October8, 1958
Hon. WilliamM. King OpinionNo. WW-504
State SecuritiesCommissioner
Austin,Texas Re: Whetherthe proposedoffer of
common stock to holdersof sur-
plus debenturesunder the facts
given is an exempttransaction
under the provisionsof either
5(R) or 5(B) of The Securities
Dear Sir: Act.
You have asked the opinionof this office concerningwhether
a certainofferingof the CitizensStandardLife InsuranceCompanyof
Corpus Christi,Texas, of common stock to its "advisoryboard investment
certificateholders"is exemptedfrom the provisionsof The Securities
Act. Your letter is as follows:
"In May, 1954, CitizensStandardLife InsuranceCom-
pany, CorpusChristi,Texas, authorizedthe issuanceat
public sale of 3,000 ADVISORYBOARD INVNSTlMENTCERTIFI-
CATES, of the face value of $600.00each. By December31,
1954, subscriptions for 1449 Certificateshad been taken
on which $238,590.00in paymentshad been made. A time
pay-outplan was offeredsubscribers.
"The purposeof this offeringwas to raise surplus
funds for expandingthe life insurancebusinessof the
company,and all net receiptshave been In the past cred-
itedto its unassignedsurplusaccount. The company's
obligation:>on the Certificatesis not recognizedor re-
ported as a statementliabilityin the annualreportsto
the State Board of Insurance.
"The originalterms are set forth In the attached
copy of a Certificate.The originaloffer of the Cer-
tificatesto the publicwas made prior to the effective
date of the InsuranceSecuritiesAct; therefore,the of-
feringwas not subjectto registrationwith a State
agency.
"On September17, 1957, over signatureof the com-
pany's,secretary,and on September30, 1957, over the
signatureof the company'spresident,offersto exchange
stock of the companyfor certificatesoutstandingwere
Eon. WilliamM. King, page 2 (WW-504)
made under terms that were differentfrom the terms pro-
vided in the certificates.Copies of these two letters
are attached. No applicationfor registrationof securi-
ties has been filed.
"In your examinationof these lettersit will be
noted that an offer is made by the companyto e*chsnge
subscriptioncontractsfor the purchaseof stock for
subscriptioncontractsfor the purchaseof Advieory
Board Certificatesin additionto an offer to exchange
stock sharesfor paid-upcertificates.
"The SecuritiesAct sets out in Section7.A.that
securitiesmust be registeredthereunderif sold or of-
fered unless otherwiseregisteredunder Section7.B., or
Section7.C., or unless such securitiesare definedby
Section5. as exempttransactionsor by Section6. as ex-
empt securities. The SecuritiesAct in Section4.A. de-
fines a securityand in Section4.E. definesthe term
'sale' or 'offerfor sale'.
"Underthe facts as given above, is the exchsnge
offer made in the attachedletterssubjectto registra-
tion under the SecuritiesAct, unless exemptunder Sec-
tion 52-7.1
"Section5.F. of the SecuritiesAct sets out as an
exempttransactionthe issuanceof securitiesby a com-
pany to its securitiesholders,or creditors,when made
in good faith in the processof a bona fide reorgsniza-
tlon. In your opinionwould an amendmentto a corpora-
tion's charterchangingits capitalstock from par value
to non par value, and increasingthe number of shares,
joinedwith the stockholders' decisionto exchangecom-
mon stock for surplusdebentures,alteringthe terms
thereof,constitute.sreadjustmentof capitalstructure
or a seriousoverhaulingby legal proceduresto bring
such changewithin the meadng of a bona fide reorgani-
zation as used in Section5.F.T
"Your consideration
of these matterswill be
greatlyappreciated."
