820. The terms used in this article shall be given the meanings
herein set forth, but such meanings shall not, merely by reason of
enactment in this article, govern the interpretation of any other
provision of this code.
821. "Security" means every instrument commonly known by that term,
except:
(a) Commercial paper when issued, given or acquired in a bona fide
way in the ordinary course of legitimate business, trade or
commerce.
(b) Promissory notes, whether secured or unsecured, if not offered
to the public, and if not sold to an underwriter of the sale for the
purpose of resale.
(c) Mortgage participation certificates issued under and in
accordance with the provisions of Chapter 2, Part 6, Division 2.
(d) Policies of insurance issued by an insurer.
821.5. Without in any manner affecting the scope of the term
"security" as set forth in section 821, and with the exceptions
therein set forth, the following instruments are particularly
specified as securities within the meaning of that section: every
stock, bond, note, treasury stock, debenture, evidence of
indebtedness, certificate evidencing a contribution, certificate of
interest or participation, certificate of interest in a profit
sharing agreement, collateral trust certificate, any transferable
share, investment contract, or beneficial interest in title to
property, contracts or earnings.
822. Except as otherwise provided by this article, "sale" or "sell"
means every disposition, or attempt or arrangement to dispose, of a
security or interest in a security for value, whether done by direct
or indirect means. A security is conclusively presumed to be sold for
value if given with any purchase of any nature or if given as a
bonus on account of a purchase. "Sale" or "sell" shall also mean a
contract of sale, an exchange, any change in the rights, preferences,
privileges or restrictions on outstanding securities, an attempt to
sell, an option of sale, a solicitation of a sale, a subscription or
an offer to sell directly or by an agent, or a circular letter,
advertisement or otherwise.
823. (a) A privilege pertaining to a security giving the holder the
privilege to convert such security into another security of the same
insurer is not a sale of such other security.
(b) A right pertaining to a security and entitling the holder of
such right to subscribe to another security of the same insurer is
not a sale of such other security, but the sale of such other
security upon the exercise of such right shall be subject to the
provisions of this article.
824. "Broker" means every person, other than an agent, who in this
state engages either wholly or in part in the business of (a) dealing
in any security issued by others, (b) underwriting any issue of such
securities, (c) purchasing such securities with the purpose of
reselling them, or (d) offering such securities for sale to the
public. No authority to act as a broker may be implied from an
appointment executed by an insurer appointing an agent of that
insurer.
825. "Agent" means every person employed or appointed by an insurer
or broker who, within this State and for a compensation, sells any
security.
826. "Insurer" for the purposes of this article includes every
organization organized for the purpose of assuming the risk of loss
under contracts of insurance or reinsurance, and also includes any of
the following organizations:
(a) An admitted insurer,
(b) A nonadmitted domestic insurer,
(c) A nonadmitted foreign insurer,
(d) A nonadmitted alien insurer,
(e) An underwritten title company, or an organization organized
for the purpose of doing an underwritten title business, whether
licensed or not, and
(f) An attorney in fact of a reciprocal or interinsurance
exchange, whether it be admitted or not, or an organization organized
for the purpose of acting as the attorney in fact of a reciprocal,
or interinsurance exchange, whether the same be admitted or not.
"Insurer" shall not include, unless specified in subdivisions (a)
through (f), inclusive, an organization, which though required to
obtain a certificate or license from the commissioner, is organized
or to be organized primarily for purposes other than assuming the
risk of loss under contracts or agreements of insurance.
The amendments of this section by the Legislature at the 1965
Regular Session, except as they relate to underwritten title
companies, attorneys in fact, and exclusive managers, shall be
construed as a restatement and continuation of the law existing prior
to such amendment. Every permit issued by the commissioner or the
Commissioner of Corporations to an insurer as defined in this section
prior to its amendment by the Legislature at 1965 Regular Session
shall be valid and effective for all purposes stated therein, from
the date of its issuance until the date of expiration stated therein.
Every permit issued by the commissioner under the authority of
former subdivision (g) of this section from the date such subdivision
became effective in 1965 until the effective date of the amendment
to this section at the 1970 Regular Session of the Legislature shall
be valid and effective for all purposes stated therein, from the date
of its issuance until the expiration date specified therein.
827. An insurer shall not sell in this state, except upon a sale
for delinquent assessment made in accordance with the provisions of
Section 423 of the Corporations Code, or offer for sale, negotiate
for the sale of, or take subscriptions for any security of its own
issue until it shall have first applied for and secured from the
commissioner a permit authorizing it so to do.
827.3. (a) As used in this section, the term "insurer" means an
insurer which is domestic and admitted.
(b) The transactions of an insurer set out in subdivisions (c) and
(d) are exempt from Section 827 if they meet all of the following
requirements:
(1) They are not accompanied by an advertisement and no selling
expenses have been given, paid, or incurred in connection therewith.
(2) No consideration has been given, paid, or incurred in
connection with them.
(3) Within 30 days after the transaction, the insurer notifies the
commissioner in writing of its occurrence. The notice shall describe
the transaction, including the transaction date, the number and par
value of shares issued, and the purpose of the transaction. The
notice shall be executed under penalty of perjury.
(c) Par value increases resulting from a transfer of gross paid-in
surplus to capital.
(d) Shares issued or distributed by an insurer as dividends to
existing holders of shares of the insurer, on a pro rata basis
according to the shares previously held by each holder, provided the
new shares are of the same class and par value and have the same
rights, preferences, privileges, and restrictions as the outstanding
shares.
(e) Any transfer of surplus to paid-up capital pursuant to
subsection (d) shall not be deemed consideration for purposes of this
section.
(f) Notwithstanding this section, the applicable notice
provisions, contained in subdivision (e) of Section 1215.4, shall
apply to those transactions set forth in subdivision (d).
827.5. The term "insurer" as used in this section shall not include
domestic insurers as defined in Section 26.
The following transactions of an insurer described in subdivisions
(a), (c), (d), and (f) of Section 826 shall be exempt from the
provisions of this article:
(a) Any negotiations or agreements prior to general solicitation
for the approval of the shareholders of said insurer and subject to
such approval, of a change in the rights, preferences, privileges or
restrictions of or on outstanding securities or a merger,
consolidation or sale of corporate assets in consideration of the
issuance of securities.
(b) Any change in the rights, preferences, privileges, or
restrictions of or on outstanding securities of such insurer, unless
the holders of at least 25 percent of the outstanding shares or units
of any class of securities which will be directly or indirectly
affected substantially and adversely by such change have addresses in
this state according to the records of such insurer; or
(c) Any exchange incident to a merger, a consolidation, an
acquisition of outstanding stock, or a sale of corporate assets in
consideration of the issuance of securities of another insurer or
corporation, unless at least 25 percent of the outstanding shares of
any class, the holders of which are to receive securities in the
exchange of the surviving, consolidated, or purchasing corporation or
insurer, are held by persons who have addresses in this state
according to the records of such corporation or insurer of which they
are shareholders.
(d) For the purposes of subdivision (b) and subdivision (c) of
this section, (1) any securities held to the knowledge of the issuer
in the names of a broker as defined in Section 824 or nominees of
such broker and (2) any securities controlled by any one person who
is not a resident of the State of California who controls directly or
indirectly 50 percent or more of the outstanding securities of that
class, shall not be considered outstanding. The determination of
whether 25 percent of the outstanding securities are held by persons
having addresses in this state, for the purposes of subdivision (b)
and subdivision (c) of this section, shall be made as of the record
date for the determination of the security holders entitled to vote
on or consent to the action, if approval of such holders is required,
or if not as of the date of directors' approval of such action.
(e) Any change (other than a stock split or reverse stock split)
in the rights, preferences, privileges, or restrictions of or on
outstanding shares, except the following if they materially and
adversely affect any class of shareholders: (1) to add, change, or
delete assessment provisions; (2) to change the rights to dividends
thereon; (3) to change the redemption provisions; (4) to make them
redeemable; (5) to change the amount payable on liquidation; (6) to
change, add, or delete conversion rights; (7) to change, add, or
delete voting rights; (8) to change preemptive rights; (9) to change,
add, or delete sinking fund provisions; (10) to rearrange the
relative priorities of outstanding shares; (11) to impose, change, or
delete restrictions upon the transfer of shares in the articles of
incorporation or bylaws; (12) to change the right of shareholders
with respect to the calling of special meetings of shareholders; or
(13) to change, add, or delete any rights, preferences, privileges,
or restrictions of, or on, the outstanding shares or memberships of a
mutual water company or other corporation organized primarily to
provide services or facilities to its shareholders or members.
(f) Any stock split or reverse stock split, except the following:
(1) any stock split or reverse stock split if the corporation has
more than one class of shares outstanding and the split would have a
material effect on the proportionate interests of the respective
classes as to voting, dividends or distributions; (2) any stock split
of a stock which is traded in the market and its market price as of
the date of directors' approval of the stock split adjusted to give
effect to the split was less than two dollars ($2) per share; or (3)
any reverse stock split if the corporation has the option of paying
cash for any fractional shares created by such reverse split and as a
result of such action the proportionate interests of the
shareholders would be substantially altered. Any shares issued upon a
stock split or reverse stock split exempted by this subdivision
shall be subject to any conditions previously imposed by the
commissioner applicable to the shares with respect to which they are
issued.
(g) Any change in the rights of outstanding debt securities,
except the following if they substantially and adversely affect any
class of securities: (1) to change the rights to interest thereon;
(2) to change their redemption provisions; (3) to make them
redeemable; (4) to extend the maturity thereof or to change the
amount payable thereon at maturity; (5) to change their voting
rights; (6) to change their conversion rights; (7) to change sinking
fund provisions; or (8) to make them subordinate to other
indebtedness.
827.6. Any offer or sale of voting common stock by an insurer
incorporated in this state shall be exempt from the provisions of
this article if, immediately after the proposed sale and issuance,
there will be only one class of stock of such insurer outstanding
which is owned beneficially by no more than one domestic insurer,
providing all of the following requirements have been met:
(1) All such stock shall be evidenced by certificates which have
been stamped or printed prominently on their face a legend in a form
to be prescribed by rule of the commissioner restricting the transfer
of such stock in such manner as the rule provides.
(2) The offer and sale of such stock is not accompanied by the
publication of any advertisement, and no selling expenses have been
given, paid, or incurred in connection therewith.
(3) The consideration to be received by the issuer for the stock
to be issued shall consist of only cash or cancellation of
indebtedness for money borrowed or both upon the initial organization
of the issuer, provided all such stock is issued for the same price
per share.
(4) No promotional consideration has been given, paid, or incurred
in connection with such 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
the issuer, for services rendered in connection with such founding or
organizing.
827.7. Where required by this article the commissioner is
authorized to issue subscription and preorganization permits of and
pertaining to insurers or proposed insurers. Applications for such
permits shall set forth such of the matters described in Sections
834, 835, 836 and 837 as the commissioner deems appropriate or
requires.
827.8. An offer or sale of voting common stock or preferred stock
of and by a foreign or alien insurer to fire and casualty
broker-agents, as defined in Section 33.5, shall be exempt from the
requirements of this article if all of the following requirements are
met:
(a) The sale shall not be made to more than 35 fire and casualty
broker-agents in the State of California.
(b) Each fire and casualty broker-agent to whom an offer is made
is an "accredited investor" as defined in Regulation D under the
Federal Securities Act of 1933, as amended.
(c) Each fire and casualty broker-agent to whom an offer is made
meets all of the following requirements:
(1) The broker-agent shall have been appointed by the admitted
insurer for a period of at least one year and that admitted insurer
shall meet all of the following requirements:
(A) Be authorized to transact property and casualty insurance. For
purposes of this section, property and casualty insurance means
insurance falling within classes 2, 3, 7, 8, 10, 11, 12, 14, 15, 16,
18, and 20 under Section 100 except home protection contracts, as
defined in Section 12740.
(B) Have at least four hundred million dollars ($400,000,000) of
statutory capital and surplus.
(C) Hold a certificate of authority in good standing with this
state and have no regulatory action relating to financial hazard or
fraud against the company in the last three years from states,
including this state, where the insurer is authorized as an admitted
insurer to do business.
