By Wise H.B. No. 3564
Line and page numbers may not match official copy.
Bill not drafted by TLC or Senate E&E.
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to the application of state securities law to life and
1-3 viatical settlements.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Section 5, The Securities Act (Article 581-5,
1-6 Vernon's Texas Civil Statutes), is amended to read as follows:
1-7 Art. 581-5. Exempt Transactions. Except as hereinafter in
1-8 this Act specifically provided, the provisions of this Act shall
1-9 not apply to the sale of any security when made in any of the
1-10 following transactions and under any of the following conditions,
1-11 and the company or person engaged therein shall not be deemed a
1-12 dealer within the meaning of this Act; that is to say, the
1-13 provisions of this Act shall not apply to any sale, offer for sale,
1-14 solicitation, subscription, dealing in or delivery of any security
1-15 under any of the following transactions or conditions:
1-16 A. At any judicial, executor's, administrator's, guardian's
1-17 or conservator's sale, or any sale by a receiver or trustee in
1-18 insolvency or bankruptcy.
1-19 B. The sale by or for the account of a pledge holder or
1-20 mortgagee, selling or offering for sale or delivery in the ordinary
1-21 course of business to liquidate a bona fide debt, of a security
1-22 pledged in good faith as security for such debt.
1-23 C. (1) Sales of securities made by or in behalf of a vendor,
2-1 whether by dealer or other agent, in the ordinary course of bona
2-2 fide personal investment of the personal holdings of such vendor,
2-3 or change in such investment, if such vendor is not engaged in the
2-4 business of selling securities and the sale or sales are isolated
2-5 transactions not made in the course of repeated and successive
2-6 transactions of a like character; provided, that in no event shall
2-7 such sales or offerings be exempt from the provisions of this Act
2-8 when made or intended by the vendor or his agent, for the benefit,
2-9 either directly or indirectly, of any company or corporation except
2-10 the individual vendor (other than a usual commission to said
2-11 agent), and provided further, that any person acting as agent for
2-12 said vendor shall be registered pursuant to this Act;
2-13 (2) Sales by or on behalf of any insurance company
2-14 subject to the supervision or control of the Texas Department of
2-15 Insurance of any security owned by such company as a legal and bona
2-16 fide investment, provided that in no event shall any such sale or
2-17 offering be exempt from the provisions of this Act when made or
2-18 intended, either directly or indirectly, for the benefit of any
2-19 other company as that term is defined in this Act.
2-20 D. The distribution by a corporation of securities direct to
2-21 its stockholders as a stock dividend or other distribution paid out
2-22 of earnings or surplus.
2-23 E. Any offer and any transaction pursuant to any offer by
2-24 the issuer of its securities to its existing security holders
2-25 (including persons who at the time of the transaction are holders
2-26 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 to its
3-5 security holders, or creditors, in the process of a bona fide
3-6 reorganization of the company made in good faith, or the issue in
3-7 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 corporation
3-18 to another corporation or the security holders thereof pursuant to
3-19 a vote by one or more classes of such security holders, as required
3-20 by the certificate of incorporation or the applicable corporation
3-21 statute, in connection with a merger, consolidation or sale of
3-22 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
4-1 give or promise and are not obligated to pay or give any
4-2 consideration for the securities so issued or sold other than the
4-3 securities of the corporation then held by them.
4-4 H. The sale of any security to any bank, trust company,
4-5 building and loan association, insurance company, surety or
4-6 guaranty company, savings institution, investment company as
4-7 defined in the Investment Company Act of 1940, small business
4-8 investment company as defined in the Small Business Investment Act
4-9 of 1958, as amended, or to any registered dealer actually engaged
4-10 in buying and selling securities.
4-11 I. Provided such sale is made without any public
4-12 solicitation or advertisements:
4-13 (a) the sale of any security by the issuer thereof so
4-14 long as the total number of security holders of the issuer thereof
4-15 does not exceed thirty-five (35) persons after taking such sale
4-16 into account;
4-17 (b) the sale or distribution by an employer or its
4-18 participating subsidiary, if any, of a security under a thrift,
4-19 savings, stock purchase, retirement, pension, profit-sharing,
4-20 option, bonus, appreciation right, incentive, or similar employee
4-21 benefit plan for employees or directors of the employer or its
4-22 subsidiary; or
4-23 (c) the sale by an issuer of its securities during the
4-24 period of twelve (12) months ending with the date of the sale in
4-25 question to not more than fifteen (15) persons (excluding, in
4-26 determining such fifteen (15) persons, purchasers of securities in
5-1 transactions exempt under other provisions of this Section 5,
5-2 purchasers of securities exempt under Section 6 hereof and
5-3 purchasers of securities which are part of an offering registered
5-4 under Section 7 hereof), provided such persons purchased such
5-5 securities for their own account and not for distribution.