The CitizensStan&d Life InsuranceCompanyissuedapproxi-
mately 3,000 of its so-called"advisoryboard investmentcertificates,"
each having a $600 face or maturityvalue. The certificates were issued
either for cash or upon a five-yearpaymentplan. Under the terms of
the certificate,the companyagreed to pay the certificateholder inter-
est at the rate of 4$ on all paymentsmade under the certificate,with
Hon. WilliamM. King, page 3 (WW-504)
the first year'spaymentof interestto be made out of contributedsur-
plus, and thereafterout of earned surplus. It was furtherprovided
that at the end of the first full calendaryear after the date of the
certificate,8nd the end of each calendaryear thereafteruntil m8turity,
the companywould createan "annualbonua fund" for the benefit of the
registeredcertificateholdersout of the profitsand/or earned surplus
of the company,which it would divide into 3,000 equal parts; 81$ so
long a8 a certificatewas in force, one such part would be paid to each
owner of the certificate.The amount of the annualbonus fund was to
be Z$ of the renewallife insursncepremiumspaid duringthe year to
the companyon all life insurancepolicies,plus l$ of the "excessin-
terest earningson all investments"of the company. The companywas
requiredto continuethe paymentsinto the annual bonus fund until the
maturityof the certificateor until the certificatehad been called
in the m8nner providedin the contract.
In additionto the annualbonus fund provided,the company
also agreedto set up on its books 8 "specialsurplusfund account"and
agreedto creditto that accountat the end of each calendaryear after
the date of the certificatea sum equal to 33-l/3$ of its net surplus
earningsfor each year. It w8s providedth8t the certificateshould
mature and the face value thereofpaid to the registeredowner within
60 days after the amount accumulatedin said "specialsurplusfund BC-
count" shouldbe equal to the aggregateof the total face value of all
outstandingadvisoryboard investmentcertificatesand the accumulated
interest,if any.
At such maturitythe companyagreedto pay to the registered
owner the face value of $600.00'plusinterestand further"withinthe
limits of its presentlyexistinglegal contractualpowers,to permit
the owner of this certificate,if he so elects,in lieu of acceptance
of paymentof the face value in cash, to convertthe face value of this
certificateinto the compaay'scommon stock at the stipulatedprice of
$100 per.sh8re.w
Under the terms in the certificateunder the heading"Guaran-
teed SurrenderValue,"the certificateholder could discontinuepayment
and could receive8 “modifiedcertificate" which in effectwas a pro
rata advisoryboard certificate,less certainliquidatedd8mage charges
givingthe certificateholderthe right to participateon a pro rat8
basis in 811 the benefitsexceptthe 8Mual bonus fund.
Under the heading "Miecellaneoun,"
it was ProVidd that any
moneys paid for the investmentcertificateshouldbe treated8s paid-
in surplusand th8t the companycouldmake use of such funds in any way
that surplusfunds of the companymight be lawfullyused. It was fur-
ther providedthat all interestwas payableonly 88 therein set forth,
and that the investmentcertificate,togetherwith the interestthereon,
shouldnot be a liabilityof the companyor a claim againstany of its
I.
4 .
Eon. WilliamM. King, page 4 (WW-504)
assets except8s above specifiedin the paragraph. And in seemingly
conflictingterms, it was furtherprovidedthat in the event of liquida-
tion of the companythe investmentcertificateshould immediatelymature
and become 8 presentliabilityof the companysubjectto the rights of
the policyholder.
~...,".
These certificateshave not yet matured. It is the purpose
of the CitizensStandardLife InsuranceCompanyto offer to each holder
of an advisoryboard investmentcertificate60 sharesof its common stock
in exchangefor a surrenderof qych certificateplus 8 bonus of 6 shares
to each certificateholder c&&l&ing h& paymentsby a date specified
which would be in advanceof the &&es specifiedin the certificate.
It shouldbe noted that under the terms of the certificatethe company
hd agreedthat at maturitythe face value shouldbe payablein cash
or stock of the companyat the electionof the certificateholder. Thus,
under the terms of the certificateat maturity,each certificateholder
of a full $600.00 certificatewould have been entitledto elect to re-
ceive six shares of stock. Since the issuanceof these certificates
the corporatestructureof the CitizensStandardLife InsuranceCompany
has been changedresultingin 8 ten-for-onesplit..
i
Prior to the charteramendmentcreatingthe stock here in ques-
tion, the companyhad issuedstock to other certificateholderswho had
paidyinfull the amount of their certificate.The generalplan of the
companyhas been to Obtain charteramendmentsincreasingtheir capital
stock periodicallyto accommodatethese certificateholders.
