S.C. Code Regs. § § 13-304

Current through Register Vol. 48, No. 11, November 22, 2024

Section 13-304 - Underwriting Expenses, Underwriter Warrants, Selling Expenses, and Selling Security Holders

A. An offer or sale of securities may be disallowed by the Securities Commissioner if the underwriting expenses to be incurred exceed seventeen (17%) percent of the gross proceeds from the public offering.

B. Underwriting expenses may include but are not limited to:

(1) Commissions to underwriters or broker-dealers;

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

(3) Underwriter warrants, which shall be valued using the following formula:

{[(165% x Aggregate Offering Price) - (Exercise Price x the number of shares offered to public)] / 2} x [(the number of shares underlying warrants) / (the number of shares offered to public)]

The value may be reduced by twenty percent (20%) if the exercise period of the warrants is extended from one (1) year after the public offering to two (2) years after the public offering and by forty percent (40%) if the exercise period of the warrants is extended from one (1) year after the public offering to three (3) years after the public offering. Warrants may be granted to underwriters only under the following conditions and subject to the following restrictions:

(a) The underwriter is a managing underwriter;

(b) The public offering is either a firmly underwritten offering or a "minimum-maximum" offering. Options or warrants may be issued in a "minimum-maximum" public offering only if:

(i) The options or warrants are issued on a pro rata basis; and

(ii) The "minimum" amount of securities has been sold;

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

(d) The number of shares covered by underwriter options or warrants may not exceed ten percent (10%) of the shares of common stock actually sold in the public offering;

(e) The life of the options or warrants may not exceed a period of five (5) years from the completion date of the public offering;

(f) The options or warrants are not exercisable for the first year after the completion date of the public offering;

(g) Options or warrants may not be transferred, except:

(i) To partners of the underwriter, if the underwriter is a partnership;

(ii) To officers and employees of the underwriter, who are also shareholders of the underwriter, if the underwriter is a corporation;

(iii) By will, pursuant to the laws of descent and distribution; or

(iv) By the operation of law. (H) THE WARRANT AGREEMENT MAY NOT ALLOW FOR A REDUCTION IN THE EXERCISE PRICE OF THE OPTIONS OR WARRANTS RESULTING FROM THE SUBSEQUENT ISSUANCE OF SHARES BY THE ISSUER EXCEPT WHERE SUCH ISSUANCES ARE PURSUANT TO A:

(h) The warrant agreement may not allow for a reduction in the exercise price of the options or warrants resulting from the subsequent issuance of shares by the issuer except where such issuances are pursuant to a:

(i) Stock dividend or stock split; or

(ii) merger, consolidation, reclassification, reorganization, recapitalization, or sale of assets.

(4) Rights of first refusal, which shall be valued at one percent (1%) of the public offering or the amount payable to the underwriter if the issuer terminates the right of first refusal;

(5) Solicitation fees payable to the underwriter, which shall be valued at the lesser of actual cost or one percent (1%) of the public offering if the fees are payable within one (1) year of the offering;

(6) Financial consulting or financial advisory agreements with an underwriter or any other similar type of agreement or fees, however designated, which shall be valued at actual cost;

(7) Underwriter due diligence expenses;

(8) Payments made either six (6) months prior to or required to be made six (6) months following 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 Securities Commissioner.

C. Underwriting expenses shall not include financial consulting or financial advisory agreements with the underwriter payable at the time the services are rendered provided that such agreement was entered into at least twelve (12) months prior to the registration being filed with the Securities and Exchange Commission.

D. An offer or sale of securities may be disallowed by the Securities Commissioner if the direct and indirect selling expenses of the offering exceed twenty percent (20%) of the gross proceeds from the public offering.

E. Selling expenses may include but are not limited to:

(1) Commissions to underwriters or broker-dealers;

(2) Non-accountable fees or expenses to be paid to the underwriters or broker-dealers;

(3) Auditor's and accountant's 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 fees, however designated, which shall be valued at actual cost, excluding financial and consulting agreements which are entered into at least twelve (12) months before the registration is filed with the Securities and Exchange Commission;

(9) Payments made either six (6) months prior to or required to be made six (6) months following the public offering to investor relations firms designated by the underwriter; and

(10) Other cash expenses incurred in connection with the public offering of securities as determined by the Securities Commissioner.

F. A public offering or sale of securities that includes selling security holders offering more than ten percent (10%) of the securities to be sold in the public offering may be disallowed by the Securities Commissioner unless:

(1) Selling security holders offering or selling more than ten percent (10%) but less than fifty percent (50%) 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;

(2) Selling security holders offering more than fifty percent (50%) of the securities to be sold in the offering pay a pro-rata share of all selling expenses of the public offering; and

(3) The prospectus or offering document discloses the amount of selling expenses which the selling security holders will pay.

G. With the exception of underwriter or broker-dealer compensation, Subsections F (1), (2), and (3) above shall not apply if the selling security holders have a written agreement with the issuer, that was entered into in an arm's length transaction, whereby the issuer has agreed to pay all of the selling security holder's selling expenses.

S.C. Code Regs. § 13-304

Added by State Register Volume 30, Issue No. 6, eff June 23, 2006; State Register Volume 39, Issue No. 06, eff. 6/26/2015.