Se&rotary of State

Austin, Texas
Attention: Mr. Horace B. Seasiona,

SeauritiesCommiasloner

Dear Sir: Opinion No. O-6311

He: The Texas Seaurlties Act Is applicableto
an employeesretirement plan sponsored by a private aorporation.

We have reoeived your recent request for an opinion, and quote same as followa:

"We have reoently received a request for an opinion oonoerningthe applioabillty of the Texas SeourltiesAat to the solicitationof oontributions in an employee8retirementplan.

"The essentialprovisions of the retirement plan are: "(1) Eligibility of all employeeswith five
or more years of servloe vlth the aorporationto a-e under the Plan.
"(2) Participationin the Plan oPtIona with the employees,and to be evidencedby an enrollment form agreeing to the provisions of the Plan, authorizing salary deduationsand naming a beneficiary. “(3) Normal retirement at age 65, with earlier retFrement optional in certain instances.
"(4) Emplogees~ contributionshould be 2$ of salary up to $3,000, and 4% of salary ln'excesa of $3,000..

Secretary of State, Page 2 (o-6311)

“(5) Rmployee's deposit to 2$ Interest In any event. be returned with

“(6) Past service benefits for years prior to institutionof Plan In excess of five, and aurrent servloebenefits after Institutionof Plan, both to be paid in accordancewith formula set forth under the Plan. “(7) Action as to the manner of reoeiving the retirement lnaome provided from past and ourrent servFoebenefita, in aoaordanoetith provisions of the Plan. “(8) Admlnistratlonof the Plan by a Retirement Plan Committee appointedby Board of Dlreators.
"(9) Guaranteeby employer to contributesuffloient funds to return employees'depoaltswith 2% interest acmpoundedannually,but no guaranteeby employer corporationIn exceaa of such amount.
"(10)HodlfFcatFonor terminationof the Plan at wFl1 of corporatlon, exoept a8 to provlsion for repayment of the employees'contributions plus @ interest oompoundedannually.

"The essentialprovisions of the +Pruat Agreement under which the funds depoarlted under the Plan are to be administered

are: "(1) Deposit with the Trustee at the dlreotion of thee.Retirement

Plan Gemmlttea of the funds deposited by the employees apd the employer ourporation.
"(2) Payments of the funda of the Plan to benefialarle6thereunderat the dLreation of the Retirement Plan Committee. “(3) Investment of the trust funds by the Trustee in seauritieswhich are at the time legal investmentsfor life insurance aompaniesunder the laws of the State of Rev York, except Apia othertise dlreotedby the,Board of Direatora of the corpoPatiOn.
"(4) Hodifioationof the Trust Agreement In aooordanaewith the provisionsof the Retirement Plan at the will of the employer oorporation.Secretary of State, Rage' 3 (O-6311)

"(5) Report by the Trustee to the oorporatlon annually oovering its investmehts, reoelptslanddlsbursements of the trust fund.

'We have been unable to find any Texas oases or an opinion of,theAttorney General whioh would assist
us In determining

whether or not seourlties,iasued under suoh plan might be exempt under one of the speciflo exemptions contained in Seatlons 3 and twenty three of the Texas SeauritiesAct. ,the spealflc exemptions It does not appear that any of contemplated

an organizationof this oharaater,and slnoe Ft appears that there will be
a number of plans of a sFmFlarnature organizedand operated in Texas, we should appreciatean opinion from you concerningwhether aontributlons to suoh,a plan would require registrationor whether such securFtSes might be exempt from the neoessity of registration under
one of the exemptionsprovidedby Section 3 and 23 of the Act.

"We enclose herewith a copy of the proposedretirement plan and trust agreementunder which the funds of the plan will be administeredfor your consideration In oonneotionwith this request for an oplnton, and we should appreciatethe return of these Instrumentsafter you have finishedwith them."

We understandfrom additional oommunicatlons ~wlth you, that the corporation referred to In your Inquiry is a private oorporatlonoperatingunder a charter or permit in this State for profit.

