Texas Vernon's Texas Civil Statutes - Article 581-5. Exempt Transactions
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Art. 581-5. EXEMPT TRANSACTIONS. Except as hereinafter in
this Act specifically provided, the provisions of this Act shall
not apply to the sale of any security when made in any of the
following transactions and under any of the following conditions,
and the company or person engaged therein shall not be deemed a
dealer within the meaning of this Act; that is to say, the
provisions of this Act shall not apply to any sale, offer for sale,
solicitation, subscription, dealing in or delivery of any security
under any of the following transactions or conditions:
A. At any judicial, executor's, administrator's, guardian's
or conservator's sale, or any sale by a receiver or trustee in
insolvency or bankruptcy.
B. The sale by or for the account of a pledge holder or
mortgagee, selling or offering for sale or delivery in the ordinary
course of business to liquidate a bona fide debt, of a security
pledged in good faith as security for such debt.
C. (1) Sales of securities made by or in behalf of a vendor,
whether by dealer or other agent, in the ordinary course of bona
fide personal investment of the personal holdings of such vendor,
or change in such investment, if such vendor is not engaged in the
business of selling securities and the sale or sales are isolated
transactions not made in the course of repeated and successive
transactions of a like character; provided, that in no event shall
such sales or offerings be exempt from the provisions of this Act
when made or intended by the vendor or his agent, for the benefit,
either directly or indirectly, of any company or corporation except
the individual vendor (other than a usual commission to said
agent), and provided further, that any person acting as agent for
said vendor shall be registered pursuant to this Act;
(2) Sales by or on behalf of any insurance company subject
to the supervision or control of the Texas Department of Insurance
of any security owned by such company as a legal and bona fide
investment, provided that in no event shall any such sale or
offering be exempt from the provisions of this Act when made or
intended, either directly or indirectly, for the benefit of any
other company as that term is defined in this Act.
D. The distribution by a corporation of securities direct to
its stockholders as a stock dividend or other distribution paid out
of earnings or surplus.
E. Any offer and any transaction pursuant to any offer by the
issuer of its securities to its existing security holders
(including persons who at the time of the transaction are holders of
convertible securities or nontransferable warrants) if no
commission or other remuneration (other than a stand-by commission)
is paid or given directly or indirectly for soliciting any security
holder in this State.
F. The issue in good faith of securities by a company to its
security holders, or creditors, in the process of a bona fide
reorganization of the company made in good faith, or the issue in
good faith of securities by a company, organized solely for the
purpose of taking over the assets and continuing the business of a
predecessor company, to the security holders or creditors of such
predecessor company, provided that in either such case such
securities are issued in exchange for the securities of such
holders or claims of such creditors, or both, and in either such
case security holders or creditors do not pay or give or promise and
are not obligated to pay or give any consideration for the
securities so issued other than the securities of or claims against
said company or its predecessor then held or owned by them.
G. The issue or sale of securities (a) by one corporation to
another corporation or the security holders thereof pursuant to a
vote by one or more classes of such security holders, as required by
the certificate of incorporation or the applicable corporation
statute, in connection with a merger, consolidation or sale of
corporate assets, or (b) by one corporation to its own stockholders
in connection with the change of par value stock to no par value
stock or vice versa, or the exchange of outstanding shares for the
same or a greater or smaller number of shares; provided that in any
such case such security holders do not pay or give or promise and
are not obligated to pay or give any consideration for the
securities so issued or sold other than the securities of the
corporation then held by them.
H. The sale of any security to any bank, trust company,
building and loan association, insurance company, surety or
guaranty company, savings institution, investment company as
defined in the Investment Company Act of 1940, small business
investment company as defined in the Small Business Investment Act
of 1958, as amended, or to any registered dealer actually engaged in
buying and selling securities.
I. Provided such sale is made without any public solicitation
or advertisements:
(a) the sale of any security by the issuer thereof so long as
the total number of security holders of the issuer thereof does not
exceed thirty-five (35) persons after taking such sale into
account;
(b) the sale or distribution by an issuer or a participating
subsidiary of the issuer, if any, of a security under a bona fide
thrift, savings, stock purchase, retirement, pension,
profit-sharing, option, bonus, appreciation right, incentive, or
similar written compensation plan or written compensation contract
established by the issuer or its subsidiary for the benefit of
employees, directors, general partners, managers, or officers of
the issuer or subsidiary, for the benefit of its trustees if the
issuer or subsidiary is a business trust, or for the benefit of
consultants or advisors who provide to the issuer or subsidiary
bona fide services unrelated to the offer or sale of securities in a
capital-raising transaction; or
(c) the sale by an issuer of its securities during the
period of twelve (12) months ending with the date of the sale in
question to not more than fifteen (15) persons (excluding, in
determining such fifteen (15) persons, purchasers of securities in
transactions exempt under other provisions of this Section 5,
purchasers of securities exempt under Section 6 hereof and
purchasers of securities which are part of an offering registered
under Section 7 hereof), provided such persons purchased such
securities for their own account and not for distribution.
