1-1 By: Crownover (Senate Sponsor - Fraser) H.B. No. 2728
1-2 (In the Senate - Received from the House May 7, 2001;
1-3 May 7, 2001, read first time and referred to Committee on Business
1-4 and Commerce; May 10, 2001, reported favorably by the following
1-5 vote: Yeas 6, Nays 0; May 10, 2001, sent to printer.)
1-6 A BILL TO BE ENTITLED
1-7 AN ACT
1-8 relating to regulation of the issuance of a security under a
1-9 certain compensation plan established by the issuer of the security
1-10 or a participating subsidiary of the issuer.
1-11 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-12 SECTION 1. Section 5, The Securities Act (Article 581-5,
1-13 Vernon's Texas Civil Statutes), is amended to read as follows:
1-14 Sec. 5. EXEMPT TRANSACTIONS. Except as hereinafter in this
1-15 Act specifically provided, the provisions of this Act shall not
1-16 apply to the sale of any security when made in any of the following
1-17 transactions and under any of the following conditions, and the
1-18 company or person engaged therein shall not be deemed a dealer
1-19 within the meaning of this Act; that is to say, the provisions of
1-20 this Act shall not apply to any sale, offer for sale, solicitation,
1-21 subscription, dealing in or delivery of any security under any of
1-22 the following transactions or conditions:
1-23 A. At any judicial, executor's, administrator's,
1-24 guardian's or conservator's sale, or any sale by a receiver or
1-25 trustee in insolvency or bankruptcy.
1-26 B. The sale by or for the account of a pledge holder
1-27 or mortgagee, selling or offering for sale or delivery in the
1-28 ordinary course of business to liquidate a bona fide debt, of a
1-29 security pledged in good faith as security for such debt.
1-30 C. (1) Sales of securities made by or in behalf of a
1-31 vendor, whether by dealer or other agent, in the ordinary course of
1-32 bona fide personal investment of the personal holdings of such
1-33 vendor, or change in such investment, if such vendor is not engaged
1-34 in the business of selling securities and the sale or sales are
1-35 isolated transactions not made in the course of repeated and
1-36 successive transactions of a like character; provided, that in no
1-37 event shall such sales or offerings be exempt from the provisions
1-38 of this Act when made or intended by the vendor or his agent, for
1-39 the benefit, either directly or indirectly, of any company or
1-40 corporation except the individual vendor (other than a usual
1-41 commission to said agent), and provided further, that any person
1-42 acting as agent for said vendor shall be registered pursuant to
1-43 this Act;
1-44 (2) Sales by or on behalf of any insurance
1-45 company subject to the supervision or control of the Texas
1-46 Department of Insurance of any security owned by such company as a
1-47 legal and bona fide investment, provided that in no event shall any
1-48 such sale or offering be exempt from the provisions of this Act
1-49 when made or intended, either directly or indirectly, for the
1-50 benefit of any other company as that term is defined in this Act.
1-51 D. The distribution by a corporation of securities
1-52 direct to its stockholders as a stock dividend or other
1-53 distribution paid out of earnings or surplus.
1-54 E. Any offer and any transaction pursuant to any offer
1-55 by the issuer of its securities to its existing security holders
1-56 (including persons who at the time of the transaction are holders
1-57 of convertible securities or nontransferable warrants) if no
1-58 commission or other remuneration (other than a stand-by commission)
1-59 is paid or given directly or indirectly for soliciting any security
1-60 holder in this State.
1-61 F. The issue in good faith of securities by a company
1-62 to its security holders, or creditors, in the process of a bona
1-63 fide reorganization of the company made in good faith, or the issue
1-64 in good faith of securities by a company, organized solely for the
2-1 purpose of taking over the assets and continuing the business of a
2-2 predecessor company, to the security holders or creditors of such
2-3 predecessor company, provided that in either such case such
2-4 securities are issued in exchange for the securities of such
2-5 holders or claims of such creditors, or both, and in either such
2-6 case security holders or creditors do not pay or give or promise
2-7 and are not obligated to pay or give any consideration for the
2-8 securities so issued other than the securities of or claims against
2-9 said company or its predecessor then held or owned by them.