Subsection (a), Se&ion 2, of Article 600a, V. A. C. S., (The Securities

Aat) gives the following.deflnltlon:

"The term 'security' or 'securities'

shall include any share, stock, treasury stock, stock certifioate under a voting trust agreement, collateral trust certlfloate, equipment trust oertiflcate,preorganization

certlfloateor receipt, subscription or reorganization

certificate,

note, bond, debenture, mortgage certificateor other evidence of Fndebtedness, any form of commeroialpaper, oertifioateIn or under a proffFt

sharing or participationagreement, certificateor any Instrument representing any interest in or under an oil, gas, or miningSearetary of State, Page 4 (O-6311) ,

lease, fee or title, or any oertlfioateor lnstrumentrepresentingor seoured by an interest in any or all of the aapital,property,assets,,' profits or earnings of any oompany, investment contract,or any other instrumentcommonlyknown
as a seourlty,whether similarto those herein referred to or not."

It Is apparent that the first questionraised by your query is whether or not the proposedrstFrementplan
oomes wlthin the definltlonof "security"or "securltLesH. Inwol. 38, Words and pbraaem, on pages 470 and 471, the following Is said;

"@enorally,

any form of instrumentused for purpose of financingand promotingeWterpPl.aesj whloh is designed for investment,Is a ‘security’ within statute authorizinginvestigations by Attorney Gieneral

of apparent fraud In sale of securities." General Business Law, paragraph 352, subd. 1. 160 Miaa. 763. In re Waldstein, 291 hX3. 697,

"The term 'seourityl has no exactly defined legal definition. Qenerioally,the word has referenoe to written Instruments, usually for the payment of money or bvldenoes of a debt, and being more than a mere promise of the debtor of a general liability on his part, but having as collateralto it
a pledge of property or some addFt$onal obligation. Blackstone speaks of a bill of exchange as a security, which he says was originallyInventedamong merchants~

In different countriesfor the more easy remlttanoe of money from one to the other. In aalling it a security,probablyhe bad in mind the fact that a bill of exohangemay oonsist of several personal obllgatlons, which makes more certain or seaure the primary obligation. By common usage,' however, the term has acquired a much broader signlfiaation. It is now generallyused to refer to Instrumentsfor the payment of money, or evidencing title or equity, with or without some collateral obligation,

and whioh are aemmeplydealt In for the purpose of flnanolngand investment. By modern businessmethods, those instruments which are used to facilitatedealing in aommodities, suoh as short term notes, bills of lading,bills of exobange and all the other Inventionsof the commercialSeerotary of State, Page 5 (o-6311)

banker, are not referred to as seooritiea,although.they

may be collaterallyscoured in some WY. Those lnstrnments, however, secured or unseoured,whioh are~used for the purpose of financingenterprisesand promotinga distrlbution of rights in or obligationsof such enterprises,and whloh are designed as a meana of investment,

are termed seaurities. Thus, oertlfioatesof stock are now regarded as seourFtles,

although they but represent a share of the ,oapltal

stock of a corporation, the Interest of the owner in the management of the corporation,

and his interest in its surplus assets upon Lts dissolution. In generaiL,, It may be said that any form of Instrumentused for the purpose of finanoingand prcmotFng enterprises,

and which is designed for investment, is a seaurltg acoordingto the modern meaning of that ,term.'

We believe the Issuance of said enrollment forms of agreement to partialpateIn the Retirement Plan, constitutes issuanae of "seaurltles", as that term Is defined In The Securities

Aot. Surely they are "evidenceof indebtedness", inasmuch as the terms of said Plan provide that in no case shall a partialpant be entitled to less than his deposits
s interest thereon at two per cent per annum oompounded mally; ual h 1 d heth he with& aws his membership voluntar?ly(l

d~e~"~~~or~e!,itse~is benefitsbefore maturity of the Plan. In oase he participates until maturity, he stands to realj.ze

a substantial

return on his investment, but thla return Fs by no means certain. The prime purpose of the Plan is to "aeaure"the participanta return or profit on his Investment.
Section 5 of said Artic,le 6ooa provides, in part, as follows:

"Blo dealer, agent or salesman shall sell or offoF for sale any securitiesissued after the passage of this Act; except those which come wlthin the alasses,

enumerated in Subdivisions (a) to (q), both inclusive,of Section 3 of this Act, or Subdivisions (a) to (F), both inclusive of Section 23 of this Aat, until the issuer of such securities 'shall have been granted a permit by the SecretarySecretary of State, page 6 (O-6311)

of State, and no such permit shall be granted by the Searotary of State until the issuer of suoh aeauritiesshall have filed with the Secretary of State a sworn statementverified under the oath of an executive officer of the Issuer and attestedby the Secretary thereof, setting forth the following Information:

