3 AAC 08.130 - Maximum commissions and expenses

(a) The administrator will, in the administrator's discretion, disallow an offer or sale of securities if the underwriting expenses to be incurred exceed 17 percent of the gross proceeds from the public offering.

(b) Underwriting expenses consist of

(1) commissions to underwriters or broker-dealers;

(2) non-accountable fees or expenses to be paid to the underwriter or broker-dealer;

(3) underwriter's warrants and options; underwriter's warrants and options must be valued as follows:

(A) the warrant value is calculated using the following formula: warrant value = [165 % x (aggregate offering price)] - [(exercise price) x (number of shares offered to the public)] 2} x [(number of shares underlying the warrant) (number of shares offered to the public)]

(B) the value calculated under (A) of this paragraph is 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; a reduction under this subparagraph applies if the warrants granted to underwriters are subject to the following restrictions:

(i) the underwriter must be a managing underwriter;

(ii) the public offering must be either a firmly underwritten offering or a "minimum-maximum" offering, and options or warrants may be issued in a "minimum-maximum" public offering only if the options or warrants are issued on a pro rata basis and the minimum amount of securities has been sold;

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

(iv) the number of shares covered by underwriter's options or warrants may not exceed 10 percent of the shares of common stock actually sold in the public offering;

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

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

(vii) options or warrants may not be transferable, except to partners of the underwriter, if the underwriter is a partnership, to officers and employees of the underwriter who are also shareholders of the underwriter, if the underwriter is a corporation, by will, under the laws of descent and distribution, or by the operation of law;

(viii) the warrant agreement may not allow for a reduction in the exercise price of the options or warrants resulting from a subsequent issuance of shares by the issuer except if that issuance is under a stock dividend or stock split, merger, consolidation, reclassification, reorganization, recapitalization, or sale of assets;

(C) in this paragraph, "aggregate offering price" means the sum of all cash and other consideration to be received for issuance of the securities;

(4) rights of first refusal, rights of first refusal must be valued at

(A) one percent of the public offering; or

(B) the amount payable to the underwriter if the issuer terminates the right of first refusal;

(5) solicitation fees payable to the underwriter; solicitation fees must be valued at the lesser of

(A) actual cost; or

(B) 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 fee, however designated; those agreements must be valued at actual cost;

(7) expenses that the underwriter incurs to meet due diligence obligations;

(8) payments either made within six months before or required to be made within six months after 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 administrator.

(c) Underwriting expenses do not include financial consulting or financial advisory agreements with the underwriter payable at the time the services are rendered, if those agreements were entered into at least twelve months before the registration is filed with the SEC.

(d) The administrator will, in the administrator's discretion, disallow an offer or sale of securities if the direct and indirect selling expenses of the offering exceed 20 percent of the gross proceeds from the public offering.

(e) Selling expenses consist of

(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 fee, however designated; those agreements

(A) must be valued at actual cost; and

(B) do not include a financial or consulting agreement that is entered into at least twelve months before the registration is filed with the SEC;

(9) payments either made within six months before or required to be made within six months after the public offering to an investor relations firm designated by the underwriter;

(10) expenses incurred in connection with bridge financing in the twelve month period preceding a public offering of securities; those expenses include

(A) direct expenses attributable to the financing including interest charges and those expenses set forth in this subsection and (b) of this section;

(B) warrants and options valued in accordance with (b)(3) of this section; and

(C) expenses attributable to the issuance of securities that are not options, warrants, or convertible securities; those expenses must be valued using the following formula:

[(public offering price per share) - (cost per share)] x [(number of securities issued) x 100]} (aggregate public offering proceeds); and

(11) other cash expenses incurred in connection with the public offering of securities as determined by the administrator.

(f) The administrator will, in the administrator's discretion, disallow a public offering or sale of securities, that includes selling security holders offering more than 10 percent of the securities to be sold in the public offering, unless selling security holders offering

(1) or selling 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, and the prospectus or offering document discloses the amount of selling expenses that the selling security holders will pay; or

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

(g) The provisions of (f) of this section do not apply if the selling security holders have a written agreement with the issuer, that was entered into in an arm's-length transaction, under which the issuer has agreed to pay all of the selling security holders' selling expenses. In the agreement, the issuer need not agree to pay an underwriter's or broker-dealer's compensation.

Notes

3 AAC 08.130

Eff. 2/20/72, Register 41; am 4/19/2000, Register 154

Authority:AS 45.55.120

AS 45.55.950