The SecuritiesAct statesthat securitiesas definedtherein
must be registeredunder Section7 if sold or offeredfor sale unless
the sale or offer of sale of such securitiesconstitute"exempttrans-
actions"as definedby Section5, or such securitiesare "exemptsecuri-
ties" as &fined by Section6. The term "sale"and relatedterms are
definedin great detail in Section4(E) and it is only necessaryto re-
fer to 8 portionof this definitionto ascertainthat the contemplated
exchsngein this case would constitutea sale or offer to sell of securi-
ties requiringregistrationunless exempted. Section4(E) is 8s follows:
"The terms 'sale'or 'offerfor sale' or 'sell'shall
includeevery disposition,or attemptto disposeof a se-
curity for 8 value. The term 'sale'means and includes
contractsand agreementswhereby securitiesare sold, traded
or exchangedfor money, property,or other things of value,
or anyJtrensferor agreementto transfer,in trust or other-
wise . , . The sale of 8 securityunder conditionswhich en-
title the purchaser. . . to exchangethe same for, or to
purchasesome other security,shsll not be deemed8 sale or
offer fbr sale of such other security;but no exchangefor
or sale:of such other securityshall ever be msde unless and
." until the sale thereof shall have been first authorizedin
Texas under this act, if not exempt hereunder,or by other
provisjonsof law. . .'
Hon. WilliamM. King, page 5 (WW-504)
Clearly,the consummationof the prospectiveplan would fall
within this definition.
You have requestedin your letter the opinionof this office
whether or not the transactionin questionis exempt from registration
under the provisionsof The SecuritiesAct. It has been suggestedthat
the transactionmay be exempt eitherunder the provisionsof 5(D)(E)(G)
exemptingcertaindistributions by a corporationof securitiesdirectly
to its stockholders, or the provisionsof 5(F) relatingto transfers
in the courseof reorganization.We shall take up the exemptionunder
5(D)(E)(G)first.
Section5 of The SecuritiesAct is, in part, 88 follows:
"Section5. ExemptTransactions.
"Exceptas hereinafterin this Act specificallypro-
vided, the provisionsof this act shallnot apply to the
sale of any securitywhen made in any of the following
transactionsand under any of the followingconditions,
and the companyor person engagedthereinshall not be
deemeds dealerwithin the meaning of this act; that is
to say, the provisionsof this act shall not apply to
any sale, offer for sale, solicitation,subscription,
dealingin or deliveryof any securityunder any of the
followingtransactionsor conditions:
‘1.. .
"I). The distributionby a corporationof securities
directto its stockholdersas a stock dividendor other
distributionpaid out of earningsor surplus.
'73. The sale of sn increaseof capitalstock of a
corporationonly to its stockholdersand withoutpayment
of any commissionor expenseto any officer,employee,
broker or agent;
‘1.. .
“CL The transferor exchangeby, or on accountof,
one corporationto anotheror to its stockholdersof
their or its own securitiesin connectionwith a pro-
posed consolidationor merger of such corporationor in
connectionwith the change of par value stock to non par
value stock or vice versa, or the exchangeof outstsnd-
ing shares for a greateror smallernumber of shares,
providedthat in such case such stockholdersdo not pay
or give or promiseand are not obligatedto pay or give
Eon. WilliamM. King, Page 6 (WW-504)
any considerationfor the eecu'ritlee
So transferredor
exchangedother than the securitieri
of said corporation
then held by them; . . ."
These exemptionsapply only to "stockholders"
of the corpora-
tion.