(D) Is currently reinsuring or has definite plans to reinsure
business produced by that broker-agent with the same foreign or alien
insurer offering securities to the broker-agent.
(2) The broker-agent generates five million dollars ($5,000,000)
in premiums per year and plans on transferring or writing at least
one million dollars ($1,000,000) per year with the admitted insurer.
(3) The broker-agent shall pay at least fifty thousand dollars
($50,000) for the securities purchased in the transaction but not in
excess of five hundred thousand dollars ($500,000).
(4) The broker-agent shall have a net worth of at least five
million dollars ($5,000,000).
(d) The offer and sale of stock is accompanied by the prospectus,
private placement memorandum, together with any other information
required pursuant to Regulation D of the Federal Securities Act of
1933.
(e) The consideration received by the issuer for the stock to be
issued consists solely of cash.
(f) No promotional consideration or selling expenses have been
given, paid, or incurred in connection with the issuance of stock,
and the offer and sale of stock is not accompanied by the publication
of any advertisement.
(g) All stock issued shall be evidenced by a certificate that
shall have a notice printed prominently on its face restricting the
transfer of the stock solely to the issuer or investors who have been
shareholders of the issuer for at least three years and who are
approved by at least 51 percent of the members of the board of
directors of the issuer.
(h) The issuer of both the common and preferred stock shall be all
of the following:
(1) A foreign or alien insurer that does not transact insurance
directly in California, but is solely a reinsurer.
(2) A reinsurer that only reinsures commercial lines property and
casualty insurance, as specified in subparagraph (A) of paragraph (1)
of subdivision (c).
828. Except in the case of a broker holding a broker's certificate
issued by the commissioner under this code or by the Commissioner of
Corporations under the Corporate Securities Act and then in effect, a
person, desiring or proposing to sell a security to be issued by any
insurer, shall not issue, circulate, or publish any advertisement,
pamphlet, prospectus, or circular concerning any such security until
the insurer secures from the commissioner a permit authorizing it to
sell such security.
829. A person shall not issue, circulate, or publish any
advertisement or writing concerning any security sold by him, unless
either his name is subscribed thereto, and a true copy thereof is
filed in the office of the commissioner at least one day prior to the
issue, publication, or circulation, or the commissioner first
authorizes or consents to the issuance, circulation or publication.
830. A person shall not issue, circulate, or publish any such
advertisement or writing after receipt of notice in writing from the
commissioner that, in his opinion, the same contains any statement
that is false or misleading or otherwise likely to deceive a reader
thereof.
831. Every security issued by any insurer without a permit of the
commissioner authorizing the same in effect at the time of the issue,
shall be void. Every security issued by any insurer under a permit
of the commissioner shall be void unless its provisions conform to
the provisions, if any, required by the permit.
831.1. Every security of a home protection company issued or
authorized to be issued prior to December 31, 1978, shall be valid
even though it has been issued without a permit of the commissioner
authorizing the same if, at the time of the issue or authorization,
the security was qualified or exempt from qualification under the
Corporate Securities Law of 1968 (Title 4, Division 1 of the
Corporations Code).
Any sale, transfer, hypothecation, or other distribution of a
security whose issuance is validated by this section, whether such
transaction takes place before or after the effective date of this
section is not prohibited by the provisions of this article.
832. Every insurer that commits any of the following acts is guilty
of a public offense and punishable by fine not exceeding ten
thousand dollars:
(a) Selling or causing to be issued a security contrary to the
provisions of this article or not in conformity with the permit of
the commissioner.
(b) Applying any of the proceeds of sale of a security to any
purpose other than as specified in the permit, or to a purpose
specified in the permit, but in excess of the amount limited for that
purpose.
833. Every person who commits any of the acts specified in this
section is guilty of a public offense and punishable by a fine not
exceeding ten thousand dollars ($10,000), or by imprisonment in the
state prison, or in a county jail not exceeding one year, or by both
such fine and imprisonment.
(a) Knowingly authorizing, directing, aiding, causing, or
assisting in causing the issuance, execution, or sale of, any
security, in nonconformity with a permit of the commissioner then in
effect and authorizing such issuance, or contrary to the provisions
of this article.
(b) Knowingly making any false statement or representation in any
application to the commissioner, or in any proceeding before him, or
in any examination, audit, or investigation made by him, or by his
authority.
(c) With knowledge of the falsity, causing to be filed in the
office of the commissioner any false statement or representation
concerning an insurer, the property which the insurer then holds or
proposes to acquire, the insurer's officers, the insurer's financial
condition or other affairs, or the insurer's proposed plan of
business.
(d) With knowledge of the falsity of any such statement or
representation, causing any security to be issued, executed, or sold
without first informing the commissioner of the falsity of such
statement in writing.
(e) Directly or indirectly, knowingly causing or assisting in
causing any part of the proceeds from the sale of any security to be
applied to any purpose contrary to the provisions of the permit
authorizing the issuance of such security, or to any purpose in
excess of the amount specified in such permit for such purpose.
(f) Selling a security with knowledge that it has been issued or
executed in violation of any of the provisions of this article.
(g) Causing a writing concerning a security to be issued,
circulated, or published while having knowledge that such matter
contains any statement that is false, misleading, or otherwise likely
to deceive a reader thereof.
(h) In any respect, willfully violating or failing to comply with
any of the provisions of this article.
(i) In any other respect, willfully violating or neglecting to
comply with any part of an order or permit of the commissioner under
the provisions of this article.
(j) Conspiring with one or more other persons to violate any
permit or order issued by the commissioner, or any of the provisions
of this article.
834. The application for a permit to issue or sell securities shall
be verified as provided in the Code of Civil Procedure for the
verification of pleadings, and shall be filed on 8 1/2 x 11 inch size
paper in the office of the commissioner. In the application the
applicant shall set forth:
(a) The names and addresses of its officers.
(b) The location of its office.
(c) An itemized account of its financial condition, including the
amount and character of its assets and liabilities.
(d) A detailed statement of the plan upon which it proposes to
transact business.
(e) A copy of any security it proposes to issue.
(f) A copy of any contract it proposes to make concerning the
same.
(g) A copy of any prospectus or advertisement, or other
description of such securities, then prepared by it for distribution
or publication.
(h) Such additional information concerning the company, its
condition and affairs as the commissioner requires.
835. If the applicant is a partnership, unincorporated association,
or joint stock company, it shall file with its application a copy of
its articles of partnership or association, and all other papers
pertaining to its organization.
836. If the applicant is a corporation, it shall file with its
application a copy of all minutes of any proceedings of its
directors, stockholders, or members, relating to or affecting the
issue of such securities, and also a copy of its articles of
incorporation, by-laws, and any amendments to either thereof.
837. If the applicant is a foreign corporation or association, it
shall also file with its application:
(a) A certificate of the proper officer of the jurisdiction in
which it is organized, executed not more than 30 days before the
filing of such application, showing that the applicant is authorized
to transact business in that jurisdiction.
(b) In such form as the commissioner prescribes, its written
instrument, irrevocably appointing the commissioner and his successor
in office its true and lawful attorney upon whom all process in any
action or proceeding against it can be served. Such service shall
have the same effect as if the applicant was a domestic insurer
lawfully served with process in this State.
838. Upon the filing of such application, the commissioner shall
examine it and the other papers and documents filed therewith. He
may, if he deems it advisable, cause to be made a detailed
examination, audit, and investigation of the applicant and its
affairs.
838.5. Pursuant to this code, the commissioner has been and is
authorized, in the instance of an application for a permit to issue
securities in exchange for one or more bona fide outstanding
securities, claims or property interest, or partly in such exchange
and partly for cash, to approve the terms and conditions of such
issuance and exchange and the fairness of such terms and conditions,
after a hearing upon the fairness of such terms and conditions, to
which all persons to whom it is proposed to issue securities in such
exchange shall have the right to appear.
839. The commissioner shall issue a permit if he finds that:
(a) The proposed plan of business of the applicant and the
proposed issuance of securities are fair, just, and equitable.
(b) The applicant intends fairly and honestly to transact its
business, and
(c) The securities the applicant proposes to issue and the methods
to be used by it in issuing or disposing of them are such as, in his
opinion, will not work a fraud upon the purchaser thereof, or upon
policyholders or other security holders of applicant.
Otherwise, he shall deny the application and notify the applicant
in writing of his decision.
839.1. (a) In any case where a domestic insurer is directly
affected by the total transaction for some part of which the permit
applied for is needed, and the commissioner in his discretion
determines that reasonable grounds exist for contentions that such
total transaction or any part thereof:
(1) Is a combination of capital, skill, or acts to create or carry
out restrictions on or to prevent competition in the insurance
business; or
(2) Is a combination (in the form of a trust or otherwise) in
restraint of the insurance business; or
(3) Is an attempt to monopolize the insurance business; or
(4) Is a conspiracy to create any of the foregoing; or
(5) That such total transaction, or any part thereof, if
consummated will create or result in any of the foregoing or will
substantially lessen competition in the insurance business.
Then, in such event, the Insurance Commissioner may make findings
with respect to whether such total transaction, or any part thereof,
would or would not do or be any of the foregoing.
(b) In the event the Insurance Commissioner makes affirmative
findings as provided in subdivision (a) of this section, he may deny
the permit applied for.
839.5. The commissioner shall not issue a permit for the sale of
any securities of a domestic insurer in any case where he finds that
the expense of organization, exclusive of attorney fees, accountant
fees, and actuary fees, will exceed 12 percent of the total amount
actually paid for the capital stock.
840. The commissioner may prescribe in the permit the amounts,
considerations, terms, and conditions governing the issue and
disposal of the securities and the permit authorizes such issue and
disposal only in accordance with its provisions.
841. Every permit shall recite in bold type that the issuance
thereof is permissive only and does not constitute a recommendation
or endorsement of the securities permitted to be issued.
842. The commissioner may impose conditions requiring the deposit
in escrow of securities and the impoundment of the proceeds from the
sale thereof, limiting the expense in connection with the sale
thereof, and otherwise requiring such method of dealing as he deems
reasonable and either necessary or advisable to insure the
disposition of the proceeds of such securities in the manner and for
the purposes provided in the permit.
843. The commissioner may, from time to time and for cause, amend,
alter or revoke any permit issued by him hereunder, or temporarily
suspend the rights thereunder of the applicant. He also may establish
such rules and regulations as are reasonable or necessary to carry
out the purposes and provisions of this article.
In establishing any such rules and regulations the commissioner is
expressly authorized, irrespective of the other provisions of this
section or this article, to specify different and simplified forms
for both applications and permits where a foreign insurer, whether
admitted or not, is seeking to sell or issue securities of its own
issue to persons in this state and meets all the following standards:
(a) It has, prior to filing the application, made a filing with
the Securities and Exchange Commission;
(b) It (or a predecessor) has been lawfully engaged in the
insurance business for at least five years and currently is admitted
to transact insurance in at least five states;
(c) It currently has admitted assets of at least five million
dollars ($5,000,000); and
(d) It has, prior to filing the application, obtained a written
permit or consent to issue such securities from the authority in its
domiciliary state having jurisdiction over issuances of its
securities and the statutory standards for obtaining such permit or
consent are comparable to the like standards of this state.
844. Every insurer authorized by the commissioner to sell
securities shall thereafter, at such times and in such form as he
requires, make and file in his office a report, setting forth:
(a) The securities sold by it under the authority of any permit
issued by him.
(b) The proceeds derived therefrom.
(c) The disposition of such proceeds.
(d) Such other information concerning its property, officers, or
affairs, and relating to or affecting the value of such securities,
as the commissioner requires.
845. (a) No person may sell or resell any security of a domestic,
foreign, or alien insurer:
(1) As an insurer with respect to securities of its own issue
without securing the permit of the commissioner as provided in this
article.
(2) As an agent of such insurer except under authority of a
certificate issued by the commissioner under this code.
(3) As a broker or as an agent for a broker except under authority
of a certificate or license issued by the Commissioner of
Corporations under the provisions of the Corporations Code and in
full conformity with all provisions of the Corporations Code.
