baa, or
investment grade commercial paper, including any such ratings with "+"
or "--" designation or other variations that occur within these
ratings, or has a rating or a provisional rating by another
nationally recognized rating agency or system, which rating and
agency or system have been certified by rule or order of the
commissioner, or (2) the issuer thereof either (A) has any security
listed or approved for listing upon notice of issuance on a national
securities exchange, if the exchange has been certified by the
commissioner, pursuant to subdivision (o) of Section 25100, or (B)
meets each of the following requirements:
   (i) The issuer is a corporation which is subject to Section 13 of
the Securities Exchange Act of 1934.
   (ii) The issuer had total shareholders' equity of at least one
million dollars ($1,000,000) at the end of its most recent fiscal
year, and had consolidated net income, after all charges, including
taxes and extraordinary losses, and excluding extraordinary gains, of
at least five hundred thousand dollars ($500,000) for three of its
last four fiscal years, including its most recent fiscal year. The
determination of total shareholders' equity and net income shall be
determined in conformity with generally accepted accounting
principles applicable to that fiscal year or years, on a consolidated
basis, or (3) the evidence of indebtedness is issued by any
corporation all of the outstanding shares of which are owned by an
issuer which meets the requirements of subparagraph (A) or (B) of
paragraph (2).
   (b) This section creates and authorizes a class of transactions
and persons pursuant to Section 1 of Article XV of the California
Constitution.
   (c) Any evidence of indebtedness issued in compliance with this
section shall be entitled to the benefits of the usury exemption
contained in this section regardless of whether subsequent to its
issuance the evidence of indebtedness is determined by a court of
competent jurisdiction to be a "security."

25118.  (a) An evidence of indebtedness issued by an entity or
guaranteed by an entity that is an affiliate (as defined in Section
150) of the borrower that, on the day the evidence of indebtedness
issued or guaranty is first issued or entered into, has total assets
of at least two million dollars ($2,000,000) according to its then
most recent financial statements, and the purchasers or holders
thereof, shall be exempt from the usury provisions of the California
Constitution. The financial statements referred to in the preceding
sentence shall meet both of the following requirements:
   (1) Be as of a date not more than 90 days prior to the date the
evidence of indebtedness or guaranty is first issued or entered into.
   (2) Be prepared in accordance with either of the following:
   (A) In accordance with generally accepted accounting principles
and, if the entity has consolidated subsidiaries, on a consolidated
basis.
   (B) In accordance with the rules and requirements of the
Securities and Exchange Commission, whether or not required by law to
be prepared in accordance with those rules and requirements.
   (b) Any one or more evidences of indebtedness, and the purchasers
or holders thereof, shall be exempt from the usury provisions of the
California Constitution if either of the following applies:
   (1) The evidences of indebtedness aggregate at the time of
issuance at least three hundred thousand dollars ($300,000) in
original face amount, or, if the evidences of indebtedness are
purchased with original issue discount, they are purchased for an
aggregate purchase price at the time of issuance of at least three
hundred thousand dollars ($300,000).
   (2) The evidences of indebtedness are issued pursuant to a bona
fide written commitment for the lending to the issuer of at least
three hundred thousand dollars ($300,000), or the provision of a line
of credit to the issuer in a principal amount of at least three
hundred thousand dollars ($300,000). The exemption provided by this
paragraph shall not be affected by a subsequent event of default or
other event not in the lender's control that has relieved or may
relieve the lender from its commitment.
   (c) Any evidence of indebtedness described in subdivision (a) or
(b), and the purchasers or holders thereof, shall be entitled to the
benefits of the usury exemption contained in this section regardless
of whether, at any time after the evidence of indebtedness or
guaranty upon which the exemption is based is first issued or entered
into, the evidence of indebtedness or guaranty is determined by a
court of competent jurisdiction not to be a "security."
   (d) This section creates and authorizes a class of transactions
and persons pursuant to Section 1 of Article XV of the California
Constitution.
   (e) This section does not apply to:
   (1) Any evidence of indebtedness issued or guaranteed (if the
guaranty is part of the consideration for the indebtedness) by an
individual, a revocable trust having one or more individuals as
trustors, or a partnership in which, at the time of issuance, one or
more individuals are general partners.
   (2) Any transaction subject to the limitation on permissible rates
of interest set forth in paragraph (1) of the first sentence of
Section 1 of Article XV of the California Constitution.
   (f) The exemptions created by this section shall only be available
in a transaction that meets either of the following criteria:
   (1) The lender and either the issuer of the indebtedness or the
guarantor, as the case may be, or any of their respective officers,
directors, or controlling persons, or, if any party is a limited
liability company, the managers as appointed or elected by the
members, have a preexisting personal or business relationship.
   (2) The lender and the issuer, or the lender and the guarantor, by
reason of their own business and financial experience or that of
their professional advisers, could reasonably be assumed to have the
capacity to protect their own interests in connection with the
transaction.
   (g) For purposes of this section, "preexisting personal or
business relationship" and "capacity to protect their own interests
in connection with the transaction" as used in subdivision (f) shall
have the same meaning as, and be determined according to the same
standards as, specified in paragraph (2) of subdivision (f) of
Section 25102 and its implementing regulations provided that, solely
with respect to this section, a lender or purchaser who is
represented by counsel may designate that person as its professional
adviser whether or not that person is compensated by the issuer or
guarantor, as long as that person has a bona fide attorney-client
relationship with the lender or purchaser.
   (h) This section shall not exempt any person from the application
of the California Finance Lenders Law (Division 9 (commencing with
Section 22000) of the Financial Code).

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