. . ."
Seation 3 of said Artlale 600a, provides as follows:
"Exempt transactiona. Except aa hereinafterin this Act speciflcally provided,the provl~ionsof this Aot shall not apply to the sale of any security when made In any of the followingtransactions and under any of the followingconditions, and the company OF person engaged therein shall not be deemed
a dealer within the meaning of this Aot; thatis to nay, the provisionsof this Aot shall not apply to any aale, offer for sale, solicitation,subsoription, dealing In or delivery of any seaurltyunder any of the followingtransactionsOF oonditiona:
"(a)At any judioial,exeoutaP'a, administrator's, guardian's OP oonservatcrls nale, or any sale by a reaelvesr OP truatee in Insolvencyor bankruptoy.

holdet(z ZEPtgagee

e sale by or for the account of a pledge

selling or offering for sale cr delivery in the ordinary course of business, to liquidatea bona fide debt, of a seouritypledged in good faith as seourity for such debt.
"(c) Sales of securities made by, or in behalf of a vendor In the ordinary couPpIe of bona fide personal investment of his personalholdings, or change of such investment,If such vendor ia not otherwiseengaged either permanentlyor temporarily in selling securities, provided,that In no event shall suoh sales or offeringsbe exempt from the provls$ons of this Act when made or intended,either directly or Fndireatly,for the benefit of any company or aorporation within the purview of this Act.
"(d) The distribution by a corporationof securitiesdirect to its stockholders aa a stook dividend or other distribution paid out of earnings OP surplus.Secretary of State, Page 7 .(p6311)

"(e) The sale of,

au increase of eapltal steak of a ,ooFporatlon

onl,y to its, sto,ckholders

and wlthout payment of any aoximissioa or expense to any officer, employee,broker or agents, and without incurringauy liabllltyfor any expenses whatsoever In aonneotlonwith such distribution.

"I ~The issue'iugood faith of securities by
a company to its seaurityholders, or creditors,In the process of a bona fide reorganizatFon of the companymade In good faith, or the issue Fn good faith of securitiesby a company, organ$zedsolely for the purpose of taking over the assets and continuing the business of a predeoessorccaspany, to the seaurityholders OP creditorsof suah predecessor company,prmvlded that in either such case such aecurities are issued in exahange for the securities ~of such holders or claim of suah creditors,or both, and in either such aase such securFtyholders OP creditorsdo not pay or give OP promise and are not obligatedto pay or give any consideration for the seouritiesso issued other than the securitiesof OP olaims against sald company OP its predecessor tben held OP owned by them. 

## of,

ers "(g) The transfer or exchangeby, or on account one corporation

to another or 'to its stockholdof their or Its own securitiesin connectionwith
a proposed consolidation OF merger of such corporatlon, or in oonnectlonwith the change of par value stock to non-par value stock or vice versa, OP the exahange of outstandingshares for a greater or smaller number of shares , provided that in such case such stockholders

do not pay or give or promise and
are not obligate'd

to pay OP give any consideration for the securitiesso transferredor exchanged other than the securities of said aorporationthen held by them.
"(h) The sale by a domestic corporationof Its stook forfeited for a delinquentassessment,acaordlng to law.
"(I) The sale'

to any~ bank, trust company~, loan and brokerage corporation, building and loan association insurance company, surety or guar,anty aompany, ~savinga

institutionor to any registereddealer, provided such dealer is actually engaged in buying and selling securities.Secretary of State, Page 8 (o-6311)

"(j) The sale by any domestla corporationof its stoak or other seauritiesissued in good faith and not for the purposeiofavoiding the provisions of this Act, 80 long a8 the total number of stockholders and seourityholders of said corporation does not and will not after such sale exceed twenty-five (25) and the securitiesare issued and disposed of without the use of advertisements, olraulars,agents, salesmen, sollcltors,or any form of publia solicitation.
"(k) The sale of an interest In any partnership, pool, or other company,not a corporation,~ the total membership of which does not and will not after such sale exaeed ten (lo), and the organization