(b) Subdivision (a) shall not prohibit a bona fide owner of
securities of an insurer from selling or reselling such securities
if:
(1) Such securities were originally issued under the authority of
a permit of the commissioner and such sale or resale is made in
conformity with the conditions, if any, in such permit effective at
the time of such sale or resale; or
(2) Such securities were originally issued in a jurisdiction other
than California in full conformity with the applicable laws, if any,
governing such issuance in such jurisdiction.
A sale or resale of securities of an insurer by the owner of the
securities which is made for the purpose of evading the provisions of
this article requiring an insurer to secure a permit from the
commissioner or for any other fraudulent purpose shall, however, be
null and void and a violation of the criminal provisions of this
article.
(c) Any sale or resale permitted by this section is subject to the
stop power of the commissioner under Section 854 and the similar
powers of the Commissioner of Corporations pursuant to the provisions
of the Corporations Code.
(d) Any violation of this section is subject to the penalties
provided in Section 833.
845.5. The certificate required by Section 845 to act as an agent
of an insurer shall be secured as provided in Section 846 and shall
expire on the first day of July after its issue, unless sooner
suspended or revoked.
The permission granted by Section 845 to persons holding
certificates or licenses issued by the Commissioner of Corporations
does not affect the provisions of this article requiring that an
insurer and that an agent appointed by an insurer secure a permit or
certificate from the commissioner to issue, sell or resell securities
and such issue, sale or resale and the advertising thereof is
subject to the provisions of this article, nor does such section
permit an owner of securities to sell or resell the same except in
conformity with such section and this article.
846. To secure such certificate, the applicant shall make and file
in the office of the commissioner an application therefor in writing,
verified by or in behalf of the applicant. Such application shall
set forth:
(a) The name and address of the applicant.
(b) 1. In the case of an applying corporation, association or
joint stock company, the name and address of each of its managing
officers and managing agents.
2. In the case of an applying partnership, the name and address of
each of the partners.
(c) A succinct statement of facts showing possession of a good
business reputation:
1. By the applicant.
2. In the case of an applicant corporation, association, or joint
stock company, by its managing officers and managing agents.
3. In the case of an applicant partnership, by its members.
(d) If the applicant is a broker, the general plan and character
of the business of the applicant.
(e) Such other information as the commissioner requires.
847. At the time of filing an application for a broker's
certificate, the applicant shall file with the commissioner a bond
for five thousand dollars, payable to the people of the State of
California, for the use and benefit of any interested person, to be
approved by the commissioner. The bond shall be conditioned upon the
following conduct by the broker, the broker's agents, and employees:
(a) Strict compliance with the provisions of this article.
(b) Honest and faithful application of all funds received.
(c) Honest and faithful performance of all obligations and
undertakings in the purchase or sale of securities.
(d) Payment of all damages suffered by any person damaged or
defrauded by reason of the violation of any of the provisions of this
article, or by reason of any fraud connected with or growing out of
any transaction contemplated by the provisions of this article.
850. If the applicant is a foreign corporation or association, it
shall file with its application:
(a) A copy of its articles of incorporation or association.
(b) A certificate of the proper officer of the jurisdiction in
which it is organized, executed not more than thirty days before the
filing of such application, showing that the applicant is authorized
to transact business in that jurisdiction.
(c) In such form as the commissioner prescribes, its written
instrument irrevocably appointing the commissioner and his successor
in office its true and lawful attorney upon whom all process in any
action or proceeding against it, arising out of or founded upon the
fraud of such applicant in the sale of securities within this State,
or in any action upon any bond provided by this article, can be
served. Such service shall have the same effect as if the applicant
was a domestic corporation or association lawfully served with
process in this State.
851. The commissioner shall examine such application, and shall
make such further investigation of the applicant and its affairs as
he deems advisable. He shall issue the certificate if, from such
examination, the commissioner is satisfied that:
(a) The business reputation of the applicant and, in the case of a
firm or corporation, its officers or members, is good.
(b) The sale of the securities proposed to be sold by it would not
be unfair, unjust or inequitable to the purchasers thereof.
(c) Neither it nor its officers or members have violated any of
the provisions of this article.
(d) Neither it nor its officers or members have engaged or are
about to engage in any fraudulent transaction.
Otherwise, he shall deny the application and notify the applicant
of his decision.
Where a hearing is held under this section the proceedings shall
be conducted in accordance with Chapter 5 of Part 1 of Division 3 of
Title 2 of the Government Code, and the commissioner shall have all
the powers granted therein.
852. The commissioner may at any time in accordance with the
procedure provided in Section 1738 suspend or revoke any broker's or
agent's certificate issued by him if he finds that the holder thereof
is of bad business repute, or has violated any provision of this
article, or has engaged, or is about to engage in any fraudulent
transaction.
853. Every broker shall, at such times as the commissioner
requires, make and file in the office of the commissioner a true and
correct statement concerning any security sold or offered for sale by
the broker. The statement shall show:
(a) The name and location of the principal office of the issuer of
such security.
(b) The names of the issuer's managing officers if it is a
corporation, or of its members if it is a partnership.
(c) The issuer's assets, liabilities, and issued capital stock, at
the close of its fiscal year then last ended, or at a later date.
(d) The issuer's gross income, expenses, and fixed charges for the
year next preceding such date, or for such time as such issuer of
such security has transacted business, if for less than one year.
(e) The approximate price at which the broker has sold or proposes
to sell such security.
(f) Such other information, of which the broker has knowledge, as
the commissioner requires.
854. After receipt of notice in writing from the commissioner,
stating that the sale of a security would, in the commissioner's
opinion, be unfair, unjust, or inequitable to the purchaser, no
broker shall sell such security until and unless the commissioner in
writing withdraws the objection.
855. All writings filed with the commissioner under this article
shall be open to public inspection except where, in his judgment, the
public welfare or the welfare of any insurer demands that any
portion of such information be not made public. In such cases he may,
in his discretion, withhold such information from public inspection
for such time as in his judgment is necessary.
856. (a) The commissioner may at any time give or make public any
information concerning any insurer, if in the commissioner's
judgment, the giving or publishing of the information will be of
public interest.
(b) The commissioner may at any time give or make public any
information concerning securities purchased or sold within this state
by an insurer, if in the commissioner's judgment, the giving or
publishing of the information is in the public interest or it will
tend to prevent the fraudulent purchase or sale of the securities.
857. The commissioner shall charge and collect the following fees:
(a) For filing an original or supplemental application, or any
amendments thereto, for a permit to issue securities, one thousand
seven hundred seventy dollars ($1,770) except for applications for a
permit to issue securities evidencing any change in rights,
preferences, privileges, or restrictions on outstanding securities,
or for applications for a permit to issue securities evidencing only
a share dividend or a share split.
(b) For filing an application for a permit to issue securities
evidencing any change in the rights, preferences, privileges, or
restrictions on outstanding securities, two hundred thirty-six
dollars ($236).
(c) For filing an application for a permit to issue securities
evidencing a share dividend or a share split, five hundred ninety
dollars ($590).
(d) For filing an application for any other kind of permit, such
as an application, for the issuance of a preorganizational or a
negotiating permit, an application for a permit to issue options for
securities, but not for the securities themselves, or any application
for an amendment to an existing permit to issue securities, one
hundred eighteen dollars ($118).
(e) An original or supplemental application shall not be amended
after the permit sought thereby or by amendment thereto has been
issued or denied.
859. The commissioner shall also collect the following fees:
(a) For filing any application for a broker's certificate, one
hundred eighteen dollars ($118) for the first office or location plus
fifty-eight dollars ($58) for each additional office or location.
(b) For filing any application for an agent's certificate,
fifty-eight dollars ($58).
(c) For an examination, audit, or investigation, the actual amount
of expenses reasonably incurred in the performance of the work, plus
the following:
(1) If made by an employee of the commissioner, the actual amount
of the compensation paid to such employee for that time.
(2) The amount of the usual cost to the state of typing,
transcribing or otherwise preparing any written report of such
examination, audit or investigation that may reasonably be needed in
the discharge of the commissioner's duties.
860. No fees shall be charged or collected for copies of papers,
records, or official documents furnished to public officers for use
in their official capacity or for the reports of the commissioner in
the ordinary course of distribution.
820. The terms used in this article shall be given the meanings
herein set forth, but such meanings shall not, merely by reason of
enactment in this article, govern the interpretation of any other
provision of this code.
821. "Security" means every instrument commonly known by that term,
except:
(a) Commercial paper when issued, given or acquired in a bona fide
way in the ordinary course of legitimate business, trade or
commerce.
(b) Promissory notes, whether secured or unsecured, if not offered
to the public, and if not sold to an underwriter of the sale for the
purpose of resale.
(c) Mortgage participation certificates issued under and in
accordance with the provisions of Chapter 2, Part 6, Division 2.
(d) Policies of insurance issued by an insurer.
821.5. Without in any manner affecting the scope of the term
"security" as set forth in section 821, and with the exceptions
therein set forth, the following instruments are particularly
specified as securities within the meaning of that section: every
stock, bond, note, treasury stock, debenture, evidence of
indebtedness, certificate evidencing a contribution, certificate of
interest or participation, certificate of interest in a profit
sharing agreement, collateral trust certificate, any transferable
share, investment contract, or beneficial interest in title to
property, contracts or earnings.
822. Except as otherwise provided by this article, "sale" or "sell"
means every disposition, or attempt or arrangement to dispose, of a
security or interest in a security for value, whether done by direct
or indirect means. A security is conclusively presumed to be sold for
value if given with any purchase of any nature or if given as a
bonus on account of a purchase. "Sale" or "sell" shall also mean a
contract of sale, an exchange, any change in the rights, preferences,
privileges or restrictions on outstanding securities, an attempt to
sell, an option of sale, a solicitation of a sale, a subscription or
an offer to sell directly or by an agent, or a circular letter,
advertisement or otherwise.
823. (a) A privilege pertaining to a security giving the holder the
privilege to convert such security into another security of the same
insurer is not a sale of such other security.
(b) A right pertaining to a security and entitling the holder of
such right to subscribe to another security of the same insurer is
not a sale of such other security, but the sale of such other
security upon the exercise of such right shall be subject to the
provisions of this article.
824. "Broker" means every person, other than an agent, who in this
state engages either wholly or in part in the business of (a) dealing
in any security issued by others, (b) underwriting any issue of such
securities, (c) purchasing such securities with the purpose of
reselling them, or (d) offering such securities for sale to the
public. No authority to act as a broker may be implied from an
appointment executed by an insurer appointing an agent of that
insurer.
825. "Agent" means every person employed or appointed by an insurer
or broker who, within this State and for a compensation, sells any
security.
826. "Insurer" for the purposes of this article includes every
organization organized for the purpose of assuming the risk of loss
under contracts of insurance or reinsurance, and also includes any of
the following organizations:
(a) An admitted insurer,
(b) A nonadmitted domestic insurer,
(c) A nonadmitted foreign insurer,
(d) A nonadmitted alien insurer,
(e) An underwritten title company, or an organization organized
for the purpose of doing an underwritten title business, whether
licensed or not, and
(f) An attorney in fact of a reciprocal or interinsurance
exchange, whether it be admitted or not, or an organization organized
for the purpose of acting as the attorney in fact of a reciprocal,
or interinsurance exchange, whether the same be admitted or not.
"Insurer" shall not include, unless specified in subdivisions (a)
through (f), inclusive, an organization, which though required to
obtain a certificate or license from the commissioner, is organized
or to be organized primarily for purposes other than assuming the
risk of loss under contracts or agreements of insurance.
The amendments of this section by the Legislature at the 1965
Regular Session, except as they relate to underwritten title
companies, attorneys in fact, and exclusive managers, shall be
construed as a restatement and continuation of the law existing prior
to such amendment. Every permit issued by the commissioner or the
Commissioner of Corporations to an insurer as defined in this section
prior to its amendment by the Legislature at 1965 Regular Session
shall be valid and effective for all purposes stated therein, from
the date of its issuance until the date of expiration stated therein.
Every permit issued by the commissioner under the authority of
former subdivision (g) of this section from the date such subdivision
became effective in 1965 until the effective date of the amendment
to this section at the 1970 Regular Session of the Legislature shall
be valid and effective for all purposes stated therein, from the date
of its issuance until the expiration date specified therein.
