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 ^.