5-6 J. Wherein the securities disposed of consist exclusively of
5-7 notes or bonds secured by mortgage or vendor's lien upon real
5-8 estate or tangible personal property, and the entire mortgage is
5-9 sold or transferred with all of the notes or bonds secured thereby
5-10 in a single transaction.
5-11 K. Any security or membership issued by a corporation or
5-12 association, organized exclusively for religious, educational,
5-13 benevolent, fraternal, charitable, or reformatory purposes and not
5-14 for pecuniary profit, and no part of the net earnings of which
5-15 inures to the benefit of any stockholder, shareholder, or
5-16 individual members, and where no commission or remuneration is paid
5-17 or given or is to be paid or given in connection with the
5-18 disposition thereof.
5-19 L. The sale by the issuer itself, or by a registered dealer,
5-20 of any security issued or guaranteed by any bank organized and
5-21 subject to regulation under the laws of the United States or under
5-22 the laws of any State or territory of the United States, or any
5-23 insular possession thereof, or by any savings and loan association
5-24 organized and subject to regulation under the laws of this State,
5-25 or the sale by the issuer itself of any security issued by any
5-26 federal savings and loan association.
6-1 M. The sale by the issuer itself, or by a registered dealer,
6-2 of any security either issued or guaranteed by the United States or
6-3 by any territory or insular possession thereof, or by the District
6-4 of Columbia, or by any state of the United States, or political
6-5 subdivision thereof (including but not limited to any county, city,
6-6 municipal corporation, district, or authority), or by any public or
6-7 governmental agency or instrumentality of any of the foregoing.
6-8 N. The sale and issuance of any securities issued by any
6-9 farmers' cooperative marketing association organized under Chapter
6-10 52, Agriculture Code, or the predecessor of that law (Article 5737
6-11 et seq., Revised Statutes); the sale and issuance of any securities
6-12 issued by any mutual loan corporation organized under Chapter 54,
6-13 Agriculture Code, or the predecessor of that law (Article 2500 et
6-14 seq., Revised Statutes); the sale and issuance of any equity
6-15 securities issued by any cooperative association organized under
6-16 the Cooperative Association Act, as amended (Article 1396-50.01,
6-17 Vernon's Texas Civil Statutes); and the sale of any securities
6-18 issued by any farmers' cooperative society organized under Chapter
6-19 51, Agriculture Code, or the predecessor of that law (Article 2514
6-20 et seq., Revised Statutes). Provided, however, this exemption
6-21 shall not be applicable to agents and salesmen of any farmers'
6-22 cooperative marketing association, mutual loan corporation,
6-23 cooperative association, or farmers' cooperative society when the
6-24 sale of such securities is made to non-members, or when the sale of
6-25 such securities is made to members or non-members and a commission
6-26 is paid or contracted to be paid to the said agents or salesmen.
7-1 O. The sale by a registered dealer of outstanding securities
7-2 provided that:
7-3 (1) Such securities form no part of an unsold
7-4 allotment to or subscription by such dealer as a participant in the
7-5 distribution of such securities by the issuer thereof; and
7-6 (2) Securities of the same class, of the same issuer,
7-7 are outstanding in the hands of the public; and
7-8 (3) Such securities are offered for sale, in good
7-9 faith, at prices reasonably related to the current market price of
7-10 such securities at the time of such sale; and
7-11 (4) No part of the proceeds of such sale are paid
7-12 directly or indirectly to the issuer of such securities; and
7-13 (5) Such sale is not directly or indirectly for the
7-14 purposes of providing or furthering any scheme to violate or evade
7-15 any provision of this Act; and
7-16 (6) The right to sell or resell such securities has
7-17 not been enjoined by any court of competent jurisdiction in this
7-18 State by proceedings instituted by an officer or agency of this
7-19 State charged with enforcement of this Act; and
7-20 (7) The right to sell such securities has not been
7-21 revoked or suspended by the commissioner under any of the
7-22 provisions of this Act, or, if so, revocation or suspension is not
7-23 in force and effect; and
7-24 (8) At the time of such sale, the issuer of such
7-25 securities shall be a going concern actually engaged in business
7-26 and shall then be neither in an organization stage nor in
8-1 receivership or bankruptcy; and
8-2 (9) Such securities or other securities of the issuer
8-3 of the same class have been registered by qualification,
8-4 notification or coordination under Section 7 of this Act; or at the
8-5 time of such sale at least the following information about the
8-6 issuer shall appear in a recognized securities manual or in a
8-7 statement, in form and extent acceptable to the commissioner, filed
8-8 with the commissioner by the issuer or by a registered dealer:
8-9 (a) A statement of the issuer's principal
8-10 business;
8-11 (b) A balance sheet as of a date within eighteen
8-12 (18) months of the date of such sale; and
8-13 (c) Profit and loss statements and a record of
8-14 the dividends paid, if any, for a period of not less than three
8-15 (3) years prior to the date of such balance sheet or for the
8-16 period of existence of the issuer, if such period of existence is
8-17 less than three (3) years.
