HAR §16-38-11.5. Impoundment of proceeds

(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 §16-38-11.5 38-34 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 §16-38-11.6 38-35 (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. [Eff 6/4/70; am 8/8/71; am and ren §16-38-11, 7/30/81; am, ren §16-38-11.5 and comp 10/12/85; am and comp 4/14/03] (Auth: HRS §485-2) (Imp: HRS §§485-2, 485-10, 485-18)