2-10 G. The issue or sale of securities (a) by one
2-11 corporation to another corporation or the security holders thereof
2-12 pursuant to a vote by one or more classes of such security holders,
2-13 as required by the certificate of incorporation or the applicable
2-14 corporation statute, in connection with a merger, consolidation or
2-15 sale of corporate assets, or (b) by one corporation to its own
2-16 stockholders in connection with the change of par value stock to no
2-17 par value stock or vice versa, or the exchange of outstanding
2-18 shares for the same or a greater or smaller number of shares;
2-19 provided that in any such case such security holders do not pay or
2-20 give or promise and are not obligated to pay or give any
2-21 consideration for the securities so issued or sold other than the
2-22 securities of the corporation then held by them.
2-23 H. The sale of any security to any bank, trust
2-24 company, building and loan association, insurance company, surety
2-25 or guaranty company, savings institution, investment company as
2-26 defined in the Investment Company Act of 1940, small business
2-27 investment company as defined in the Small Business Investment Act
2-28 of 1958, as amended, or to any registered dealer actually engaged
2-29 in buying and selling securities.
2-30 I. Provided such sale is made without any public
2-31 solicitation or advertisements:
2-32 (a) the sale of any security by the issuer
2-33 thereof so long as the total number of security holders of the
2-34 issuer thereof does not exceed thirty-five (35) persons after
2-35 taking such sale into account;
2-36 (b) the sale or distribution by an issuer
2-37 [employer] or a [its] participating subsidiary of the issuer, if
2-38 any, of a security under a bona fide thrift, savings, stock
2-39 purchase, retirement, pension, profit-sharing, option, bonus,
2-40 appreciation right, incentive, or similar written compensation plan
2-41 or written compensation contract established by the issuer or its
2-42 subsidiary for the benefit of [employee benefit plan for]
2-43 employees, [or] directors, general partners, managers, or officers
2-44 of the issuer or subsidiary, for the benefit of its trustees if the
2-45 issuer or subsidiary is a business trust, or for the benefit of
2-46 consultants or advisors who provide to the issuer or subsidiary
2-47 bona fide services unrelated to the offer or sale of securities in
2-48 a capital-raising transaction [of the employer or its subsidiary];
2-49 or
2-50 (c) the sale by an issuer of its securities
2-51 during the period of twelve (12) months ending with the date of the
2-52 sale in question to not more than fifteen (15) persons (excluding,
2-53 in determining such fifteen (15) persons, purchasers of securities
2-54 in transactions exempt under other provisions of this Section 5,
2-55 purchasers of securities exempt under Section 6 hereof and
2-56 purchasers of securities which are part of an offering registered
2-57 under Section 7 hereof), provided such persons purchased such
2-58 securities for their own account and not for distribution.
2-59 J. Wherein the securities disposed of consist
2-60 exclusively of notes or bonds secured by mortgage or vendor's lien
2-61 upon real estate or tangible personal property, and the entire
2-62 mortgage is sold or transferred with all of the notes or bonds
2-63 secured thereby in a single transaction.
2-64 K. Any security or membership issued by a corporation
2-65 or association, organized exclusively for religious, educational,
2-66 benevolent, fraternal, charitable, or reformatory purposes and not
2-67 for pecuniary profit, and no part of the net earnings of which
2-68 inures to the benefit of any stockholder, shareholder, or
2-69 individual members, and where no commission or remuneration is paid
3-1 or given or is to be paid or given in connection with the
3-2 disposition thereof.
3-3 L. The sale by the issuer itself, or by a registered
3-4 dealer, of any security issued or guaranteed by any bank organized
3-5 and subject to regulation under the laws of the United States or
3-6 under the laws of any State or territory of the United States, or
3-7 any insular possession thereof, or by any savings and loan
3-8 association organized and subject to regulation under the laws of
3-9 this State, or the sale by the issuer itself of any security issued
3-10 by any federal savings and loan association.
3-11 M. The sale by the issuer itself, or by a registered
3-12 dealer, of any security either issued or guaranteed by the United
3-13 States or by any territory or insular possession thereof, or by the
3-14 District of Columbia, or by any state of the United States, or
3-15 political subdivision thereof (including but not limited to any
3-16 county, city, municipal corporation, district, or authority), or by
3-17 any public or governmental agency or instrumentality of any of the
3-18 foregoing.
