CHAPTER 59 HOUSE BILL No. 2718 An Act relating to securities; definitions; amending K.S.A. 1997 Supp. 17-1252, 17-1261
and 17-1262 and repealing the existing sections. Be it enacted by the Legislature of the State of Kansas:

Section 1. K.S.A. 1997 Supp. 17-1252 is hereby amended to read as
follows: 17-1252. When used in this act, unless the context otherwise
requires:

(a) ``Commissioner'' means the securities commissioner of Kansas,
appointed as provided in K.S.A. 17-1270, and amendments thereto.

(b) ``Agent'' means any individual other than a broker-dealer who
represents a broker-dealer or issuer in effecting or attempting to effect
purchases or sales of securities. ``Agent'' does not include an individual
who represents an issuer only in transactions in securities exempted by
subsections (a), (b), (c), (e), (f), (g), (i), (j), (k), (l) or (p) of K.S.A. 17-
1261, and amendments thereto, other than subsection (h) of K.S.A. 17-
1261, and amendments thereto, or who represents a broker-dealer in ef-
fecting transactions in this state limited to those transactions described
in section 15(h)(2) of the securities and exchange act of 1934. A partner,
officer or director of a broker-dealer or issuer, or a person occupying a
similar status or performing similar functions, is an agent only if such
person otherwise comes within this definition.

(c) ``Broker-dealer'' means any person engaged in the business of pur-
chasing, offering for sale or selling securities for the account of others or
for such person's own account; but the term does not include an agent,
issuer, bank, savings institution, insurance company, or a person who ef-
fects transactions in this state exclusively with the issuer of the securities
involved in the transactions or with any person to whom a sale is exempt
under subsection (f) of K.S.A. 17-1262, and amendments thereto.

(d) ``Guaranteed'' means guaranteed as to payment of principal, in-
terest or dividends.

(e) ``Issuer'' means any person who issues or proposes to issue any
security, except that with respect to certificates of deposit, voting-trust
certificates or collateral-trust certificates, or with respect to certificates of
interest or shares in an unincorporated investment trust not having a
board of directors (or persons performing similar functions) or of the
fixed, restricted management or unit type; the term ``issuer'' also means
the person or persons performing the acts and assuming the duties of
depositor or manager pursuant to the provisions of the trust or other
agreement or instrument under which the security is issued. The issuer
of a certificate of interest in an oil and gas royalty, lease or mineral deed
is the owner of the interest in the oil and gas royalty, lease or mineral
deed who creates the certificate of interest for purpose of sale.

(f) ``Nonissuer'' means not directly or indirectly for the benefit of the
issuer.

(g) ``Person'' means an individual, a corporation, a partnership, an
association, a joint-stock company, a trust where the interests of the ben-
eficiaries are evidenced by a security, an unincorporated organization, a
government or a political subdivision of a government.

(h) (1) ``Sale'' or ``sell'' includes every contract of sale of, contract to
sell, or disposition of, a security or interest in a security for value.

(2) ``Offer'' or ``offer to sell'' includes every attempt or offer to dispose
of, or solicitation of an offer to buy, a security or interest in a security for
value.

(3) Any security given or delivered with, or as a bonus on account of,
any purchase of securities or any other thing is considered to constitute
part of the subject of the purchase and to have been offered and sold for
value.

(4) Every sale or offer of a warrant or right to purchase or subscribe
to another security of the same or another issuer, and every sale or offer
of a security which gives the holder a present or future right or privilege
to convert into another security of the same or another issuer, is consid-
ered to include an offer of the other security.

(5) A purported gift of assessable stock is considered to involve an
offer and sale of such stock.

(i) ``Securities act of 1933,'' ``securities exchange act of 1934,'' ``public
utility holding company act of 1935,'' and ``investment company act of
1940'' mean the federal statutes of those names.

