                       ,-




                 THEAYTORNEYGENERAL
                          OFTEXAS




Honorable M. 0. Flowers                    Attention: l&r,John Vickers
~seamtl3l-y
          of state
Austin, Texas

Dear Sire                                  Opinion IiooO-2327
                                           Rex Agreement between Investors
                                           Syndicate and Investors Ebutual,
                                           lncorpbrated*

            Your request fop an opinion of this department has been received
and considered. we quote the pertinent portion of your letter as fOllom$

"The IrrvestorsMutual, Incorporated, a Nevada corporation, is orgsnized for
the purpose of operating an investaent compsnyc Said company will operate
in this State in the following manner8

"The stock of such company will 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 oertifi-
arrtesissued in Minnesota.

"This departarentdesires to kuon if in your opinion it is nsosssary for
the Investors Mutual, Incorporated, to obtain a permit to de business in
this State.

"A copy of the charter and sales contract is hereto attaahed andre re-
quest that same be returned to us. We also attaah a brief prepared by
Messrs. Blaok, Graves 8~Stayton of this oity~

"In addition to the question propounded to you in the writer's letter of
May 6, 1940, the writer'will appreciate your answering this additional
question:

               sDoes the Investors &@d&oate have the authority under
               its charter and the laws'of Texas to enter into such an
               agreement as outlined in my letter of kay 67

              "IIIthis oonneotion you are advised that the Investors
              Syndicate secured a permit to en&age in selling invest-
              ment oertifioates."

               The Investsmut Syndioats is a foreign oorporation domioiled in
k&nesota     with a permit to do business in Texas* The Investors Mutual, In-
oorporat&,     is a IWfade corporation desiring totransaot or soliolt business
Honorable M. 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
organization of the Companye Aocordingly, as could be.expected, the
offioers end direotors of the Syndicate are those of the Company~ Incident-
al thereto, t31eSmdiorte 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 fol-
lows,

s(a) To subsoribe for, reoeive, purohrse, or otherwise aoquire, underwrite,
obtain an interest in, 011111,
                            hold, pledge, hypothecate, mortgage, assign,
deposit, oreate trusts with reepeot to, de41 in, exohange, 8811, and Other-
wiase dispose of, alone or in syndio4te8, or otherwise in conjunction with
others, and generally deal in and with fully or partly paid securities of
every desoription of, or oreated or issued by, any foreign or domestio
governmenta, statee, gOVemnUUYt41 or muniolp41 'bodiesor politio4l subdivi-
eions, companies, trusts, assooiations, 8yUdicrte8, psrtndrships, and/or
persons. The term tseourltiee~ 4s used in this Certifioate of InoOPpOratiOn
shall be constied to inolude, without being limited to, shares, stocks,
treasury stooks, inoluding any atooks of this Compmy, notes, bonds, deben-
ture8, evidences of indebtedness, oertificates of intersst or participation
in any profit sharing ngreemente, oollateral trust aertifioates, reorganiea-
tion oertifioates or sub8oription8, tmn8fePable shares, irmestient oon-
tracts, voting trust oertificate8, oertifioates of deposit for a seourity,
fractional or undivided interests in oil, gas, or other mineral rights, or
any ceptifioates of interest or partioipation in, temporary or interim csr-
tifioates for, reOeipt8 for, guarantees of, or warrants or rights to sub-
scribe to or pureham any of the foregoing, 4oceptances and other obliga-
tions, and my eoidenoe of any right or intereat in or to any cash, proper-
ty or assets; . . l

“.   . .




"(d) To issue its own securities and to sell and exchange sUoh securities
and any certificates, receipts, warrants or other instrument8 representing
rights to receive, purohase or subscribe for such securities, op pepresenb
iug any interest thereunder in such amounts and on such terms and couditi-
OnS and for such purposes aa the Doard of Directors may, 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;*

            C~iOuSly the above asidenoes that the Company is designed to
operate as, and perform the function8 of, an im%?&snt   trust concern. The
proposed business of the Company is described as follows, in its registra-
tion statement to the Federal Securities abd Exchange Comissionr
       -    -
                  ..-



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



'The business intended to be done by ths issuer is that of an investment
company of the general management hype with powers under its charter to
oarry on the general busine88 of owning, holding and managing investments
and doing a general investient business. Its acquisition and disposition
of the securities other than obligation8 in'the United States of Amerioa
are restricted to those securities whioh shall receive the recommendation
or approval of th6 issuer's inves%aent manager, suoh recommendation or
approval to include the amount, time and terms of such acquisition and/or
disposition. In accordance with the+provisions of the Articles of Incorpo-
ration of the issuer and pursuant to the terms of an agreement dated January
19, 1940, the Inrestors Syndicate, a Minnesota corporation, is the invest-
ment manager for the issuer.