3-19 N. The sale and issuance of any securities issued by
3-20 any farmers' cooperative marketing association organized under
3-21 Chapter 52, Agriculture Code, or the predecessor of that law
3-22 (Article 5737 et seq., Revised Statutes); the sale and issuance of
3-23 any securities issued by any mutual loan corporation organized
3-24 under Chapter 54, Agriculture Code, or the predecessor of that law
3-25 (Article 2500 et seq., Revised Statutes); the sale and issuance of
3-26 any equity securities issued by any cooperative association
3-27 organized under the Cooperative Association Act, as amended
3-28 (Article 1396-50.01, Vernon's Texas Civil Statutes); and the sale
3-29 of any securities issued by any farmers' cooperative society
3-30 organized under Chapter 51, Agriculture Code, or the predecessor of
3-31 that law (Article 2514 et seq., Revised Statutes). Provided,
3-32 however, this exemption shall not be applicable to agents and
3-33 salesmen of any farmers' cooperative marketing association, mutual
3-34 loan corporation, cooperative association, or farmers' cooperative
3-35 society when the sale of such securities is made to non-members, or
3-36 when the sale of such securities is made to members or non-members
3-37 and a commission is paid or contracted to be paid to the said
3-38 agents or salesmen.
3-39 O. The sale by a registered dealer of outstanding
3-40 securities provided that:
3-41 (1) Such securities form no part of an unsold
3-42 allotment to or subscription by such dealer as a participant in the
3-43 distribution of such securities by the issuer thereof; and
3-44 (2) Securities of the same class, of the same
3-45 issuer, are outstanding in the hands of the public; and
3-46 (3) Such securities are offered for sale, in
3-47 good faith, at prices reasonably related to the current market
3-48 price of such securities at the time of such sale; and
3-49 (4) No part of the proceeds of such sale are
3-50 paid directly or indirectly to the issuer of such securities; and
3-51 (5) Such sale is not directly or indirectly for
3-52 the purposes of providing or furthering any scheme to violate or
3-53 evade any provision of this Act; and
3-54 (6) The right to sell or resell such securities
3-55 has not been enjoined by any court of competent jurisdiction in
3-56 this State by proceedings instituted by an officer or agency of
3-57 this State charged with enforcement of this Act; and
3-58 (7) The right to sell such securities has not
3-59 been revoked or suspended by the commissioner under any of the
3-60 provisions of this Act, or, if so, revocation or suspension is not
3-61 in force and effect; and
3-62 (8) At the time of such sale, the issuer of such
3-63 securities shall be a going concern actually engaged in business
3-64 and shall then be neither in an organization stage nor in
3-65 receivership or bankruptcy; and
3-66 (9) Such securities or other securities of the
3-67 issuer of the same class have been registered by qualification,
3-68 notification or coordination under Section 7 of this Act; or at the
3-69 time of such sale at least the following information about the
4-1 issuer shall appear in a recognized securities manual or in a
4-2 statement, in form and extent acceptable to the commissioner, filed
4-3 with the commissioner by the issuer or by a registered dealer:
4-4 (a) A statement of the issuer's principal
4-5 business;
4-6 (b) A balance sheet as of a date within
4-7 eighteen (18) months of the date of such sale; and
4-8 (c) Profit and loss statements and a
4-9 record of the dividends paid, if any, for a period of not less than
4-10 three (3) years prior to the date of such balance sheet or for the
4-11 period of existence of the issuer, if such period of existence is
4-12 less than three (3) years.
4-13 The term "recognized securities manual" means a
4-14 nationally distributed manual of securities that is approved for
4-15 use hereunder by the Board.
4-16 The Commissioner may issue a stop order or by order
4-17 prohibit, revoke or suspend the exemption under this Subsection O
4-18 with respect to any security if the Commissioner has reasonable
4-19 cause to believe that the plan of business of the issuer of such
4-20 security, the security, or the sale thereof would tend to work a
4-21 fraud or deceit upon any purchaser or purchasers thereof, such
4-22 order to be subject to review in the manner provided by Section 24
4-23 of this Act. Notice of any court injunction enjoining the sale, or
4-24 resale, of any such security, or of an order revoking or suspending
4-25 the exemption under this subdivision with respect to any security,
4-26 shall be delivered or shall be mailed by certified or registered
4-27 mail with return receipt requested, to any dealers believed to be
4-28 selling, or offering for sale, securities of the type referred to
4-29 in the notice; and the prohibitions of (6) and (7) above of this
4-30 Subsection O shall be inapplicable to any dealer until the dealer
4-31 has received actual notice from the commissioner of such revocation
4-32 or suspension.
