Bill Text: TX HB2382 | 2017-2018 | 85th Legislature | Introduced

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Bill Title: Relating to information required to be disclosed by certain investors of publicly traded companies whose headquarters are located in this state; creating an offense.

Spectrum: Partisan Bill (Republican 1-0)

Status: (Introduced - Dead) 2017-03-20 - Referred to Investments & Financial Services [HB2382 Detail]

Download: Texas-2017-HB2382-Introduced.html

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85R6593 CLG-F
By: Parker H.B. No. 2382

A BILL TO BE ENTITLED
AN ACT
relating to information required to be disclosed by certain
investors of publicly traded companies whose headquarters are
located in this state; creating an offense.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. This Act shall be known as the Bring Business to
Texas and Fairness in Disclosure Act.
SECTION 2. It is the policy of this state to:
(1) foster and promote the immediate and full
disclosure of the individual ownership of persons who are activist
investors with respect to publicly traded entities whose
headquarters are located in Texas; and
(2) prohibit discrimination by a proxy advisory firm
toward any publicly traded entity whose headquarters are located in
Texas.
SECTION 3. Section 4, The Securities Act (Article 581-4,
Vernon's Texas Civil Statutes), is amended by adding Subsections R,
S, T, U, V, W, X, and Y to read as follows:
R. "Activist investor" means a person who, directly or
indirectly, or through or with an affiliate:
(1) nominates or attempts to nominate the person or
another person to the governing authority or body of a publicly
traded entity, including the board of directors of a corporation or
the general partners of a general partnership or limited
partnership;
(2) makes or attempts to make one or more shareholder
proposals or the equivalent for a publicly traded entity; or
(3) acts broadly in concert with, or on behalf of, a
person who engages in actions described by either Subdivision (1)
or (2) of this subsection.
S. "Affiliate," with respect to a person, means:
(1) a family member of a natural person; or
(2) any person who controls, is controlled by, or is
under common control with the person.
T. "Beneficial owner," with respect to a class of securities
of a publicly traded entity, means a person who has the sole or
shared power to vote or dispose of a security or who enjoys the
economic benefits of ownership of a security. The term includes a
person who enjoys the benefits of ownership of a security or the
voting power of a security, regardless of whether the security is
held in the name of another person.
U. "Governing authority" has the meaning assigned by Section
1.002, Business Organizations Code.
V. "Headquarters," with respect to a publicly traded entity,
means the location at which the president or other chief executive
officer of the entity, a general partner of the entity, or any other
senior member of the entity's management team routinely performs
duties in those respective capacities.
W. "Mutual fund" means an entity that:
(1) is engaging primarily in, or proposes to engage
primarily in, the business of investing, reinvesting, or trading in
securities;
(2) is engaging or proposes to engage in the business
of issuing face-amount certificates of the installment type;
(3) has engaged in a business described by Subdivision
(2) of this subsection and has outstanding a certificate described
by that subdivision;
(4) is engaging or proposes to engage in the business
of investing, reinvesting, owning, holding, or trading in
securities and owns or proposes to acquire investment securities
whose value exceeds 40 percent of the value of the total assets of
the issuer of the securities, not including government securities
and cash, on an unconsolidated basis; or
(5) is an investment company registered under the
Investment Company Act of 1940 (15 U.S.C. Section 80a-1 et seq.).
X. "Proxy advisory firm" means a person that provides
corporate governance ratings, proxy research, analyses, advisory
services, or other similar services to shareholders of a publicly
traded entity.
Y. "Texas-based public company" means a publicly traded
entity whose headquarters are located in this state.
SECTION 4. The Securities Act (Article 581-1 et seq.,
Vernon's Texas Civil Statutes) is amended by adding Sections 45
through 55 to read as follows:
Sec. 45. BENEFICIAL OWNERSHIP; DISCLOSURE. A. This section
applies only to a person who is simultaneously:
(1) a beneficial owner of a security of any class of
securities of a Texas-based public company; and
(2) an activist investor with respect to the same
Texas-based public company that is beneficially owned by the
person.
B. Not later than the 10th day after the date the person is or
becomes both a beneficial owner and an activist investor of a
Texas-based public company or September 11, 2017, whichever is
later, the person shall file with the Securities Commissioner and
deliver, by United States certified mail, to the company's
headquarters and to the company's registered agent designated under
Chapter 5, Business Organizations Code, a certified statement that:
