Legal Question in Securities Law in Delaware

Re: Total legal cost of NASD registration to trade OTC

One author's opinion of the costs of a typical traditional IPO in the mid-1990s was:

1. Underwriter's discount from price to public in firm-commitment underwriting, 7 to 10%.

2, Underwriter's commission in best efforts sale: Less than above because of lower risk, say 5 to 7 1/2%.

3. Underwriter's expense allowance - fixed, negotiated fee.

4. Legal fees for issuer's counsel - typically $125,000 to 250,000, which will include a certain amount of 'corporate housekeeping' to clean up years of not quite up-to-snuff recordkeeping, etc.

5. Accounting fees - between $75,000 and 125,000. Can be much higher if audits disclose significant accounting or financial issues.

6. Printing costs - $50,000 to 150,000, maybe more if color sales literature, photos, etc. are used, if creative services are retained, etc.

7. SEC fees - 1/29th of 1% of the maximum aggregae offering price.

8. Blue sky (state registration) fees, $15,000 or more depending upon the number of states where the offering is registered.

9. Registrar and transfer fees - $10,000 to 25,000.

10. NASD fee - $500 + .01% of the gross dollar amount of the offering.

The total estimated cost for a $15 million offering with underwriter's discount would have been $1,450,000 or just under 10% of the amount raised for the example cited by the author.

If a company were trying to raise $1 to $5 million, an offering under Regulation D might be an option, or even a self-underwritten issue, or an SB-1 offering in the $5-10 million range. Total costs can probably be kept close to the 10% figure, but the smaller an offering gets, the harder it is to keep the transaction costs to a reasonable percentage of the net received by the issuer.

I can conceive of an offering where the issuer's legal fees were only $20,000, but it would be an unusual case.

Re: Total legal cost of NASD registration to trade OTC

Attorney fees can range for $10 - $20,000.00 for a small OTC offering. You will need to pay accounting fees and set aside marketing funds. There are other options that you can explore.