1-1     By:  Crownover (Senate Sponsor - Fraser)              H.B. No. 3015
 1-2           (In the Senate - Received from the House April 30, 2001;
 1-3     May 1, 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 to a
 1-9     charitable organization.
1-10           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-11           SECTION 1. Section 5, The Securities Act (Article 581-5,
1-12     Vernon's Texas Civil Statutes), is amended to read as follows:
1-13           Sec. 5.  EXEMPT TRANSACTIONS. Except as hereinafter in this
1-14     Act specifically provided, the provisions of this Act shall not
1-15     apply to the sale of any security when made in any of the following
1-16     transactions and under any of the following conditions, and the
1-17     company or person engaged therein shall not be deemed a dealer
1-18     within the meaning of this Act;  that is to say, the provisions of
1-19     this Act shall not apply to any sale, offer for sale, solicitation,
1-20     subscription, dealing in or delivery of any security under any of
1-21     the following transactions or conditions:
1-22                 A.  At any judicial, executor's, administrator's,
1-23     guardian's or conservator's sale, or any sale by a receiver or
1-24     trustee in insolvency or bankruptcy.
1-25                 B.  The sale by or for the account of a pledge holder
1-26     or mortgagee, selling or offering for sale or delivery in the
1-27     ordinary course of business to liquidate a bona fide debt, of a
1-28     security pledged in good faith as security for such debt.
1-29                 C. (1)  Sales of securities made by or in behalf of a
1-30     vendor, whether by dealer or other agent, in the ordinary course of
1-31     bona fide personal investment of the personal holdings of such
1-32     vendor, or change in such investment, if such vendor is not engaged
1-33     in the business of selling securities and the sale or sales are
1-34     isolated transactions not made in the course of repeated and
1-35     successive transactions of a like character;  provided, that in no
1-36     event shall such sales or offerings be exempt from the provisions
1-37     of this Act when made or intended by the vendor or his agent, for
1-38     the benefit, either directly or indirectly, of any company or
1-39     corporation except the individual vendor (other than a usual
1-40     commission to said agent), and provided further, that any person
1-41     acting as agent for said vendor shall be registered pursuant to
1-42     this Act;
1-43                       (2)  Sales by or on behalf of any insurance
1-44     company subject to the supervision or control of the Texas
1-45     Department of Insurance of any security owned by such company as a
1-46     legal and bona fide investment, provided that in no event shall any
1-47     such sale or offering be exempt from the provisions of this Act
1-48     when made or intended, either directly or indirectly, for the
1-49     benefit of any other company as that term is defined in this Act.
1-50                 D.  The distribution by a corporation of securities
1-51     direct to its stockholders as a stock dividend or other
1-52     distribution paid out of earnings or surplus.
1-53                 E.  Any offer and any transaction pursuant to any offer
1-54     by the issuer of its securities to its existing security holders
1-55     (including persons who at the time of the transaction are holders
1-56     of convertible securities or nontransferable warrants) if no
1-57     commission or other remuneration (other than a stand-by commission)
1-58     is paid or given directly or indirectly for soliciting any security
1-59     holder in this State.
1-60                 F.  The issue in good faith of securities by a company
1-61     to its security holders, or creditors, in the process of a bona
1-62     fide reorganization of the company made in good faith, or the issue
1-63     in good faith of securities by a company, organized solely for the
1-64     purpose of taking over the assets and continuing the business of a
 2-1     predecessor company, to the security holders or creditors of such
 2-2     predecessor company, provided that in either such case such
 2-3     securities are issued in exchange for the securities of such
 2-4     holders or claims of such creditors, or both, and in either such
 2-5     case security holders or creditors do not pay or give or promise
 2-6     and are not obligated to pay or give any consideration for the
 2-7     securities so issued other than the securities of or claims against
 2-8     said company or its predecessor then held or owned by them.
 2-9                 G.  The issue or sale of securities (a) by one
2-10     corporation to another corporation or the security holders thereof
2-11     pursuant to a vote by one or more classes of such security holders,
2-12     as required by the certificate of incorporation or the applicable
2-13     corporation statute, in connection with a merger, consolidation or
2-14     sale of corporate assets, or (b) by one corporation to its own
2-15     stockholders in connection with the change of par value stock to no
2-16     par value stock or vice versa, or the exchange of outstanding
2-17     shares for the same or a greater or smaller number of shares;
2-18     provided that in any such case such security holders do not pay or
2-19     give or promise and are not obligated to pay or give any
2-20     consideration for the securities so issued or sold other than the
2-21     securities of the corporation then held by them.