J. Wherein the securities disposed of consist exclusively of
notes or bonds secured by mortgage or vendor's lien upon real estate
or tangible personal property, and the entire mortgage is sold or
transferred with all of the notes or bonds secured thereby in a
single transaction.
K. Any security or membership issued by a corporation or
association, organized exclusively for religious, educational,
benevolent, fraternal, charitable, or reformatory purposes and not
for pecuniary profit, and no part of the net earnings of which
inures to the benefit of any stockholder, shareholder, or
individual members, and where no commission or remuneration is paid
or given or is to be paid or given in connection with the
disposition thereof.
L. The sale by the issuer itself, or by a registered dealer,
of any security issued or guaranteed by any bank organized and
subject to regulation under the laws of the United States or under
the laws of any State or territory of the United States, or any
insular possession thereof, or by any savings and loan association
organized and subject to regulation under the laws of this State, or
the sale by the issuer itself of any security issued by any federal
savings and loan association.
M. The sale by the issuer itself, or by a registered dealer,
of any security either issued or guaranteed by the United States or
by any territory or insular possession thereof, or by the District
of Columbia, or by any state of the United States, or political
subdivision thereof (including but not limited to any county, city,
municipal corporation, district, or authority), or by any public or
governmental agency or instrumentality of any of the foregoing.
N. The sale and issuance of any securities issued by any
farmers' cooperative marketing association organized under Chapter
52, Agriculture Code, or the predecessor of that law (Article 5737
et seq., Revised Statutes); the sale and issuance of any securities
issued by any mutual loan corporation organized under Chapter 54,
Agriculture Code, or the predecessor of that law (Article 2500 et
seq., Revised Statutes); the sale and issuance of any equity
securities issued by any cooperative association organized under
the Cooperative Association Act, as amended (Article 1396-50. 01,
Vernon's Texas Civil Statutes); and the sale of any securities
issued by any farmers' cooperative society organized under Chapter
51, Agriculture Code, or the predecessor of that law (Article 2514
et seq., Revised Statutes). Provided, however, this exemption shall
not be applicable to agents of any farmers' cooperative marketing
association, mutual loan corporation, cooperative association, or
farmers' cooperative society when the sale of such securities is
made to non-members, or when the sale of such securities is made to
members or non-members and a commission is paid or contracted to be
paid to the said agents.
O. The sale by a registered dealer of outstanding securities
provided that:
(1) Such securities form no part of an unsold allotment to
or subscription by such dealer as a participant in the distribution
of such securities by the issuer thereof; and
(2) Securities of the same class, of the same issuer, are
outstanding in the hands of the public; and
(3) Such securities are offered for sale, in good faith, at
prices reasonably related to the current market price of such
securities at the time of such sale; and
(4) No part of the proceeds of such sale are paid directly or
indirectly to the issuer of such securities; and
(5) Such sale is not directly or indirectly for the purposes
of providing or furthering any scheme to violate or evade any
provision of this Act; and
(6) The right to sell or resell such securities has not been
enjoined by any court of competent jurisdiction in this State by
proceedings instituted by an officer or agency of this State
charged with enforcement of this Act; and
(7) The right to sell such securities has not been revoked
or suspended by the commissioner under any of the provisions of this
Act, or, if so, revocation or suspension is not in force and effect;
and
(8) At the time of such sale, the issuer of such securities
shall be a going concern actually engaged in business and shall then
be neither in an organization stage nor in receivership or
bankruptcy; and
(9) Such securities or other securities of the issuer of the
same class have been registered by qualification, notification or
coordination under Section 7 of this Act; or at the time of such
sale at least the following information about the issuer shall
appear in a recognized securities manual or in a statement, in form
and extent acceptable to the commissioner, filed with the
commissioner by the issuer or by a registered dealer:
(a) A statement of the issuer's principal business;
(b) A balance sheet as of a date within eighteen (18) months
of the date of such sale; and
(c) Profit and loss statements and a record of the dividends
paid, if any, for a period of not less than three (3) years prior to
the date of such balance sheet or for the period of existence of the
issuer, if such period of existence is less than three (3) years.
The term "recognized securities manual" means a nationally
distributed manual of securities that is approved for use hereunder
by the Board.
The Commissioner may issue a stop order or by order prohibit,
revoke or suspend the exemption under this Subsection O with
respect to any security if the Commissioner has reasonable cause to
believe that the plan of business of the issuer of such security,
the security, or the sale thereof would tend to work a fraud or
deceit upon any purchaser or purchasers thereof, such order to be
subject to review in the manner provided by Section 24 of this Act.
Notice of any court injunction enjoining the sale, or resale, of any
such security, or of an order revoking or suspending the exemption
under this subdivision with respect to any security, shall be
delivered or shall be mailed by certified or registered mail with
return receipt requested, to any dealers believed to be selling, or
offering for sale, securities of the type referred to in the notice;
and the prohibitions of (6) and (7) above of this Subsection O shall
be inapplicable to any dealer until the dealer has received actual
notice from the commissioner of such revocation or suspension.
