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.