expenses of which do not or will not exceed two (2) per cent of the total invested capital of such company. "(1) Subscriptionsto aapital stock necessary to qualify for incorporation when subscribedby not more than fifteen (15) Fnaorporators in a proposed Texas oorporatlon.
"(m) Wherein the seouritleadisposed of consist exclusivelyof note8 or bonds secured by mortgage or vendor's lien upon'realestate or tangiblepersonal property,and the entire mortgage is sold or transferredwith all of the notes or bonds seoured thereby in a single transaatlon.
"(n)Any security or membership issued by a oorporationorganizedexcluslveLyfor eduaational, benevolent,fraternal,oharitable,OP reformatory purposes and not for peaunlaryprofit, and no part of the net earning8 of whloh inures to the benefit of any atookholder,shareholder,or individual member, and where no commissionor remunerationis paid OP given or is to be paid or given in conneation with the dispositionthereof.
"(0) The sale by the issuer, itself, of any securitiesthat are issued by a State or NatiQnal Bank, by a trust company, or building and loan associationorganizedand operatingunder the laws of the State of TOXaB and subjeat to the supervlslon of the Commissionerof Banking of the State of Texas, OP Federal Loan and SavingsAasoaiation,Seoretary of State, Page 9 (O-6311)

or a oompany aubjeat to the supervisionof ~the Banking Commissioner under Senate Bill No. 1.65, Forty-seaond

Legislature. Provided,however, that all salesmen aoting for any bank, trust aampany, or oompany subjeat to the supervision of the Banking Commissioner under Senate Bill Eo. 165, Forty-sbaond Legislature, in the sale of such seouritieswithin this State, shall be liaensed as provided in thLs Aot.
"(p) The sale, by the issuer itself, of any seouritiesthat are issued by the United ,States, any political subdivisionor agenay thereof, any territory or insular possessionof the United States, the State of Texas, any State of the United States, the D$atriot of Columbia,, or by any aounty, oity, munioipal corporation, dlstriat
or politiaal subdivisionof the State of Texas or any authorizedagency of the State of Texas. "(q) The sale and laauanae of any seourities issued by any farmers1 oooperative assoclatlon organizedunder Chapter 8 of Title 93, Artiales 5737-5764, lnolusive, Revised Civil Statutes of Texas as amended; and the sale of any securities Issued by any farmers' cooperativesooletg organizdd under Chapter 5 of Title 46, Artiales 2514- 2524, inalusive,

Revised Civil Statutes of Texas. Provided,however, this exemption ahall not~be applicableto agents and salesmen of any farmers' oooperatlve

assoelationof farmers' cooperative sooiety when the sale of such aecurltiesis made to non-members,OP when the sale of auah securities Is made either to members OP non-membersand a aanmlssionis paid 'or contractedto be paid to the said agent or salesmen."

Se&Ion 23 of said Artlale 6ooa, provides as followzr
"Exaeptwith referenae to exempt transactions profided for in Section 3 of this Aat, it shall be unlawful for any dealer, agent 0~ salesman to sell any securities or to issue or publish withln this State any oiroular,advertisement, pamphlet,prospeotus, program, or other matter in conneotlontherewith, oonoerningany seourlty or seauritles which suoh dealer handles or proposes to sell until suahSearotary of State, Page 10 (O-6311)

dealer shall have been registeredor temporary permission obtainedas in this Act providedj provided however, that any suoh airaular,ad-' vertisement,

pamphlet,prospeotus, program, or other matter in aonnectinntherewithmay include the names of non-registered dealers who have partlalpated

with registereddealer3 in the originalpurohaae or underwrItIngof suoh securities without being deemed to be in violation of this' Act, but if the mines of non-registered dealers are lnoluded thereon, then suoh oircular, advertisement,

