Arizona Administrative Code
Title 14 - PUBLIC SERVICE CORPORATIONS; CORPORATIONS AND ASSOCIATIONS; SECURITIES REGULATION
Chapter 4 - Corporation Commission - Securities
Article 1 - IN GENERAL RELATING TO THE ARIZONA SECURITIES ACT
Section R14-4-119 - Additional Registration Requirements for Preferred Stock

Universal Citation: AZ Admin Code R 14-4-119

Current through Register Vol. 30, No. 38, September 20, 2024

A. This Section applies to a person proposing to register preferred stock under A.R.S. Title 44, Chapter 12, Article 7. This Section shall not apply to the registration of securities under A.R.S. § 44-1901.

B. As used in this Section, the terms "promoter" and "unaffiliated institutional investor" shall have the same meaning indicated in Section R14-4-105. As used in this Section, the following terms have the meaning indicated.

1. "Adjusted net earnings" means, after subtracting interest and dividends charges, the issuer's net earnings adjusted on a pro forma basis to reflect all of the following:
a. The elimination of any required charges for debt, debt securities, or preferred stock that are to be redeemed or retired from the proceeds derived from the public offering of preferred stock.

b. The effect of any acquisitions or capital expenditures made by the issuer after its last fiscal year, or proposed or required to be made during the current fiscal year that materially affect the issuer's net earnings.

c. The effect of charges or dividends on debt, debt securities, or preferred stock issued after the issuer's last fiscal year.

d. The effect of any charges or dividends on debt, debt securities, or preferred stock issued during the issuer's last fiscal year, but outstanding for only a portion of the year. The effect of the charges or dividends shall be treated as if the debt, debt securities, or preferred stock had been outstanding for the entire last fiscal year.

e. The effect of any other material changes to an issuer's future net earnings.

2. "Net earnings" means the issuer's after-tax earnings that are derived from its normal operations, exclusive of extraordinary and nonrecurring items, determined according to generally accepted accounting principles.

C. The Commission may deny an application if the issuer's adjusted net earnings for the last fiscal year or its average adjusted net earnings for the last three fiscal years prior to the public offering were not sufficient to pay its fixed charges and preferred stock dividends, whether or not accrued, and to meet the redemption requirements, if applicable, of the preferred stock being offered.

D. As an alternative to subsection (C), the Commission may consider the issuer's "statement of cash flows," prepared in conformity with generally accepted accounting principles, if the statement demonstrates that the issuer has had positive "net cash provided by operating activities" for its last fiscal year. If the issuer will be redeeming or retiring debt securities using the proceeds from the public offering, the issuer shall make a pro forma adjustment for the elimination of the related interest charges, net of applicable income taxes. The Commission may require that the issuer submit a financial statement demonstrating an average positive "net cash provided by operating activities" for the last three fiscal years prior to the public offering. In either instance there must be sufficient cash to cover the preferred stock dividend whether or not declared.

E. Subsections (C) and (D) shall not apply to the registration of convertible preferred stock that is superior in right to payment of dividends, interest, and liquidation proceeds to any convertible debt and preferred stock that are legally or beneficially, directly or indirectly, owned by promoters. The issuer shall disclose the risks of failure to declare or pay dividends and the equity characteristics of the convertible preferred stock in the prospectus or offering document.

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