827. An insurer shall not sell in this state, except upon a sale
for delinquent assessment made in accordance with the provisions of
Section 423 of the Corporations Code, or offer for sale, negotiate
for the sale of, or take subscriptions for any security of its own
issue until it shall have first applied for and secured from the
commissioner a permit authorizing it so to do.
827.3. (a) As used in this section, the term "insurer" means an
insurer which is domestic and admitted.
(b) The transactions of an insurer set out in subdivisions (c) and
(d) are exempt from Section 827 if they meet all of the following
requirements:
(1) They are not accompanied by an advertisement and no selling
expenses have been given, paid, or incurred in connection therewith.
(2) No consideration has been given, paid, or incurred in
connection with them.
(3) Within 30 days after the transaction, the insurer notifies the
commissioner in writing of its occurrence. The notice shall describe
the transaction, including the transaction date, the number and par
value of shares issued, and the purpose of the transaction. The
notice shall be executed under penalty of perjury.
(c) Par value increases resulting from a transfer of gross paid-in
surplus to capital.
(d) Shares issued or distributed by an insurer as dividends to
existing holders of shares of the insurer, on a pro rata basis
according to the shares previously held by each holder, provided the
new shares are of the same class and par value and have the same
rights, preferences, privileges, and restrictions as the outstanding
shares.
(e) Any transfer of surplus to paid-up capital pursuant to
subsection (d) shall not be deemed consideration for purposes of this
section.
(f) Notwithstanding this section, the applicable notice
provisions, contained in subdivision (e) of Section 1215.4, shall
apply to those transactions set forth in subdivision (d).
827.5. The term "insurer" as used in this section shall not include
domestic insurers as defined in Section 26.
The following transactions of an insurer described in subdivisions
(a), (c), (d), and (f) of Section 826 shall be exempt from the
provisions of this article:
(a) Any negotiations or agreements prior to general solicitation
for the approval of the shareholders of said insurer and subject to
such approval, of a change in the rights, preferences, privileges or
restrictions of or on outstanding securities or a merger,
consolidation or sale of corporate assets in consideration of the
issuance of securities.
(b) Any change in the rights, preferences, privileges, or
restrictions of or on outstanding securities of such insurer, unless
the holders of at least 25 percent of the outstanding shares or units
of any class of securities which will be directly or indirectly
affected substantially and adversely by such change have addresses in
this state according to the records of such insurer; or
(c) Any exchange incident to a merger, a consolidation, an
acquisition of outstanding stock, or a sale of corporate assets in
consideration of the issuance of securities of another insurer or
corporation, unless at least 25 percent of the outstanding shares of
any class, the holders of which are to receive securities in the
exchange of the surviving, consolidated, or purchasing corporation or
insurer, are held by persons who have addresses in this state
according to the records of such corporation or insurer of which they
are shareholders.
(d) For the purposes of subdivision (b) and subdivision (c) of
this section, (1) any securities held to the knowledge of the issuer
in the names of a broker as defined in Section 824 or nominees of
such broker and (2) any securities controlled by any one person who
is not a resident of the State of California who controls directly or
indirectly 50 percent or more of the outstanding securities of that
class, shall not be considered outstanding. The determination of
whether 25 percent of the outstanding securities are held by persons
having addresses in this state, for the purposes of subdivision (b)
and subdivision (c) of this section, shall be made as of the record
date for the determination of the security holders entitled to vote
on or consent to the action, if approval of such holders is required,
or if not as of the date of directors' approval of such action.
(e) Any change (other than a stock split or reverse stock split)
in the rights, preferences, privileges, or restrictions of or on
outstanding shares, except the following if they materially and
adversely affect any class of shareholders: (1) to add, change, or
delete assessment provisions; (2) to change the rights to dividends
thereon; (3) to change the redemption provisions; (4) to make them
redeemable; (5) to change the amount payable on liquidation; (6) to
change, add, or delete conversion rights; (7) to change, add, or
delete voting rights; (8) to change preemptive rights; (9) to change,
add, or delete sinking fund provisions; (10) to rearrange the
relative priorities of outstanding shares; (11) to impose, change, or
delete restrictions upon the transfer of shares in the articles of
incorporation or bylaws; (12) to change the right of shareholders
with respect to the calling of special meetings of shareholders; or
(13) to change, add, or delete any rights, preferences, privileges,
or restrictions of, or on, the outstanding shares or memberships of a
mutual water company or other corporation organized primarily to
provide services or facilities to its shareholders or members.
(f) Any stock split or reverse stock split, except the following:
(1) any stock split or reverse stock split if the corporation has
more than one class of shares outstanding and the split would have a
material effect on the proportionate interests of the respective
classes as to voting, dividends or distributions; (2) any stock split
of a stock which is traded in the market and its market price as of
the date of directors' approval of the stock split adjusted to give
effect to the split was less than two dollars ($2) per share; or (3)
any reverse stock split if the corporation has the option of paying
cash for any fractional shares created by such reverse split and as a
result of such action the proportionate interests of the
shareholders would be substantially altered. Any shares issued upon a
stock split or reverse stock split exempted by this subdivision
shall be subject to any conditions previously imposed by the
commissioner applicable to the shares with respect to which they are
issued.
(g) Any change in the rights of outstanding debt securities,
except the following if they substantially and adversely affect any
class of securities: (1) to change the rights to interest thereon;
(2) to change their redemption provisions; (3) to make them
redeemable; (4) to extend the maturity thereof or to change the
amount payable thereon at maturity; (5) to change their voting
rights; (6) to change their conversion rights; (7) to change sinking
fund provisions; or (8) to make them subordinate to other
indebtedness.
827.6. Any offer or sale of voting common stock by an insurer
incorporated in this state shall be exempt from the provisions of
this article if, immediately after the proposed sale and issuance,
there will be only one class of stock of such insurer outstanding
which is owned beneficially by no more than one domestic insurer,
providing all of the following requirements have been met:
(1) All such stock shall be evidenced by certificates which have
been stamped or printed prominently on their face a legend in a form
to be prescribed by rule of the commissioner restricting the transfer
of such stock in such manner as the rule provides.
(2) The offer and sale of such stock is not accompanied by the
publication of any advertisement, and no selling expenses have been
given, paid, or incurred in connection therewith.
(3) The consideration to be received by the issuer for the stock
to be issued shall consist of only cash or cancellation of
indebtedness for money borrowed or both upon the initial organization
of the issuer, provided all such stock is issued for the same price
per share.
(4) No promotional consideration has been given, paid, or incurred
in connection with such 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
the issuer, for services rendered in connection with such founding or
organizing.
827.7. Where required by this article the commissioner is
authorized to issue subscription and preorganization permits of and
pertaining to insurers or proposed insurers. Applications for such
permits shall set forth such of the matters described in Sections
834, 835, 836 and 837 as the commissioner deems appropriate or
requires.
827.8. An offer or sale of voting common stock or preferred stock
of and by a foreign or alien insurer to fire and casualty
broker-agents, as defined in Section 33.5, shall be exempt from the
requirements of this article if all of the following requirements are
met:
(a) The sale shall not be made to more than 35 fire and casualty
broker-agents in the State of California.
(b) Each fire and casualty broker-agent to whom an offer is made
is an "accredited investor" as defined in Regulation D under the
Federal Securities Act of 1933, as amended.
(c) Each fire and casualty broker-agent to whom an offer is made
meets all of the following requirements:
(1) The broker-agent shall have been appointed by the admitted
insurer for a period of at least one year and that admitted insurer
shall meet all of the following requirements:
(A) Be authorized to transact property and casualty insurance. For
purposes of this section, property and casualty insurance means
insurance falling within classes 2, 3, 7, 8, 10, 11, 12, 14, 15, 16,
18, and 20 under Section 100 except home protection contracts, as
defined in Section 12740.
(B) Have at least four hundred million dollars ($400,000,000) of
statutory capital and surplus.
(C) Hold a certificate of authority in good standing with this
state and have no regulatory action relating to financial hazard or
fraud against the company in the last three years from states,
including this state, where the insurer is authorized as an admitted
insurer to do business.
(D) Is currently reinsuring or has definite plans to reinsure
business produced by that broker-agent with the same foreign or alien
insurer offering securities to the broker-agent.
(2) The broker-agent generates five million dollars ($5,000,000)
in premiums per year and plans on transferring or writing at least
one million dollars ($1,000,000) per year with the admitted insurer.
(3) The broker-agent shall pay at least fifty thousand dollars
($50,000) for the securities purchased in the transaction but not in
excess of five hundred thousand dollars ($500,000).
(4) The broker-agent shall have a net worth of at least five
million dollars ($5,000,000).
(d) The offer and sale of stock is accompanied by the prospectus,
private placement memorandum, together with any other information
required pursuant to Regulation D of the Federal Securities Act of
1933.
(e) The consideration received by the issuer for the stock to be
issued consists solely of cash.
(f) No promotional consideration or selling expenses have been
given, paid, or incurred in connection with the issuance of stock,
and the offer and sale of stock is not accompanied by the publication
of any advertisement.
(g) All stock issued shall be evidenced by a certificate that
shall have a notice printed prominently on its face restricting the
transfer of the stock solely to the issuer or investors who have been
shareholders of the issuer for at least three years and who are
approved by at least 51 percent of the members of the board of
directors of the issuer.
(h) The issuer of both the common and preferred stock shall be all
of the following:
(1) A foreign or alien insurer that does not transact insurance
directly in California, but is solely a reinsurer.
(2) A reinsurer that only reinsures commercial lines property and
casualty insurance, as specified in subparagraph (A) of paragraph (1)
of subdivision (c).
828. Except in the case of a broker holding a broker's certificate
issued by the commissioner under this code or by the Commissioner of
Corporations under the Corporate Securities Act and then in effect, a
person, desiring or proposing to sell a security to be issued by any
insurer, shall not issue, circulate, or publish any advertisement,
pamphlet, prospectus, or circular concerning any such security until
the insurer secures from the commissioner a permit authorizing it to
sell such security.
829. A person shall not issue, circulate, or publish any
advertisement or writing concerning any security sold by him, unless
either his name is subscribed thereto, and a true copy thereof is
filed in the office of the commissioner at least one day prior to the
issue, publication, or circulation, or the commissioner first
authorizes or consents to the issuance, circulation or publication.
830. A person shall not issue, circulate, or publish any such
advertisement or writing after receipt of notice in writing from the
commissioner that, in his opinion, the same contains any statement
that is false or misleading or otherwise likely to deceive a reader
thereof.
831. Every security issued by any insurer without a permit of the
commissioner authorizing the same in effect at the time of the issue,
shall be void. Every security issued by any insurer under a permit
of the commissioner shall be void unless its provisions conform to
the provisions, if any, required by the permit.
831.1. Every security of a home protection company issued or
authorized to be issued prior to December 31, 1978, shall be valid
even though it has been issued without a permit of the commissioner
authorizing the same if, at the time of the issue or authorization,
the security was qualified or exempt from qualification under the
Corporate Securities Law of 1968 (Title 4, Division 1 of the
Corporations Code).
Any sale, transfer, hypothecation, or other distribution of a
security whose issuance is validated by this section, whether such
transaction takes place before or after the effective date of this
section is not prohibited by the provisions of this article.
832. Every insurer that commits any of the following acts is guilty
of a public offense and punishable by fine not exceeding ten
thousand dollars:
(a) Selling or causing to be issued a security contrary to the
provisions of this article or not in conformity with the permit of
the commissioner.
(b) Applying any of the proceeds of sale of a security to any
purpose other than as specified in the permit, or to a purpose
specified in the permit, but in excess of the amount limited for that
purpose.
833. Every person who commits any of the acts specified in this
section is guilty of a public offense and punishable by a fine not
exceeding ten thousand dollars ($10,000), or by imprisonment in the
state prison, or in a county jail not exceeding one year, or by both
such fine and imprisonment.
(a) Knowingly authorizing, directing, aiding, causing, or
assisting in causing the issuance, execution, or sale of, any
security, in nonconformity with a permit of the commissioner then in
effect and authorizing such issuance, or contrary to the provisions
of this article.