pamphlet,program or other matter in oonneotiontherewith shall bear a legend tbereon in plain and legible type, stating that such seouritiesare being offered within the State of Texas only by such persons whose names are subscribed thereon as are registereddealers withlri the State of Texas. Unless the same ha8 reference to an exempt transaotionprovided for in Section 3 of this Aot, OP refers to any of the seaurltlea hereinafterexpressly exempted from this provision, It shall be unlawful for any dealer, agent or ~aalesman to Issue or publish within this State any oiroular,advertisement, pamphlet,prospectus,or other matter In oonneotiontherewith concerning any security or securitiesto be sold or offered for sale In this State unless the name of the dealer is subscribedthereto or rinted thereon and unless a true copy of such c Pcular, f advertisement, pamphlet,prospectusor program, or other matter in connectiontherewithhas first been filed in the office of the Secretary of State by the person or company about to Issue or publish the
same OP baa been deposited In a United States Post Offioe, properlyenclosed In an envelops addressedto the Secretary of State at Austin, Texas, with the postage duly prepaid thereof; provided,however, that In the Case of an advertisementto be published In a newspaper OP other perlodioal,a oopy of 8uch advertisement taken from said publication may be mailed to the Searotary of State within twenty-four (241) hours after the first publiaationthereof;provided, further, that when offered for sale, or Bold,

or dealt in by a registered salesman of a registered dealer, this provision shall have no appllaationto any security Included within any of the followingclasses~Seoretary of State, Page 11 (O-6311)

"(a) Any seourity Issued or guaranteedby the United States or by any territory or insular possession thereof; or by the District of Columbia,
or by any State or municipal corporationok polltiaal subdivlslonor agency thereof having the power of taxation or assessment.
"(b)Any security issued or guaranteedby any foreign governmentwith which the United State8 is atthe time of the sale, ok offer of sale thereof, maintainingdiplomatiarelations, OP by any State, provlnae or political subdivlslonthereof having the power of taxation or assessment,which security is recognizedat the time it Is offered for sale in this State as a valid obligation by such foreign government or by such State, province, or political subdivisionthereof Issuing the same, provided,however, that such securities must be on the list approved by the Securitiesand Exchange Commission of the United States.
"(0)Any seourlty Issued by and representing
an interest In ok a direct obligationof a natlonal bank, or of a governmentalagency created or existing by an Act of Congress of the United States other than corporationscreated or existing under the Code of Laws for the District of Columbia OP under the Code of Law3 for any territory or possession of the United States.
"(d)Any security issued OF guaranteedeither a8 to prinalpal, interest, or dividend,by a torporation owning or operatinga railroad OP any other public serviceutility; provided, that such corporation is subject to regulation or supervision either
as to its rates and charges or as to the issue of its own securitiesby the Railroad Commisslon of Texas, OP by a public comml33lon, board of officers, having like powers, of the Governmentof the United States, or of any State, Territory, or insular possessionthereof, OP of the DistrFot of Columbia,
or of the Damlnion of Canada, or any province thereof; also equlpnent trust certificate3or equipmentnotes
or bonds based on chattelmortgages, lease3 or agreements for conditionalsale of cars, motlve power or other rolling stock mortgages, leased or sold t0 OP furnished for the use of OP upon a railroad or other public service utility corporation, provided that such corporationis subjeot to regulation or super-Secretary of State, Page 12 (O-6311)

vision as above;~or equFpment trust certificates,
or equipmentnotes or bonds where the ownership
or title of suoh equipment is pledged or retained in accordancewith the provlsions of the laws of the United States, or of any State, Territory or Insular possessionthereof, or of the District of Columbia, or the Dominion of Canada, or any provinoe thereof, to secure the payment of such equipment trust oertifloates, bonds or notes.
“(e) Any security Issued and sold by a domestic corporation without capital stook and not organFzedand not engaged in business for profFt.
“(f) Securitieswhioh at the time of sale have been fully listed upon the New York Stock Exchange, the Chioago Stock Exchange, the Boston Stock Exohange,
or upon any other recognizedand responsible stock exchangewhioh has been previouslyapprovedby the Secretary of State as hereinafterin this Section provided,and also all securitiessenior to, or if of the same issues, upon a parity with any securities
so listed or represented by subscrlptlon

rFghts whloh have been so listed, or evidence of indebtedness guaranteedby any company any stock of which Is so listed, such securitiesto be exempt only so long as such listing shall remain in effect and only so long
as the exchange upon which such securitiesare so listed remains approved under the provisions of thFs Section, applicationfor approvalby the Secretary of State may be made by any organized stook exohange In suoh manner and upon such forms as may be presoribed by the Secretary of State, but no approval of any such exchange shall be gFven unless the facts and data supplledwith the applicationshall be found to establish:
“(1) That the requirement8for the 1Fstlng of securitiesupon the exchange so seeking approval are such as to effect substantially the reasonableprotection to the public now existing In the case of exchangesherein approved.
“(2) That the governing constitution, by-laws, and/or regulationsof suoh exohanges shall require:8earetary of State, Page 1,3 (O-6311)

"1st: An adequate examinationinto the affaairs of the timer of the ssouritles which are to be listedbefore permittingtrading thorein.

