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