(1) contains:
(A) the full name, identity, background,
residence, primary phone number, and citizenship of the person;
(B) the address of the principal place of
business of the person and the person's primary e-mail address;
(C) the nature of:
(i) the beneficial ownership of the person;
and
(ii) the beneficial ownership of all other
persons by whom or on whose behalf the beneficial ownership of the
person has been or is to be effected;
(D) all plans, intentions, motives, strategies,
and objectives of the person with respect to becoming an activist
investor and following through with:
(i) director, general partner, or other
similar governing person nominations; or
(ii) shareholder proposals or the
equivalent;
(E) all notes, e-mails, memoranda, letters,
communications, proposals, analyses, spreadsheets, presentations,
instruments, and any other documents, whether in written, digital,
or magnetic format, relating to the items listed in Paragraph D of
this subdivision; and
(F) all costs and expenses paid, incurred,
authorized, and anticipated by the person in connection with the
items listed in Paragraph D of this subdivision; and
(2) is signed by the senior executive officer of the
person certifying that the information disclosed in Subdivision (1)
of this subsection is correct and complete.
C. The following persons shall disclose the information
required by Subsection B of this section in the same manner and to
the same extent as a person is required to disclose the information
under that subsection:
(1) any beneficial owner of the person; and
(2) all beneficial owners of the beneficial owner
described by Subdivision (1) of this subsection until the last
person named is a natural person.
D. All information disclosed under Subsection B of this
section is considered public information for all purposes.
E. This section shall be liberally construed in favor of
requiring the disclosure of information required by this section.
Sec. 46. NONPROFIT CORPORATION THAT BENEFICIALLY OWNS
TEXAS-BASED PUBLIC COMPANY; ADDITIONAL DISCLOSURES. A. This
subsection applies only to a nonprofit corporation that is the last
named beneficial owner of a person required to make a disclosure
under Section 45B of this Act. A donor who makes financial
contributions to a nonprofit corporation shall disclose the
information required by Section 45B of this Act in the same manner
and to the same extent as a person required to disclose the
information under that section if the financial contributions are
in an amount equal to the lesser of:
(1) one percent of the aggregate contributions made to
the corporation in the preceding 12 months; or
(2) $100,000.
B. A nonprofit corporation required to disclose information
under Section 45 of this Act shall disclose:
(1) the corporation's annual financial statements for
each of the preceding three fiscal years;
(2) the corporation's year-to-date financial
statements for the fiscal year in which the nonprofit corporation
becomes an activist investor;
(3) a good faith estimate of the total amount the
nonprofit corporation expects to spend in the corporation's current
fiscal year to further the corporation's activist investor
activities directly and through other persons the corporation may
have an ownership interest in or with which the corporation is
affiliated; and
(4) the total compensation paid by the nonprofit
corporation to its 10 most highly compensated employees for each of
the preceding five fiscal years.
C. A nonprofit corporation shall disclose the information
required by Subsection B of this section in the same manner and to
the same extent the corporation is required to disclose information
under Section 45 of this Act.
D. This section shall be liberally construed in favor of
requiring disclosure of the information required by this section.
Sec. 47. CHANGE TO CERTAIN DISCLOSED INFORMATION;
AMENDMENT. If, during the time a person described by Section 45A of
this Act is an activist investor of the Texas-based public company,
any change occurs in the information contained in the certified
statement the person filed under Section 45 of this Act, the person
shall:
(1) file an amendment to the certified statement with
the Securities Commissioner not later than the 10th day after the
date the change occurs; and
(2) deliver, by United States certified mail, a
correct and complete copy of the amendment to the security issuer's
headquarters in this state.
Sec. 48. ACTIONS TO AVOID MAKING CERTAIN REQUIRED
DISCLOSURES PROHIBITED. A. This section does not apply to a mutual
fund.
B. A person may not act at the direction of, for the benefit
of, or otherwise on behalf of another person with the intent or
effect of avoiding a disclosure required by Section 45 or 46 of
this Act.
C. If the board of directors or other governing authority of
a corporation, limited liability company, partnership, or other
Texas-based public company reasonably believes that one or more
persons are acting in concert with, at the direction of, or on
behalf of another person with the intent or effect of avoiding a
disclosure required by Section 45 or 46 of this Act, the governing
authority of the company shall notify the Securities Commissioner
of that conduct.