'2nd: That the issuer of such securities,80 long as they be listed, shall periadically prepare, make public and furnish promptly to the exohange, appropriatefLnanala1, insame and profit and loss statements.
"3rd: Securities listed and traded in on such exohange to be restriotedto those of ascertained, sound asset and/or inoorne value.

"4tht A reasonable surveillanoe of Its members, lnoludlnga requirementfor periodical financial statementsand a determinationof the financialresponsibilityof its members and the right and obligation in the governingbody of suah exchange to suspend and/or expel any member found to be flnanoially embarrassedor irresponsible or found to have been guilty of aisoondoot in his business dealings, or oonduotprejudiolalto the rights or Interests of his oust~s.

'The approval of any such exchangeby the Secretary of State shall be made only after a reasonablehearing and investigation, and shall be by an order of approval upon a finding of faot substantially

in aooordanoewith the requirements hereinabove ovidbd. upon ten (10

$ The Secretary of State, days' notice and hearing, shall have power at any time to withdraw approval theretofore granted by him to any such stock exohange, and thereupon securitiesso listed upon suoh exchange shall be no longer entitled to the bane-' fit of such exemptionexoept upon the further order of said Secretary of State again approving such exohange. "(g)Ang secmltg issued or guaranteedbyand/or representingan Interest in or a direst obligationof
a state bank or trust onmpany lnoorporated under the laws of and subject to the examination,8uperviaFon and control of any state or territory of the UnitedSecretary of State, Page 14 (o-6311)

Statesorany insular possession*.therebf;- or issued or guaranteedby any building and loan associationor savings Institutionor by any Fnsuranoe company under the supervisionor control of the Banking or InsuranceDepartment of this State.
"(h)Negotiable promissorynotes or commercial paper Issued in good faith and in the usual course of carrylng on and conductingthe business of th.e issuer, provided that such notes or commercial paper mature In not more than twelve (12) months from the date of issue.
"(1) Notes, bonds, or other evidence of Fndebtedness or certificatesof ownershipwhich are equally and proportionately secured without reference or priority of one over another, and which, by the terms of ,the instrumentcreating the lien, shall continue to be so seouredby the deposit with a trustee of recognized responsibility

approvedby the Secretary of State of any of the seourltlesspecified in subsections (a) and (b), or of any of the securities,other than stock, specified in subseotlon (d) of this Section 23, such deposited securities,if of the classes desoribed in subseotlons (a) and (b) hereof, having
an a gre ate par value of not less than one hundred and &en y110 percent of the par value of the securities

) thereby seoured, and If of the class specified in subsection (d) hereof, having an aggregatepar value of not less than one hundred and twenty-five (125) per cent of the par value of the securitiesthereby scoured."

We have carefullyexamined the statutoryexemptions above set out and are unable to find therein authority for exempting the issuer of the securitiesinoidentto the proposedRetirement Plan from the requirementsof Section 5 of Article 600a, supra, other than that expressed in subsection (j) of said Section 3 of Art. 600a, wherein domestic oorporations are allowed to sell their stook or other securities Issued in good faith and not for the purpose of avoiding the provisions of the Securities Act, so long as the total number of stockholders

and securityholders of said corporation does not and will not after suoh sale exoeed twenty-five (25) and the securltlesare issued and disposed of without the
use of ad9ertlsements circulara,

agents, salesmen, soll.cFtors,
or any form of publio solioitation~ This is the only one of the statutory exemptionsthat might apply to the Retirement Plan in question.Seoretary of State, Page 15 (0-6311)

Trusting the foregoing fully answera your inquiry,
we herewithretnrn the instrumentssubmittedby you.

Yours very truly,

ATTORNEYGENERALOFTEXAS

BY /s/Robert L. Lattimore,Jr.

Robert L. Lattimore,Jr.

Assistant
RLL:rt:rpjs Attach.

APPROVED FEB. 19, 1%

4%3~%%~2 ATTORNEYGENERAL

APPROVED OPINION COMMITTEE BY /a/ JAR CHAIRMAN