(b) Knowingly making any false statement or representation in any
application to the commissioner, or in any proceeding before him, or
in any examination, audit, or investigation made by him, or by his
authority.
(c) With knowledge of the falsity, causing to be filed in the
office of the commissioner any false statement or representation
concerning an insurer, the property which the insurer then holds or
proposes to acquire, the insurer's officers, the insurer's financial
condition or other affairs, or the insurer's proposed plan of
business.
(d) With knowledge of the falsity of any such statement or
representation, causing any security to be issued, executed, or sold
without first informing the commissioner of the falsity of such
statement in writing.
(e) Directly or indirectly, knowingly causing or assisting in
causing any part of the proceeds from the sale of any security to be
applied to any purpose contrary to the provisions of the permit
authorizing the issuance of such security, or to any purpose in
excess of the amount specified in such permit for such purpose.
(f) Selling a security with knowledge that it has been issued or
executed in violation of any of the provisions of this article.
(g) Causing a writing concerning a security to be issued,
circulated, or published while having knowledge that such matter
contains any statement that is false, misleading, or otherwise likely
to deceive a reader thereof.
(h) In any respect, willfully violating or failing to comply with
any of the provisions of this article.
(i) In any other respect, willfully violating or neglecting to
comply with any part of an order or permit of the commissioner under
the provisions of this article.
(j) Conspiring with one or more other persons to violate any
permit or order issued by the commissioner, or any of the provisions
of this article.
834. The application for a permit to issue or sell securities shall
be verified as provided in the Code of Civil Procedure for the
verification of pleadings, and shall be filed on 8 1/2 x 11 inch size
paper in the office of the commissioner. In the application the
applicant shall set forth:
(a) The names and addresses of its officers.
(b) The location of its office.
(c) An itemized account of its financial condition, including the
amount and character of its assets and liabilities.
(d) A detailed statement of the plan upon which it proposes to
transact business.
(e) A copy of any security it proposes to issue.
(f) A copy of any contract it proposes to make concerning the
same.
(g) A copy of any prospectus or advertisement, or other
description of such securities, then prepared by it for distribution
or publication.
(h) Such additional information concerning the company, its
condition and affairs as the commissioner requires.
835. If the applicant is a partnership, unincorporated association,
or joint stock company, it shall file with its application a copy of
its articles of partnership or association, and all other papers
pertaining to its organization.
836. If the applicant is a corporation, it shall file with its
application a copy of all minutes of any proceedings of its
directors, stockholders, or members, relating to or affecting the
issue of such securities, and also a copy of its articles of
incorporation, by-laws, and any amendments to either thereof.
837. If the applicant is a foreign corporation or association, it
shall also file with its application:
(a) A certificate of the proper officer of the jurisdiction in
which it is organized, executed not more than 30 days before the
filing of such application, showing that the applicant is authorized
to transact business in that jurisdiction.
(b) In such form as the commissioner prescribes, its written
instrument, irrevocably appointing the commissioner and his successor
in office its true and lawful attorney upon whom all process in any
action or proceeding against it can be served. Such service shall
have the same effect as if the applicant was a domestic insurer
lawfully served with process in this State.
838. Upon the filing of such application, the commissioner shall
examine it and the other papers and documents filed therewith. He
may, if he deems it advisable, cause to be made a detailed
examination, audit, and investigation of the applicant and its
affairs.
838.5. Pursuant to this code, the commissioner has been and is
authorized, in the instance of an application for a permit to issue
securities in exchange for one or more bona fide outstanding
securities, claims or property interest, or partly in such exchange
and partly for cash, to approve the terms and conditions of such
issuance and exchange and the fairness of such terms and conditions,
after a hearing upon the fairness of such terms and conditions, to
which all persons to whom it is proposed to issue securities in such
exchange shall have the right to appear.
839. The commissioner shall issue a permit if he finds that:
(a) The proposed plan of business of the applicant and the
proposed issuance of securities are fair, just, and equitable.
(b) The applicant intends fairly and honestly to transact its
business, and
(c) The securities the applicant proposes to issue and the methods
to be used by it in issuing or disposing of them are such as, in his
opinion, will not work a fraud upon the purchaser thereof, or upon
policyholders or other security holders of applicant.
Otherwise, he shall deny the application and notify the applicant
in writing of his decision.
839.1. (a) In any case where a domestic insurer is directly
affected by the total transaction for some part of which the permit
applied for is needed, and the commissioner in his discretion
determines that reasonable grounds exist for contentions that such
total transaction or any part thereof:
(1) Is a combination of capital, skill, or acts to create or carry
out restrictions on or to prevent competition in the insurance
business; or
(2) Is a combination (in the form of a trust or otherwise) in
restraint of the insurance business; or
(3) Is an attempt to monopolize the insurance business; or
(4) Is a conspiracy to create any of the foregoing; or
(5) That such total transaction, or any part thereof, if
consummated will create or result in any of the foregoing or will
substantially lessen competition in the insurance business.
Then, in such event, the Insurance Commissioner may make findings
with respect to whether such total transaction, or any part thereof,
would or would not do or be any of the foregoing.
(b) In the event the Insurance Commissioner makes affirmative
findings as provided in subdivision (a) of this section, he may deny
the permit applied for.
839.5. The commissioner shall not issue a permit for the sale of
any securities of a domestic insurer in any case where he finds that
the expense of organization, exclusive of attorney fees, accountant
fees, and actuary fees, will exceed 12 percent of the total amount
actually paid for the capital stock.
840. The commissioner may prescribe in the permit the amounts,
considerations, terms, and conditions governing the issue and
disposal of the securities and the permit authorizes such issue and
disposal only in accordance with its provisions.
841. Every permit shall recite in bold type that the issuance
thereof is permissive only and does not constitute a recommendation
or endorsement of the securities permitted to be issued.
842. The commissioner may impose conditions requiring the deposit
in escrow of securities and the impoundment of the proceeds from the
sale thereof, limiting the expense in connection with the sale
thereof, and otherwise requiring such method of dealing as he deems
reasonable and either necessary or advisable to insure the
disposition of the proceeds of such securities in the manner and for
the purposes provided in the permit.
843. The commissioner may, from time to time and for cause, amend,
alter or revoke any permit issued by him hereunder, or temporarily
suspend the rights thereunder of the applicant. He also may establish
such rules and regulations as are reasonable or necessary to carry
out the purposes and provisions of this article.
In establishing any such rules and regulations the commissioner is
expressly authorized, irrespective of the other provisions of this
section or this article, to specify different and simplified forms
for both applications and permits where a foreign insurer, whether
admitted or not, is seeking to sell or issue securities of its own
issue to persons in this state and meets all the following standards:
(a) It has, prior to filing the application, made a filing with
the Securities and Exchange Commission;
(b) It (or a predecessor) has been lawfully engaged in the
insurance business for at least five years and currently is admitted
to transact insurance in at least five states;
(c) It currently has admitted assets of at least five million
dollars ($5,000,000); and
(d) It has, prior to filing the application, obtained a written
permit or consent to issue such securities from the authority in its
domiciliary state having jurisdiction over issuances of its
securities and the statutory standards for obtaining such permit or
consent are comparable to the like standards of this state.
844. Every insurer authorized by the commissioner to sell
securities shall thereafter, at such times and in such form as he
requires, make and file in his office a report, setting forth:
(a) The securities sold by it under the authority of any permit
issued by him.
(b) The proceeds derived therefrom.
(c) The disposition of such proceeds.
(d) Such other information concerning its property, officers, or
affairs, and relating to or affecting the value of such securities,
as the commissioner requires.
845. (a) No person may sell or resell any security of a domestic,
foreign, or alien insurer:
(1) As an insurer with respect to securities of its own issue
without securing the permit of the commissioner as provided in this
article.
(2) As an agent of such insurer except under authority of a
certificate issued by the commissioner under this code.
(3) As a broker or as an agent for a broker except under authority
of a certificate or license issued by the Commissioner of
Corporations under the provisions of the Corporations Code and in
full conformity with all provisions of the Corporations Code.
(b) Subdivision (a) shall not prohibit a bona fide owner of
securities of an insurer from selling or reselling such securities
if:
(1) Such securities were originally issued under the authority of
a permit of the commissioner and such sale or resale is made in
conformity with the conditions, if any, in such permit effective at
the time of such sale or resale; or
(2) Such securities were originally issued in a jurisdiction other
than California in full conformity with the applicable laws, if any,
governing such issuance in such jurisdiction.
A sale or resale of securities of an insurer by the owner of the
securities which is made for the purpose of evading the provisions of
this article requiring an insurer to secure a permit from the
commissioner or for any other fraudulent purpose shall, however, be
null and void and a violation of the criminal provisions of this
article.
(c) Any sale or resale permitted by this section is subject to the
stop power of the commissioner under Section 854 and the similar
powers of the Commissioner of Corporations pursuant to the provisions
of the Corporations Code.
(d) Any violation of this section is subject to the penalties
provided in Section 833.
845.5. The certificate required by Section 845 to act as an agent
of an insurer shall be secured as provided in Section 846 and shall
expire on the first day of July after its issue, unless sooner
suspended or revoked.
The permission granted by Section 845 to persons holding
certificates or licenses issued by the Commissioner of Corporations
does not affect the provisions of this article requiring that an
insurer and that an agent appointed by an insurer secure a permit or
certificate from the commissioner to issue, sell or resell securities
and such issue, sale or resale and the advertising thereof is
subject to the provisions of this article, nor does such section
permit an owner of securities to sell or resell the same except in
conformity with such section and this article.
846. To secure such certificate, the applicant shall make and file
in the office of the commissioner an application therefor in writing,
verified by or in behalf of the applicant. Such application shall
set forth:
(a) The name and address of the applicant.
(b) 1. In the case of an applying corporation, association or
joint stock company, the name and address of each of its managing
officers and managing agents.
2. In the case of an applying partnership, the name and address of
each of the partners.
(c) A succinct statement of facts showing possession of a good
business reputation:
1. By the applicant.
2. In the case of an applicant corporation, association, or joint
stock company, by its managing officers and managing agents.
3. In the case of an applicant partnership, by its members.
(d) If the applicant is a broker, the general plan and character
of the business of the applicant.
(e) Such other information as the commissioner requires.
847. At the time of filing an application for a broker's
certificate, the applicant shall file with the commissioner a bond
for five thousand dollars, payable to the people of the State of
California, for the use and benefit of any interested person, to be
approved by the commissioner. The bond shall be conditioned upon the
following conduct by the broker, the broker's agents, and employees:
(a) Strict compliance with the provisions of this article.
(b) Honest and faithful application of all funds received.
(c) Honest and faithful performance of all obligations and
undertakings in the purchase or sale of securities.
(d) Payment of all damages suffered by any person damaged or
defrauded by reason of the violation of any of the provisions of this
article, or by reason of any fraud connected with or growing out of
any transaction contemplated by the provisions of this article.
850. If the applicant is a foreign corporation or association, it
shall file with its application:
(a) A copy of its articles of incorporation or association.
(b) A certificate of the proper officer of the jurisdiction in
which it is organized, executed not more than thirty days before the
filing of such application, showing that the applicant is authorized
to transact business in that jurisdiction.
(c) In such form as the commissioner prescribes, its written
instrument irrevocably appointing the commissioner and his successor
in office its true and lawful attorney upon whom all process in any
action or proceeding against it, arising out of or founded upon the
fraud of such applicant in the sale of securities within this State,
or in any action upon any bond provided by this article, can be
served. Such service shall have the same effect as if the applicant
was a domestic corporation or association lawfully served with
process in this State.
851. The commissioner shall examine such application, and shall
make such further investigation of the applicant and its affairs as
he deems advisable. He shall issue the certificate if, from such
examination, the commissioner is satisfied that:
(a) The business reputation of the applicant and, in the case of a
firm or corporation, its officers or members, is good.
(b) The sale of the securities proposed to be sold by it would not
be unfair, unjust or inequitable to the purchasers thereof.
(c) Neither it nor its officers or members have violated any of
the provisions of this article.
(d) Neither it nor its officers or members have engaged or are
about to engage in any fraudulent transaction.