(j) ``Security'' means any note; stock; treasury stock; bond; debenture;
evidence of indebtedness; certificate of interest or participation in any
profit-sharing agreement; collateral-trust certificate; preorganization cer-
tificate or subscription; transferable share; investment contract; voting-
trust certificates; thrift certificates or investment certificates, or thrift
notes issued by investment companies; certificate of deposit for a security;
certificate of interest in oil and gas royalties, leases or mineral deeds; or,
in general, any interest or instrument commonly known as a ``security,''
or any certificate of interest or participation in, temporary or interim
certificate for, guarantee of, or warrant or right to subscribe to or pur-
chase, any of the foregoing. ``Security'' does not include any insurance or
endowment policy or annuity contract under which an insurance company
promises to pay money either in a lump sum or periodically for life or
some other specified period.

(k) ``State'' means any state, territory, or possession of the United
States, as well as the District of Columbia and Puerto Rico.

(l) ``Investment adviser'' means any person who, for compensation,
engages in the business of advising others, either directly or through
publications or writings, as to the value of securities or as to the advisa-
bility of investing in, purchasing, or selling securities, or who, for com-
pensation and as a part of a regular business, issues or promulgates anal-
yses or reports concerning securities. The term does not include:

(1) An investment adviser representative;

(2) a bank, savings institution, or trust company;

(3) a lawyer, accountant, engineer or teacher whose performance of
these services is solely incidental to the practice of the individual's pro-
fession;

(4) a broker-dealer or its agent whose performance of these services
is solely incidental to the conduct of its business as a broker-dealer and
who receives no special compensation for them;

(5) a publisher of any bona fide newspaper, news column, news mag-
azine, newsletter, or business or financial publication or service, whether
communicated in hard copy form or by electronic means, or otherwise
that does not consist of the rendering of advice on the basis of the specific
investment situation of each client;

(6) any person that is a federal covered adviser; or

(7) such other persons not within the intent of this definition as the
commissioner designates by order or by rules and regulations.

(m) (1) ``Investment adviser representative'' means any partner, of-
ficer, director of or a person occupying a similar status or performing
similar functions or other individual except clerical or ministerial person-
nel, who is employed by or associated with:

(A) An investment adviser that is registered or required to be regis-
tered under this act, or who has a place of business located in this state
and is employed by or associated with a federal covered adviser; and who
does any of the following:

(1) (i) Makes any recommendations or otherwise renders advice re-
garding securities;

(2) (ii) manages accounts or portfolios of clients;

(3) (iii) determines which recommendation or advice regarding se-
curities should be given;

(4) (iv) solicits, offers or negotiates for the sale of or sells investment
advisory services; or

(5) (v) supervises employees who perform any of the foregoing; or

(B) a federal covered adviser, subject to the limitations of section
203A of the investment advisers act of 1940, as the commissioner may
designate by rule or order.

(2) ``Investment adviser representative'' does not include such other
persons employed by or associated with either an investment adviser or
federal covered adviser not within the intent of this subsection as the
commissioner may designate by rule or order.

(n) ``Federal covered security'' means any security that is a covered
security under section 18(b) of the securities act of 1933 or rules or reg-
ulations promulgated thereunder.

(o) ``Federal covered adviser'' means a person who is registered under
section 203 of the investment advisers act of 1940 or excluded from the
definition of ``investment adviser'' under section 202(a)(11) of the invest-
ment advisers act of 1940.

Sec. 2. K.S.A. 1997 Supp. 17-1261 is hereby amended to read as
follows: 17-1261. The following securities shall be exempt from the reg-
istration requirements of K.S.A. 17-1255 through 17-1260, and amend-
ments thereto, shall not apply to any of the following securities:

(a) Any security issued or guaranteed by the United States or by any
state, territory or insular possession thereof, or by any political subdivision
of any such state, territory or insular possession, or by the District of
Columbia, or by any public agency or instrumentality of one or more of
any of the foregoing.

(b) Any security issued or guaranteed by Canada, any Canadian prov-
ince, any political subdivision of any such province, any agency or cor-
porate or other instrumentality of one or more of the foregoing or any
other foreign government or governmental combination or entity with
which the United States maintains diplomatic relations, if the security is
recognized as a valid obligation by the issuer, insurer or guarantor.

(c) Any security issued by and representing an interest in or a debt
of, or guaranteed by, any bank organized under the laws of the United
States, or any bank, savings institution, credit union or trust company
organized and supervised under the laws of this state except that the
issuer of such security is subject to the supervision of the banking de-
partment, savings and loan department or credit union administrator of
this state.

