Hon. Lee Brady Opinion No. O-2408
Commissioner Be: Does the outlined plan of stock
Department of Banking sales-of the Southern States Life
Austin, Texas Underwriters, ,Inc., as set out in the
attached certificate, come within the
purview of Articles 152&a to 152&k,
Dear Sir: inclusive? _
Your recent request for an opinion of this department
on the above stated question has been received.
Your letter reads in part as follous:
“The Southern States Life Underwriters, Inc.,
is a Texas .corporation, having a paid-in capital
stock, of $25,000.00 divided in twenty five thousand
non-par shares. This corporation is one which un-
doubtedly comes within the purview of Articles
1524a to 1524k, and if the corporation,were offer-
ing for sale its bonds, notes, or other obligations
creating the relation of debtor and creditor between
the company and the holder, it would undoubtedly be
entitled to make use of the facilities provided for
under the above mentioned articles.
“This company has acquired, and now holds,
twelve thousand shares of its own stock. It proposes
to sell a portion of this stock on the installment
plan and has conceived the idea of making use of the
facilities provided for under the above mentioned
statute in its proposed stock-selling campaign. Rough-
ly, the plan is as follows:
“The company proposes to deposit with the State
Treasurer a portion of this treasury stock equal to
the amount of stock to be sold on the installment plan.
It proposes to issue and sell certificates, which,
when paid for, would entitle the holder to receive a
designated number of these shares of stock of the com-
pany. These certificates are payable in installments
over a several year period, and the company, as a
bonus or inducement to the purchaser, agrees that dur-
ing the time that this certificate is being paid out,
the company, out of its surplus and undivided profits,
Hon. Lee Brady, page 2 (O-2408)
would deposit with the State Treasurer a sum to be
determined upon contingenciesnot important in this
connection, this sum to be divided among the hold-
ers of the certificates. Pursuant to this plan the
corporation has requested the Commissioner to ap-
prove the certificate and the deposit of the stock
with the State Treasurer upon the theory that this
is a transaction coming within the purview of Arti-
cles 1524-a to 1524-k. For the sake of brevity I
have attached hereto a copy of this certificate which
is self-explanatory.”
The Southern States Life Underwriters, Inc., was orgnn-
ized for the following purposes:
“To accumulate and loan money, to sell and deal
in notes, bonds, and securities; to act as Trustee
under any lawful express trust committed to it by
contract, and as agent for the performance of any law-
ful act, to subscribe for, purchase, invest in, hold,
aJn, assign, pledge and otherwise deal in and dispose
of shares of capital stocks, bonds, mortgages, deben-
tures, notes and other securities and obligations,
contract and evidence of indebtedness of foreign or
domestic corporations not competing with each other
in the same line of business, to borrow money or is-
sue debentures for carrying out any or all purposes
above enumerated; provided the power and authority
herein conferred shall in no way affect any of the
provisions of the antitrust laws of this State.”
The Southern States Life Underwriters, Inc. desires to
enter into the .participating stock purchase contract, a copy of
which is attached, to escrow the securities required by the Bank-
ing Commissioner and insert on the participating stock purchase
the following notation:
“This form of contract is approved by the Bank-
ing Commission of the State of Texas.”
Sections 1, 7 and 12 of Article 152&a read as follows:
Qec. 1. This Act shall-embrace corporations
heretofore created and hereafter created having for
their purpose or purposes any or all of the powers
now authorized in Subdivisions 48, 49 or 50 of Arti-
cle 1302, Revised Civil Statutes of Texas, 1925, and
heretofore or hereafter Created having in whole or
in part an purpose or purposes now authorized in
Chapter 27 i: , Senate Bill Number 232 of the General
- .
Hon. Lee Brady, page 3 (O-2408)
and Special Laws of the Regular Session of ths Ii-Cth
Legislature.- No such corporation shall act as age;;%:
or trustee in the consolidation of or for the purpo,<:
of combining the assets, business or meam of other
persons, firms, associations or corporations, nor
shall such corporation as agent or trustee carry on
the business of another. No such corporation shall
offer for sale or sell its bonds, notes, certificates,
debentures or other obligations unless it shall have
an actual paid in capital of not less than Ten Thou-
sand ($lO,OOO.OO) Dollars.
