,-



# THEAYTORNEYGENERAL

OFTEXAS

HonorableM. 0. Flowers ~seamtl3l-y

of state Austin, Texas
Dear Sire Attention: l&r,JohnVickers

Opinion Iioo

O-2327 Rex Agreement between Investors Syndicate and InvestorsEbutual, lncorpbrated*
Your request fop an opinion of this departmenthas been received and considered. we quote the pertinent portion of your letter as fOllom$ "The Irrvestors

Mutual, Incorporated,a Nevada corporation, is orgsnized for the purpose of operating an investaent compsnyc Said companywill operate in this State in the followingmanner8 "The stock of such companywill be sold in Texas by the parent company, Investors Syndicate, a Minnesota corporation,as an independent oontractor rather than agent. The sales contractwill be accepted and stock oertifiarrtesissued in Minnesota. "This departarent

desires to kuon if in your opinion it is nsosssary for the InvestorsMutual, Incorporated,to obtain a permit to de business in this State.
"A copy of the charter and sales contract is hereto attaahed andre request that same be returned to us. We also attaah a brief preparedby Messrs. Blaok,Graves 8~Stayton of this oity~
"In addition to the question propounded to you in thewriter's letter of May 6, 1940, the writer'will appreciateyour answering this additional question:
sDoes the Investors&@d&oate have the authority under

its charterand the laws'of Texas to enter into such an agreement as outlined inmy letter of kay 67
"III this oonneotionyou are advised that the Investors Syndicate secured a permit to en&age in selling investment oertifioates." The Investsmut Syndioats is a foreign oorporation domioiled in k&nesota with a permit to do business in Texas* The InvestorsMutual, Inoorporat&, is a IWfade corporationdesiring totransaot or soliolt businessHonorableM. 0. Flowers, page 2 (O-2327)

in this State. The tm oonoerns shall hereinafter be referred to as the Company and the 8ypdioat.e.

The Syndioate occupied the leading role in the formation and organizationof the Companye Aocordingly, as could be.expected, the offioers end direotors of the Syndicate are those of the Company~ Incidental thereto, t31e

Smdiorte own8 or cc&rol~ some 94% plus of the 04pital stock of the Company.

The primary purpose and parers of the Company, as set out in Section (a) of &tiole III of ita Certifiaate of Incorporation,are as follows, s(a) To subsoribefor, reoeive, purohrse, or otherwise aoquire, underwrite, obtain an interest in, 011111, hold, pledge,hypothecate,mortgage, assign, deposit, oreate trustswith reepeot to, de41 in, exohange, 8811, and Otherwiase dispose of, alone or in syndio4te8, or otherwise in conjunctionwith others, and generallydeal in and with fully or partly paid securities of every desoription of, or oreated or issuedby, any foreign or domestio governmenta, statee, gOVemnUUYt41ormuniolp41 'bodies or politio4l subdivieions, companies,trusts, assooiations, 8yUdicrte8,psrtndrships,and/or persons. The term tseourltiee~4s used in this Certifioate of InoOPpOratiOn shallbe constied to inolude,without being limited to, shares, stocks, treasury stooks, inoludingany atooks of this Compmy, notes, bonds, debenture8, evidences of indebtedness,oertificatesof intersst or participation in any profit sharing ngreemente, oollateral trust aertifioates,reorganieation oertifioatesor sub8oription8, tmn8fePable shares, irmestient oontracts,voting trust oertificate8,oertifioates of deposit for a seourity, fractional or undivided interests in oil, gas, or othermineral rights, or any ceptifioatesof interest or partioipation in, temporary or interim csrtifioates for, reOeipt8 for, guarantees of, orwarrants or rights to subscribe to or pureham any of the foregoing, 4oceptances and other obligations, and my eoidenoe of any right or intereat in or to anycash, property or assets; . . l