Otherwise, he shall deny the application and notify the applicant
of his decision.
Where a hearing is held under this section the proceedings shall
be conducted in accordance with Chapter 5 of Part 1 of Division 3 of
Title 2 of the Government Code, and the commissioner shall have all
the powers granted therein.
852. The commissioner may at any time in accordance with the
procedure provided in Section 1738 suspend or revoke any broker's or
agent's certificate issued by him if he finds that the holder thereof
is of bad business repute, or has violated any provision of this
article, or has engaged, or is about to engage in any fraudulent
transaction.
853. Every broker shall, at such times as the commissioner
requires, make and file in the office of the commissioner a true and
correct statement concerning any security sold or offered for sale by
the broker. The statement shall show:
(a) The name and location of the principal office of the issuer of
such security.
(b) The names of the issuer's managing officers if it is a
corporation, or of its members if it is a partnership.
(c) The issuer's assets, liabilities, and issued capital stock, at
the close of its fiscal year then last ended, or at a later date.
(d) The issuer's gross income, expenses, and fixed charges for the
year next preceding such date, or for such time as such issuer of
such security has transacted business, if for less than one year.
(e) The approximate price at which the broker has sold or proposes
to sell such security.
(f) Such other information, of which the broker has knowledge, as
the commissioner requires.
854. After receipt of notice in writing from the commissioner,
stating that the sale of a security would, in the commissioner's
opinion, be unfair, unjust, or inequitable to the purchaser, no
broker shall sell such security until and unless the commissioner in
writing withdraws the objection.
855. All writings filed with the commissioner under this article
shall be open to public inspection except where, in his judgment, the
public welfare or the welfare of any insurer demands that any
portion of such information be not made public. In such cases he may,
in his discretion, withhold such information from public inspection
for such time as in his judgment is necessary.
856. (a) The commissioner may at any time give or make public any
information concerning any insurer, if in the commissioner's
judgment, the giving or publishing of the information will be of
public interest.
(b) The commissioner may at any time give or make public any
information concerning securities purchased or sold within this state
by an insurer, if in the commissioner's judgment, the giving or
publishing of the information is in the public interest or it will
tend to prevent the fraudulent purchase or sale of the securities.
857. The commissioner shall charge and collect the following fees:
(a) For filing an original or supplemental application, or any
amendments thereto, for a permit to issue securities, one thousand
seven hundred seventy dollars ($1,770) except for applications for a
permit to issue securities evidencing any change in rights,
preferences, privileges, or restrictions on outstanding securities,
or for applications for a permit to issue securities evidencing only
a share dividend or a share split.
(b) For filing an application for a permit to issue securities
evidencing any change in the rights, preferences, privileges, or
restrictions on outstanding securities, two hundred thirty-six
dollars ($236).
(c) For filing an application for a permit to issue securities
evidencing a share dividend or a share split, five hundred ninety
dollars ($590).
(d) For filing an application for any other kind of permit, such
as an application, for the issuance of a preorganizational or a
negotiating permit, an application for a permit to issue options for
securities, but not for the securities themselves, or any application
for an amendment to an existing permit to issue securities, one
hundred eighteen dollars ($118).
(e) An original or supplemental application shall not be amended
after the permit sought thereby or by amendment thereto has been
issued or denied.
859. The commissioner shall also collect the following fees:
(a) For filing any application for a broker's certificate, one
hundred eighteen dollars ($118) for the first office or location plus
fifty-eight dollars ($58) for each additional office or location.
(b) For filing any application for an agent's certificate,
fifty-eight dollars ($58).
(c) For an examination, audit, or investigation, the actual amount
of expenses reasonably incurred in the performance of the work, plus
the following:
(1) If made by an employee of the commissioner, the actual amount
of the compensation paid to such employee for that time.
(2) The amount of the usual cost to the state of typing,
transcribing or otherwise preparing any written report of such
examination, audit or investigation that may reasonably be needed in
the discharge of the commissioner's duties.
860. No fees shall be charged or collected for copies of papers,
records, or official documents furnished to public officers for use
in their official capacity or for the reports of the commissioner in
the ordinary course of distribution.
820. The terms used in this article shall be given the meanings
herein set forth, but such meanings shall not, merely by reason of
enactment in this article, govern the interpretation of any other
provision of this code.
821. "Security" means every instrument commonly known by that term,
except:
(a) Commercial paper when issued, given or acquired in a bona fide
way in the ordinary course of legitimate business, trade or
commerce.
(b) Promissory notes, whether secured or unsecured, if not offered
to the public, and if not sold to an underwriter of the sale for the
purpose of resale.
(c) Mortgage participation certificates issued under and in
accordance with the provisions of Chapter 2, Part 6, Division 2.
(d) Policies of insurance issued by an insurer.
821.5. Without in any manner affecting the scope of the term
"security" as set forth in section 821, and with the exceptions
therein set forth, the following instruments are particularly
specified as securities within the meaning of that section: every
stock, bond, note, treasury stock, debenture, evidence of
indebtedness, certificate evidencing a contribution, certificate of
interest or participation, certificate of interest in a profit
sharing agreement, collateral trust certificate, any transferable
share, investment contract, or beneficial interest in title to
property, contracts or earnings.
822. Except as otherwise provided by this article, "sale" or "sell"
means every disposition, or attempt or arrangement to dispose, of a
security or interest in a security for value, whether done by direct
or indirect means. A security is conclusively presumed to be sold for
value if given with any purchase of any nature or if given as a
bonus on account of a purchase. "Sale" or "sell" shall also mean a
contract of sale, an exchange, any change in the rights, preferences,
privileges or restrictions on outstanding securities, an attempt to
sell, an option of sale, a solicitation of a sale, a subscription or
an offer to sell directly or by an agent, or a circular letter,
advertisement or otherwise.
823. (a) A privilege pertaining to a security giving the holder the
privilege to convert such security into another security of the same
insurer is not a sale of such other security.
(b) A right pertaining to a security and entitling the holder of
such right to subscribe to another security of the same insurer is
not a sale of such other security, but the sale of such other
security upon the exercise of such right shall be subject to the
provisions of this article.
824. "Broker" means every person, other than an agent, who in this
state engages either wholly or in part in the business of (a) dealing
in any security issued by others, (b) underwriting any issue of such
securities, (c) purchasing such securities with the purpose of
reselling them, or (d) offering such securities for sale to the
public. No authority to act as a broker may be implied from an
appointment executed by an insurer appointing an agent of that
insurer.
825. "Agent" means every person employed or appointed by an insurer
or broker who, within this State and for a compensation, sells any
security.
826. "Insurer" for the purposes of this article includes every
organization organized for the purpose of assuming the risk of loss
under contracts of insurance or reinsurance, and also includes any of
the following organizations:
(a) An admitted insurer,
(b) A nonadmitted domestic insurer,
(c) A nonadmitted foreign insurer,
(d) A nonadmitted alien insurer,
(e) An underwritten title company, or an organization organized
for the purpose of doing an underwritten title business, whether
licensed or not, and
(f) An attorney in fact of a reciprocal or interinsurance
exchange, whether it be admitted or not, or an organization organized
for the purpose of acting as the attorney in fact of a reciprocal,
or interinsurance exchange, whether the same be admitted or not.
"Insurer" shall not include, unless specified in subdivisions (a)
through (f), inclusive, an organization, which though required to
obtain a certificate or license from the commissioner, is organized
or to be organized primarily for purposes other than assuming the
risk of loss under contracts or agreements of insurance.
The amendments of this section by the Legislature at the 1965
Regular Session, except as they relate to underwritten title
companies, attorneys in fact, and exclusive managers, shall be
construed as a restatement and continuation of the law existing prior
to such amendment. Every permit issued by the commissioner or the
Commissioner of Corporations to an insurer as defined in this section
prior to its amendment by the Legislature at 1965 Regular Session
shall be valid and effective for all purposes stated therein, from
the date of its issuance until the date of expiration stated therein.
Every permit issued by the commissioner under the authority of
former subdivision (g) of this section from the date such subdivision
became effective in 1965 until the effective date of the amendment
to this section at the 1970 Regular Session of the Legislature shall
be valid and effective for all purposes stated therein, from the date
of its issuance until the expiration date specified therein.
827. An insurer shall not sell in this state, except upon a sale
for delinquent assessment made in accordance with the provisions of
Section 423 of the Corporations Code, or offer for sale, negotiate
for the sale of, or take subscriptions for any security of its own
issue until it shall have first applied for and secured from the
commissioner a permit authorizing it so to do.
827.3. (a) As used in this section, the term "insurer" means an
insurer which is domestic and admitted.
(b) The transactions of an insurer set out in subdivisions (c) and
(d) are exempt from Section 827 if they meet all of the following
requirements:
(1) They are not accompanied by an advertisement and no selling
expenses have been given, paid, or incurred in connection therewith.
(2) No consideration has been given, paid, or incurred in
connection with them.
(3) Within 30 days after the transaction, the insurer notifies the
commissioner in writing of its occurrence. The notice shall describe
the transaction, including the transaction date, the number and par
value of shares issued, and the purpose of the transaction. The
notice shall be executed under penalty of perjury.
(c) Par value increases resulting from a transfer of gross paid-in
surplus to capital.
(d) Shares issued or distributed by an insurer as dividends to
existing holders of shares of the insurer, on a pro rata basis
according to the shares previously held by each holder, provided the
new shares are of the same class and par value and have the same
rights, preferences, privileges, and restrictions as the outstanding
shares.
(e) Any transfer of surplus to paid-up capital pursuant to
subsection (d) shall not be deemed consideration for purposes of this
section.
(f) Notwithstanding this section, the applicable notice
provisions, contained in subdivision (e) of Section 1215.4, shall
apply to those transactions set forth in subdivision (d).
827.5. The term "insurer" as used in this section shall not include
domestic insurers as defined in Section 26.
The following transactions of an insurer described in subdivisions
(a), (c), (d), and (f) of Section 826 shall be exempt from the
provisions of this article:
(a) Any negotiations or agreements prior to general solicitation
for the approval of the shareholders of said insurer and subject to
such approval, of a change in the rights, preferences, privileges or
restrictions of or on outstanding securities or a merger,
consolidation or sale of corporate assets in consideration of the
issuance of securities.
(b) Any change in the rights, preferences, privileges, or
restrictions of or on outstanding securities of such insurer, unless
the holders of at least 25 percent of the outstanding shares or units
of any class of securities which will be directly or indirectly
affected substantially and adversely by such change have addresses in
this state according to the records of such insurer; or
(c) Any exchange incident to a merger, a consolidation, an
acquisition of outstanding stock, or a sale of corporate assets in
consideration of the issuance of securities of another insurer or
corporation, unless at least 25 percent of the outstanding shares of
any class, the holders of which are to receive securities in the
exchange of the surviving, consolidated, or purchasing corporation or
insurer, are held by persons who have addresses in this state
according to the records of such corporation or insurer of which they
are shareholders.
(d) For the purposes of subdivision (b) and subdivision (c) of
this section, (1) any securities held to the knowledge of the issuer
in the names of a broker as defined in Section 824 or nominees of
such broker and (2) any securities controlled by any one person who
is not a resident of the State of California who controls directly or
indirectly 50 percent or more of the outstanding securities of that
class, shall not be considered outstanding. The determination of
whether 25 percent of the outstanding securities are held by persons
having addresses in this state, for the purposes of subdivision (b)
and subdivision (c) of this section, shall be made as of the record
date for the determination of the security holders entitled to vote
on or consent to the action, if approval of such holders is required,
or if not as of the date of directors' approval of such action.
(e) Any change (other than a stock split or reverse stock split)
in the rights, preferences, privileges, or restrictions of or on
outstanding shares, except the following if they materially and
adversely affect any class of shareholders: (1) to add, change, or
delete assessment provisions; (2) to change the rights to dividends
thereon; (3) to change the redemption provisions; (4) to make them
redeemable; (5) to change the amount payable on liquidation; (6) to
change, add, or delete conversion rights; (7) to change, add, or
delete voting rights; (8) to change preemptive rights; (9) to change,
add, or delete sinking fund provisions; (10) to rearrange the
relative priorities of outstanding shares; (11) to impose, change, or
delete restrictions upon the transfer of shares in the articles of
incorporation or bylaws; (12) to change the right of shareholders
with respect to the calling of special meetings of shareholders; or
(13) to change, add, or delete any rights, preferences, privileges,
or restrictions of, or on, the outstanding shares or memberships of a
mutual water company or other corporation organized primarily to
provide services or facilities to its shareholders or members.
