La. Admin. Code tit. 10 § XIII-503

Current through Register Vol. 50, No. 11, November 20, 2024

Section XIII-503 - Promoters Equity Investment

A. The fair value of equity investment shall be deemed to mean the total of all sums conveyed to the issuer in the form of paid in or contributed cash or other tangible items with an established or determinable value.

B. The burden of justifying as equitable, the quantity of promotional securities to be issued for assets so conveyed, and of establishing reasonable or market value thereof, shall rest with the applicant.

C. Promoters Equity Investment Ratio. In offerings where the issuer is in a promotional or development phase and the ratio of equity investment by promoters or insiders is less than 15 percent of the total equity investment resulting from the sale of the entire offering, the offering will not be considered to be based on sound business principles unless:

1. the offering is supported by a firm commitment of an underwriter duly registered under the Securities Exchange Act of 1934; and

2. the net worth of the issuer is in excess of $100,000.

D. Recognition of Appraised Value

1. In determining compliance with this rule, the commissioner may recognize the appraised value of the issuer's real property. In no event will the appraised value be considered if it is higher than the acquisition cost, unless (since the acquisition of the property) at least one of the following has occurred and it is reasonably indicated that a material increase in the value thereof has resulted:

a. erection of a structure on the land;

b. substantial improvements to existing structures located on the realty;

c. re-zoning to a broader zone;

d. availability of utility services previously unavailable to the property, but excluding such normal utilities as telephone, normal electric and normal gas. Examples of the utilities, but without being limited as to the general type thereof, are water, sewer, highline service and trackage;

e. a material change in the nature of the surrounding property;

f. elimination of an element that had a depreciatory effect on the value of the subject property (e.g., covering of a dump);

g. the existence of any other element (appropriately documented) which would normally indicate a substantial increase in the value of the property.

2. The utilization of an appraisal value in determining whether the minimum equity investment has been made lies within the sole discretion of the commissioner. Pursuant to R.S. 51:708(9), the commissioner may require, at the issuer's expense an independent appraisal by a qualified real estate appraiser selected by the commissioner prior to rendering his decision regarding recognition of the appraised value. This appraisal may be in addition to any independent appraisals that may have been made at the issuer's request prior to filing the application.

3. If the commissioner permits the appraised value to be used for the purposes of complying with the minimum equity investment, that appraised value may not be reflected in any form, either in the prospectus or in the issuer's financial statements or any footnotes thereto.

La. Admin. Code tit. 10, § XIII-503

Adopted by the Commissioner of Securities, November 9, 1971.

AUTHORITY NOTE: Promulgated in accordance with R.S. 51:707 and R.S. 51:708.