“Sec. 7. All-bonds, notes, certificates, debem
tures, or other.obligations sold in Texas by any COP-
poration affected by a provision of this Act shall be
secured by securities of the reasonable market value,
equaling at least at all times the face value of such
bonds, notes, certificates, debentures or other obli-
gations. If such corporation sells in Texas bonds,
notes, certificates, debentures or other obligations
upon which it receives installment payments, such
bonds, notes, certificates, debentures and other obl,i-
gations shall be secured at all times by securities
having the reasonable market value to the with-
drawal or cancellation value of such obligations out-
standing. Said securities shall be placed in the hands
of a corporation having trust powers approved by the
Banking Commissioner of Texas as Trustee under a trust
agreement, the terms of which shall be approved in writ-
ing~ by the Banking Commissioner of Texas. Provided, that
before selling or offering for sale on the installment
plan in Texas any such bonds, notes, certificates, deben-
tures, or other obligations, such corporation shal,l. file
with the Banking Commissioner specinlen copies of su~ch
bonds, notes, certificates, debentures or oth.er obliga-
tions. Unless within sixty (60) days after the fil,ing
of any such specimen copy the Banking Commissioner is-
sues a notice to such corporation of a hearing to deter-
mine whether such intrument is fraudulent, unreasonab1.e
or inequitable , the same shall be deemed to have been
approved by the Banking Commissioner. But if, after
hearin pursuant. to notice issued within said period n:f
sixty f 60) days, the Banking Commissioner should find and
determine-that any such bond, .,note, certificate, debeh-
ture, or other obligation is either fraudulent, unreason-
able, ‘or inequitable, such corporation shall have no
right to sell or offered for sale in the State of Texas
such bond, note, certificate, debenture or other obli-
gation so found to be fraudulent, unreasonable, OS inequi-
table. Provided, that any such corporation may have such
Hon. Lee Brady, page 4 (O-2408)
finding reviewed in the District Court of Travis County,
Texas, by filing suit against the,.Bankin Commissioner
in such Court at any time within sixty ( %0) days after
receiving notice of such finding. In such-suit such
corporation shall be entitled to a trial de novo on
the issues on which the Banking Commissioner shall
have made such adverse fihdings. If as the result of
such trial the issues shall be determined favorably to
such corporation, the adverse findings of the Banking
Commissioner shall have no further binding force or ef-
fect; and in that event, the right to sell such notes,
bonds or other obligations may be protected by injunc-
tion issued in said cause. Provided, that either party
shall have the right of appeal according to Statutes
governing appeals in Civil cases.
“All cash or securities left with the State Treas-
urer lo compliance with Article 696, Revised Civil Stat-
utes of 1925 shall be considered as part of the collat-
eral required under this Section.
“All bonds, notes, certificates, debentures or
other-obligations, sold or offered for sale in Texas
by such corporation shall definitely describe the char-
acter of collateral securing the payment of, such obli-
gation.
“In the event any such corporation shall sell or
offer-for sale in Texas, any bonds, notes, certificates,
debentures or other obligations without complying with
this Section, such conduct shall constitute grounds for
the forfeiture of its charter at the suit of the Attor-
ney General, which suit shall be brought upon the~.re-
quest of the Banking Commissioner of Texas.
“Sec. 12. None of the provisions of this Act, ex-
cept that portion of Section 4 requiring the filing of
financial statements, ~shall apply to sales made by any
corporation affected by this Act, except sales by such
corporations of bonds, notes,*certificates, debentures
or other obligations issued by and that are direct obli-
gations of the corporation selling or offering the same
for sale. The words ‘notes,’ ‘certificates’, ‘deben-
tures’ , and. ‘other obligatioes~, as used in-this Act,
shall-not be-construed to cover or include notes exe-
cuted by corporations to banks and other financial in-
stitutions for money borrowed by such corporations for
use in the usual course of its business.”
We have been unable to find any cases where the appel-
late courts of this State have construed the above mentioned
statutes relative to the question under consideration.
- .
Hon. Lee Brady, page 5 (O-2408)
As above mentioned, the Southern States Life Under-
writers, Iqc. proposes to sell twelve thousand shares of its
stock at $25.60 per share, such being held by the company at
this time. as treasury stock. It proposes to sell the stook
upon the form of contract as abcive mentioned and to escrdw with
the State Treasurer such security as the Banking Commissioner
may require as a guarantee that the said Southern.States Life
Underwriters, Inc. will perform the obligations set forth..in
the participating stock purchase contract. The obligations of
the, company thereunder are to deliver the stock certificates
there’in described when paid for and to provide an anoual bonus
fund for stockholders, as provided in the contract. The other
obligations resting upon the company under the proposed con-
tract are fully set out therein.
Apparently, Articles 1524a to 1524k, inclusive, were
designed to regulate the sales of bonds, notes, certificates,
debentures or other obligations of corporations which create
the relation of debtor and creditor between the corporation
issuing the same and the holder of the certificates, etc., and
that the facilities provided for under the above mentioned ar-
ticles are not designed for the purpose of enabling the corpora-
tion to sell its stock on an installment basis.
It is our opinion that the proposed transaction of
the Southern States Life Underwriters, Inc. does not involve the
sale of “certificates or other obligations”, within the meaning
of the above mentioned statutes. Therefore, the proposed plan
of stock sales of the Southern States Life Underwriters, Inc.
would not come within the purview of Articles 1524a to 1524k,
inclusive.
Trusting that the foregoing fully answers your in-
quiry, we are
Very truly yours
APPROVEDJUN 26, 1940 ATTORNEYGENERALOF TEXAS
/.s/ Gerald C. ~Mann
ATTORNEYGENERALOF TEXAS ISi /ii/- hieli $iliia& ‘-
Ardell Williams, Assistant
APPROVED: CP~N~CN-CO~@TTEE
BY: :, B!@,.CHURWQ.~.