The Board may for cause shown revoke or suspend the
recognition hereunder of any manuals previously approved under this
Subsection but no such action may be taken unless upon notice and
opportunity for hearing before the Board or a hearings officer as
now or hereafter required by law. A judgment sustaining the Board
in the action complained of shall not bar after one year an
application by the plaintiff for approval of its manual or manuals
hereunder, nor shall a judgment in favor of the plaintiff prevent
the Board from thereafter revoking such recognition for any proper
cause which may thereafter accrue or be discovered.
P. The execution by a dealer of an unsolicited order for the
purchase of securities, where the initial offering of such
securities has been completed and provided that the dealer acts
solely as an agent for the purchaser, has no direct or indirect
interest in the sale or distribution of the security ordered, and
receives no commission, profit, or other compensation from any
source other than the purchaser.
Q. The sales of interests in and under oil, gas or mining
leases, fees or titles, or contracts relating thereto, where (1)
the total number of sales by any one owner of interests, whether
whole, fractional, segregated or undivided in any single oil, gas
or mineral lease, fee or title, or contract relating thereto, shall
not exceed thirty-five (35) within a period of twelve (12)
consecutive months and (2) no use is made of advertisement or public
solicitation; provided, however, if such sale or sales are made by
an agent for such owner or owners, such agent shall be licensed
pursuant to this Act. No oil, gas or mineral unitization or pooling
agreement shall be deemed a sale under this Act.
R. The sale by the issuer itself, or by a subsidiary of such
issuer, of any securities which would be exempt if sold by a
registered dealer under Section 6 (other than Section 6E) of this
Act.
S. The sale by or through a registered dealer of any option if
at the time of the sale of the option:
(1) the performance of the terms of the option is guaranteed
by any broker-dealer registered under the federal Securities
Exchange Act of 1934, as amended, which guaranty and broker-dealer
are in compliance with such requirements or regulations as may be
approved or adopted by the board;
(2) the option is not sold by or for the benefit of the
issuer of the security which may be purchased or sold upon exercise
of the option;
(3) the security which may be purchased or sold upon
exercise of the option is either (a) exempted under Subsection F of
Section 6 of this Act or (b) quoted on the NASDAQ stock market and
meets the requirements of Paragraphs (1), (6), (7), and (8) of
Subsection O of Section 5 of this Act; and
(4) such sale is not directly or indirectly for the purposes
of providing or furthering any scheme to violate or evade any
provisions of this Act.
For purposes of this subsection the term "option" shall mean
and include any put, call, straddle, or other option or privilege of
buying or selling a specified number of securities at a specified
price from or to another person, without being bound to do so, on or
prior to a specified date, but such term shall not include any
option or privilege which by its terms may terminate prior to such
specified date upon the occurrence of a specified event.
T. Such other transactions or conditions as the board by
rule, regulation, or order may define or prescribe, conditionally
or unconditionally.
U. The issuance or transfer of securities by the issuer of its
securities to a corporation or association, organized exclusively
for religious, educational, benevolent, fraternal, charitable, or
reformatory purposes and not for pecuniary profit, only if:
(a) the corporation or association does not provide
anything of value for the securities other than, in the case of any
security that is an option, payment of the exercise price of the
option to acquire the securities at a price not to exceed the fair
market value of the underlying securities on the date the option was
granted;
(b) the issuance or transfer of securities is not made for
the purpose of raising capital for the issuer;
(c) no commission or other form of consideration is paid or
provided to a third party with respect to the issuance or transfer;
and
(d) the issuance or transfer is not directly or indirectly
for the purpose of providing or furthering a scheme in violation of
or to evade this Act.
Acts 1957, 55th Leg., p. 575, ch. 269, Sec. 5. Amended by Acts 1959,
56th Leg., p. 147, ch. 88, Sec. 1; Acts 1963, 58th Leg., p. 473, ch.
170, Sec. 1 to 6.
Amended by Acts 1975, 64th Leg., p. 199, ch. 78, Sec. 1, eff. Sept.
1, 1975; Acts 1977, 65th Leg., p. 865, ch. 327, Sec. 1, eff. Aug.
29, 1977; Acts 1979, 66th Leg., p. 349, ch. 160, Sec. 2, eff. May
15, 1979; Acts 1981, 67th Leg., p. 3198, ch. 839, Sec. 1, eff. June
17, 1981; Acts 1983, 68th Leg., p. 2688, ch. 465, Sec. 1, eff. Sept.
1, 1983; Acts 1989, 71st Leg., ch. 733, Sec. 2, eff. Sept. 1, 1989;
Acts 1995, 74th Leg., ch. 228, Sec. 4, eff. Sept. 1, 1995; Acts
2001, 77th Leg., ch. 561, Sec. 1, eff. June 11, 2001; Acts 2001,
77th Leg., ch. 663, Sec. 1, eff. Sept. 1, 2001; Acts 2001, 77th
Leg., ch. 1091, Sec. 2.02, eff. Sept. 1, 2001.
Article: 581-2-5 581-2-6 581-2-7 581-2-8 581-3 581-3-1 581-4 581-5 581-6 581-7 581-8 581-9 581-10 581-10-1 581-11
Last modified: August 10, 2007
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