8-18 The term "recognized securities manual" means a nationally
8-19 distributed manual of securities that is approved for use hereunder
8-20 by the Board.
8-21 The Commissioner may issue a stop order or by order prohibit,
8-22 revoke or suspend the exemption under this Subsection O with
8-23 respect to any security if the Commissioner has reasonable cause to
8-24 believe that the plan of business of the issuer of such security,
8-25 the security, or the sale thereof would tend to work a fraud or
8-26 deceit upon any purchaser or purchasers thereof, such order to be
9-1 subject to review in the manner provided by Section 24 of this Act.
9-2 Notice of any court injunction enjoining the sale, or resale, of
9-3 any such security, or of an order revoking or suspending the
9-4 exemption under this subdivision with respect to any security,
9-5 shall be delivered or shall be mailed by certified or registered
9-6 mail with return receipt requested, to any dealers believed to be
9-7 selling, or offering for sale, securities of the type referred to
9-8 in the notice; and the prohibitions of (6) and (7) above of this
9-9 Subsection O shall be inapplicable to any dealer until the dealer
9-10 has received actual notice from the commissioner of such revocation
9-11 or suspension.
9-12 The Board may for cause shown revoke or suspend the
9-13 recognition hereunder of any manuals previously approved under this
9-14 Subsection but no such action may be taken unless upon notice and
9-15 opportunity for hearing before the Board or a hearings officer as
9-16 now or hereafter required by law. A judgment sustaining the Board
9-17 in the action complained of shall not bar after one year an
9-18 application by the plaintiff for approval of its manual or manuals
9-19 hereunder, nor shall a judgment in favor of the plaintiff prevent
9-20 the Board from thereafter revoking such recognition for any proper
9-21 cause which may thereafter accrue or be discovered.
9-22 P. The execution by a dealer of an unsolicited order for the
9-23 purchase of securities, where the initial offering of such
9-24 securities has been completed and provided that the dealer acts
9-25 solely as an agent for the purchaser, has no direct or indirect
9-26 interest in the sale or distribution of the security ordered, and
10-1 receives no commission, profit, or other compensation from any
10-2 source other than the purchaser.
10-3 Q. The sales of interests in and under oil, gas or mining
10-4 leases, fees or titles, or contracts relating thereto, where
10-5 (1) the total number of sales by any one owner of interests,
10-6 whether whole, fractional, segregated or undivided in any single
10-7 oil, gas or mineral lease, fee or title, or contract relating
10-8 thereto, shall not exceed thirty-five (35) within a period of
10-9 twelve (12) consecutive months and (2) no use is made of
10-10 advertisement or public solicitation; provided, however, if such
10-11 sale or sales are made by an agent for such owner or owners, such
10-12 agent shall be licensed pursuant to this Act. No oil, gas or
10-13 mineral unitization or pooling agreement shall be deemed a sale
10-14 under this Act.
10-15 R. The sale by the issuer itself, or by a subsidiary of such
10-16 issuer, of any securities which would be exempt if sold by a
10-17 registered dealer under Section 6 (other than Section 6E) of this
10-18 Act.
10-19 S. The sale by or through a registered dealer of any option
10-20 if at the time of the sale of the option:
10-21 (1) the performance of the terms of the option is
10-22 guaranteed by any broker-dealer registered under the federal
10-23 Securities Exchange Act of 1934, as amended, which guaranty and
10-24 broker-dealer are in compliance with such requirements or
10-25 regulations as may be approved or adopted by the board;
10-26 (2) the option is not sold by or for the benefit of
11-1 the issuer of the security which may be purchased or sold upon
11-2 exercise of the option;
11-3 (3) the security which may be purchased or sold upon
11-4 exercise of the option is either (a) exempted under Subsection F
11-5 of Section 6 of this Act or (b) quoted on the National Association
11-6 of Securities Dealers Automated Quotation system and meets the
11-7 requirements of Paragraphs (1), (6), (7), and (8) of Subsection O
11-8 of Section 5 of this Act; and
11-9 (4) such sale is not directly or indirectly for the
11-10 purposes of providing or furthering any scheme to violate or evade
11-11 any provisions of this Act.
11-12 For purposes of this subsection the term "option" shall mean
11-13 and include any put, call, straddle, or other option or privilege
11-14 of buying or selling a specified number of securities at a
11-15 specified price from or to another person, without being bound to
11-16 do so, on or prior to a specified date, but such term shall not
11-17 include any option or privilege which by its terms may terminate
11-18 prior to such specified date upon the occurrence of a specified
11-19 event.
11-20 T. A transaction relating to a life or viatical settlement,
11-21 as defined by Article 3.50-6A, Insurance Code.
11-22 U. [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.