2-22                 H.  The sale of any security to any bank, trust
2-23     company, building and loan association, insurance company, surety
2-24     or guaranty company, savings institution, investment company as
2-25     defined in the Investment Company Act of 1940, small business
2-26     investment company as defined in the Small Business Investment Act
2-27     of 1958, as amended, or to any registered dealer actually engaged
2-28     in buying and selling securities.
2-29                 I.  Provided such sale is made without any public
2-30     solicitation or advertisements:
2-31                       (a)  the sale of any security by the issuer
2-32     thereof so long as the total number of security holders of the
2-33     issuer thereof does not exceed thirty-five (35) persons after
2-34     taking such sale into account;
2-35                       (b)  the sale or distribution by an employer or
2-36     its participating subsidiary, if any, of a security under a thrift,
2-37     savings, stock purchase, retirement, pension, profit-sharing,
2-38     option, bonus, appreciation right, incentive, or similar employee
2-39     benefit plan for employees or directors of the employer or its
2-40     subsidiary; or
2-41                       (c)  the sale by an issuer of its securities
2-42     during the period of twelve (12) months ending with the date of the
2-43     sale in question to not more than fifteen (15) persons (excluding,
2-44     in determining such fifteen (15) persons, purchasers of securities
2-45     in transactions exempt under other provisions of this Section 5,
2-46     purchasers of securities exempt under Section 6 hereof and
2-47     purchasers of securities which are part of an offering registered
2-48     under Section 7 hereof), provided such persons purchased such
2-49     securities for their own account and not for distribution.
2-50                 J.  Wherein the securities disposed of consist
2-51     exclusively of notes or bonds secured by mortgage or vendor's lien
2-52     upon real estate or tangible personal property, and the entire
2-53     mortgage is sold or transferred with all of the notes or bonds
2-54     secured thereby in a single transaction.
2-55                 K.  Any security or membership issued by a corporation
2-56     or association, organized exclusively for religious, educational,
2-57     benevolent, fraternal, charitable, or reformatory purposes and not
2-58     for pecuniary profit, and no part of the net earnings of which
2-59     inures to the benefit of any stockholder, shareholder, or
2-60     individual members, and where no commission or remuneration is paid
2-61     or given or is to be paid or given in connection with the
2-62     disposition thereof.
2-63                 L.  The sale by the issuer itself, or by a registered
2-64     dealer, of any security issued or guaranteed by any bank organized
2-65     and subject to regulation under the laws of the United States or
2-66     under the laws of any State or territory of the United States, or
2-67     any insular possession thereof, or by any savings and loan
2-68     association organized and subject to regulation under the laws of
2-69     this State, or the sale by the issuer itself of any security issued
 3-1     by any federal savings and loan association.
 3-2                 M.  The sale by the issuer itself, or by a registered
 3-3     dealer, of any security either issued or guaranteed by the United
 3-4     States or by any territory or insular possession thereof, or by the
 3-5     District of Columbia, or by any state of the United States, or
 3-6     political subdivision thereof (including but not limited to any
 3-7     county, city, municipal corporation, district, or authority), or by
 3-8     any public or governmental agency or instrumentality of any of the
 3-9     foregoing.
3-10                 N.  The sale and issuance of any securities issued by
3-11     any farmers' cooperative marketing association organized under
3-12     Chapter 52, Agriculture Code, or the predecessor of that law
3-13     (Article 5737 et seq., Revised Statutes);  the sale and issuance of
3-14     any securities issued by any mutual loan corporation organized
3-15     under Chapter 54, Agriculture Code, or the predecessor of that law
3-16     (Article 2500 et seq., Revised Statutes);  the sale and issuance of
3-17     any equity securities issued by any cooperative association
3-18     organized under the Cooperative Association Act, as amended
3-19     (Article 1396-50.01, Vernon's Texas Civil Statutes); and the sale
3-20     of any securities issued by any farmers' cooperative society
3-21     organized under Chapter 51, Agriculture Code, or the predecessor of
3-22     that law (Article 2514 et seq., Revised Statutes).  Provided,
3-23     however, this exemption shall not be applicable to agents and
3-24     salesmen of any farmers' cooperative marketing association, mutual
3-25     loan corporation, cooperative association, or farmers' cooperative
3-26     society when the sale of such securities is made to non-members, or
3-27     when the sale of such securities is made to members or non-members
3-28     and a commission is paid or contracted to be paid to the said
3-29     agents or salesmen.