(d) Any security issued by and representing an interest in or a debt
of, or guaranteed by, any federal savings and loan association, or any
savings and loan association organized under the laws of this state and
authorized to do business in this state.

(e) Any security issued by and representing an interest in or a debt
of, or guaranteed by, any insurance company organized under the laws
of any state and authorized to do business in this state when such secu-
rities are sold by the issuer.

(f) Any security issued or guaranteed by any railroad, or public utility
which is:

(1) a registered holding company under the public utility holding
company act of 1935 or a subsidiary of such a company within the mean-
ing of that act; or

(2) regulated by a governmental authority of the United States or any
state in respect to the issuance or guarantee of the security.

(g) Any security as to which the commissioner by rule and regulation
finds that registration is not necessary or appropriate for the protection
of investors.

(h) Any security issued by any person organized and operated not for
private profit but exclusively for religious, educational, benevolent, char-
itable, fraternal, social, athletic, fire protection, fire fighting or reforma-
tory purposes, or as a chamber of commerce or trade or professional
association if no part of the net earnings of such person inures to the
benefit of any private stockholder and provided that the issuer has filed
with the commissioner at least 10 days prior to any sale a notice setting
forth the material terms of the proposed sale, copies of any sales and
advertising literature to be used, and such other information required by
the commissioner, and the commissioner does not by order disallow the
exemption within 10 days after filing.

(i) Any commercial paper which arises out of a current transaction or
the proceeds of which have been or are to be used for current transac-
tions, and which evidences an obligation to pay cash within nine months
of the date of issuance, exclusive of days of grace, or any renewal of such
paper which is likewise limited, or any guarantee of such paper or of any
such renewal.

(j) Any securities issued in connection with an employee's stock pur-
chase, savings, pension, profit-sharing or similar benefit plan, or a self-
employed person's retirement plan.

(k) Any security evidencing membership in, or issued as a patronage
dividend by, a cooperative association organized under the laws of this
state exclusively for the purpose of conducting an agricultural, dairy, live-
stock or produce business, or selling, processing, storing, marketing or
otherwise handling any agricultural, dairy, livestock or produce, and any
activities incidental to these purposes.

(l) Any security issued by and representing an interest in or debt of,
or evidencing membership in, or issued as a patronage dividend to resi-
dents or landowners of not to exceed five contiguous counties in Kansas
by a cooperative association organized under the laws of this state exclu-
sively for the purpose of conducting an agricultural, dairy, livestock or
produce business, or selling, processing, storing, marketing, retailing, or
otherwise handling any agricultural, dairy, livestock or produce, or farm
supplies, and any activities incidental to these purposes.

(m) Securities constituting part of an issue, which, in whole or in part
has been lawfully sold and distributed to the public in this or any other
state, when offered for resale in good faith and not directly or indirectly
for the benefit of the issuer or for the direct or indirect purpose of pro-
moting any scheme or enterprise having the effect of violating or evading
any provisions of this act, except that this exemption shall not apply (1)
where the authority to sell such securities has been prohibited or denied
under the provisions of this act, or (2) where the sale of such securities
in this state has been enjoined as provided in this act or (3) until there
shall have been filed with the securities commissioner of Kansas by any
registered broker-dealer a prospectus in such form as may be prescribed
by the commissioner containing: (A) Latest available financial statement
of the issuer; (B) management personnel; and (C) such other available
information as the commissioner may require. The filing of the prospectus
and its approval by the commissioner shall constitute the exemption
herein provided. Any prospectus may be disapproved at any time, if after
a reasonable notice and a hearing, the commissioner shall find that the
further exemption of the securities would be fraudulent or tend to work
imposition or fraud upon the purchaser thereof.

(n) Any annuity, gift annuity, charitable remainder unitrust, charita-
ble remainder annuity trust, endowment contract, life income contract,
or investment contract issued by the governing body of any four-year
liberal arts college situated in the state of Kansas, and the provisions of
K.S.A. 17-1254, and amendments thereto, shall not apply to any person
in the issuance of such securities governed by this subsection.