D. If the Securities Commissioner determines that a person
is violating Subsection B of this section, the Securities
Commissioner shall require the person to disclose the information
required by Section 45 of this Act.
Sec. 49. DEFENSE TO DISCLOSURE REQUIREMENT; INJUNCTIVE
RELIEF. A person who in good faith believes the person has a valid
defense to a disclosure requirement of Section 45 or 46 of this Act
may bring a court action on an expedited basis to seek injunctive
relief.
Sec. 50. CONFIDENTIALITY AGREEMENTS PROHIBITED. A person
who is required to disclose information under Section 45, 46, or 48
of this Act may not request or require that any person entitled to
receive the information:
(1) sign a confidentiality agreement; or
(2) otherwise treat the information as private or
confidential.
Sec. 51. NOTICE TO CERTAIN INVESTORS OF ACTIVIST INVESTORS
OF TEXAS-BASED PUBLIC COMPANIES. A. This section applies only to
a person who has the capability to become an activist investor of a
Texas-based public company and who solicits or accepts money from
one or more investors.
B. Before accepting money from an investor and at least once
each calendar year, a person shall provide to the investor:
(1) a written statement stating that the person may
become an activist investor of a Texas-based public company; and
(2) a legible copy of the most recent version of this
section and Sections 4, 45, 46, 47, 48, 49, 50, 52, 53, and 54 of
this Act.
Sec. 52. DISCLOSURES REQUIRED BY CERTAIN PROXY ADVISORY
FIRMS. A. This section applies to a proxy advisory firm that
publishes or otherwise provides an analysis or a recommendation to
one or more shareholders of a Texas-based public company
concerning:
(1) a nominee to the governing authority or body of
another publicly traded entity, including the board of directors of
a corporation and the general partners of a partnership; or
(2) a shareholder proposal submitted by an activist
investor.
B. At the same time a proxy advisory firm provides to the
shareholders of a Texas-based public company an analysis or
recommendation described by Subsection A of this section, the firm
shall file with the Securities Commissioner and deliver to the
company's headquarters and to the company's registered agent, in
the manner prescribed by Subsection C of this section:
(1) all financial statements of the proxy advisory
firm for each of the preceding five years, including an audited
balance sheet, income statement, and cash flow statement; and
(2) a written statement that:
(A) contains:
(i) the names of all beneficial owners of
the proxy advisory firm, until each beneficial owner named is a
natural person; and
(ii) all notes, e-mails, memoranda,
letters, communications, proposals, analyses, spreadsheets,
presentations, instruments, and any other documents, whether in
written, digital, or magnetic format, relating to the discussions
and deliberations that resulted in the proxy advisory firm's
analysis or recommendation regarding the activist investor's
governing authority nominee or shareholder proposal; and
(B) is signed by the senior executive officer of
the proxy advisory firm certifying that the information provided in
this subsection is correct and complete.
C. A notice to a Texas-based public company required under
Subsection B of this section must be delivered by:
(1) United States certified mail; or
(2) a nationally recognized overnight courier service
with confirmation of receipt.
Sec. 53. DISCLOSURE REQUIREMENTS APPLICABLE TO OTHER PROXY
ADVISORY FIRMS. If the Securities Commissioner determines that a
proxy advisory firm has lowered its rating of a Texas-based public
company as a result of the requirements of Sections 45, 46, 47, 48,
49, 50, 51, 52, 54, and 55 of this Act, the disclosure requirements
of Section 52 of this Act apply to the firm.
Sec. 54. CRIMINAL PENALTY. A. A person commits an offense
if the person does not comply with the requirements of Sections 45,
46, 47, and 48 of this Act. An offense under this subsection is a
Class C misdemeanor.
B. Any criminal penalty under this section shall be imposed
against the senior executive officer of the person that did not
make the required disclosure, in the executive officer's personal
capacity.
C. This section may be enforced by the attorney general or by
the district attorney of the county in this state in which the
headquarters of the security's issuer is located.
Sec. 55. PRIVATE CAUSE OF ACTION. A. This section applies
to a Texas-based public company entitled to receive a disclosure
under Sections 45, 46, 48, 52, and 53 of this Act.
B. A Texas-based public company or a person acting on behalf
of the company may bring an action, on an expedited basis, in a
court in this state against a person that does not comply with the
disclosures described by Subsection A of this section for:
(1) injunctive relief; and
(2) recovery of the company's reasonable attorney's
fees.
C. A civil penalty or remedy in addition to the injunctive
relief provided by Subsection B of this section may not be imposed
or awarded against a person for a violation that arises out of the
same conduct described by that subsection.
SECTION 5. This Act takes effect September 1, 2017.