1-1 AN ACT
1-2 relating to regulation of the issuance of a security under a
1-3 certain compensation plan established by the issuer of the security
1-4 or a participating subsidiary of the issuer.
1-5 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-6 SECTION 1. Section 5, The Securities Act (Article 581-5,
1-7 Vernon's Texas Civil Statutes), is amended to read as follows:
1-8 Sec. 5. EXEMPT TRANSACTIONS. Except as hereinafter in this
1-9 Act specifically provided, the provisions of this Act shall not
1-10 apply to the sale of any security when made in any of the following
1-11 transactions and under any of the following conditions, and the
1-12 company or person engaged therein shall not be deemed a dealer
1-13 within the meaning of this Act; that is to say, the provisions of
1-14 this Act shall not apply to any sale, offer for sale, solicitation,
1-15 subscription, dealing in or delivery of any security under any of
1-16 the following transactions or conditions:
1-17 A. At any judicial, executor's, administrator's,
1-18 guardian's or conservator's sale, or any sale by a receiver or
1-19 trustee in insolvency or bankruptcy.
1-20 B. The sale by or for the account of a pledge holder
1-21 or mortgagee, selling or offering for sale or delivery in the
1-22 ordinary course of business to liquidate a bona fide debt, of a
1-23 security pledged in good faith as security for such debt.
1-24 C. (1) Sales of securities made by or in behalf of a
2-1 vendor, whether by dealer or other agent, in the ordinary course of
2-2 bona fide personal investment of the personal holdings of such
2-3 vendor, or change in such investment, if such vendor is not engaged
2-4 in the business of selling securities and the sale or sales are
2-5 isolated transactions not made in the course of repeated and
2-6 successive transactions of a like character; provided, that in no
2-7 event shall such sales or offerings be exempt from the provisions
2-8 of this Act when made or intended by the vendor or his agent, for
2-9 the benefit, either directly or indirectly, of any company or
2-10 corporation except the individual vendor (other than a usual
2-11 commission to said agent), and provided further, that any person
2-12 acting as agent for said vendor shall be registered pursuant to
2-13 this Act;
2-14 (2) Sales by or on behalf of any insurance
2-15 company subject to the supervision or control of the Texas
2-16 Department of Insurance of any security owned by such company as a
2-17 legal and bona fide investment, provided that in no event shall any
2-18 such sale or offering be exempt from the provisions of this Act
2-19 when made or intended, either directly or indirectly, for the
2-20 benefit of any other company as that term is defined in this Act.
2-21 D. The distribution by a corporation of securities
2-22 direct to its stockholders as a stock dividend or other
2-23 distribution paid out of earnings or surplus.
2-24 E. Any offer and any transaction pursuant to any offer
2-25 by the issuer of its securities to its existing security holders
2-26 (including persons who at the time of the transaction are holders
2-27 of convertible securities or nontransferable warrants) if no
3-1 commission or other remuneration (other than a stand-by commission)
3-2 is paid or given directly or indirectly for soliciting any security
3-3 holder in this State.
3-4 F. The issue in good faith of securities by a company
3-5 to its security holders, or creditors, in the process of a bona
3-6 fide reorganization of the company made in good faith, or the issue
3-7 in good faith of securities by a company, organized solely for the
3-8 purpose of taking over the assets and continuing the business of a
3-9 predecessor company, to the security holders or creditors of such
3-10 predecessor company, provided that in either such case such
3-11 securities are issued in exchange for the securities of such
3-12 holders or claims of such creditors, or both, and in either such
3-13 case security holders or creditors do not pay or give or promise
3-14 and are not obligated to pay or give any consideration for the
3-15 securities so issued other than the securities of or claims against
3-16 said company or its predecessor then held or owned by them.
3-17 G. The issue or sale of securities (a) by one
3-18 corporation to another corporation or the security holders thereof
3-19 pursuant to a vote by one or more classes of such security holders,
3-20 as required by the certificate of incorporation or the applicable
3-21 corporation statute, in connection with a merger, consolidation or
3-22 sale of corporate assets, or (b) by one corporation to its own
3-23 stockholders in connection with the change of par value stock to no
3-24 par value stock or vice versa, or the exchange of outstanding
3-25 shares for the same or a greater or smaller number of shares;
3-26 provided that in any such case such security holders do not pay or
3-27 give or promise and are not obligated to pay or give any
4-1 consideration for the securities so issued or sold other than the
4-2 securities of the corporation then held by them.