ì. . .
" d) ( To issue its own securitiesand to sell and exchange sUoh securities and any certificates,receipts,warrants or other instrument8representing rights to receive, purohase or subscribe for such securities, op pepresenb iug any interest thereunder in such amounts and on such terms and couditiOnS and for suchpurposes aa the Doard of Directorsmay, from time to time determine, subject,however, to the provisions of the Certificats of Incor' poration, or amendments thereto, and @ EJL&TS of the Company;*
operate as, C~iOuSly the above asidenoes that the Company is designed to

and perform the function8 of, an im%?&snt trust concern.The proposed business of the Company is described as follows, in its registration statement to the Federal Securitiesabd Exchange Comissionr- - ..-

honorableM. 0. Plowers,page 3 (O-2327) c

'The business intended tobe done by ths issuer is that of an investment company of the generalmanagement hypewith powers under its charterto oarry on the generalbusine88 of owning, holding and managing investments and doing a general investientbusiness. Its acquisition and disposition of the securities other than obligation8 in'the United States of Amerioa are restricted to those securitieswhioh shall receive the recommendation or approval of th6 issuer's inves%aentmanager, suoh recommendationor approval to include the amount, time and terms of such acquisitionand/or disposition. In accordance with the+provisionsof theArticles of Incorporation of the issuerand pursuant to the terms of an agreementdated January 19, 1940, the InrestorsSyndicate, a Minnesota corporation, is the investment manager for the issuer. "The issuer presently intend8 to buy and sell securities and to invest and reinvest its resouroes in accordancewith the recommendations and approvals made to it by InvestorsSyndicate*
. . ."

Ikiefly, the Company sells oertifioates of interestand partioipation to the investingpublic. The funds so derived are reinvested in a msnner theoreticallybeneficial to all conoerned. The certil'ioate holder eontemplatesa pro rata shnre in the profits, if any, arising from the Company's reinresixsent of their investment.
Pursuant to the Cempany*sdesire to offer these certificates to the investors of this Sta-Le, and, as amatter of ocnxenience, to do so Without first sulmitiing to the necessary formalities attending the acquisition of a permit, the Company has conceivedand executed an agreementdesigned to attain their aspiration.

This agreementbetween InvestorsMutual, Incorporated,and InvestorsSynJice1.eis rather lengthyand complex. Hem-wer, from the following excerpts, the gist of the agreementmay be obtained along with the sanctioning,

paragraph taken from Seotion (c) of Article III, Certificate of Incorporationc
"To enter into a contract or oontractswherein and whereby a responsible person, entity, syndicate,partnership,association or corporation is constituted and appointed the,exclusiverepresentativeor agent of +&is Companywith the exclusive right to 6011,~ offer for sale, purchase, repurchase or redeem any of the securities issued by this Company and/or granting toraid representativean exclusive right of management, investment and re-investment of the funds and assets of tiis Company; . . ."

Section (1) of Part One of tieAgreement dealswith the distribution of securities. It provides: s(1) The Company hereby covenants and agrees thatduring theterm of this contract and any renewal or extension thereof or until any prior termination thereof (hereinafterreferred to as 'theperiodof this contact'),-,

Hon. M. 0. Flowers,page 4 (C-2327)

the Syndicate shall have the emlusive right to offer for sale and to dirtribute any and all seourities issued or to be issuedby the Company, and more specifioally,but without limikting '$10 generality of tie foregoing, all Special Stook Class 'A* shares of ihe Company authorised to~be issued during the period ofthis oontraote

Syndicate covenant8 s distrib "(2) The Syndicatehereby covenant8and agree8 to act as the sole distrib utor ofthe securities issued and tobe issuedby the Company duringthe

securities Company oontraat during auoh period to offer for sale and period of this oontraat and agrees offer

securities, including Special ‘A* shares of the to sell such securities, including the Special Stook Class Company, and to continue the offering and sale of said securities, including Company, continue offering securities, including said Special Stook ClaS8 *A* shares,as long as said aecuritiea remain Special ss shares, aecuritiea available sale distribution,uless Syndicate is available for a& distribution, InIle the Syndicate unable tomake such sales or solicitationslegal* 'b8oauae of any federal, state, provirw solicitations 'b8oauae federal, provirw oial or governmental law, rule or agen0y.s

governmental agen0y.s
Part (a) of Section (4)provides*
“All sales of Speoial Stook Class *A* Shares of the Company shallbe'smde by means of a written application in form approved by the Company and the Syndicate at the time of the signing of such application. %ery such application shall be subject to acoeptanoe or rejeotion Iy the Company at its principal place of busine8s. Such shares of stook are to be mofd for cash, payable at time the application for such shares i8 received at the principalplace of business of the Company, . . .a

