N.M. Code R. § 12.11.9.15

Current through Register Vol. 35, No. 11, June 11, 2024

Section 12.11.9.15 - UNDERWRITING EXPENSES, UNDERWRITER'S WARRANTS, SELLING EXPENSES AND SELLING SECURITY HOLDERS

A. An offer or sale of securities may be disallowed by the director if the underwriting expenses to be incurred exceed 17 percent of the gross proceeds from the public offering.

B. Underwriting expenses include, but are not limited to:

(1) commissions to underwriters or broker-dealers;

(2) non-accountable fees or expenses to be paid to the underwriters or broker-dealers;

(3) underwriter's warrants, which shall be valued using the following formula: .5 multiplied by ((165 percent of the offering price) minus (the exercise price multiplied by the number of shares offered to the public)) multiplied by (the number of shares underlying the warrants divided by the number of shares offered to the public) equals Warrant Value; the value may be reduced by 20 percent if the exercise period of the warrants is extended from one year after the public offering to two years after the public offering and by 40 percent if the exercise period of the warrants is extended from one year after the public offering to three years after the public offering; warrants granted to underwriters are subject to the following restrictions:

(a) the underwriter is a managing underwriter;

(b) the public offering is either a firmly underwritten offering or a "minimum-maximum" offering; options or warrants may be issued in a "minimum-maximum" public offering only if:

(i) the options or warrants are issued on a pro rata basis;

(ii) the "minimum" amount of securities has been sold;

(iii) the exercise price of the warrants is at least equal to the public offering price;

(iv) the number of shares covered by underwriter's options or warrants does not exceed ten percent of the shares of common stock actually sold in the public offering;

(v) the life of the options or warrants does not exceed a period of five years from the completion date of the public offering;

(vi) the options or warrants are not exercisable for the first year after the completion date of the public offering; and

(c) options or warrants are not transferred, except:

(i) to partners of the underwriter, if the underwriter is a partnership;

(ii) to officers and employees of the underwriter, who are also shareholders of the underwriter if the underwriter is a corporation; or

(iii) by will, pursuant to the laws of descent and distribution, or by the operation of law;

(d) the warrant agreement does not allow for a reduction in the exercise price of the options or warrants resulting from the subsequent issuance of shares by the issuer except where such issuances are pursuant to a:

(i) stock dividend or stock split; or

(ii) merger, consolidation, reclassification, reorganization, recapitalization or sale of assets;

(4) right of first refusal, which shall be valued at 1 percent of the public offering or the amount payable to the underwriter if the issuer terminates the right of first refusal;

(5) solicitation fees payable to the underwriter, which shall be valued at the lesser of actual cost or one percent of the public offering if the fees are payable within one year of the offering;

(6) financial consulting or financial advisory agreements with an underwriter or any other similar type of agreement or fees, however designated, which shall be valued at actual cost;

(7) underwriter's due diligence expenses;

(8) payments made either six months prior to or required to be made six months following the public offering to investor relations firms designated by the underwriter; and

(9) other underwriting expenses incurred in connection with the public offering of securities as determined by the director.

C. Underwriting expenses shall not include financial consulting or financial advisory agreements with the underwriter payable at the time the services are rendered, provided that such agreement was entered into at least twelve months before the registration is filed with the SEC.

D. An offer or sale of securities may be disallowed by the director if the direct and indirect selling expenses of the offering exceed 20 percent of the gross proceeds from the public offering.

E. Selling expenses include, but are not limited to:

(1) commissions to underwriters or broker-dealers;

(2) non-accountable fees or expenses to be paid to the underwriters or broker-dealers;

(3) auditors' and accountants' fees;

(4) legal fees;

(5) the cost of printing prospectuses, circulars and other documents required to comply with securities laws and regulations;

(6) charges of transfer agents, registrars, indenture trustees, escrow holders, depositories, engineers, appraisers and other experts;

(7) the cost of authorizing and preparing the securities, including issue taxes and stamps;

(8) financial consulting or financial advisory agreements with an underwriter or any similar type agreement or fees, however designated, which shall be valued at actual cost, excluding financial and consulting agreements which are entered into at least 12 months before the registration is filed with the SEC;

(9) payments made either six months prior to or required to be made six months following the public offering to investor relations firms designated by the underwriter; and

(10) other selling expenses incurred in connection with the public offering of securities as determined by the director.

F. A public offering or sale of securities that includes selling security holders offering in aggregate more than ten percent of the securities to be sold in the public offering may be disallowed by the director unless:

(1) selling security holders offering or selling in aggregate more than 10 percent but less than 50 percent of the securities to be sold in the public offering pay a pro rata share of all selling expenses of the public offering, excluding the legal and accounting expenses of the public offering;

(2) selling security holders offering in aggregate more than 50 percent of the securities to be sold in the offering pay a pro rata share of all selling expenses of the public offering; and

(3) the prospectus or offering document discloses the amount of selling expenses which the selling security holders will pay.

G. With the exception of underwriter's or broker-dealer's compensation, the provisions of Subsection F of this section shall not apply if the selling security holders have a written agreement with the issuer that was entered into in an arms-length transaction, whereby the issuer has agreed to pay all of the selling security holders' selling expenses.

N.M. Code R. § 12.11.9.15

12.11.9.15 NMAC - Rp, 12 NMAC 11.4.8.8, 1-1-2010