4-3 H. The sale of any security to any bank, trust
4-4 company, building and loan association, insurance company, surety
4-5 or guaranty company, savings institution, investment company as
4-6 defined in the Investment Company Act of 1940, small business
4-7 investment company as defined in the Small Business Investment Act
4-8 of 1958, as amended, or to any registered dealer actually engaged
4-9 in buying and selling securities.
4-10 I. Provided such sale is made without any public
4-11 solicitation or advertisements:
4-12 (a) the sale of any security by the issuer
4-13 thereof so long as the total number of security holders of the
4-14 issuer thereof does not exceed thirty-five (35) persons after
4-15 taking such sale into account;
4-16 (b) the sale or distribution by an issuer
4-17 [employer] or a [its] participating subsidiary of the issuer, if
4-18 any, of a security under a bona fide thrift, savings, stock
4-19 purchase, retirement, pension, profit-sharing, option, bonus,
4-20 appreciation right, incentive, or similar written compensation plan
4-21 or written compensation contract established by the issuer or its
4-22 subsidiary for the benefit of [employee benefit plan for]
4-23 employees, [or] directors, general partners, managers, or officers
4-24 of the issuer or subsidiary, for the benefit of its trustees if the
4-25 issuer or subsidiary is a business trust, or for the benefit of
4-26 consultants or advisors who provide to the issuer or subsidiary
4-27 bona fide services unrelated to the offer or sale of securities in
5-1 a capital-raising transaction [of the employer or its subsidiary];
5-2 or
5-3 (c) the sale by an issuer of its securities
5-4 during the period of twelve (12) months ending with the date of the
5-5 sale in question to not more than fifteen (15) persons (excluding,
5-6 in determining such fifteen (15) persons, purchasers of securities
5-7 in transactions exempt under other provisions of this Section 5,
5-8 purchasers of securities exempt under Section 6 hereof and
5-9 purchasers of securities which are part of an offering registered
5-10 under Section 7 hereof), provided such persons purchased such
5-11 securities for their own account and not for distribution.
5-12 J. Wherein the securities disposed of consist
5-13 exclusively of notes or bonds secured by mortgage or vendor's lien
5-14 upon real estate or tangible personal property, and the entire
5-15 mortgage is sold or transferred with all of the notes or bonds
5-16 secured thereby in a single transaction.
5-17 K. Any security or membership issued by a corporation
5-18 or association, organized exclusively for religious, educational,
5-19 benevolent, fraternal, charitable, or reformatory purposes and not
5-20 for pecuniary profit, and no part of the net earnings of which
5-21 inures to the benefit of any stockholder, shareholder, or
5-22 individual members, and where no commission or remuneration is paid
5-23 or given or is to be paid or given in connection with the
5-24 disposition thereof.
5-25 L. The sale by the issuer itself, or by a registered
5-26 dealer, of any security issued or guaranteed by any bank organized
5-27 and subject to regulation under the laws of the United States or
6-1 under the laws of any State or territory of the United States, or
6-2 any insular possession thereof, or by any savings and loan
6-3 association organized and subject to regulation under the laws of
6-4 this State, or the sale by the issuer itself of any security issued
6-5 by any federal savings and loan association.
6-6 M. The sale by the issuer itself, or by a registered
6-7 dealer, of any security either issued or guaranteed by the United
6-8 States or by any territory or insular possession thereof, or by the
6-9 District of Columbia, or by any state of the United States, or
6-10 political subdivision thereof (including but not limited to any
6-11 county, city, municipal corporation, district, or authority), or by
6-12 any public or governmental agency or instrumentality of any of the
6-13 foregoing.