"The issuer presently intend8 to buy and sell securities and to invest and
reinvest its resouroes in accordance with the recommendations and approvals
made to it by Investors Syndicate* . . ."

            Ikiefly, the Company sells oertifioates of interest and partioi-
pation to the investing public. The funds so derived are reinvested in a
msnner theoretically beneficial to all conoerned. The certil'ioateholder
eontemplates a pro rata shnre in the profits, if any, arising from the Com-
pany's reinresixsentof their investment.

            Pursuant to the Cempany*s desire to offer these certificates to
the investors of this Sta-Le,and, as a matter of ocnxenience, to do so Without
first sulmitiing to the necessary formalities attending the acquisition of
a permit, the Company has conceived and executed an agreement designed to
attain their aspiration.

            This agreement between Investors Mutual, Incorporated, and
Investors SynJice1.eis rather lengthy and complex.  Hem-wer, from the fol-
lowing excerpts, the gist of the agreement may be obtained along with the
sanctioning,paragraph taken from Seotion (c) of Article III, Certificate
of Incorporationc

"To enter into a contract or oontracts wherein and whereby a responsible
person, entity, syndicate, partnership, association or corporation is
constituted and appointed the,exclusive representative or agent of +&is
Companywith the exclusive right to 6011,~offer for sale, purchase, re-
purchase or redeem any of the securities issued by this Company and/or
granting toraid representative an exclusive right of management, invest-
ment and re-investment of the funds and assets of tiis Company; . . ."

            Section (1) of Part One of tie Agreement deals with the distri-
bution of securities. It provides:

s(1) The Company hereby covenants and agrees that during the term of this
contract and any renewal or extension thereof or until any prior termina-
tion thereof (hereinafter referred to as 'the periodof this contact'),
                                                   -,




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



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

"(2) The Syndicate hereby covenant8 and agree8
                                        agrees to act as the sole distrib
utor of the securities issued and tobe issued by the Company during the
period of this oontraat and agrees during auoh period to offer
                                                         offer for sale and
to sell such securities, including the Special Stook Class ‘A* shares of the
Company, and to continue the offering and sale of said securities, including
said Special Stook ClaS8
                   Class *A* shares, as long as said aecuritiea remain
available for sale a& distribution, unless
                                     InIle the Syndicate is unable to make
such sales or solicitations legal* 'b8oauaeof any federal, state, provirw
oial or governmental law, rule or 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 Syn-
dicate 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 principal place of
business of the Company, . . .a

            Part   One,   Sections:

"(8) The Syndicate agrees to submit to the Company for its prior written
approval all oiroulara, sales literature, radio Iuoadaast material, publicity
data and other advertising material which is contemplated to be used by the
Syndicate in the sale of securities issued by the Company.

"(9) The Syndioate agree8 that all payments made for the purchase of seourd-
ties issued or to bs issued by the Company shall in all oa.888,exoept where
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 Securities Aot or by the acts or statutes of any
state, provinoe or country in which such application is signed by the appli-
cant.

"(11) The Syndicate covenants and agrees~that during the period of this con-
tract, 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
Company which have been purchased by the Syndicate for its own account, ex-
oept to the Company."
       .     -




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



            Part Tea of the Agreement concerns investment advice, statia-
tioal data, and recommendations as follewst

"(1) The Company hereby retains the Syndicate and the Syndicate hereby
covenants and agrees, for the period of this contract and under t&e terms
and conditions herein eet forth, to furnish the Company with advioe, st+
tistioal data and reooumendation8 with respect to the Company*s investments
and to reoonrmend and approve aeouritiea for aoquiaition and disposition by
the Company.

"(2) The Company covenants andagrees that, during the period of this eon-
tract, itwill purchase or otherwise aoquire only such securities as may be
recommended or approved by the Syndicate at the time of such purohase or
other acquisition; . . .