3-30                 O.  The sale by a registered dealer of outstanding
3-31     securities provided that:
3-32                       (1)  Such securities form no part of an unsold
3-33     allotment to or subscription by such dealer as a participant in the
3-34     distribution of such securities by the issuer thereof; and
3-35                       (2)  Securities of the same class, of the same
3-36     issuer, are outstanding in the hands of the public; and
3-37                       (3)  Such securities are offered for sale, in
3-38     good faith, at prices reasonably related to the current market
3-39     price of such securities at the time of such sale; and
3-40                       (4)  No part of the proceeds of such sale are
3-41     paid directly or indirectly to the issuer of such securities; and
3-42                       (5)  Such sale is not directly or indirectly for
3-43     the purposes of providing or furthering any scheme to violate or
3-44     evade any provision of this Act; and
3-45                       (6)  The right to sell or resell such securities
3-46     has not been enjoined by any court of competent jurisdiction in
3-47     this State by proceedings instituted by an officer or agency of
3-48     this State charged with enforcement of this Act; and
3-49                       (7)  The right to sell such securities has not
3-50     been revoked or suspended by the commissioner under any of the
3-51     provisions of this Act, or, if so, revocation or suspension is not
3-52     in force and effect; and
3-53                       (8)  At the time of such sale, the issuer of such
3-54     securities shall be a going concern actually engaged in business
3-55     and shall then be neither in an organization stage nor in
3-56     receivership or bankruptcy; and
3-57                       (9)  Such securities or other securities of the
3-58     issuer of the same class have been registered by qualification,
3-59     notification or coordination under Section 7 of this Act; or at the
3-60     time of such sale at least the following information about the
3-61     issuer shall appear in a recognized securities manual or in a
3-62     statement, in form and extent acceptable to the commissioner, filed
3-63     with the commissioner by the issuer or by a registered dealer:
3-64                       (a)  A statement of the issuer's principal
3-65     business;
3-66                       (b)  A balance sheet as of a date within eighteen
3-67     (18) months of the date of such sale; and
3-68                       (c)  Profit and loss statements and a record of
3-69     the dividends paid, if any, for a period of not less than three (3)
 4-1     years prior to the date of such balance sheet or for the period of
 4-2     existence of the issuer, if such period of existence is less than
 4-3     three (3) years.
 4-4           The term "recognized securities manual" means a nationally
 4-5     distributed manual of securities that is approved for use hereunder
 4-6     by the Board.
 4-7           The Commissioner may issue a stop order or by order prohibit,
 4-8     revoke or suspend the exemption under this Subsection O with
 4-9     respect to any security if the Commissioner has reasonable cause to
4-10     believe that the plan of business of the issuer of such security,
4-11     the security, or the sale thereof would tend to work a fraud or
4-12     deceit upon any purchaser or purchasers thereof, such order to be
4-13     subject to review in the manner provided by Section 24 of this Act.
4-14     Notice of any court injunction enjoining the sale, or resale, of
4-15     any such security, or of an order revoking or suspending the
4-16     exemption under this subdivision with respect to any security,
4-17     shall be delivered or shall be mailed by certified or registered
4-18     mail with return receipt requested, to any dealers believed to be
4-19     selling, or offering for sale, securities of the type referred to
4-20     in the notice; and the prohibitions of (6) and (7) above of this
4-21     Subsection O shall be inapplicable to any dealer until the dealer
4-22     has received actual notice from the commissioner of such revocation
4-23     or suspension.
4-24           The Board may for cause shown revoke or suspend the
4-25     recognition hereunder of any manuals previously approved under this
4-26     Subsection but no such action may be taken unless upon notice and
4-27     opportunity for hearing before the Board or a hearings officer as
4-28     now or hereafter required by law.  A judgment sustaining the Board
4-29     in the action complained of shall not bar after one year an
4-30     application by the plaintiff for approval of its manual or manuals
4-31     hereunder, nor shall a judgment in favor of the plaintiff prevent
4-32     the Board from thereafter revoking such recognition for any proper
4-33     cause which may thereafter accrue or be discovered.