(o) Any annuity, gift annuity, charitable remainder unitrust, charita-
ble remainder annuity trust, endowment contract, life income contract or
investment contract issued by the governing body of any nonprofit cor-
poration or foundation organized under the laws of this state, for religious,
charitable or educational purposes, or for the treatment and rehabilitation
of children and adolescents, and which corporation or foundation is li-
censed by the secretary of social and rehabilitation services or secretary
of health and environment, if such corporation or foundation has been in
existence for more than five years and has fund balances in its endowment
fund and unrestricted funds totaling together $1,000,000 or more, and
the provisions of K.S.A. 17-1254, and amendments thereto, shall not apply
to any person in the issuance of securities governed by this subsection.

(p) Any security issued by a bank holding company wholly or partially
in exchange for the capital stock of a bank that is, or will become upon
consummation of such exchange, a subsidiary of such bank holding com-
pany; or any security issued by a savings and loan holding company wholly
or partially in exchange for the capital stock of an insured institution that
is, or will become upon consummation of such exchange, a subsidiary of
such savings and loan holding company. As used in this subsection,
``bank,'' ``bank holding company'' and ``subsidiary'' shall have the same
meanings as are set forth in the federal bank holding company act of
1956, as amended and ``savings and loan holding company'' and ``insured
institution'' shall have the same meanings as are set forth in section 408
of the national housing act, as amended.

Sec. 3. K.S.A. 1997 Supp. 17-1262 is hereby amended to read as
follows: 17-1262. Except as expressly provided in this section, the follow-
ing transactions shall be exempt from the registration requirements of
K.S.A. 17-1254, 17-1255, 17-1257, 17-1258, 17-1259 and 17-1260, and
amendments thereto, shall not apply to any of the following transactions:

(a) Any isolated transaction, whether effected through a broker-
dealer or not.

(b) Any nonissuer distribution by or through a registered broker-
dealer of outstanding securities at a price reasonably related to the current
market price of such securities, if Moody's manual, Standard & Poor's
manual, or any recognized securities manual approved by the commis-
sioner, contains the names of the issuer's officers and directors, a balance
sheet of the issuer as of a date within 18 months, and a profit and loss
statement for either the fiscal year preceding that date or the most recent
year of operations. If the commissioner finds that the sale of certain se-
curities in this state under this exemption would work or tend to work a
fraud on purchasers thereof, the commissioner may revoke the exemption
provided by this subsection with respect to such securities by issuing an
order to that effect and sending copies of such order to all registered
broker-dealers.

(c) Any nonissuer transaction by a registered broker-dealer pursuant
to an unsolicited order or offer to buy. The commissioner may require,
by rules and regulations, that: (1) The customer acknowledge upon a
specified form that the sale was unsolicited; and (2) a signed copy of each
such form be preserved by the broker-dealer for a specified period.

(d) Any transactions in a bond or other evidence of indebtedness
secured by a real or chattel mortgage or deed of trust, or by an agreement
for the sale of real estate or chattels, if the entire mortgage, deed of trust
or agreement, together with all the bonds or other evidences of indebt-
edness secured thereby, is offered and sold as a unit.

(e) Any transaction by an executor, administrator, sheriff, marshal,
receiver, trustee in bankruptcy, guardian or conservator; any transaction
executed by a bona fide pledgee without any purpose of evading this act
or any transaction incident to a judicially approved reorganization in
which a security is issued in exchange for one or more outstanding se-
curities, claims or property interests.

(f) Any offer or sale to a bank, savings institution, trust company,
insurance company, investment company as defined in the investment
company act of 1940, pension or profit-sharing trust or other financial
institution or institutional buyer or to a broker-dealer or underwriter.

(g) Any offer or sale of a preorganization certificate or subscription
if: (1) No commission or other remuneration is paid or given directly or
indirectly for soliciting any prospective subscriber and no advertising has
been published in connection with any such sale; (2) no payment is made
by any subscriber; and (3) such certificate or subscription is expressly
voidable by the subscriber until such subscriber has been notified of final
acceptance or completion of the organization and until the securities sub-
scribed for have been registered. The commissioner may require, by rules
and regulations or by order, reports of sales under this exemption.

