Current through Register Vol. 30, No. 38, September 20, 2024
A. Promotional securities, held by promoters
of a promotional stage corporation that proposes to make a public offering of
its securities pursuant to A.R.S. Title 44, Chapter 12, Article 7, except
pursuant to A.R.S. §
44-1901,
shall be subject to a restrictive sales agreement in accordance with the
provisions of this Section.
B. As
used in this Section, the following terms have the meaning indicated.
1. "Consideration" includes cash, services
rendered, and tangible or intangible property.
2. "Earnings per share" means fully diluted
earnings computed in accordance with generally accepted accounting
principles.
3. "Promoters" means
any person who meets any one of the following conditions. Promoter does not
include an unaffiliated institutional investor or a person who receives either
securities or proceeds solely as underwriting compensation and who is not a
promoter under subsection (B)(3)(a), (c), (d), or (e).
a. Alone or in conjunction with one or more
persons, directly or indirectly, founded, organized, or controls the
issuer;
b. Directly or indirectly
receives, as consideration for service and property rendered, 5% or more of any
class of the issuer's equity securities or 5% or more of the proceeds from the
sale of any class of the issuer's equity securities;
c. Is an officer, or director of the
issuer;
d. Directly or indirectly,
legally or beneficially owns 10% or more of the issuer's outstanding shares
before or immediately following the public offering;
e. Directly or indirectly, through one or
more intermediaries, controls or is controlled by, or is under common control
with, a promoter as defined in subsections (B)(3)(a) through (d).
4. "Promotional stage corporation"
means a corporation that has no public market for its shares and has no
significant earnings.
5.
"Promotional securities" means securities issued to a promoter, at any time
during the three-year period prior to the proposed public offering date, that
meet the conditions of subsection (C). Promotional securities shall be limited
to common stock unless securities other than common stock were issued for the
primary purpose of evading this Section.
6. "Public market" means a public place of
exchange where securities are bought and sold, directly or through
intermediaries. Public market excludes "thin markets" that do not result in
reliable prices. To determine if the securities trade in a public market, the
Commission may consider the market history, the public trading volume, the
spread between the bid and asked prices, the number of market makers, the
public float, the pricing formula, the marketplace in which the securities
trade, the length of time the securities have been traded in that marketplace,
and other relevant factors.
7.
"Restrictive sales agreement" means an agreement between a promotional stage
corporation and a promoter, for the benefit of the shareholders of the
corporation, entered into prior to the proposed public offering of the
promotional stage corporation's securities, subjecting the promotional
securities to a sales restriction for up to three years following the proposed
public offering and including the terms contained in subsection (H). As a
condition of registration, the issuer shall submit the agreement to the
Commission for review.
8.
"Significant earnings" means earnings per share, based upon the issuer's shares
outstanding immediately before the proposed public offering, of at least one of
the following. Such test shall not be deemed the exclusive test for the
determination of "significant earnings."
a.
5% of the public offering price per common share for the prior fiscal year, or
the period of the issuer's existence if less than one fiscal year;
b. 4% of the public offering price per common
share for each of the prior two fiscal years; or
c. 3% of the public offering price per common
share for each of the prior three fiscal years.
9. "Unaffiliated institutional investor"
means any unaffiliated bank; investment company registered under the Investment
Company Act of 1940,
15 U.S.C.
80a-1 to 80a -
64(1994),
as amended; business development company as defined in Section 2(a)(48) of the
Investment Company Act of 1940, 15 U.S.C. 80a -
2(a)(48)
(1994 & Supp. II 1996), incorporated by reference; small business
investment company licensed by the U.S. Small Business Administration under
Section 301 of the Small Business Investment Act of 1958,
15
U.S.C. 681(1994), as
amended; employee benefit plan within the meaning of Title I of the Employee
Retirement Income Security Act of 1974,
29
U.S.C. 1002(3) (1994),
incorporated by reference; insurance company; private business development
company as defined in Section 202(a)(22) of the Investment Advisers Act of
1940, 15 U.S.C. 80b -
2(a)(22)
(1994), incorporated by reference; or
comparable business entity engaged as a substantial part of its business in the
purchase and sale of securities and that owns less than 20% of the securities
to be outstanding at the completion of the proposed public offering. Copies of
documents incorporated by reference do not contain any later amendments or
editions, are on file in the Office of the Secretary of State, and are
available from the Securities Division of the Corporation Commission and from
the Superintendent of Documents, Government Printing Office, Washington, D.C.
20402.
C. Securities
that are issued to promoters for consideration valued at less than the
following percentages of the proposed public offering price, in an amount that
represents an ultimate right of participation in excess of 15% of the
securities to be outstanding at the completion of the proposed public offering,
shall be promotional securities. The value of consideration other than cash
received by the issuer for shares shall be established to the Commission's
satisfaction by appraisals, evidence of amounts paid by others for
substantially similar services or property, evidence of a bona fide offer to
purchase such services or property, evidence of significant services rendered
or contractually required to be rendered to the issuer, which may take into
account the relevant experience, special skills, and other qualifications of
the person rendering the service, or any other evidence. The value of noncash
consideration that cannot be established to the satisfaction of the Commission
shall be 0.
1. For all securities issued to a
promoter within one year prior to and including the date of the offering of
securities to the public: 85%.
2.
For all securities issued to a promoter within two years but not less than one
year prior to and including the date of the offering of securities to the
public: 75%.
3. For all securities
issued to a promoter within three years but not less than two years prior to
and including the date of the offering of securities to the public:
65%.