The contentionhas been advancedthat becauseunder the terms
of the so-calledadvisoryboard investmentcertificates, the holders
of the certificates, after completingthe terms of their agreementand
sfter maturity,8re given the right to requirethe companyto redeem
the certificate,iacommon stock ratherthan in cash, they shouldbe clae-
sifled 88 stockholders.However,under the facts recited,the certifi-
cates in questionhave not maturedand there is not at this time under
the terms of the contractany existingright on the part of the certifi-
cate holdersto requirethe redemptionof these certificates,either in
C8Sh or in stock. While it may be true that in some circumstancesand
under certainconditionsperSonSholdingby right of contractor other-
wise 8 right to become 8 Stockholdermay exerciseunder~certaincondi-
tions Some of the right8and prerogativesof 8 Stockholder,the certifi-
cate holdersdo not fall withih the normal definitionof the term "stock-
holdere." We hold that the transactionis not exemptunder Sections
5(D), 5(E) or 5(G).
We next considerwhetherthe tr8neactionin questionqualifies
as an exemptionas the issue of Securitiesin the course of a reorgani-
zationunder the provisionsof Section5(E) which is as follows:
"F. The issue in good faith of Securitiesby a com-
pany to its securityholders,or creditors,in the process
of 8 bona fide reorg8nlzation of the companymade in good
faith, . . . providedthat . . . Such Securitiesare issued
in exchangefor securitiesof such holdersor claimsof
such creditors,or both, and . . . securityholdersor cred-
itors do not p8y or give or promiseand 8re not obligatedto
pay or give any consideration for Securitiesso issuedother
than the SecuritiesOf or CtiiQIS 8g8inSt Said company . . .
then held or owned by them."
The term "reorganization"is not definedin the statute. Nor
do we find any cases in Texss Interpretingthe meaningof this exemption
though it has been in effect in substantiallythe same languagein the
SecuritiesActs since 1935. Nor have we been able to find any Texas
caSes dealingwith the meaningof this term which would have a Signifi-
cance to its presentapplication.The term "reorganization" has been
definedby Texas Jurisprudencein,Volume10-B, page 676, as follows:
"A 'reorg8niS8tlon'
has been termed 8 plan under which
the financialstructureof the corporationwas rearranged,
as by 811Increaseor decreaseof capital."
n
Hon. WilliamM. King, page 7 (WW-504)
This definitionof the term "reorganization"is so broad that
it would includeevery transactionwherebythe capitalstock of a cor-
porationwas increasedor decreased. While it is true that almost every
"reorganization" will effecta change in the financialstructureof the
. zne
corporation,it is not true tnat every cnange *n I. rlnancial
^. structure
is 8 "reorganization."
We find thst the above quoted.
from Texas Jurisprudenceis not
supportedby the cases cited therein.
At 15 Fletcher'sCyclopediaCorporations,Section201, page
318 (1938revisedvolume),it is demonstratedthat the term "reorgani-
zation"has many meanings.
"The term 'reorganization' signifiesthe act or proc-
ess of organieinganew. As anpliedto corporations,it
denotesvariousproceedingsand transactionsby which a
successionof corporationsis broughtabout. Ordinarily
it involvesthe creationof a new corporationto take over
the assetsand propertyand continuethe businessof the
old. This, however,is not necessarilythe effect of a
reorganization.The terms of the statuteand the inten-
tion of the Legislatureand of the partiesmay be merely
to continuethe existingcorporation,without dissolution,
under the same or differentname and with the same or dif-
ferentpowers,and under the 881116)or a differentmanage-
ment. Accordingto Mr. Morawetz, the term 'reorganization'
is 'commonlyappliedto the formationof a new corporation
by the creditorsand shareholdersof a corporationwhich is
in financialdifficulties, for the purposeof purchasing
the company'sworks and other propertyafter the foreclo-
sure of a mortgageor judicialsale'. .
