Statement of Policy Regarding Preferred Stock
Amended April 27, 1997
Gray portions pertain to Regional Review Offerings.
I. INTRODUCTION. The North
American Securities Administrators Association, Inc.
("NASAA") has determined that the following guideline
relating to preferred stock is consistent with public investor
protection and is in the public interest. Nothing shall prevent
the Securities Administrator ("Administrator") from
applying different standards than those contained in this
Statement of Policy.
II. DEFINITIONS. The terms used
in this Statement of Policy are defined pursuant to the NASAA
Statement of Policy Regarding Corporate Securities Definitions.
III. A public offering of
preferred stock may be disallowed by the Administrator if the
Issuer's ADJUSTED NET EARNINGS for the last fiscal year or its
average ADJUSTED NET EARNINGS for the last three (3) fiscal years
prior to the public offering were insufficient to pay its fixed
charges and preferred stock dividends, whether or not accrued,
and to meet the redemption requirements, if applicable, of the
preferred stock being offered.
IV. As an alternative to III.
above, the Administrator may choose to apply a CASH ANALYSIS. The
Administrator may consider the Statement of Cash Flows if the
statement demonstrates that the issuer has had positive "Net
Cash Provided by Operating Activities" for its last fiscal
year. The Administrator may request that the issuer submit a
financial statement demonstrating an average positive "Net
Cash Provided by Operating Activities" for the last three
(3) fiscal years prior to the public offering. In either instance
there must be sufficient cash to cover the preferred stock
dividend whether or not declared.
V. Section III. and IV. above
shall not apply to public offerings of convertible preferred
stock that are superior in right to payment of dividends,
interest and liquidation proceeds to any convertible debt and
preferred stock that are or may be legally or beneficially,
directly or indirectly, owned by PROMOTERS. The risks of failure
to declare or pay dividends and the equity characteristics of the
convertible preferred stock must be disclosed in the offering
prospectus. An offering of such securities may be reviewed using
guidelines for equity offerings.
VI. If the Issuer's NET EARNINGS
are subject to cyclical fluctuations or if the Administrator
deems it necessary for investor protection, the Administrator may
require that the Issuer establish redemption requirements.
VII. A public offering of EQUITY
SECURITIES may be disallowed by the Administrator if the Issuer's
articles of incorporation authorize its board of directors to
issue preferred stock in the future without a vote of the common
A. The issuer represents in its prospectus or offering document that it will not offer preferred stock to PROMOTERS except on the same terms as it is offered to all other existing shareholders or to new shareholders; or
B. The issuance of preferred stock is approved by a majority of the Issuers INDEPENDENT DIRECTORS who do not have an interest in the transaction and who have access, at the issuers expense, to issuers or independent legal counsel.