4-34                 P.  The execution by a dealer of an unsolicited order
4-35     for the purchase of securities, where the initial offering of such
4-36     securities has been completed and provided that the dealer acts
4-37     solely as an agent for the purchaser, has no direct or indirect
4-38     interest in the sale or distribution of the security ordered, and
4-39     receives no commission, profit, or other compensation from any
4-40     source other than the purchaser.
4-41                 Q.  The sales of interests in and under oil, gas or
4-42     mining leases, fees or titles, or contracts relating thereto, where
4-43     (1) the total number of sales by any one owner of interests,
4-44     whether whole, fractional, segregated or undivided in any single
4-45     oil, gas or mineral lease, fee or title, or contract relating
4-46     thereto, shall not exceed thirty-five (35) within a period of
4-47     twelve (12) consecutive months and (2) no use is made of
4-48     advertisement or public solicitation;  provided, however, if such
4-49     sale or sales are made by an agent for such owner or owners, such
4-50     agent shall be licensed pursuant to this Act.  No oil, gas or
4-51     mineral unitization or pooling agreement shall be deemed a sale
4-52     under this Act.
4-53                 R.  The sale by the issuer itself, or by a subsidiary
4-54     of such issuer, of any securities which would be exempt if sold by
4-55     a registered dealer under Section 6 (other than Section 6E) of this
4-56     Act.
4-57                 S.  The sale by or through a registered dealer of any
4-58     option if at the time of the sale of the option:
4-59                       (1)  the performance of the terms of the option
4-60     is guaranteed by any broker-dealer registered under the federal
4-61     Securities Exchange Act of 1934, as amended, which guaranty and
4-62     broker-dealer are in compliance with such requirements or
4-63     regulations as may be approved or adopted by the board;
4-64                       (2)  the option is not sold by or for the benefit
4-65     of the issuer of the security which may be purchased or sold upon
4-66     exercise of the option;
4-67                       (3)  the security which may be purchased or sold
4-68     upon exercise of the option is either (a) exempted under Subsection
4-69     F of Section 6 of this Act or (b) quoted on the National
 5-1     Association of Securities Dealers Automated Quotation system and
 5-2     meets the requirements of Paragraphs (1), (6), (7), and (8) of
 5-3     Subsection O of Section 5 of this Act; and
 5-4                       (4)  such sale is not directly or indirectly for
 5-5     the purposes of providing or furthering any scheme to violate or
 5-6     evade any provisions of this Act.
 5-7           For purposes of this subsection the term "option" shall mean
 5-8     and include any put, call, straddle, or other option or privilege
 5-9     of buying or selling a specified number of securities at a
5-10     specified price from or to another person, without being bound to
5-11     do so, on or prior to a specified date, but such term shall not
5-12     include any option or privilege which by its terms may terminate
5-13     prior to such specified date upon the occurrence of a specified
5-14     event.
5-15                 T.  Such other transactions or conditions as the board
5-16     by rule, regulation, or order may define or prescribe,
5-17     conditionally or unconditionally.
5-18                 U.  The issuance or transfer of securities by the
5-19     issuer of its securities to a corporation or association, organized
5-20     exclusively for religious, educational, benevolent, fraternal,
5-21     charitable, or reformatory purposes and not for pecuniary profit,
5-22     only if:
5-23                       (a)  the corporation or association does not
5-24     provide anything of value for the securities other than, in the
5-25     case of any security that is an option, payment of the exercise
5-26     price of the option to acquire the securities at a price not to
5-27     exceed the fair market value of the underlying securities on the
5-28     date the option was granted;
5-29                       (b)  the issuance or transfer of securities is
5-30     not made for the purpose of raising capital for the issuer;
5-31                       (c)  no commission or other form of consideration
5-32     is paid or provided to a third party with respect to the issuance
5-33     or transfer; and
5-34                       (d)  the issuance or transfer is not directly or
5-35     indirectly for the purpose of providing or furthering a scheme in
5-36     violation of or to evade this Act.
5-37           SECTION 2.  This Act takes effect immediately if it receives
5-38     a vote of two-thirds of all the members elected to each house, as
5-39     provided by Section 39, Article III, Texas Constitution.  If this
5-40     Act does not receive the vote necessary for immediate effect, this
5-41     Act takes effect September 1, 2001.
5-42                                  * * * * *