"It is proper to classifyreorganizations as (1) re-
organizationsin connectionwith the foreclosureof corpo-
rate mortgages,or in connectionwith other judicialor
executionsales of the corporatepropertyby the purchasers
at the sale, and (2) other reorganizationsor reincorpora-
tions. The latter class is divisibleinto (a) reincorpora-
tions where the purpose is merely to correctillegalities
or defectsin the originalincorporation, or to broadenthe
scope of the powers of the corporation,including,in one
sense of the word, the amendmentas well as the extension
or revivalof charters;(b) the scalingof securitiesby
voluntaryagreementsand (c) the organization, primarily
by or on behslf of the stockholdersas distinguishedfrom
the creditors,of 8 new corporation,without8ny forced
sale, to take over the propertyof the existingcorporation.
The term is used most often in connectionwith the foreclosure
Hon. WilliamM. King, page 8 (UW-504)
of corporatemortg8geSwhere 8 new corporationis formed
by the foreclosurepurchases,and most of the law, as laid
down in the decision,in connectionwith reorganizations,
relatesto the first class of reorg8nization,and much of
such law is not applicableto other reorganizations.
"The reasons inducing8 reorganization are not in
every case the same,but for the most part they are to be
found in the weak financialor insolventconditionof the
p8rticul8rcorporation.And so the aim of a corporatere-
organizstionis generallyto put the companyupon a sound
finsncialbasis,and to enable it to take care of it8 ob-
ligations,therebyavoidingllquld8tlonor bsnkruptcy.
But in Some cases 8 reorganization IS effected,notwith-
standingthe corpor8tiOnIS SolVent. Very often 8 'sound
enterprise,earningan adequatereturn,will be hampered
by 8n unsound finsnclalStructureinvolvingexcessivefixed
charges,such 8s bond Interest;or again the difficultyof
refunding8 materialbonded indebtednessduring8 time of
financialstringency,or the urgent need of additionalcapi-
tal for improvements, or the weight of an unfundeddebt will
make 8 reorganization necessary.
"The reorganization of an Insolventbusinessinvolves
considerationsnot presentin the reorganization of a sol-
vent one. Almost alxaysthe 18tter is 8 matter of purely
businesspolicy not intendedto nor resultingin dieturb-
ante of existinglegal rights of creditorsor Stockholders.
It Is carriedthrough in strictconformitywith Such rights,
the purposebeing to better an existingcondition. The
former is compelledby the ineXOr8blelogic of 8 bad situa-
tion, is designedto save 8s much 8s possiblefrom impending
wreckage,8IId8lw8yS inYOlYeSchange8in the existinglegal
rights of some, if not all',of those having rights in con-
nectionwith the propertyinvolved."
Cur attentionla calledto the case of Utility InvestingCorpo-
rationv. Stewart,11 Fed. Supp. 391 by the FederalDistrictCourt in
Pennsylvania,which opinionw8e affirmedIn Stewartv. Utility IIwesting
Corporation(C.C.A. 3rd) 78 Fed.2d 279. Thin case Is apparentlythe
only one interpretingthe meaningof the term "reorganization"in the
contextof the State SecuritiesAct. The PennSylvaniaSecuritiesAct
providedthat:
"The issue of securitiesto the Securityholderaor
other creditorsof 8 corporation,in the processof 8 bon8
fide reorganization of such corporation,made In good
faith . . . In exchangefor the securities. . . of such
creditors. . . [Shouldnot constitutethe perSon or com-
pany engagedtherein8 dealerwithin itS meaning].”
