Chapter 6. Securities of California Financial Code >> Division 1.1. >> Chapter 6.
Unless the context otherwise requires, in this chapter:
(a) "Offer" or "offer to sell" includes every attempt or offer to
dispose of, or solicitation of an offer to buy, a security for value.
(b) "Sale" or "sell" includes every contract of sale of, contract
to sell, or disposition of, a security for value. "Sale" or "sell"
includes any exchange of securities and any change in the rights,
preferences, privileges, or restrictions of or on outstanding
(c) "Security" means any stock, capital note, or debenture, or any
warrant, right, or option to subscribe to or purchase any of the
(d) The terms defined in subdivisions (a) and (b) do not include
any stock dividend payable with respect to common stock of a bank
solely (except for any cash or scrip paid for fractional shares) in
shares of such common stock, if such bank has no other class of
voting stock outstanding, provided that shares issued in any such
dividend shall be subject to any conditions previously imposed by the
commissioner applicable to the shares with respect to which they are
No bank organized under the laws of this state shall offer or
sell any security issued by it unless the commissioner has issued a
permit authorizing such sale.
The following transactions are exempt from Section 1201:
(a) (1) Any offer (but not a sale) not involving a public offering
by a bank organized under the laws of this state of its securities
and the execution and delivery of any agreement for the sale of the
securities pursuant to the offer if no part of the consideration for
the securities is paid to or received by the bank and none of the
securities are issued until the sale of the securities is authorized
by the commissioner or exempted from authorization.
(2) For purposes of paragraph (1), an offer does not involve any
public offering if the offers are not made to more than 25 persons
and any agreement for the sale of the securities is not entered into
with more than 10 of those 25 persons, and if all of the offerees
either have a preexisting personal or business relationship with the
bank or its officers, directors, or controlling persons, or by reason
of their business or financial experience the offerees could be
reasonably assumed to have the capacity to protect their own
interests in connection with the transaction.
(b) Any stock split by a bank organized under the laws of this
state that is effected pursuant to an amendment to its articles, an
agreement of merger, or a certificate of ownership that has been
approved by the commissioner, unless this exemption is withheld by
order of the commissioner.
(c) Any offer or sale of securities by a bank organized under the
laws of this state that is either (1) to a person actually approved
by the commissioner pursuant to Section 1253 to acquire control of
the bank if all of the material terms and conditions of the offer and
sale of securities are disclosed in the application for approval
specified in Section 1253 and the offer and sale of securities is in
accordance with the terms and subject to the conditions of the
approval to acquire control or (2) in a transaction exempted from the
approval requirement of Section 1251 by a regulation or an order of
the commissioner, unless this exemption is withheld by order of the
An application for a permit shall be in such form and contain
such information as the commissioner may prescribe.
The commissioner shall charge and collect fees for
applications filed under this chapter as fixed in this section.
(a) The fee for a negotiating permit shall be fifty dollars ($50).
(b) The fee for a permit to exchange a security or to make any
change in the rights, preferences, privileges, or restrictions of or
on outstanding securities shall be fifty dollars ($50).
(c) The fee for any permit to sell securities other than as
specified in subdivision (b) shall be one hundred dollars ($100) plus
one-tenth of one percent (0.1%) of the aggregate value of the
securities sought to be sold, up to a maximum aggregate fee of one
thousand seven hundred fifty dollars ($1,750).
If the commissioner finds that the proposed sale of
securities is fair, just, and equitable, he or she shall issue to the
applicant a permit authorizing it to offer and sell the securities
in such amount and upon such terms and conditions as he or she may
provide in the permit. If the commissioner finds otherwise, he or she
shall deny the application.
The commissioner may impose conditions in any permit issued
under Section 1205, requiring the deposit in escrow of securities,
imposing a legend condition restricting the transferability thereof,
impounding the proceeds from the sale thereof, limiting the expense
in connection with the sale thereof, or such other conditions as he
or she deems reasonable and necessary or advisable in the public
Every permit issued pursuant to Section 1205 shall recite
that it is permissive only and does not constitute a recommendation
or endorsement of the securities permitted to be sold.
The commissioner may amend, alter, suspend, or revoke any
permit issued pursuant to Section 1205.
Whenever a bank applies for a permit to issue any security or
to deliver any other consideration (whether or not such security or
such transaction is exempt from, or not subject to, the provisions of
Section 1202) in exchange for one or more bona fide outstanding
securities (as defined in Section 25019 of the Corporations Code),
claims, or property interests, or partly in such exchange and partly
for cash, the commissioner is authorized to approve the terms and
conditions of such issuance and exchange or such delivery and
exchange and the fairness of such terms and conditions and is
authorized to hold a hearing on the fairness of such terms and
conditions, at which all persons to whom it is proposed to issue any
security or to deliver any other consideration in such exchange shall
have the right to appear.
There shall be exempted from the provisions of Section 1201
any transaction or security, including, without limitation, any type
or class of transactions or securities, which the commissioner by
regulation or order exempts as not being comprehended within the
purposes of this chapter and the regulation of which he or she finds
is not necessary or appropriate in the public interest or for the
protection of investors.
A bank at any time may, with the approval of its board,
issue, sell or hypothecate its capital notes or debentures which may
be payable upon such terms and may bear such rate of interest, if
any, as may be provided therein or which may be convertible into
shares. Such capital notes and debentures shall be subordinate to the
claims of creditors and depositors and it shall be provided in any
such capital notes or debentures that in the event of liquidation all
depositors and other creditors of the bank shall be entitled to be
paid in full with such interest as may be provided by law before any
payment shall be made on account of principal of or interest on such
capital notes or debentures and it may be provided in any such
capital notes or debentures that after payment in full of all sums
owing to such depositors and creditors the holders of such capital
notes or debentures shall be entitled to be paid from the remaining
assets of the bank the unpaid principal amount of the capital notes
or debentures plus accrued and unpaid interest thereon before any
payment or other distribution, whether in cash, property or
otherwise, shall be made on account of any shares of the bank. It
shall be provided in such capital notes or debentures that no payment
shall at any time be made on account of the principal thereof,
unless following such payment the aggregate of the shareholders'
equity and capital notes or debentures thereafter outstanding shall
be the equal of such aggregate at the date of the original issue of
such capital notes or debentures, or as may be otherwise authorized
by the commissioner.
Nothing contained in this chapter shall affect the Corporate
Securities Law of 1968, Division 1 (commencing with Section 25000) of
Title 4 of the Corporations Code.