4-33 The Board may for cause shown revoke or suspend the
4-34 recognition hereunder of any manuals previously approved under this
4-35 Subsection but no such action may be taken unless upon notice and
4-36 opportunity for hearing before the Board or a hearings officer as
4-37 now or hereafter required by law. A judgment sustaining the Board
4-38 in the action complained of shall not bar after one year an
4-39 application by the plaintiff for approval of its manual or manuals
4-40 hereunder, nor shall a judgment in favor of the plaintiff prevent
4-41 the Board from thereafter revoking such recognition for any proper
4-42 cause which may thereafter accrue or be discovered.
4-43 P. The execution by a dealer of an unsolicited order
4-44 for the purchase of securities, where the initial offering of such
4-45 securities has been completed and provided that the dealer acts
4-46 solely as an agent for the purchaser, has no direct or indirect
4-47 interest in the sale or distribution of the security ordered, and
4-48 receives no commission, profit, or other compensation from any
4-49 source other than the purchaser.
4-50 Q. The sales of interests in and under oil, gas or
4-51 mining leases, fees or titles, or contracts relating thereto, where
4-52 (1) the total number of sales by any one owner of interests,
4-53 whether whole, fractional, segregated or undivided in any single
4-54 oil, gas or mineral lease, fee or title, or contract relating
4-55 thereto, shall not exceed thirty-five (35) within a period of
4-56 twelve (12) consecutive months and (2) no use is made of
4-57 advertisement or public solicitation; provided, however, if such
4-58 sale or sales are made by an agent for such owner or owners, such
4-59 agent shall be licensed pursuant to this Act. No oil, gas or
4-60 mineral unitization or pooling agreement shall be deemed a sale
4-61 under this Act.
4-62 R. The sale by the issuer itself, or by a subsidiary
4-63 of such issuer, of any securities which would be exempt if sold by
4-64 a registered dealer under Section 6 (other than Section 6E) of this
4-65 Act.
4-66 S. The sale by or through a registered dealer of any
4-67 option if at the time of the sale of the option:
4-68 (1) the performance of the terms of the option
4-69 is guaranteed by any broker-dealer registered under the federal
5-1 Securities Exchange Act of 1934, as amended, which guaranty and
5-2 broker-dealer are in compliance with such requirements or
5-3 regulations as may be approved or adopted by the board;
5-4 (2) the option is not sold by or for the benefit
5-5 of the issuer of the security which may be purchased or sold upon
5-6 exercise of the option;
5-7 (3) the security which may be purchased or sold
5-8 upon exercise of the option is either (a) exempted under
5-9 Subsection F of Section 6 of this Act or (b) quoted on the National
5-10 Association of Securities Dealers Automated Quotation system and
5-11 meets the requirements of Paragraphs (1), (6), (7), and (8) of
5-12 Subsection O of Section 5 of this Act; and
5-13 (4) such sale is not directly or indirectly for
5-14 the purposes of providing or furthering any scheme to violate or
5-15 evade any provisions of this Act.
5-16 For purposes of this subsection the term "option" shall
5-17 mean and include any put, call, straddle, or other option or
5-18 privilege of buying or selling a specified number of securities at
5-19 a specified price from or to another person, without being bound to
5-20 do so, on or prior to a specified date, but such term shall not
5-21 include any option or privilege which by its terms may terminate
5-22 prior to such specified date upon the occurrence of a specified
5-23 event.
5-24 T. Such other transactions or conditions as the board
5-25 by rule, regulation, or order may define or prescribe,
5-26 conditionally or unconditionally.
5-27 SECTION 2. This Act takes effect September 1, 2001, and
5-28 applies only to a transaction entered into on or after that date.
5-29 A transaction entered into before the effective date of this Act
5-30 is governed by the law in effect on the date on which the
5-31 transaction was entered into, and the former law is continued in
5-32 effect for that purpose.
5-33 * * * * *