Hon. WilliamM. King, page 9 (WW-504)
Under the facts involvedin the case, the corporationin ques-
tion was offeringto debentureholdersof that companycertainnew or
differentsecuritiesin exchangefor their debentures. It was the pur-
pose of the companyto relieveitselfof the burden of having to meet
fixed interestchargesat definiteperiodsby invitingthe holdersof
fixed interestdebenturesto exchangethem for new obligationsat a high
rate of interest,cumulative,but payableonly as earnedand coupled
with a sinkingfund provision. The holderswere also offeredtwo options,
the exerciseof either of which was describedby the court as havingthe
effectof naturallylighteningthe fixed interestburden upon the equi-
ties of the holdingcompany. The court stated:
"I entertainno doubt that this rearrangementof its
capitalstructureis a reorganization of the companywith-
in the meaning of the act. While corporatereorganizations
are frequently,in fact usually,effectivethroughthe me-
dium of receivershipand judicialsale, the ordinarymean-
ing of the word is quite broad enoughto includevoluntary
capitalreadjustments.Nor is it necessarythat there be a
new corporationor changeof managementor ownershipof
physicalassets. Nor need the equitiesbe affected(though
in this case they are). That the act contemplates,among
others,reorganizations entirelyconfinedto the credit
structureappearsfrom the fact that the provisionin ques-
tion may be read as applicableto 'issueof securitiesto
the . . . creditors. . . in exchangefor the . . . claims
of such creditors.' 70 P.S. Pa. Sec. 2(c) and (11).
"The underlyingpurposeof this and similarstatutes
is to protectthe investingpublic. The method by which
the PennsylvaniaAct does it is the licensingof dealers.
Exceptionsfrom the operationof the law are createdby ex-
cludingfrom the class of dealerspersonsengagedin cer-
tain specifiedtranssctions,one of which is the offer of
securitiesin the course of corporatereorganizations.The
only conditionis that the reorganizationbe bona fide and
the offer of securitiesmade in good faith."
This decisionrecognizesthat whethera given transactionis
a reorganization dependsupon the particularfacts involved. Though
recognizingcertainsimilarities, we believethe fact situationinvolved
in your requestdiffersfrom those in this decisionso that it would
not controleven though it be the law in Texas.
In connectionwith this transactionthe CitizensStandardLife
InsuranceCompanyhas made applicationto the Commissionerof Insurance
for approvalto amend their charterto permit the increaseof their capl-
tal in order to transferthe stockto their so-calledcertificateholders.
We call attentionto certaintestimonytaken by the Commissionon February
Hon. WilliamM. King, page 10 (WW-504)
25, 1958,in connectionwith said application. On page 13 of this trans-
criptMr. PrestonDoughty,Presidentof the CitizensStandardLife In-
suranceCompany,explainedthe purposeof the amendmentin the following
language:
"In fact, the programof gettingthese ~ . . this
charteramendmentwas motivatedby constantrequestsfrom
the advisoryboard, of certificateholdersthat they be
permittedto surrendertheir certificateand be issued
stock. The stock of the company,on a local market,has
a very good, high demand."
On this same subjectmatterMr. Doughty statedon page 14:
"Many of these certificateowners,having completed
their payments,continuouslyrequestedof us that they be
Issued stock."
Again, on page 15 Mr. Doughty stated:
II. . . We felt, and the holdersof the certificates
felt, too, that their positionwould be improvedif they
could be permittedto become stockholders."
The nature of the transactionis furtherdiscussedby Mr. Doughty
on page 15 when he was asked whetherthe certificateholderswere sur-
renderingtheir certificatesand taking out stockunder the option called
for in the certificate,and Mr. Doughtyrepliedthat they were not obtain-
ing their certificatesunder the optionbut in additionto the option,
and furtherstated in responseto a questionas to whether or not the
exchangewas made on the same basis of the option,as follows:
"Alteredonly by the fact that the stock--theten
sharesof no par stock had been authorizedand issuedfor
each share previouslyissuedand authorizedpar stock and
givingthem full . . .I'
He affirmedthat the certificateholderswere getting60 shares
of no-par stock in exchangefor the certificateand that the company
was givingthe certificateholdersthe opportunityof obtainingSix ad-
ditionalshares if they had previouslypaid in full or would now pay
in full the amount of their certificate.
Mr. Doughtyfurtherstatedon page 1.6 that a subsequentoffer
to the certificateholderswas made purely on the basis of the certifi-
cate holders'optionscontainedin the certificate.