D. A summary of the
sales restriction terms shall be included in the offering documents, and a
legend evidencing the sales restriction shall appear on each certificate
representing the shares subject to the restriction.
E. In the event that any of the following
occurs during the term of the restrictive sales agreement, the promotional
securities shall be released in accordance with subsection (G):
1. For 60 consecutive trading days commencing
at least 90 days after the date of the offering of the securities to the
public, the issuer's securities trade in a public market at a price of not less
than 150% of the offering price per share.
2. For 90 consecutive trading days commencing
at least 12 months after the date of the offering of the securities to the
public, the issuer's securities trade in a public market at a price of not less
than 110% of the offering price per share.
3. For any fiscal years ending after the date
of the offering of the securities to the public, the issuer has earnings per
share of at least:
a. 5% of the public
offering price per common share for that fiscal year;
b. 4% of the public offering price per common
share for that fiscal year and for the prior fiscal year, calculated
independently, whether or not such prior fiscal year ended after the date of
the offering of the securities to the public; or
c. 3% of the public offering price per common
share for that fiscal year and for each of the two prior fiscal years,
calculated independently, whether or not such prior fiscal years ended after
the date of the offering of the securities to the public.
4. The securities become covered securities
as that term is defined in subsection 18(b)(1)(A) of the Securities Act of 1933
(
15 U.S.C.
77 r(b)(1)(A) (Supp. II 1996)), incorporated
by reference.
5. A bona fide tender
offer or an offer to merge or otherwise acquire the issuer's equity securities
by an unaffiliated purchaser, pursuant to a vote by the majority of the
shareholders and in accordance with the following:
a. If the transaction occurs within 24 months
of the effective date of the offering registered with the Commission, all
public shareholders of the issuer will receive cash in the amount of at least
two times the public offering price per share of equity securities at the
effective date of the tender offer, merger, or other acquisition, or
securities--listed or to be listed, or qualified in all respects for listing,
on the New York Stock Exchange, the American Stock Exchange, or the National
Market System of the National Association of Securities Dealers Automated
Quotations System--in value equal to at least two times the public offering
price per share of equity securities at the effective date of the tender offer,
merger, or other acquisition.
b. If
the transaction occurs more than 24 months after the effective date of the
offering registered with the Commission, all public shareholders of the issuer
will receive cash in the amount of at least 1 1/2 times the public offering
price per share of equity securities, or securities in value equal to at least
1 1/2 times the public offering price per share of equity securities.
6. The securities are transferred
by will or pursuant to the laws of descent and distribution or by court order.
In all such cases, only the securities so transferred shall be released from
the terms of the restrictive sales agreement.
F. If the promotional securities, or any part
thereof, have not been released pursuant to subsections (E)(1) through (6),
then at the end of the first 12-month period after the date of commencement of
the restrictive sales agreement, over each of the next eight calendar quarters,
1/8 of the promotional shares shall be released from the restrictive sales
agreement and the restrictive legend may be removed from the certificates
representing such shares. There is no filing requirement in connection with the
securities released under this subsection.
G. Promotional securities shall automatically
be released from the restrictive sales agreement and the restrictive legend may
be removed from the share certificates upon the filing with the Commission of
any one of the following:
1. With respect to
subsections (E)(1), (2), or (4), a written representation from the promoter
indicating compliance with the applicable subsection;
2. With respect to subsection (E)(3), a
written representation from the promoter indicating compliance with such
subsection accompanied by financial statements, prepared in accordance with
generally accepted accounting principles and audited and reported upon by an
independent certified public accountant, that indicate compliance with the
subsection;
3. With respect to
subsection (E)(5), a written representation from the promoter indicating
compliance with such subsection accompanied by any offering materials relating
to the specified transaction; or
4.
With respect to subsection (E)(6), a certified copy of an order issued by a
court of competent jurisdiction that orders the release or transfer of
promotional securities, a certified copy of an instrument of distribution filed
with a court of competent jurisdiction, or a written representation from the
issuer stating that the securities were transferred pursuant to a will or the
laws of descent and distribution.
H. The restrictive sales agreement shall
include the following terms and conditions:
1. Except as otherwise provided in the
agreement, the promotional securities shall not be transferred, sold, pledged,
hypothecated, or encumbered nor shall the issuer recognize any attempted
transfer, sale, pledge, hypothecation, or encumbrance for three years following
the conclusion of the proposed offering;
2. The number of promotional securities
subject to the restriction;
3. The
identity of owners of the promotional securities;
4. The terms of release under subsections
(E), (F), and (G);
5. Any profits
realized by a promoter who sells promotional securities in violation of the
restrictive sales agreement shall inure to and be recoverable by the
issuer;
6. Promotional securities
may be transferred by gift to family members, not more remote than first
cousins, or to trusts or similar instruments of which the promoter is the
beneficiary for estate-planning purposes, provided the securities remain
subject to the terms of the restrictive sales agreement;
7. Promotional securities may be transferred
by any method or transaction approved by a majority of the shareholders other
than the promoters, provided the securities shall remain subject to the terms
of the restrictive sales agreement;
8. Holders of promotional securities shall
continue to have all voting and other rights to which they are entitled by
ownership of the promotional securities; and
9. All certificates representing stock
dividends from promotional securities and all securities resulting from stock
splits from promotional securities shall be subject to the terms of the
restrictive sales agreement.
I. A breach of the restrictive sales
agreement by a promoter shall be deemed a violation of this Section by such
promoter.
