Hon. Lee Brady                  Opinion No. O-2408
Commissioner                    Be:    Does the outlined    plan of stock
Department of Banking           sales-of   the Southern States Life
Austin,  Texas                  Underwriters,     ,Inc., as set out in the
                                attached   certificate,    come within  the
                                purview of Articles      152&a to 152&k,
Dear Sir:                       inclusive?    _

            Your recent request       for an opinion    of this     department
on the   above stated  question      has been received.

            Your letter     reads   in part   as follous:

            “The Southern States      Life Underwriters,     Inc.,
     is a Texas .corporation,      having a paid-in     capital
     stock, of $25,000.00     divided    in twenty five thousand
     non-par   shares.    This corporation      is one which un-
     doubtedly    comes within    the purview of Articles
     1524a to 1524k, and if the corporation,were            offer-
     ing for sale its bonds, notes,         or other obligations
     creating   the relation     of debtor   and creditor    between
     the company and the holder,         it would undoubtedly        be
     entitled   to make use of the facilities        provided      for
     under the above mentioned articles.

              “This company has acquired,          and now holds,
      twelve thousand shares of its own stock.              It proposes
      to sell     a portion   of this    stock on the installment
      plan      and has conceived     the idea of making use of the
      facilities     provided   for under the above mentioned
      statute     in its proposed     stock-selling     campaign.   Rough-
      ly, the plan is as follows:

            “The company proposes      to deposit      with the State
      Treasurer   a portion    of this treasury       stock equal to
      the amount of stock to be sold on the installment                plan.
      It proposes    to issue and sell     certificates,      which,
      when paid for,    would entitle     the holder      to receive     a
      designated    number of these shares of stock of the com-
      pany.    These certificates     are payable in installments
      over a several    year period,     and the company, as a
      bonus or inducement to the purchaser,            agrees that dur-
      ing the time that this certificate           is being paid out,
      the company, out of its surplus         and undivided      profits,
Hon.   Lee Brady,    page      2     (O-2408)



       would deposit     with the State Treasurer       a sum to be
       determined    upon contingenciesnot       important    in this
       connection,    this   sum to be divided    among the hold-
       ers of the certificates.         Pursuant to this plan the
       corporation    has requested     the Commissioner    to ap-
       prove the certificate       and the deposit    of the stock
       with the State Treasurer        upon the theory that this
       is a transaction      coming within    the purview of Arti-
       cles 1524-a to 1524-k.        For the sake of brevity      I
       have attached     hereto   a copy of this certificate      which
       is self-explanatory.”

              The Southern          States Life        Underwriters,   Inc.,     was orgnn-
ized   for   the following          purposes:

              “To accumulate       and loan money, to sell           and deal
       in notes,     bonds,    and securities;       to act as Trustee
       under any lawful        express    trust    committed to it by
       contract,     and as agent for the performance              of any law-
       ful act, to subscribe         for,    purchase,     invest    in, hold,
       aJn,   assign,    pledge    and  otherwise      deal   in  and   dispose
       of shares of capital         stocks,     bonds, mortgages,        deben-
       tures,    notes and other securities            and obligations,
       contract     and evidence     of indebtedness         of foreign     or
       domestic     corporations     not competing with each other
       in the same line of business,             to borrow money or is-
       sue debentures       for carrying      out any or all purposes
       above enumerated;        provided     the power and authority
       herein    conferred     shall in no way affect           any of the
       provisions      of the antitrust       laws of this State.”

            The Southern States Life Underwriters,         Inc. desires   to
enter into the .participating     stock purchase    contract,    a copy of
which is attached,     to escrow the securities     required    by the Bank-
ing Commissioner    and insert   on the participating      stock purchase
the following   notation:

            “This form of contract                is    approved   by the Bank-
       ing Commission of the State                of    Texas.”