(f) Any stock split or reverse stock split, except the following:
(1) any stock split or reverse stock split if the corporation has
more than one class of shares outstanding and the split would have a
material effect on the proportionate interests of the respective
classes as to voting, dividends or distributions; (2) any stock split
of a stock which is traded in the market and its market price as of
the date of directors' approval of the stock split adjusted to give
effect to the split was less than two dollars ($2) per share; or (3)
any reverse stock split if the corporation has the option of paying
cash for any fractional shares created by such reverse split and as a
result of such action the proportionate interests of the
shareholders would be substantially altered. Any shares issued upon a
stock split or reverse stock split exempted by this subdivision
shall be subject to any conditions previously imposed by the
commissioner applicable to the shares with respect to which they are
issued.
(g) Any change in the rights of outstanding debt securities,
except the following if they substantially and adversely affect any
class of securities: (1) to change the rights to interest thereon;
(2) to change their redemption provisions; (3) to make them
redeemable; (4) to extend the maturity thereof or to change the
amount payable thereon at maturity; (5) to change their voting
rights; (6) to change their conversion rights; (7) to change sinking
fund provisions; or (8) to make them subordinate to other
indebtedness.
827.6. Any offer or sale of voting common stock by an insurer
incorporated in this state shall be exempt from the provisions of
this article if, immediately after the proposed sale and issuance,
there will be only one class of stock of such insurer outstanding
which is owned beneficially by no more than one domestic insurer,
providing all of the following requirements have been met:
(1) All such stock shall be evidenced by certificates which have
been stamped or printed prominently on their face a legend in a form
to be prescribed by rule of the commissioner restricting the transfer
of such stock in such manner as the rule provides.
(2) The offer and sale of such stock is not accompanied by the
publication of any advertisement, and no selling expenses have been
given, paid, or incurred in connection therewith.
(3) The consideration to be received by the issuer for the stock
to be issued shall consist of only cash or cancellation of
indebtedness for money borrowed or both upon the initial organization
of the issuer, provided all such stock is issued for the same price
per share.
(4) No promotional consideration has been given, paid, or incurred
in connection with such 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
the issuer, for services rendered in connection with such founding or
organizing.
827.7. Where required by this article the commissioner is
authorized to issue subscription and preorganization permits of and
pertaining to insurers or proposed insurers. Applications for such
permits shall set forth such of the matters described in Sections
834, 835, 836 and 837 as the commissioner deems appropriate or
requires.
827.8. An offer or sale of voting common stock or preferred stock
of and by a foreign or alien insurer to fire and casualty
broker-agents, as defined in Section 33.5, shall be exempt from the
requirements of this article if all of the following requirements are
met:
(a) The sale shall not be made to more than 35 fire and casualty
broker-agents in the State of California.
(b) Each fire and casualty broker-agent to whom an offer is made
is an "accredited investor" as defined in Regulation D under the
Federal Securities Act of 1933, as amended.
(c) Each fire and casualty broker-agent to whom an offer is made
meets all of the following requirements:
(1) The broker-agent shall have been appointed by the admitted
insurer for a period of at least one year and that admitted insurer
shall meet all of the following requirements:
(A) Be authorized to transact property and casualty insurance. For
purposes of this section, property and casualty insurance means
insurance falling within classes 2, 3, 7, 8, 10, 11, 12, 14, 15, 16,
18, and 20 under Section 100 except home protection contracts, as
defined in Section 12740.
(B) Have at least four hundred million dollars ($400,000,000) of
statutory capital and surplus.
(C) Hold a certificate of authority in good standing with this
state and have no regulatory action relating to financial hazard or
fraud against the company in the last three years from states,
including this state, where the insurer is authorized as an admitted
insurer to do business.
(D) Is currently reinsuring or has definite plans to reinsure
business produced by that broker-agent with the same foreign or alien
insurer offering securities to the broker-agent.
(2) The broker-agent generates five million dollars ($5,000,000)
in premiums per year and plans on transferring or writing at least
one million dollars ($1,000,000) per year with the admitted insurer.
(3) The broker-agent shall pay at least fifty thousand dollars
($50,000) for the securities purchased in the transaction but not in
excess of five hundred thousand dollars ($500,000).
(4) The broker-agent shall have a net worth of at least five
million dollars ($5,000,000).
(d) The offer and sale of stock is accompanied by the prospectus,
private placement memorandum, together with any other information
required pursuant to Regulation D of the Federal Securities Act of
1933.
(e) The consideration received by the issuer for the stock to be
issued consists solely of cash.
(f) No promotional consideration or selling expenses have been
given, paid, or incurred in connection with the issuance of stock,
and the offer and sale of stock is not accompanied by the publication
of any advertisement.
(g) All stock issued shall be evidenced by a certificate that
shall have a notice printed prominently on its face restricting the
transfer of the stock solely to the issuer or investors who have been
shareholders of the issuer for at least three years and who are
approved by at least 51 percent of the members of the board of
directors of the issuer.
(h) The issuer of both the common and preferred stock shall be all
of the following:
(1) A foreign or alien insurer that does not transact insurance
directly in California, but is solely a reinsurer.
(2) A reinsurer that only reinsures commercial lines property and
casualty insurance, as specified in subparagraph (A) of paragraph (1)
of subdivision (c).
828. Except in the case of a broker holding a broker's certificate
issued by the commissioner under this code or by the Commissioner of
Corporations under the Corporate Securities Act and then in effect, a
person, desiring or proposing to sell a security to be issued by any
insurer, shall not issue, circulate, or publish any advertisement,
pamphlet, prospectus, or circular concerning any such security until
the insurer secures from the commissioner a permit authorizing it to
sell such security.
829. A person shall not issue, circulate, or publish any
advertisement or writing concerning any security sold by him, unless
either his name is subscribed thereto, and a true copy thereof is
filed in the office of the commissioner at least one day prior to the
issue, publication, or circulation, or the commissioner first
authorizes or consents to the issuance, circulation or publication.
830. A person shall not issue, circulate, or publish any such
advertisement or writing after receipt of notice in writing from the
commissioner that, in his opinion, the same contains any statement
that is false or misleading or otherwise likely to deceive a reader
thereof.
831. Every security issued by any insurer without a permit of the
commissioner authorizing the same in effect at the time of the issue,
shall be void. Every security issued by any insurer under a permit
of the commissioner shall be void unless its provisions conform to
the provisions, if any, required by the permit.
831.1. Every security of a home protection company issued or
authorized to be issued prior to December 31, 1978, shall be valid
even though it has been issued without a permit of the commissioner
authorizing the same if, at the time of the issue or authorization,
the security was qualified or exempt from qualification under the
Corporate Securities Law of 1968 (Title 4, Division 1 of the
Corporations Code).
Any sale, transfer, hypothecation, or other distribution of a
security whose issuance is validated by this section, whether such
transaction takes place before or after the effective date of this
section is not prohibited by the provisions of this article.
832. Every insurer that commits any of the following acts is guilty
of a public offense and punishable by fine not exceeding ten
thousand dollars:
(a) Selling or causing to be issued a security contrary to the
provisions of this article or not in conformity with the permit of
the commissioner.
(b) Applying any of the proceeds of sale of a security to any
purpose other than as specified in the permit, or to a purpose
specified in the permit, but in excess of the amount limited for that
purpose.
833. Every person who commits any of the acts specified in this
section is guilty of a public offense and punishable by a fine not
exceeding ten thousand dollars ($10,000), or by imprisonment in the
state prison, or in a county jail not exceeding one year, or by both
such fine and imprisonment.
(a) Knowingly authorizing, directing, aiding, causing, or
assisting in causing the issuance, execution, or sale of, any
security, in nonconformity with a permit of the commissioner then in
effect and authorizing such issuance, or contrary to the provisions
of this article.
(b) Knowingly making any false statement or representation in any
application to the commissioner, or in any proceeding before him, or
in any examination, audit, or investigation made by him, or by his
authority.
(c) With knowledge of the falsity, causing to be filed in the
office of the commissioner any false statement or representation
concerning an insurer, the property which the insurer then holds or
proposes to acquire, the insurer's officers, the insurer's financial
condition or other affairs, or the insurer's proposed plan of
business.
(d) With knowledge of the falsity of any such statement or
representation, causing any security to be issued, executed, or sold
without first informing the commissioner of the falsity of such
statement in writing.
(e) Directly or indirectly, knowingly causing or assisting in
causing any part of the proceeds from the sale of any security to be
applied to any purpose contrary to the provisions of the permit
authorizing the issuance of such security, or to any purpose in
excess of the amount specified in such permit for such purpose.
(f) Selling a security with knowledge that it has been issued or
executed in violation of any of the provisions of this article.
(g) Causing a writing concerning a security to be issued,
circulated, or published while having knowledge that such matter
contains any statement that is false, misleading, or otherwise likely
to deceive a reader thereof.
(h) In any respect, willfully violating or failing to comply with
any of the provisions of this article.
(i) In any other respect, willfully violating or neglecting to
comply with any part of an order or permit of the commissioner under
the provisions of this article.
(j) Conspiring with one or more other persons to violate any
permit or order issued by the commissioner, or any of the provisions
of this article.
834. The application for a permit to issue or sell securities shall
be verified as provided in the Code of Civil Procedure for the
verification of pleadings, and shall be filed on 8 1/2 x 11 inch size
paper in the office of the commissioner. In the application the
applicant shall set forth:
(a) The names and addresses of its officers.
(b) The location of its office.
(c) An itemized account of its financial condition, including the
amount and character of its assets and liabilities.
(d) A detailed statement of the plan upon which it proposes to
transact business.
(e) A copy of any security it proposes to issue.
(f) A copy of any contract it proposes to make concerning the
same.
(g) A copy of any prospectus or advertisement, or other
description of such securities, then prepared by it for distribution
or publication.
(h) Such additional information concerning the company, its
condition and affairs as the commissioner requires.
835. If the applicant is a partnership, unincorporated association,
or joint stock company, it shall file with its application a copy of
its articles of partnership or association, and all other papers
pertaining to its organization.
836. If the applicant is a corporation, it shall file with its
application a copy of all minutes of any proceedings of its
directors, stockholders, or members, relating to or affecting the
issue of such securities, and also a copy of its articles of
incorporation, by-laws, and any amendments to either thereof.
837. If the applicant is a foreign corporation or association, it
shall also file with its application:
(a) A certificate of the proper officer of the jurisdiction in
which it is organized, executed not more than 30 days before the
filing of such application, showing that the applicant is authorized
to transact business in that jurisdiction.
(b) In such form as the commissioner prescribes, its written
instrument, irrevocably appointing the commissioner and his successor
in office its true and lawful attorney upon whom all process in any
action or proceeding against it can be served. Such service shall
have the same effect as if the applicant was a domestic insurer
lawfully served with process in this State.
838. Upon the filing of such application, the commissioner shall
examine it and the other papers and documents filed therewith. He
may, if he deems it advisable, cause to be made a detailed
examination, audit, and investigation of the applicant and its
affairs.
838.5. Pursuant to this code, the commissioner has been and is
authorized, in the instance of an application for a permit to issue
securities in exchange for one or more bona fide outstanding
securities, claims or property interest, or partly in such exchange
and partly for cash, to approve the terms and conditions of such
issuance and exchange and the fairness of such terms and conditions,
after a hearing upon the fairness of such terms and conditions, to
which all persons to whom it is proposed to issue securities in such
exchange shall have the right to appear.
839. The commissioner shall issue a permit if he finds that:
(a) The proposed plan of business of the applicant and the
proposed issuance of securities are fair, just, and equitable.
(b) The applicant intends fairly and honestly to transact its
business, and
(c) The securities the applicant proposes to issue and the methods
to be used by it in issuing or disposing of them are such as, in his
opinion, will not work a fraud upon the purchaser thereof, or upon
policyholders or other security holders of applicant.
