N.M. Admin. Code § 12.11.9.10

Current through Register Vol. 35, No. 21, November 5, 2024

Section 12.11.9.10 - LOANS AND OTHER MATERIAL AFFILIATED TRANSACTIONS

A. Where there have been or will be loans and other material affiliated transactions as described in this section, the offer or sale of securities may be disallowed by the director unless the issuer has, and represents in the prospectus or offering document that it will maintain, at least two independent directors on its board of directors.

B. The offer or sale of securities may be disallowed by the director if the issuer or its affiliates will have loans outstanding after the offering or intends to make loans to or loan guarantees on behalf of its promoters, other than:

(1) advances to officers, directors and employees for travel, business expenses and similar ordinary operating expenditures;

(2) loans or loan guarantees made for the purchase of an issuer's securities by its officers, directors and employees, and loans for relocation of officers, directors and employees, provided the loans or loan guarantees that are ongoing were approved by a majority of the independent directors of the issuer's board of directors who did not have an interest in the transactions and who had access, at the issuer's expense, to issuer's or independent legal counsel; or

(3) loans made by an issuer or its affiliates whose primary business is that of making loans, provided that:

(a) the loans will be evidenced by promissory notes naming the lender as payee;

(b) the loans will bear interest at rates which are comparable to those normally charged by other commercial lenders for similar loans made in the lender's locale;

(c) the loans will be repaid pursuant to appropriate amortization schedules and contain default provisions comparable to those normally used by other commercial lenders for similar loans made in the lender's locale;

(d) the loans will be made only if credit reports and financial statements show the loans to be collectible and the borrowers are satisfactory credit risks in light of the nature and terms of the loans and other circumstances;

(e) the loans meet the loan policies normally used by other commercial lenders for similar loans made in the lender's locale;

(f) the purposes of the loans and the disbursements of proceeds will be reviewed and monitored in a manner comparable to that normally used by other commercial lenders for similar loans made in the lender's locale; and

(g) the loans will not violate the requirements of any banking or other financial institutions regulatory authority.

C. Except for loans described in Subsection B of this section, all loans existing at the time of the application for registration shall be repaid in full prior to the offering. The director may waive this requirement if:

(1) repayment of the loans will be made pursuant to appropriate amortization schedules; or

(2) any portion of the offering is made on behalf of a promoter and the promoter undertakes to immediately repay the loans from the proceeds of the offering.

D. The offer or sale of securities may be disallowed by the director if the issuer or its affiliates have engaged in other material transactions with promoters unless the prospectus discloses the terms of the transactions and indicates whether such terms were as favorable to the issuer or its affiliates as those generally available from unaffiliated third parties, and:

(1) the transaction is ratified by a majority of the issuer's independent directors who did not have an interest in the transactions and who had access, at the issuer's expense, to issuer's or independent legal counsel; or

(2) for transactions which were entered into and when there were less than two such disinterested independent directors the prospectus discloses that the issuer lacked sufficient disinterested independent directors to ratify the transactions at the time the transactions were initiated.

E. The issuer shall disclose in the prospectus or offering document whether or not it or its affiliates have made or will make loans to, have made or will make loan guarantees on behalf of, or have engaged or will engage in material transactions with promoters, and the terms and details relating thereto. If material affiliated transactions or loans have been made, or may be made, the director may require the following representations to appear in the prospectus or offering document:

(1) all future loans and other material affiliated transactions will be made or entered into on terms that are no less favorable to the issuer than those that can be obtained from unaffiliated third parties; and

(2) all future loans and other material affiliated transactions, and any forgiveness of loans, must be approved by a majority of the issuer's independent directors who do not have an interest in the transactions and who had access, at the issuer's expense, to issuer's or independent legal counsel.

F. The issuer and its officers and directors should consider their due diligence and other obligations to affirmatively demonstrate a reasonable basis for the representations in Subsections D and E of this section. In particular, they should consider whether the representations in Paragraph (1) of Subsection D and Paragraph (2) of Subsection E of this section should be embodied in the issuer's charter or by-laws.

G. An issuer that engages in loans and other material affiliated transactions covered by Paragraph (2) of Subsection B, Paragraph (1) of Subsection D and Paragraph (2) of Subsection E of this section must have at least two independent directors on its board of directors. In the event the issuer has only two independent directors on its board or directors, both independent directors must be disinterested in and approve loans and other material transactions covered by Paragraph (2) of Subsection B, Paragraph (1) of Subsection D and Paragraph (2) of Subsection E of this section.

N.M. Admin. Code § 12.11.9.10

12.11.9.10 NMAC - Rp, 12 NMAC 11.4.8.3, 1-1-2010