6-14 N. The sale and issuance of any securities issued by
6-15 any farmers' cooperative marketing association organized under
6-16 Chapter 52, Agriculture Code, or the predecessor of that law
6-17 (Article 5737 et seq., Revised Statutes); the sale and issuance of
6-18 any securities issued by any mutual loan corporation organized
6-19 under Chapter 54, Agriculture Code, or the predecessor of that law
6-20 (Article 2500 et seq., Revised Statutes); the sale and issuance of
6-21 any equity securities issued by any cooperative association
6-22 organized under the Cooperative Association Act, as amended
6-23 (Article 1396-50.01, Vernon's Texas Civil Statutes); and the sale
6-24 of any securities issued by any farmers' cooperative society
6-25 organized under Chapter 51, Agriculture Code, or the predecessor of
6-26 that law (Article 2514 et seq., Revised Statutes). Provided,
6-27 however, this exemption shall not be applicable to agents and
7-1 salesmen of any farmers' cooperative marketing association, mutual
7-2 loan corporation, cooperative association, or farmers' cooperative
7-3 society when the sale of such securities is made to non-members, or
7-4 when the sale of such securities is made to members or non-members
7-5 and a commission is paid or contracted to be paid to the said
7-6 agents or salesmen.
7-7 O. The sale by a registered dealer of outstanding
7-8 securities provided that:
7-9 (1) Such securities form no part of an unsold
7-10 allotment to or subscription by such dealer as a participant in the
7-11 distribution of such securities by the issuer thereof; and
7-12 (2) Securities of the same class, of the same
7-13 issuer, are outstanding in the hands of the public; and
7-14 (3) Such securities are offered for sale, in
7-15 good faith, at prices reasonably related to the current market
7-16 price of such securities at the time of such sale; and
7-17 (4) No part of the proceeds of such sale are
7-18 paid directly or indirectly to the issuer of such securities; and
7-19 (5) Such sale is not directly or indirectly for
7-20 the purposes of providing or furthering any scheme to violate or
7-21 evade any provision of this Act; and
7-22 (6) The right to sell or resell such securities
7-23 has not been enjoined by any court of competent jurisdiction in
7-24 this State by proceedings instituted by an officer or agency of
7-25 this State charged with enforcement of this Act; and
7-26 (7) The right to sell such securities has not
7-27 been revoked or suspended by the commissioner under any of the
8-1 provisions of this Act, or, if so, revocation or suspension is not
8-2 in force and effect; and
8-3 (8) At the time of such sale, the issuer of such
8-4 securities shall be a going concern actually engaged in business
8-5 and shall then be neither in an organization stage nor in
8-6 receivership or bankruptcy; and
8-7 (9) Such securities or other securities of the
8-8 issuer of the same class have been registered by qualification,
8-9 notification or coordination under Section 7 of this Act; or at the
8-10 time of such sale at least the following information about the
8-11 issuer shall appear in a recognized securities manual or in a
8-12 statement, in form and extent acceptable to the commissioner, filed
8-13 with the commissioner by the issuer or by a registered dealer:
8-14 (a) A statement of the issuer's principal
8-15 business;
8-16 (b) A balance sheet as of a date within
8-17 eighteen (18) months of the date of such sale; and
8-18 (c) Profit and loss statements and a
8-19 record of the dividends paid, if any, for a period of not less than
8-20 three (3) years prior to the date of such balance sheet or for the
8-21 period of existence of the issuer, if such period of existence is
8-22 less than three (3) years.
8-23 The term "recognized securities manual" means a
8-24 nationally distributed manual of securities that is approved for
8-25 use hereunder by the Board.
8-26 The Commissioner may issue a stop order or by order
8-27 prohibit, revoke or suspend the exemption under this Subsection O
9-1 with respect to any security if the Commissioner has reasonable
9-2 cause to believe that the plan of business of the issuer of such
9-3 security, the security, or the sale thereof would tend to work a
9-4 fraud or deceit upon any purchaser or purchasers thereof, such
9-5 order to be subject to review in the manner provided by Section 24
9-6 of this Act. Notice of any court injunction enjoining the sale, or
9-7 resale, of any such security, or of an order revoking or suspending
9-8 the exemption under this subdivision with respect to any security,
9-9 shall be delivered or shall be mailed by certified or registered
9-10 mail with return receipt requested, to any dealers believed to be
9-11 selling, or offering for sale, securities of the type referred to
9-12 in the notice; and the prohibitions of (6) and (7) above of this
9-13 Subsection O shall be inapplicable to any dealer until the dealer
9-14 has received actual notice from the commissioner of such revocation
9-15 or suspension.
