(a) The
commissioner shall ordinarily require, as a condition to registration of
speculative and promotional securities, that all proceeds from the sale of
securities less selling expenses be impounded in escrow until the time that a
sufficient amount has been realized to accomplish the purposes of the offering.
For purposes of this chapter, "speculative and promotional securities" means
securities issued by a company that is organized within three years of the
filing, that has no earnings record, is in the development, exploratory or
promotional stage, and is financing an initial or proposed enterprise, or is a
company in poor financial condition intending to raise additional working
capital to continue its operation. An executed copy of the escrow agreement
shall be filed with the commissioner and shall contain the following
information in addition to whatever other information the commissioner may
require:
(1) Funds required to be impounded
shall be deposited in a separate trust account with a bank, a corporate
trustee, or similar institution authorized to do business in this State, or
other person acceptable to the commissioner;
(2) Net proceeds shall be returned directly
to the investors by the escrow holder and not through the intermediary of the
issuer in the event that the minimum prescribed amount is not obtained within
the specified period, in the event the depositor certifies to the commissioner
that the terms and conditions of the escrow agreement have not been met and
requests authorization to return the impounded funds to the purchasers. If the
minimum prescribed amount is obtained within the specified period, the escrow
depository shall so certify to the commissioner and request authorization to
release the impounded funds to the issuer;
(3) No certificates evidencing securities
purchased (other than subscription agreements or receipts) shall be issued
until after release of the funds from escrow;
(4) In the event that checks, drafts, money
orders or other remittances are not made payable to the escrow depository, all
monies received from the sale of securities, after collection, and deduction
for allowable selling commission and expenses, the issuer, or dealer, if any,
shall promptly (and in no event later than ten days after receipt thereof)
transmit to the escrow depository the net amount required to be
impounded;
(5) A commitment by the
escrow depository to furnish to the commissioner or the commissioner's staff,
upon request for information, data concerning the status of, or amounts on
deposit in, the escrow account;
(6)
Ordinary and standard terms and conditions which are generally required by
escrow agents in connection with the payment of fees, charges and expenses,
liability, claims, litigation, notice and hold-harmless and indemnification
clauses, etc.; and
(7) That no
funds are to be released from impoundment, and no changes effectuated in the
agreement except by written consent and authorization of the
commissioner.
(b) A
request for a modification of the escrow arrangements as accepted, or for
partial release of the funds so impounded, shall be generally regarded with
disfavor, and shall be granted only upon good cause shown, and by application
containing the following information:
(1) A
certified statement from the escrow depository setting forth the total amount
of subscriptions and the character of each deposit; and
(2) A waiver and consent executed by each
purchaser or subscriber whose funds are sought to be released, or, an
acknowledgment by the purchaser or subscriber that an offer for return of
investment has been made and rejected. The offer, or solicitation for waiver
and consent shall recite:
(A) That the issuer
has failed to meet the impoundment conditions required, if that is the
case;
(B) The asserted reasons for
requesting a partial release of funds or modification of the escrow
arrangements; and
(C) A statement
that the subscriber realizes that the subscriber is under no obligation to give
consent and waiver, and that the consent and waiver is freely and voluntarily
given.