Again, on page 20 Mr. Doughty,in explainingthe purposeof
the charteramendment,stated:
Hon. WilliamM. King, page 11 (WW-504)
"In order to be of assistanceto them and at the same
time the company,to relievethe companyof the burden of
payingthem interestand payingthem this participationin
the bonus pool, the stockholders,the directors,and the
officersof the companyfelt that we shoulddo both these
things,go to no-par stock and at the same time offer these
people the opportunityto become shareholders."
We are of the opinionthat under the facts surroundingthe
issuanceof the stock in questionthat the transactiondoes not consti-
tute a reorganization as that term is used in Section5(F) for the rea-
son that the principalpurposeof the distributionappearsto be the
honoringof contractualcommitmentsmade by the companyto Its certifi-
cate holdersto allow them the privilegeof becomingstockholders.None
of the ordinaryor usual elementsgiving rise to a need for the organi-
zation appearsto be predominant. There are no facts to indicatethat
the transactionis motivatedby the financialdietressof the corpora-
tion, nor does it appear that the primarymotive is the lesseningof
the financialburden of the companybecauseof its obligationsto the
holdersof the certificates.It shouldheLnotedthat in the ordinary
circumstances one of the primarypurposesof reorganization is the pro-
tectionof the equity of the present stockholders.That this purpose
is not entirelythe purposeof the'presenttransactionis evidencedby
the fact that the offer of the companyto certificateholderswho have
not paid in full the amount of their certificateis not simplyan offer
of stock equal to the presentvalue of their certificatebut ratherunder
the plan advancedby the companythe companyhas offeredthese people
the opportunityto exchangetheir advisoryboard certificatesfor sub-
scriptioncontracts. Clearly,from this point of view the transaction
in questiondoes not constitutea reorganization under the terms of Sec-
tion 5(F). The holdersof the advisoryboard certificatesthat are not
fully paid are only securityholdersor creditor6of the companyto the
extentthat they have paid on their certificate.Particularnote must
be given of the qualifyingclauseto Section5(F) which providesthat
before the exchangein reorganization may be exempt,it must be a trans-
action in which the "securityholdersor creditorsdo not pay or give
or promiseand are not obligatedto pay or give any consideration for
the securitiesso issuedother than the securitiesof or claimsagainst
said company . . . then held or owned by them."
The certificateholder6who have not fully paid for their cer-
tificatesby acceptingsubscriptioncontractswould be bound to pay fur-
ther considerationfor the stock of the companyother than the simple
surrenderof the certificatethat they held.
We are of the opinionalso that the transactionin question
does not qualifyas an exempt transactionunder Section5(F) for the
additionalreasonthat some of the stock to be issued is in the form
of a bonus for early paymentor prior paymentof the face amount of
Hon..WilliamM. King, page 12 (WW-504)
their certificates.Clearly,such certificateholdershave given con-
siderationin the form of early otiprior paymentwhich is in addition
to and in excess of the simplesurrenderof the certificatewhich they
hold.
In the course of this opinionwe have of necessitymade cer-
tain factualconclusionsbased on the materialwhich you have furnished
this office and from the materialcollectedby the State Board of Insur-
ance in connectionwith the charteramendmentapplicationof the company.
The fact findingauthorityunder The SecuritiesAct rest6,withyou and
you are at libertyto arrive at differentfactualconclusionsfrom those
utilizedin this opinion.
Issuanceof stockto holdersof advisory
board certificatesunder circumstancesin
questionis not exempt from registration
either under the provisionsof Section
5(D), 5(E), .5(F) or 5(G) of The Securities
Act of 1957.
Yours very truly,
WILL WILSON
Attorney-.General
of Texas
-" Fred B. Werkenthin
Aaeistant
FBW:llU
.
APPROVED:
‘OPINION COMMITTEE:
Geo. P. Blackburn,Chairman
John Reeves
Morgan Neebitt
REVIEWEDFORTKE ATTORNEYGENERAL
BY
Riley Eugene FlCtcher