3 AAC 08.215. Loans and other material affiliated transactions

(a) If loans and other material affiliated transactions as described in this section are made or proposed to be made, the administrator will, in the administrator's discretion, disallow the offer or sale of securities unless the issuer has, and represents in the prospectus or offering document that the issuer will maintain, at least two independent directors on its board of directors.

(b) The administrator will, in the administrator's discretion, disallow the offer or sale of securities if the issuer or its affiliates will have a loan or loan guarantee outstanding to a promoter after the offering, or intends to make a loan to or a loan guarantee on behalf of a promoter, other than

(1) an advance to an officer, director, or employee for travel, business expenses, and similar ordinary operating expenditures;

(2) loans or loan guarantees made for the purchase of an issuer's securities by its officers, directors, and employees, and loans for relocation of officers, directors, and employees, if those loans or loan guarantees that are ongoing are approved by a majority of the independent directors without an interest in the transactions, and if those independent directors had access, at the issuer's expense, to the issuer's or independent legal counsel; or

(3) a loan made by an issuer or an affiliate whose primary business is that of making loans, if

(A) the loan is evidenced by a promissory note naming the lender as payee;

(B) the loan bears interest at a rate comparable to that generally charged by other commercial lenders for similar loans made in the lender's locale;

(C) the loan is to be repaid under appropriate amortization schedules, and contains default provisions comparable to those generally used by other commercial lenders for similar loans made in the lender's locale;

(D) the loan is to be made only if credit reports and financial statements show the loan to be collectible and the borrower is a satisfactory credit risk, in light of the nature and terms of the loan and other circumstances;

(E) the loan meets the loan policies generally used by other commercial lenders for similar loans made in the lender's locale;

(F) the purposes of the loan and the disbursement of proceeds are to be reviewed and monitored in a manner comparable to that generally used by other commercial lenders for similar loans made in the lender's locale; and

(G) the loan does not violate the requirements of any banking or other financial institution regulatory authority.

(c) Except for a loan described in (b) of this section, each loan existing at the time of the application for registration must be repaid in full before the offering. The administrator will, in the administrator's discretion, waive this requirement if

(1) repayment of the loan will be made under appropriate amortization schedules; or

(2) a portion of the offering is made on behalf of a promoter and the promoter agrees to repay the loan from the proceeds of the offering.

(d) The administrator will, in the administrator's discretion, disallow the offer or sale of securities if the issuer or an affiliate have engaged in a material transaction with promoters, unless

(1) the prospectus discloses the terms of the transaction and indicates whether those terms are as favorable to the issuer or its affiliates as those generally available from unaffiliated third parties; and

(2) for an issuer whose board of directors includes

(A) two or more independent directors without an interest in the transaction, a majority of those directors ratifies the transaction; those independent directors must have access, at the issuer's expense, to the issuer's or independent legal counsel; or

(B) less than two independent directors without an interest in the transaction, the prospectus discloses that the issuer lacked sufficient disinterested independent directors to ratify the transaction at the time the transaction was initiated.

(e) The issuer shall disclose in the prospectus or offering document if the issuer or an affiliate makes or intends to make a loan to, makes or intends to make a loan guarantee on behalf of, or engages or intends to engage in a material transaction with promoters, and shall also disclose the terms of that transaction. If a material transaction with or loan to promoters has been made, or may be made, the administrator will, in the administrator's discretion, require the following representations to appear in the prospectus or offering document:

(1) that any future material transaction with or loan to promoters will be made or entered into on terms that are no less favorable to the issuer than those that can be obtained from unaffiliated third parties;

(2) that any future material transaction with or loan to promoters, and any forgiveness of a loan, will be approved by a majority of the issuer's independent directors without an interest in the transaction, and that those independent directors will have access, at the issuer's expense, to the issuer's or independent legal counsel.

(f) The issuer and its officers and directors shall consider

(1) their due diligence and other obligations to affirmatively demonstrate a reasonable basis for the representations in (d) and (e) of this section; and

(2) whether to formalize, in the issuer's charter or bylaws, the representation made as described in (e)(2) of this section

(g) In order to satisfy the ratification provisions of (b)(2), (d)(2)(A), and (e)(2) of this section, the issuer must have on its board of directors at least two independent directors without an interest in the transaction. If the issuer has on its board of directors only two independent directors without an interest in the transaction, both independent directors must approve a loan and other material transaction to satisfy the ratification provisions of (b)(2), (d)(2)(A), and (e)(2) of this section.

(h) The administrator will, in the administrator's discretion, waive any part of this section upon the issuer's petition or as part of a coordinated review with other regulatory jurisdictions.

History: Eff. 4/19/2000, Register 154

Authority: AS 45.55.120

AS 45.55.950

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