              Sections    1,       7 and 12 of Article         152&a read      as follows:

              Qec.   1.   This Act shall-embrace        corporations
       heretofore    created   and hereafter     created    having for
       their   purpose or purposes     any or all of the powers
       now authorized     in Subdivisions     48, 49 or 50 of Arti-
       cle 1302, Revised      Civil  Statutes    of Texas, 1925, and
       heretofore    or hereafter    Created having in whole or
       in part an purpose or purposes          now authorized       in
       Chapter 27 i: , Senate Bill    Number 232 of the General
-   .




    Hon. Lee Brady,       page    3    (O-2408)


         and Special      Laws of the Regular Session           of ths Ii-Cth
         Legislature.-       No such corporation        shall act as age;;%:
         or trustee      in the consolidation        of or for the purpo,<:
         of combining the assets,           business   or meam of other
         persons,     firms,   associations      or corporations,         nor
         shall    such corporation       as agent or trustee         carry on
         the business       of another.      No such corporation          shall
         offer    for sale or sell       its bonds, notes,        certificates,
         debentures      or other obligations        unless   it shall have
         an actual      paid in capital      of not less than Ten Thou-
         sand ($lO,OOO.OO) Dollars.

                “Sec. 7.        All-bonds,        notes,      certificates,        debem
         tures,    or other.obligations               sold in Texas by any COP-
         poration     affected      by a provision            of this Act shall be
         secured by securities             of the reasonable            market value,
         equaling     at least      at all times the face value of such
         bonds, notes,        certificates,           debentures       or other obli-
         gations.       If such corporation              sells    in Texas bonds,
         notes,    certificates,         debentures         or other obligations
         upon which it receives             installment          payments,       such
         bonds, notes,        certificates,           debentures       and other obl,i-
         gations     shall be secured at all times by securities
         having the reasonable             market value to the with-
         drawal or cancellation             value of such obligations                  out-
         standing.        Said securities           shall be placed           in the hands
         of a corporation         having trust powers approved by the
         Banking Commissioner            of Texas as Trustee under a trust
         agreement,       the terms of which shall be approved in writ-
         ing~ by the Banking Commissioner                   of Texas.        Provided,        that
         before    selling      or offering         for sale on the installment
         plan in Texas any such bonds, notes,                       certificates,         deben-
         tures,    or other obligations,                such   corporation        shal,l.   file
         with the Banking Commissioner                   specinlen copies         of su~ch
         bonds, notes,        certificates,           debentures       or oth.er obliga-
         tions.      Unless within         sixty      (60) days after the fil,ing
         of any such specimen copy the Banking Commissioner                               is-
         sues a notice        to such corporation              of a hearing        to deter-
         mine whether such intrument                  is fraudulent,          unreasonab1.e
         or inequitable       , the same shall be deemed to have been
         approved by the Banking Commissioner.                         But if,      after
         hearin      pursuant. to notice            issued within          said period        n:f
         sixty f 60) days, the Banking Commissioner                         should find and
         determine-that         any such bond, .,note, certificate,                    debeh-
         ture,    or other obligation             is either       fraudulent,        unreason-
         able, ‘or inequitable,            such corporation            shall have no
         right to sell        or offered        for sale in the State of Texas
         such bond, note,          certificate,          debenture       or other obli-
         gation     so found to be fraudulent,                  unreasonable,        OS   inequi-
         table.      Provided,      that any such corporation                   may have such
Hon.   Lee Brady,     page   4   (O-2408)


       finding    reviewed    in the District       Court of Travis County,
       Texas, by filing       suit against      the,.Bankin       Commissioner
       in such Court at any time within              sixty    ( %0) days after
       receiving    notice    of such finding.          In such-suit       such
       corporation     shall be entitled        to a trial       de novo on
       the issues     on which the Banking Commissioner                shall
       have made such adverse fihdings.               If as the result         of
       such trial     the issues    shall be determined           favorably     to
       such corporation,       the adverse findings          of the Banking
       Commissioner      shall have no further          binding     force    or ef-
       fect;   and in that event,        the right to sell          such notes,
       bonds or other obligations          may be protected          by injunc-
       tion issued     in said cause.        Provided,      that either       party
       shall have the right of appeal according                  to Statutes
       governing     appeals    in Civil    cases.