9-16 The Board may for cause shown revoke or suspend the
9-17 recognition hereunder of any manuals previously approved under this
9-18 Subsection but no such action may be taken unless upon notice and
9-19 opportunity for hearing before the Board or a hearings officer as
9-20 now or hereafter required by law. A judgment sustaining the Board
9-21 in the action complained of shall not bar after one year an
9-22 application by the plaintiff for approval of its manual or manuals
9-23 hereunder, nor shall a judgment in favor of the plaintiff prevent
9-24 the Board from thereafter revoking such recognition for any proper
9-25 cause which may thereafter accrue or be discovered.
9-26 P. The execution by a dealer of an unsolicited order
9-27 for the purchase of securities, where the initial offering of such
10-1 securities has been completed and provided that the dealer acts
10-2 solely as an agent for the purchaser, has no direct or indirect
10-3 interest in the sale or distribution of the security ordered, and
10-4 receives no commission, profit, or other compensation from any
10-5 source other than the purchaser.
10-6 Q. The sales of interests in and under oil, gas or
10-7 mining leases, fees or titles, or contracts relating thereto, where
10-8 (1) the total number of sales by any one owner of interests,
10-9 whether whole, fractional, segregated or undivided in any single
10-10 oil, gas or mineral lease, fee or title, or contract relating
10-11 thereto, shall not exceed thirty-five (35) within a period of
10-12 twelve (12) consecutive months and (2) no use is made of
10-13 advertisement or public solicitation; provided, however, if such
10-14 sale or sales are made by an agent for such owner or owners, such
10-15 agent shall be licensed pursuant to this Act. No oil, gas or
10-16 mineral unitization or pooling agreement shall be deemed a sale
10-17 under this Act.
10-18 R. The sale by the issuer itself, or by a subsidiary
10-19 of such issuer, of any securities which would be exempt if sold by
10-20 a registered dealer under Section 6 (other than Section 6E) of this
10-21 Act.
10-22 S. The sale by or through a registered dealer of any
10-23 option if at the time of the sale of the option:
10-24 (1) the performance of the terms of the option
10-25 is guaranteed by any broker-dealer registered under the federal
10-26 Securities Exchange Act of 1934, as amended, which guaranty and
10-27 broker-dealer are in compliance with such requirements or
11-1 regulations as may be approved or adopted by the board;
11-2 (2) the option is not sold by or for the benefit
11-3 of the issuer of the security which may be purchased or sold upon
11-4 exercise of the option;
11-5 (3) the security which may be purchased or sold
11-6 upon exercise of the option is either (a) exempted under
11-7 Subsection F of Section 6 of this Act or (b) quoted on the National
11-8 Association of Securities Dealers Automated Quotation system and
11-9 meets the requirements of Paragraphs (1), (6), (7), and (8) of
11-10 Subsection O of Section 5 of this Act; and
11-11 (4) such sale is not directly or indirectly for
11-12 the purposes of providing or furthering any scheme to violate or
11-13 evade any provisions of this Act.
11-14 For purposes of this subsection the term "option" shall
11-15 mean and include any put, call, straddle, or other option or
11-16 privilege of buying or selling a specified number of securities at
11-17 a specified price from or to another person, without being bound to
11-18 do so, on or prior to a specified date, but such term shall not
11-19 include any option or privilege which by its terms may terminate
11-20 prior to such specified date upon the occurrence of a specified
11-21 event.
11-22 T. Such other transactions or conditions as the board
11-23 by rule, regulation, or order may define or prescribe,
11-24 conditionally or unconditionally.
11-25 SECTION 2. This Act takes effect September 1, 2001, and
11-26 applies only to a transaction entered into on or after that date.
11-27 A transaction entered into before the effective date of this Act
12-1 is governed by the law in effect on the date on which the
12-2 transaction was entered into, and the former law is continued in
12-3 effect for that purpose.
_______________________________ _______________________________
President of the Senate Speaker of the House
I certify that H.B. No. 2728 was passed by the House on May
4, 2001, by a non-record vote.
_______________________________
Chief Clerk of the House
I certify that H.B. No. 2728 was passed by the Senate on May
22, 2001, by the following vote: Yeas 30, Nays 0, 1 present, not
voting.
_______________________________
Secretary of the Senate
APPROVED: __________________________
Date
__________________________
Governor