(h) Any transaction pursuant to an offer to existing security holders
of the issuer, including persons who at the time of the transaction are
holders of convertible securities, nontransferable warrants or transferable
warrants exercisable within 90 days of their issuance, if: (1) No commis-
sion or other remuneration (other than a standby commission) is paid or
given directly or indirectly for soliciting any security holder in this state;
or (2) the issuer first files a notice specifying the terms of the offer and
the commissioner does not by order disallow the exemption within the
next five full business days.

(i) Any offer (but not a sale) of a security if: (1) Registration state-
ments for such security have been filed under both this act and the se-
curities act of 1933 if no stop order or refusal order is in effect and no
public proceeding or examination looking toward such an order is pending
under either act; or (2) a registration statement for such security has been
filed under K.S.A. 17-1256 or 17-1258, and amendments thereto, no stop
order or emergency order issued pursuant to K.S.A. 17-1260, and amend-
ments thereto, is in effect and the offer is made on behalf of the issuer
by a registered broker-dealer.

(j) The issuance of any stock dividend, whether the corporation dis-
tributing the dividend is the issuer of the stock or not, if nothing of value
is given by stockholders for the distribution other than the surrender of
a right to a cash dividend where the stockholder can elect to take a div-
idend in cash or stock.

(k) A transaction involving the distribution of the securities of an is-
suer to the security holders of another person in connection with a
merger, consolidation, exchange of securities, sale of assets or other re-
organizations to which the issuer, or its parent or subsidiary, and the other
person, or its parent or subsidiary, are parties, if:

(1) The securities to be distributed are registered under the securities
act of 1933 before the consummation of the transaction; or

(2) the securities to be distributed are not required to be registered
under the securities act of 1933, written notice of the transaction and a
copy of the materials, if any, by which approval of the transaction will be
solicited is given to the commissioner at least 10 days before the consum-
mation of the transaction and the commissioner does not disallow, by
order, the exemption within the next 10 days.

(l) The offer or sale of securities by an issuer that is a corporation,
limited partnership or limited liability company formed under the laws
of the state of Kansas, if: (1) The aggregate number of sales by the issuer
in the twelve-month period ending on the date of the sale does not exceed
20 sales; (2) the seller believes that the purchaser is purchasing for in-
vestment; (3) no commission nor other remuneration is paid or given,
directly or indirectly, for soliciting the purchaser; and (4) neither the
issuer nor any person acting on its behalf shall offer or sell the securities
by any form of general solicitation or general advertising, including, but
not limited to, the following: (A) Any advertisement, article, notice or
other communication published in any newspaper, magazine or similar
media or broadcast over television or radio or (B) any seminar or meeting
whose attendees have been invited by any general solicitation or general
advertising.

In calculating the number of sales in a twelve-month period, sales made
in violation of K.S.A. 17-1255, and amendments thereto, and sales exempt
from registration under subsection (a) or (l) shall be taken into account.
For purposes of the exemption in this subsection, a husband and wife
shall be considered as one purchaser. A corporation, partnership, asso-
ciation, joint-stock company, trust or other unincorporated organization
shall be considered as one purchaser unless it was organized for the pur-
pose of acquiring the purchased securities. In such case each beneficial
owner of equity interest or equity securities in the entity shall be consid-
ered a separate purchaser. The commissioner may withdraw this exemp-
tion or impose conditions upon its use.

(m) Any transaction pursuant to rules and regulations adopted by the
commissioner for limited offerings which was adopted for the purpose of
furthering the objectives of compatibility with federal exemptions and
uniformity among the states.

(n) Any transaction pursuant to rules and regulations adopted by the
commissioner concerning the offer or sale of an oil, gas or mining lease,
fee or title if the commissioner finds that registration is not necessary or
appropriate for the protection of investors.

(o) Any offer or sale by an investment company, as defined by K.S.A.
16-630, and amendments thereto, of its investment certificates.

(p) The offer or sale of a security, issued by Kansas Venture Capital,
Inc., or its successors.

Sec. 4. K.S.A. 1997 Supp. 17-1252, 17-1261 and 17-1262 are hereby
repealed.

Sec. 5. This act shall take effect and be in force from and after its
publication in the Kansas register.

Approved April 2, 1998

Published in the Kansas Registers April 9, 1998

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