Otherwise, he shall deny the application and notify the applicant
in writing of his decision.
839.1. (a) In any case where a domestic insurer is directly
affected by the total transaction for some part of which the permit
applied for is needed, and the commissioner in his discretion
determines that reasonable grounds exist for contentions that such
total transaction or any part thereof:
(1) Is a combination of capital, skill, or acts to create or carry
out restrictions on or to prevent competition in the insurance
business; or
(2) Is a combination (in the form of a trust or otherwise) in
restraint of the insurance business; or
(3) Is an attempt to monopolize the insurance business; or
(4) Is a conspiracy to create any of the foregoing; or
(5) That such total transaction, or any part thereof, if
consummated will create or result in any of the foregoing or will
substantially lessen competition in the insurance business.
Then, in such event, the Insurance Commissioner may make findings
with respect to whether such total transaction, or any part thereof,
would or would not do or be any of the foregoing.
(b) In the event the Insurance Commissioner makes affirmative
findings as provided in subdivision (a) of this section, he may deny
the permit applied for.
839.5. The commissioner shall not issue a permit for the sale of
any securities of a domestic insurer in any case where he finds that
the expense of organization, exclusive of attorney fees, accountant
fees, and actuary fees, will exceed 12 percent of the total amount
actually paid for the capital stock.
840. The commissioner may prescribe in the permit the amounts,
considerations, terms, and conditions governing the issue and
disposal of the securities and the permit authorizes such issue and
disposal only in accordance with its provisions.
841. Every permit shall recite in bold type that the issuance
thereof is permissive only and does not constitute a recommendation
or endorsement of the securities permitted to be issued.
842. The commissioner may impose conditions requiring the deposit
in escrow of securities and the impoundment of the proceeds from the
sale thereof, limiting the expense in connection with the sale
thereof, and otherwise requiring such method of dealing as he deems
reasonable and either necessary or advisable to insure the
disposition of the proceeds of such securities in the manner and for
the purposes provided in the permit.
843. The commissioner may, from time to time and for cause, amend,
alter or revoke any permit issued by him hereunder, or temporarily
suspend the rights thereunder of the applicant. He also may establish
such rules and regulations as are reasonable or necessary to carry
out the purposes and provisions of this article.
In establishing any such rules and regulations the commissioner is
expressly authorized, irrespective of the other provisions of this
section or this article, to specify different and simplified forms
for both applications and permits where a foreign insurer, whether
admitted or not, is seeking to sell or issue securities of its own
issue to persons in this state and meets all the following standards:
(a) It has, prior to filing the application, made a filing with
the Securities and Exchange Commission;
(b) It (or a predecessor) has been lawfully engaged in the
insurance business for at least five years and currently is admitted
to transact insurance in at least five states;
(c) It currently has admitted assets of at least five million
dollars ($5,000,000); and
(d) It has, prior to filing the application, obtained a written
permit or consent to issue such securities from the authority in its
domiciliary state having jurisdiction over issuances of its
securities and the statutory standards for obtaining such permit or
consent are comparable to the like standards of this state.
844. Every insurer authorized by the commissioner to sell
securities shall thereafter, at such times and in such form as he
requires, make and file in his office a report, setting forth:
(a) The securities sold by it under the authority of any permit
issued by him.
(b) The proceeds derived therefrom.
(c) The disposition of such proceeds.
(d) Such other information concerning its property, officers, or
affairs, and relating to or affecting the value of such securities,
as the commissioner requires.
845. (a) No person may sell or resell any security of a domestic,
foreign, or alien insurer:
(1) As an insurer with respect to securities of its own issue
without securing the permit of the commissioner as provided in this
article.
(2) As an agent of such insurer except under authority of a
certificate issued by the commissioner under this code.
(3) As a broker or as an agent for a broker except under authority
of a certificate or license issued by the Commissioner of
Corporations under the provisions of the Corporations Code and in
full conformity with all provisions of the Corporations Code.
(b) Subdivision (a) shall not prohibit a bona fide owner of
securities of an insurer from selling or reselling such securities
if:
(1) Such securities were originally issued under the authority of
a permit of the commissioner and such sale or resale is made in
conformity with the conditions, if any, in such permit effective at
the time of such sale or resale; or
(2) Such securities were originally issued in a jurisdiction other
than California in full conformity with the applicable laws, if any,
governing such issuance in such jurisdiction.
A sale or resale of securities of an insurer by the owner of the
securities which is made for the purpose of evading the provisions of
this article requiring an insurer to secure a permit from the
commissioner or for any other fraudulent purpose shall, however, be
null and void and a violation of the criminal provisions of this
article.
(c) Any sale or resale permitted by this section is subject to the
stop power of the commissioner under Section 854 and the similar
powers of the Commissioner of Corporations pursuant to the provisions
of the Corporations Code.
(d) Any violation of this section is subject to the penalties
provided in Section 833.
845.5. The certificate required by Section 845 to act as an agent
of an insurer shall be secured as provided in Section 846 and shall
expire on the first day of July after its issue, unless sooner
suspended or revoked.
The permission granted by Section 845 to persons holding
certificates or licenses issued by the Commissioner of Corporations
does not affect the provisions of this article requiring that an
insurer and that an agent appointed by an insurer secure a permit or
certificate from the commissioner to issue, sell or resell securities
and such issue, sale or resale and the advertising thereof is
subject to the provisions of this article, nor does such section
permit an owner of securities to sell or resell the same except in
conformity with such section and this article.
846. To secure such certificate, the applicant shall make and file
in the office of the commissioner an application therefor in writing,
verified by or in behalf of the applicant. Such application shall
set forth:
(a) The name and address of the applicant.
(b) 1. In the case of an applying corporation, association or
joint stock company, the name and address of each of its managing
officers and managing agents.
2. In the case of an applying partnership, the name and address of
each of the partners.
(c) A succinct statement of facts showing possession of a good
business reputation:
1. By the applicant.
2. In the case of an applicant corporation, association, or joint
stock company, by its managing officers and managing agents.
3. In the case of an applicant partnership, by its members.
(d) If the applicant is a broker, the general plan and character
of the business of the applicant.
(e) Such other information as the commissioner requires.
847. At the time of filing an application for a broker's
certificate, the applicant shall file with the commissioner a bond
for five thousand dollars, payable to the people of the State of
California, for the use and benefit of any interested person, to be
approved by the commissioner. The bond shall be conditioned upon the
following conduct by the broker, the broker's agents, and employees:
(a) Strict compliance with the provisions of this article.
(b) Honest and faithful application of all funds received.
(c) Honest and faithful performance of all obligations and
undertakings in the purchase or sale of securities.
(d) Payment of all damages suffered by any person damaged or
defrauded by reason of the violation of any of the provisions of this
article, or by reason of any fraud connected with or growing out of
any transaction contemplated by the provisions of this article.
850. If the applicant is a foreign corporation or association, it
shall file with its application:
(a) A copy of its articles of incorporation or association.
(b) A certificate of the proper officer of the jurisdiction in
which it is organized, executed not more than thirty days before the
filing of such application, showing that the applicant is authorized
to transact business in that jurisdiction.
(c) In such form as the commissioner prescribes, its written
instrument irrevocably appointing the commissioner and his successor
in office its true and lawful attorney upon whom all process in any
action or proceeding against it, arising out of or founded upon the
fraud of such applicant in the sale of securities within this State,
or in any action upon any bond provided by this article, can be
served. Such service shall have the same effect as if the applicant
was a domestic corporation or association lawfully served with
process in this State.
851. The commissioner shall examine such application, and shall
make such further investigation of the applicant and its affairs as
he deems advisable. He shall issue the certificate if, from such
examination, the commissioner is satisfied that:
(a) The business reputation of the applicant and, in the case of a
firm or corporation, its officers or members, is good.
(b) The sale of the securities proposed to be sold by it would not
be unfair, unjust or inequitable to the purchasers thereof.
(c) Neither it nor its officers or members have violated any of
the provisions of this article.
(d) Neither it nor its officers or members have engaged or are
about to engage in any fraudulent transaction.
Otherwise, he shall deny the application and notify the applicant
of his decision.
Where a hearing is held under this section the proceedings shall
be conducted in accordance with Chapter 5 of Part 1 of Division 3 of
Title 2 of the Government Code, and the commissioner shall have all
the powers granted therein.
852. The commissioner may at any time in accordance with the
procedure provided in Section 1738 suspend or revoke any broker's or
agent's certificate issued by him if he finds that the holder thereof
is of bad business repute, or has violated any provision of this
article, or has engaged, or is about to engage in any fraudulent
transaction.
853. Every broker shall, at such times as the commissioner
requires, make and file in the office of the commissioner a true and
correct statement concerning any security sold or offered for sale by
the broker. The statement shall show:
(a) The name and location of the principal office of the issuer of
such security.
(b) The names of the issuer's managing officers if it is a
corporation, or of its members if it is a partnership.
(c) The issuer's assets, liabilities, and issued capital stock, at
the close of its fiscal year then last ended, or at a later date.
(d) The issuer's gross income, expenses, and fixed charges for the
year next preceding such date, or for such time as such issuer of
such security has transacted business, if for less than one year.
(e) The approximate price at which the broker has sold or proposes
to sell such security.
(f) Such other information, of which the broker has knowledge, as
the commissioner requires.
854. After receipt of notice in writing from the commissioner,
stating that the sale of a security would, in the commissioner's
opinion, be unfair, unjust, or inequitable to the purchaser, no
broker shall sell such security until and unless the commissioner in
writing withdraws the objection.
855. All writings filed with the commissioner under this article
shall be open to public inspection except where, in his judgment, the
public welfare or the welfare of any insurer demands that any
portion of such information be not made public. In such cases he may,
in his discretion, withhold such information from public inspection
for such time as in his judgment is necessary.
856. (a) The commissioner may at any time give or make public any
information concerning any insurer, if in the commissioner's
judgment, the giving or publishing of the information will be of
public interest.
(b) The commissioner may at any time give or make public any
information concerning securities purchased or sold within this state
by an insurer, if in the commissioner's judgment, the giving or
publishing of the information is in the public interest or it will
tend to prevent the fraudulent purchase or sale of the securities.
857. The commissioner shall charge and collect the following fees:
(a) For filing an original or supplemental application, or any
amendments thereto, for a permit to issue securities, one thousand
seven hundred seventy dollars ($1,770) except for applications for a
permit to issue securities evidencing any change in rights,
preferences, privileges, or restrictions on outstanding securities,
or for applications for a permit to issue securities evidencing only
a share dividend or a share split.
(b) For filing an application for a permit to issue securities
evidencing any change in the rights, preferences, privileges, or
restrictions on outstanding securities, two hundred thirty-six
dollars ($236).
(c) For filing an application for a permit to issue securities
evidencing a share dividend or a share split, five hundred ninety
dollars ($590).
(d) For filing an application for any other kind of permit, such
as an application, for the issuance of a preorganizational or a
negotiating permit, an application for a permit to issue options for
securities, but not for the securities themselves, or any application
for an amendment to an existing permit to issue securities, one
hundred eighteen dollars ($118).
(e) An original or supplemental application shall not be amended
after the permit sought thereby or by amendment thereto has been
issued or denied.
859. The commissioner shall also collect the following fees:
(a) For filing any application for a broker's certificate, one
hundred eighteen dollars ($118) for the first office or location plus
fifty-eight dollars ($58) for each additional office or location.
(b) For filing any application for an agent's certificate,
fifty-eight dollars ($58).
(c) For an examination, audit, or investigation, the actual amount
of expenses reasonably incurred in the performance of the work, plus
the following:
(1) If made by an employee of the commissioner, the actual amount
of the compensation paid to such employee for that time.
(2) The amount of the usual cost to the state of typing,
transcribing or otherwise preparing any written report of such
examination, audit or investigation that may reasonably be needed in
the discharge of the commissioner's duties.
860. No fees shall be charged or collected for copies of papers,
records, or official documents furnished to public officers for use
in their official capacity or for the reports of the commissioner in
the ordinary course of distribution.