Part One, Sections: "(8) The Syndicateagrees to submit to the Company for its prior written approval all oiroulara, sales literature,radio Iuoadaastmaterial, publicity data and other advertisingmaterialwhich is contemplatedto be used by the Syndicate in the sale of securities issued by the Company. "(9) The Syndioate agree8that all paymentsmade for the purchase of seourdties issued or to bs issuedby the Company shall in all oa.888, exoeptwhere aotual cash is received,bs made payable to the Company. "(10) The Syndicate agrees to oause to bedelivered to each person signing an application, a prospectus or circular to be furnished by the Company in the form which, at the time of the siping of such application, shall be required by any applicable Federal SecuritiesAot or by the acts or statutes of any state, provinoe or country in which such application is signed by the applicant. "(11) The Syndicate covenants and agrees~that during theperiod ofthis contract, It will not buy securities issued by the Company for its own account, except from the Company,and that it till not~aell securities issued by the Companywhich have beenpurchasedby the Syndicate for its own account, exoept to the Company.". -

Hon. M. 0. Flowers,page 5 (C-2527)

Part Tea of theAgreement concerns investmentadvice, statiatioal data, and recommendationsas follewst "(1) The Company hereby retains the Syndicate and the Syndicatehereby covenants and agrees, for the period of this contract and under t&eterms and conditionsherein eet forth, to furnish the Companywith advioe, st+ tistioaldata and reooumendation8with respect to the Company*s investments and to reoonrmend and approve aeouritieafor aoquiaition and dispositionby the Company. "(2) The Company covenants andagrees that, during the period of this eontract, itwill purchase or otherwiseaoquire only such securitiesas may be recommended or approvedby the Syndicate at the time of such purohase or other acquisition;
. . . "(5) The Company further covenants and agree8 that, except as to obligations. of the United States of Amerioa, itwill sell, exchange or othereLse dispose of any part or all of it8 seouritiea in such emounts at such time and upon such terms a8 may be reoonraended or approved ly the Syndicate.
. . . "(4) The Company further covenant8 and agree8 that, except a8 to obligations of the United State8 of Amerioa, itwill sell, axohange or otherwise dispose of, only such securities a8 may be reoommended or approvedby the Syndicate for 8uoh sale, exchange or diSpO8itiOn. '(5) The Syndicate agrees that all of its reoommendationsor approvals relating to the acquieition and disposition of seauritiesby the Company shall be transmittedto the Company in Writing, and the Company agrees to advise the Syndioate inwriting (a) of all action takenby the Companywith respect to any such recommendationor approval; (b) of all distribution reoeived upon the oash, seourities or otherproperty of the Company; (0) @f m2.lliabilities charged or chargeable

### l galnet the Company .and (d)of sny other matters in oonneotionwith the asset8 and liabilities of the Ccrmpany whioh may bs requested %y the Syndioatefrom time to ti~8e"

Part Four of 8aid agreement deal8 with the compensation of the Syndicate:
,, v(1) The Compwiy oovenantsand agree8 to payto the Syndicate, and the Syndicate covenantsand agrees to aooept from, the Company, in full payment for the Syndioate'8 servicesheretQder,tha foIloW%ng fees:

"(a) A fee equal to five and one-half per cent (5$.$) of the aggregate amount receivedby the Company for the sale of all Spaoial Stock Class gA* shares of the Comprqy tobe issued during the period ofthis oontract (excepting,however; shares issued pursuant to the provisions of Part one, subparagraph 12 hereof). The amountof such fee shall be paid the Syndicate five (6) @uaineas d&y6 sftar the reoeipt atid ~ooap~ce bythe Company of the application for suoh share&,-.

Hon. M. 0. Flowers, page 6 (O-2328)

s(b) A fee equal to one-eight of one per cent (l/8 of 1%) of the Value of the gross assets (as hereinafterdefined) of the Company,as of the close of business on the fifteenth day of &cy, June, September, and December of eaah year shallbe paid in cash,rfthin five (5) business days after eaoh such fifteenth day of &arch, June, September and December, respectively, of said year. . . .

