La. Admin. Code tit. 10 § XIII-515

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

Section XIII-515 - Rights of Security Holders

A. Voting Rights of Common Stock. The offering or proposed offering of securities of an issuer having more than one class of common stock authorized shall generally be considered unsound and unfair to public investors if the class of shares of common stock offered to the public:

1. has no voting rights; or

2. (except in exceptional circumstances) has less than equal voting rights, in proportion to the shares of each class outstanding, on all matters, including the election of members of the board of directors of the issuer.

B. Nonvoting Stock. Registration by qualification involving the sale of nonvoting common stock will not be permitted unless:

1. the corporation registering securities by qualification has been engaged in its business for at least two years prior to the registration;

2. dividend rights on voting and nonvoting stock are equal per share;

3. 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, the following notation:

" THESE SECURITIES DO NOT ENTITLE THE

HOLDER THEREOF TO VOTE"

C. Voting Rights of Preferred Stock. In the case of an offering or proposed offering of preferred shares (which are nonparticipating and nonconvertible) without full voting rights, provision should normally be made under which the holders of such preferred shares shall have the right to reasonable representation on the board of directors of the issuer upon default for a reasonable, specified period, whether consecutive or not, of payment of dividends on such preferred shares, which right shall continue until the full payment of all arrears in dividends on such preferred shares. For purposes of this Paragraph, the right to elect a majority of the board of directors is presumptively reasonable.

D. Protective Provisions for Preferred Shares. In the case of an offering or proposed offering of preferred shares (which are nonparticipating and nonconvertible) reasonable protective provisions for the holders of such preferred shares should normally be made, including where appropriate:

1. a provision that the dividends on such shares be cumulative;

2. a provision prohibiting any dividends on common stock during the existence of any arrears on the preferred shares;

3. an appropriate requirement for the approval by the vote or written consent of a specified percentage of the preferred shares of any adverse change in the rights of such shares and of the issuance of any shares having priority over such preferred shares; and

4. appropriate dividend restrictions on the common stock.

E. Debt Securities. The indenture or other instrument pursuant to which nonconvertible debt securities are proposed to be issued should normally provide for the following:

1. a sinking fund provision whereby all or a reasonable portion of the issue is to be retired in installments prior to maturity. The deferral of sinking fund payments and the amount of the balloon payment at maturity which will be permitted will depend upon the financial condition and other circumstances of the issuer;

2. an appropriate negative pledge or equal protection clause restricting the creation of liens on the property of the issuer;

3. if the debt is unsecured, an appropriate restriction on the creation of other funded debt;

4. an appropriate restriction on the payment of dividends upon stock of the issuer. Such provisions will not be required in connection with debt securities having a rating making such provisions unnecessary.

F. Trust Indentures. In the case of an offering or proposed offering of debt securities to be secured by mortgage, pledge or security agreement respecting real and/or personal property of the issuer, such debt securities will normally be required to be issued under a trust indenture. In the case of an offering or proposed offering of debt securities which are not secured, the issuance of such debt securities under a trust indenture may be required where appropriate. The form and substance of any such trust indenture shall be subject to the approval of the Commissioner of Securities. A trust indenture complying with the provisions of the Trust Indenture Act of 1939 is presumptively sufficient. The requirement of issuance of debt securities under a trust indenture pursuant to this Paragraph may be required, where appropriate, whether or not a trust indenture would be required pursuant to the provisions of the Trust Indenture Act of 1939.

G. Convertible Senior Securities. In the case of an offering or proposed offering of convertible preferred shares, convertible debt securities, options or warrants, provisions should normally be made containing an appropriate antidilution provision providing for an adjustment of the number of shares into which such shares or units are convertible or the number of shares purchasable pursuant to such options or warrants upon any stock split or stock dividend or other recapitalization of the issuer.

H. Assessments. Securities should be nonassessable, except that issuers organized solely to supply services or property to their members on a continuing basis may provide for an equitable assessment corresponding to the services or property supplied.

I. Restrictions on Transfer. No application or notification will be approved to issue securities the transfer of which is subject to any restrictions imposed by the charter documents of the issuer or the indenture or other instrument pursuant to which the securities are issued. Limited offering qualifications may be approved for the issuance of securities subject to such restrictions, provided they are not of such a nature as to unfairly prejudice the opportunity of the holder to realize a reasonable price for his securities. Provisions which base the price at which the corporation or the other shareholders may purchase the securities, in the event of a desire to sell by the holder, upon the offer received from a third party, upon the appraised value of the securities, or upon the book value (except in the case of a type of business where book value is not a significant indication of the value of the securities) are presumptively reasonable. Provisions which base the price upon the par value or original purchase price, or which absolutely prohibit the transfer of securities or permit such transfer only upon the consent of the corporation or the other shareholders, or which give an option to the corporation or the other shareholders to purchase, regard less of the desire of the holder to sell (other than for a limited time upon termination of employment in the case of employees of the issuer or for a limited time upon the death of a holder) will only be permitted in unusual circumstances.

La. Admin. Code tit. 10, § XIII-515

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

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