69W-700.008. Options and Warrants to Officers, Employees and Others

The Office of Financial Regulation will permit the registration of securities where options and warrants are granted to officers, employees and others only on the condition that such options or warrants meet the criteria set forth below.

(1) An issuer may not grant options or warrants at an exercise price that is less than 85% of the fair market value of the issuer’s underlying shares of common stock or similar securities on the date of grant.

(2) Limitations on the total number of options and warrants.

(a) For one year following the effective date of the offering, the total number of options and warrants that the issuer may issue or reserve for issuance may not exceed 15% of the sum of the issuer’s common stock outstanding at the date of the public offering plus:

1. The number of firmly underwritten shares being offered; or

2. The number of shares required to meet the minimum offering amount, if not firmly underwritten.

(b) The calculation in paragraph (a) excludes options and warrants that:

1. The issuer issued or reserved for issuance to an unaffiliated “institutional investor” as defined in subsection (4) of this rule, or a “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), which is incorporated by reference in Rule 69W-200.002, F.A.C., in connection with a loan if:

a. The options or warrants are issued at the same time as the loan;

b. The options or warrants are issued as the result of negotiations between the issuer and an unaffiliated “institutional investor” as defined in subsection (4) of this rule, or a “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);

c. The exercise price of the options or warrants is not less than the fair market value of the issuer’s common stock or similar securities underlying the options or warrants on the date the loan was approved; and,

d. The number of shares that can be issued on exercise of the options or warrants multiplied by the options or warrants’ exercise price does not exceed the face amount of the loan.

2. In connection with acquisitions, reorganizations, consolidations, or mergers, if:

a. The options or warrants are issued to persons that are unaffiliated with the issuer; and,

b. Exercising the options or warrants will not materially dilute the issuer’s earnings at the time of grant after giving effect to the acquisition, reorganization, consolidation or merger.

3. The issuer issued or reserved for issuance to employees or consultants who are not promoters under an incentive stock option plan under Section 422 of the Internal Revenue Code (26 U.S.C. §422), which is incorporated by reference in Rule 69W-200.002, F.A.C.; or

4. A person may exercise at or above the offering price for public investors.

(3) Options and warrants issued in connection with acquisitions, reorganizations, consolidations or mergers may be excluded in determining the reasonableness of the number of shares covered by warrants and options if they are issued to parties not affiliated with the issuer. In the event the earnings per share of the issuer would be diluted in excess of 10% by the issuance of shares upon exercise of such options and warrants, the issuer shall disclose such dilution as a specific risk factor in the prospectus.

(4) For the purposes of this rule, “institutional investor” means any of the following, whether acting for itself or for others in a fiduciary capacity:

(a) A depository institution or international banking institution;

(b) An insurance company;

(c) A separate account of an insurance company;

(d) An investment company as defined in the Investment Company Act of 1940, which is incorporated by reference in Rule 69W-200.002, F.A.C.;

(e) A broker-dealer registered under the Securities Exchange Act of 1934, which is incorporated by reference in Rule 69W-200.002, F.A.C.;

(f) An employee pension, profit-sharing, or benefit plan if the plan has total assets in excess of $10,000,000 or its investment decisions are made by a named fiduciary, as defined in the Employee Retirement Income Security Act of 1974, which is incorporated by reference in Rule 69W-200.002, F.A.C., that is a broker-dealer registered under the Securities Exchange Act of 1934, an investment adviser registered or exempt from registration under the Investment Advisers Act of 1940, an investment adviser registered under Sections 517.021(14)(a) and 517.12, F.S., a depository institution, or an insurance company;

(g) A plan established and maintained by a State, a political subdivision of a State, or an agency or instrumentality of a State or a political subdivision of a State for the benefit of its employees, if the plan has total assets in excess of $10,000,000 or its investment decisions are made by a duly designated public official or by a named fiduciary, as defined in the Employee Retirement Income Security Act of 1974, that is a broker-dealer registered under the Securities Exchange Act of 1934, an investment adviser registered or exempt from registration under the Investment Advisers Act of 1940, an investment adviser registered under Chapter 517, F.S., a depository institution, or an insurance company;

(h) A trust, if it has total assets in excess of $10,000,000, its trustee is a depository institution, and its participants are exclusively plans of the types identified in paragraph (f) or (g), regardless of the size of their assets, except a trust that includes as participants self-directed individual retirement accounts or similar self-directed plans;

(i) An organization described in Section 501(c)(3) of the Internal Revenue Code (26 U.S.C. Section 501(c)(3)), which is incorporated by reference in Rule 69W-200.002, F.A.C., corporation, Massachusetts trust or similar business trust, limited liability company, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $10,000,000;

(j) A small business investment company licensed by the Small Business Administration under Section 301(c) of the Small Business Investment Act of 1958 (15 U.S.C. Section 681(c)) with total assets in excess of $10,000,000;

(k) A private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940 (15 U.S.C. Section 80b-2(a)(22)), which is incorporated by reference in Rule 69W-200.002, F.A.C., with total assets in excess of $10,000,000;

(l) A federal covered investment adviser acting for its own account;

(m) A “qualified institutional buyer” as defined in Rule 144A(a)(1), other than Rule 144A(a)(1)(H), adopted under the Securities Act of 1933 (17 C.F.R. §230.144A), which is incorporated by reference in Rule 69W-200.002, F.A.C.;

(n) A “major U.S. institutional investor” as defined in Rule 15a-6(b)(4)(i) adopted under the Securities Exchange Act of 1934 (17 C.F.R. §240.15a-6), which is incorporated by reference in Rule 69W-200.002, F.A.C.; or

(o) Any other person, other than an individual, of institutional character with total assets in excess of $10,000,000 not organized for the specific purpose of evading Chapter 517, F.S.

Rulemaking Authority 517.03 FS. Law Implemented 517.03, 517.081(5), (7) FS. History–New 9-20-82, Formerly 3E-20.07, 3E-700.08, 3E-700.008, Amended 9-22-14, 3-21-24.