              “All cash or securities    left with the State Treas-
       urer   lo compliance  with Article    696, Revised Civil Stat-
       utes   of 1925 shall be considered     as part of the collat-
       eral   required  under this Section.

              “All bonds, notes,   certificates,     debentures   or
       other-obligations,    sold or offered     for sale in Texas
       by such corporation    shall definitely      describe   the char-
       acter of collateral    securing     the payment of, such obli-
       gation.

               “In the event any such corporation         shall    sell or
       offer-for     sale in Texas, any bonds, notes,         certificates,
       debentures     or other obligations     without    complying with
       this Section,      such conduct   shall  constitute      grounds for
       the forfeiture      of its charter    at the suit of the Attor-
       ney General,      which suit shall be brought upon the~.re-
       quest of the Banking Commissioner          of Texas.

               “Sec. 12.      None of the provisions            of this    Act, ex-
       cept that portion         of Section     4 requiring       the filing      of
       financial     statements,      ~shall apply to sales made by any
       corporation      affected     by this Act, except          sales by such
       corporations      of bonds, notes,*certificates,               debentures
       or other obligations          issued by and that are direct             obli-
       gations     of the corporation        selling      or offering     the same
       for sale.      The words ‘notes,’          ‘certificates’,        ‘deben-
       tures’ , and. ‘other       obligatioes~,        as used in-this       Act,
       shall-not     be-construed        to cover or include        notes exe-
       cuted by corporations           to banks and other financial            in-
       stitutions     for money borrowed by such corporations                  for
       use in the usual course of its business.”
            We have been unable to find any cases where the appel-
late courts   of this State have construed  the above mentioned
statutes  relative   to the question under consideration.
-    .




    Hon.     Lee Brady,   page   5   (O-2408)


                  As above mentioned,         the Southern States Life Under-
    writers,    Iqc.     proposes     to sell twelve thousand shares of its
    stock at $25.60 per share,            such being held by the company at
    this time. as treasury         stock.     It proposes  to sell    the stook
    upon the form of contract            as abcive mentioned and to escrdw with
    the State Treasurer          such security    as the Banking Commissioner
    may require      as a guarantee       that the said Southern.States        Life
    Underwriters,       Inc. will     perform the obligations      set forth..in
    the participating         stock purchase     contract.    The obligations       of
    the, company thereunder          are to deliver    the stock certificates
    there’in described       when paid for and to provide        an anoual bonus
    fund for stockholders,           as provided    in the contract.     The other
    obligations      resting     upon the company under the proposed          con-
    tract    are fully     set out therein.

                 Apparently,    Articles    1524a to 1524k, inclusive,          were
    designed   to regulate    the sales of bonds, notes,          certificates,
    debentures    or other obligations       of corporations      which create
    the relation    of debtor and creditor       between the corporation
    issuing   the same and the holder        of the certificates,         etc.,  and
    that the facilities      provided    for under the above mentioned ar-
    ticles   are not designed     for the purpose of enabling           the corpora-
    tion to sell    its stock on an installment        basis.

                It is our opinion     that the proposed transaction    of
    the Southern States    Life Underwriters,     Inc. does not involve    the
    sale of “certificates     or other obligations”,    within the meaning
    of the above mentioned     statutes.    Therefore,  the proposed   plan
    of stock   sales of the Southern States Life Underwriters,       Inc.
    would not come within the purview of Articles        1524a to 1524k,
    inclusive.

                  Trusting   that    the   foregoing   fully    answers   your   in-
    quiry,     we are

                                                   Very truly    yours

    APPROVEDJUN 26, 1940                           ATTORNEYGENERALOF TEXAS
    /.s/ Gerald C. ~Mann
    ATTORNEYGENERALOF TEXAS                       ISi /ii/- hieli   $iliia&     ‘-
                                                  Ardell   Williams,     Assistant
    APPROVED: CP~N~CN-CO~@TTEE
    BY:  :,   B!@,.CHURWQ.~.