"(0)A fee equal to 1% of the liquidationvalue
. . . of all shares of the Compeny~s oapital stock outstanding for a period of less then four years which are redeemedby the Company in eaohmonth during the periof of tiis aontraot . . .n

Part 81x of the agreement prwides for the termination of the Agreement: s(1) This agreement shall continue in effeot until the end of the calendar year 1969 and shalf oontinue from year toyear thereafter,unless and until terminatedby either par@ as hereinafterprovided."

InvestorsSyndioate is a loan and brokerage oompanywithin the purview ofArti 1524a,V.A.C.B., as amended. Section.1 of that+tiole prwidess "ThisAot shall embraoe corporationsh&etx&re created and hereafter created having for their purposepr purpeses q or all of~the pewera now authorized qn Subdivisions 48, 49, or SO of Article 1302, Raoised Civil Statutes of Texas, 1926, and heretofore or~hermfter oreated having in whole or in part any purpose or purpeeee now auboriaed in ChQter 276, Benate Bill llhunber 232 ofthe Generd and Special Laws of the Regular Session of the 40th Legislature. IJosuch corporation shall act a8 agent or trustee in the oonsolidation of or for the purpese of combining the assets. 'business or means of other persons, firm.?. asrooiations. or corporations,nor shall suoh aorporationeas agents or trustees oarry on thehsine8s of another
. . ."

In enaoting the above statutoryprovisions, the Legislaturemust have used tie tens *business s in its ordinary significance. True, the word is comprehensive;but, in our opinion,when applied to oorporations,the word necessarily implies those corporateactivities and funotion-which are authorizedby and engaged in pursuant to the provisions of their oharter. Itmeans the transaction of those affairs and the fulfillmentof those purposes forwhich the corporate entitywas designed and organized.

with this in mind, we perceive the sale of securitiesand oertifioatesalong with investmentof the proceeds therefrorm as primarily and essentially the business of the InvestorsMutual, Incorporated. This is its admitted corporatepurpose. This being true, it cannot bo denied that contactwith the investing public is of the greatest importanoeand highly necessary for the trausaotion of the corporatebusiness. InvestorsSyndicate has contractedto perform this indispensablecorporate function.Hon. Id.0. Flawcare, page 7 (O-2327)

Not only has the syndioateagreed to sell q and all securities issued or to be issued by the Company,but it has gons further and bound itself to tend the proper investment of any proceeds or funds derived from those sales.

MLPteroarefu$ oon6ideration of the agreement and the attending facts of the situationpresented te us,we reach our conclusion,and you are advised that Invertora Syndioate is 

### notauthorizedunder the laws of this State to 

### &+er into the ageementrhish, in effect,m&es the Syndoate the agent of the Compw and to such a degree that the Syndicate,

### as a praotioalmatter, carries on the lnmineos 

### of the Companywithin themeaning of rtiole 1524a, supra. In otherwords, any wert act underakenby the i 8ynd oatewhioh oonstituterr, or tends to constitute,either direatly or indireotly,an effort to effect the intent, purpeses, or aims of the sontraotingpartie@, aa enBresssd in this agreement,willbe aahieved only by a violation of the law and an overetepping of its announced aorporate parse thus, subjecting itself to the penalty announoed in section 10 of lrtiole 

### 1624a0

Furthermore,me find, that there is no more than a mere tempotery or 6paarnodio relationshipbetween the corporations. There is an element of oomBarativepermanenoedlsosrniblehere.

This conolusionprecludes our considerationof any question as to vðer rnvsstoreMutual, Inoorporated,must first aomplywith Artiole 1529, Revis& Civil Statutes of Texas, 1926, and obtain 

### a pennit before operating in Texas under the contemplatedarrangement.

Tzu6ting that this fully an8wersyour inquiry,we remain
Yours verytruly
ABBEOVED JUNE 8,194O /*/ Gerald C. Mann ATTOBBEYGEBEBALOF~ ATTORNEY GEBEBAL OFTApprwedc Opinion Committee

&BIBChairman %/s/m. J. Fanning Hln.J* Fanning Assistant
&- /s/G&y Rilliams