"(5) The Company further covenants and agree8 that, except as to obliga-
tions.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 reoonraendedor approved ly the Syndicate. . . .

"(4) The Company further covenant8 and agree8 that, except a8 to obligations
of the United State8 of Amerioa, it will sell, axohange or otherwise dispose
of, only such securities a8 may be reoommended or approved by the Syndicate
for 8uoh sale, exchange or diSpO8itiOn.

'(5) The Syndicate agrees that all of its reoommendations or approvals re-
lating to the acquieition and disposition of seaurities by the Company shall
be transmitted to the Company in Writing, and the Company agrees to advise
the Syndioate in writing (a) of all action taken by the Company with respect
to any such recommendation or approval; (b) of all distribution reoeived
upon the oash, seourities or otherproperty of the Company; (0) @f m2.l lia-
bilities charged or chargeable lgalnet the Company .and (d) of sny other
matters in oonneotion with the asset8 and liabilities of the Ccrmpanywhioh
may bs requested %y the Syndioate from time to ti~8e"

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

            "(a) A fee equal to five and one-half per cent (5$.$)of the
aggregate amount received by the Company for the sale of all Spaoial Stock
Class gA* shares of the Comprqy tobe issued during the period ofthis oon-
tract (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 hereinafter defined) 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 liquidation value . . . of all
shares of the Compeny~s oapital stock outstanding for a period of less then
four years which are redeemed by the Company in eaoh month 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 to year thereafter, unless and until
terminated by either par@ as hereinafter provided."

            Investors Syndioate is a loan and brokerage oompany within the
purview of Arti    1524a, V.A.C.B., as amended. Section.1 of that +tiole
prwidess

"This Aot shall embraoe corporations h&etx&re   created and hereafter created
having for their purpose pr 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 of the Generd and Special Laws of the Regular Session of the 40th Legis-
lature. IJosuch corporation shall act a8 agent or trustee in the oonsolida-
tion of or for the purpese of combining the assets. 'businessor means of
other persons, firm.?.asrooiations. or corporations, nor shall suoh aorpora-
tione as agents or trustees oarry on the hsine8s of another . . ."

            In enaoting the above statutory provisions, the Legislature must
have used tie tens *businesss in its ordinary significance. True, the word
is comprehensive; but, in our opinion, when applied to oorporations, the
word necessarily implies those corporate activities and funotion- which are
authorized by and engaged in pursuant to the provisions of their oharter.
It means the transaction of those affairs and the fulfillment of those pur-
poses for which the corporate entity was designed and organized.

            with this in mind, we perceive the sale of securitiesand oer-
tifioates along with investment of the proceeds therefrormas primarily and
essentially the business of the Investors Mutual, Incorporated. This is
its admitted corporate purpose. This being true, it cannot bo denied that
contact with the investing public is of the greatest importanoe and highly
necessary for the trausaotion of the corporate business. Investors Syndi-
cate has contracted to perform this indispensable corporate function.
Hon. Id.0. Flawcare,page 7 (O-2327)



            Not only has the syndioate agreed to sell q   and all securi-
ties 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 situation presented te us,we reach our conclusion, and you
are advised that Invertora Syndioate is not authorized under 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
praotioal matter, carries on the lnmineos of the Company within the meaning
of rtiole 1524a, supra. In other words, any wert act underakenby the
8ynd
   i oate whioh oonstituterr,or tends to constitute, either direatly or
indireotly, an effort to effect the intent, purpeses, or aims of the son-
traoting partie@, 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 tempo-
tery or 6paarnodiorelationship between the corporations. There is an
element of oomBarative permanenoe dlsosrnible here.

            This conolusion precludes our consideration of any question as
to v&ether rnvsstore Mutual, Inoorporated, must first aomply with Artiole
1529, Revis& Civil Statutes of Texas, 1926, and obtain a pennit before
operating in Texas under the contemplated arrangement.

            Tzu6ting that this fully an8wers your inquiry, we remain

                                             Yours verytruly

ABBEOVED JUNE 8,194O
/*/ Gerald C. Mann                      ATTORNEY GEBEBAL OFT-
ATTOBBEYGEBEBALOF~

Apprwedc   Opinion Committee            %/s/m.         J. Fanning
            &BIBChairman
                                                 Hln. J* Fanning
                                                        Assistant

                                           &- /s/G&y       Rilliams
