Registration of Securities, Filing of Prospectus, Promoters Equity Investment Ratio, Voting Rights, Options or Warrants Granted Underwriters, Options and Warrants to Officers, Employees and Others, Preferred Stock or Debt Securities, Real Estate ...
DEPARTMENT OF FINANCIAL SERVICES
RULE NOS.:RULE TITLES:
69W-700.001Registration of Securities
69W-700.002Filing of Prospectus
69W-700.005Promoters Equity Investment Ratio
69W-700.006Voting Rights
69W-700.007Options or Warrants Granted Underwriters
69W-700.008Options and Warrants to Officers, Employees and Others
69W-700.010Preferred Stock or Debt Securities
69W-700.014Real Estate Investment Trusts (REIT)
69W-700.015Offering Price of Equity Securities
69W-700.026Unsound Financial Condition
69W-700.028Small Corporate Offering Registration ("SCOR" Offering)
NOTICE OF CHANGE
Notice is hereby given that the following changes have been made to the proposed rule in accordance with subparagraph 120.54(3)(d)1., F.S., published in Vol. 40, No. 97, May 19, 2014 issue of the Florida Administrative Register.
Following comment by the Joint Administrative Procedures Committee, the following changes are made:
1. The Purpose and Effect statement is revised to add additional statements regarding the purpose of the amendments, and the Summary statement in the Notice is revised to briefly summarize the proposed rules.
2. Statements are added in paragraphs 69W-700.008(4)(e), (4)(f), and (4)(i) F.A.C., to indicate that certain federal statutes referred to are incorporated by reference in Rule 69W-200.002, F.A.C. In addition, the reference to Chapter 517, F.S. in paragraph 69W-700.008(4)(f) F.A.C., is changed to specify Sections 517.021(13)(a) and 517.12, F.S.
3. Paragraph 69W-700.008(4)(p) F.A.C., is stricken, as “institutional investor” is not defined in any other rule in chapter 69W.
4. The term “Disclosure Document” in paragraphs 69W-700.006(1)(a), 700.008(3), and 700.015(2), F.A.C., is replaced with “prospectus” to keep this terminology consistent throughout the rule chapter.
PURPOSE AND EFFECT: The purpose of these amendments is to increase capital formation in Florida by removing certain regulatory burdens deemed unnecessary for startup businesses while maintaining investor protections. The rules are proposed for amendment to clearly state the forms required for the registration of securities; broaden the types of offerings to be all-inclusive and increase consumer protection; allow companies to determine voting rights of common stock when coupled with adequate disclosure; provide disclosure protections to allow the decision-making to be on the investor; disallow the transfer of options and warrants issued to underwriters to anyone outside of the underwriter; limit the number of shares covered by the underwriter's options and warrants to 10% of shares actually sold; define parameters to provide increased investor protections; add a definition for institutional investor; remove provisions duplicative of statute; incorporate contents and remove cross-reference to another rule; add disclosure language; remove discretion of the Office; repeal Rule 69W-700.028, F.A.C.; and update references to incorporated material to Rule 69W-200.002, F.A.C. The purpose and effect of placing material incorporated by reference in this chapter into proposed Rule 69W-200.002, F.A.C., is to streamline the process by which the latest version of each material can be incorporated by reference pursuant to Section 120.54(1)(i), F.S. and therefore keep such regulations current.
SUMMARY: The proposed rules make substantive changes to this rule chapter in the registration of securities, repeal Rule 69W-700.028, F.A.C., and change the method by which material is incorporated by reference in the rules. See above.
69W-700.006 Voting Rights.
(1) Registration involving the sale of non-voting common stock or other equity security interests will not be permitted unless:
(a) The cover of the prospectus Disclosure Document includes a specific warning and a cross reference to a specific, appropriate risk factor; and
(b) Full and complete disclosure is made to the prospective purchaser and imprinted on the cover of the prospectus in bold face type in a contrasting color is the following notation: “THESE SECURITIES DO NOT ENTITLE THE HOLDER THEREOF TO VOTE.”
Rulemaking Authority 517.03 FS. Law Implemented 517.081(7) FS. History–New 9-20-82, Formerly 3E-700.06, Amended 10-14-90, Formerly 3E-700.006, Amended________.
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 paragraph (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 paragraph (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. Disclosure Document.
(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(13)(a) and 517.12, F.S., Chapter 517, Florida Statutes, 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, Florida Statutes, 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 subparagraph (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, Florida Statutes.; or
(p) Any other person specified by rule adopted or order issued under Chapter 517, Florida Statutes.
Rulemaking Authority 517.03 FS. Law Implemented 517.03, 517.081(5), (7) FS. History–(Formerly 3E-20.07) New 9-20-82, Formerly 3E-700.08, 3E-700.008, Amended_________.
69W-700.015 Offering Price of Equity Securities.
(1) The offering price of securities that an issuer is seeking to register shall not exceed:
(a) The established market price, for the securities of the same class as that proposed to be offered; or
(b) A proposed price that reflects a price earnings ratio of securities of similar issuers in the same industry; and further provided that the issuer has a consistent record of earnings for the preceding three (3) fiscal years; or
(c) The proposed offering price established by an underwriter under a firm underwriting commitment, if the underwriter is registered under the Securities Exchange Act of 1934 (15 U.S.C. §§ 78a through 78pp), which is incorporated by reference in Rule 69W-200.002, F.A.C. and has the financial ability to perform its commitment in light of its net capital position.
(2) In offerings where the issuer is in the development phase, or the issuer fails to comply with subsection (1) of this rule, a specific risk factor entitled “Immediate Substantial Dilution” in the prospectus Disclosure Document stating the book value per share before and after completion of the offering and the dilution percentage to purchasers of the offering.
(3) In offerings where the issuer is complying with the registration provisions of Section 517.081(3)(g)2., and F.S., subsection 69W-700.002(2), F.A.C., the Office of Financial Regulation shall allow the offering to be offered and sold at a minimum of $5 per share provided that all promotional securities are escrowed.
Rulemaking Authority 517.03(1) FS. Law Implemented 517.081(3), (7) FS. History–(Formerly 3E-20.15) New 9-20-82, Formerly 3E-700.15, Amended 11-30-97, Formerly 3E-700.015, Amended 11-22-10,_________.
