3 Colo. Code Regs. § 704-1-51-3.4

Current through Register Vol. 47, No. 20, October 25, 2024

Section 3 CCR 704-1-51-3.4 - Escrow and Release of Funds under Section 11-51-302(6), C.R.S

A. For the purposes of section 11-51-302(6), C.R.S.:

1. "Committed for use" means an identification of general or specific purposes for which specific portions of the net proceeds from the offering are intended in good faith to be used in the manner and within the time specified in the registration statement. Nothing contained herein shall preclude the issuer from making a good faith reallocation of anticipated expenditures of the net proceeds within the categories specified in the registration statement, or an allocation to new categories not reasonably anticipated at the date the registration statement was declared effective.

2. "Completion of a transaction or series of transactions" means the closing or other completion of substantially all of the material obligations, but for the actual conveyance of escrow funds, of all parties to one or more agreements between an issuer subject to the escrow requirements of section 11-51-302(6), C.R.S., and one or more other persons by which the issuer obtains interests in one or more specific lines of business.

3. "Improper release" means any release by a depository of escrowed funds without certification to the depository by the issuer that the requirements for such release under subsections 11-51-302(6)(a)(I) and (II), C.R.S., are satisfied, and where, in fact, such requirements are not satisfied at the time of the release, unless the depository is in receipt of a notification from the Securities Commissioner that the release prior to the expiration of the time period specified in section 11-51-302(6)(a)(II), C.R.S., is permissible.

4. "Net proceeds" means the gross proceeds less selling and organizational costs.

5. "Selling and organizational costs" means all expenses incurred by the issuer within twelve (12) months prior to the date of effectiveness of the registration in Colorado and those reasonably anticipated to be incurred within six (6) months after the date in connection with:

a. the issuance and distribution of the securities to be registered in the offering, including, but not limited to, registration and filing fees, printing and engraving expenses, accounting and legal fees and expenses, "blue sky" fees and expenses, transfer and warrant agent fees, expenses of other experts, and underwriting discounts and commissions; and

b. the organization of the issuer and the preparation of the organizational documents, including, but not limited to, filing fees, and legal, accounting, and tax planning fees and expenses, provided that said expenses are to be paid out of the proceeds of the offering.

6. "Specific line of business" means any commercial, industrial or investment activity that is generally recognized as a distinct economic undertaking or enterprise intended to generate a profit for the issuer. Although certain characteristics may commonly be used to assist in determining whether a specific line of business has been so identified, no single characteristic is determinative in all cases. The determination whether a specific line of business has been identified depends on the Securities Commissioner's review of the facts and circumstances of each case and the Commissioner's determination as to whether the management of the issuer has acted in good faith.

B. To comply with the escrow requirements of section 11-51-302(6), C.R.S., an issuer, or one or more broker-dealers or sales representatives acting on behalf of such issuer, shall deliver at least eighty percent (80%) of the net proceeds received from the offering of securities to an unaffiliated depository to be held in accordance with section 11-51-302(6), C.R.S., until completion of a transaction or series of transactions in which at least fifty percent (50%) of the gross proceeds is committed to a specific line of business. If such transactions have not been completed within two (2) years from the date of effectiveness of the offering in Colorado, the funds shall be distributed to the then security holders of record of the securities sold pursuant to the registered offering (except warrants or other rights to subscribe to or purchase other securities) unless said security holders have approved by majority vote the renewal of the escrow not to exceed one year. The escrow agreement may be renewed in subsequent years by means of the same procedure. The Commissioner shall not be a party to an escrow agreement, but an executed or conformed copy of the escrow agreement shall be provided to the Commissioner.

1. In any instance where the escrow of the proceeds of sale of securities is required pursuant to section 11-51-302(6), C.R.S., the escrow shall be evidenced by a written agreement between the issuer (as depositor) and an unaffiliated depository, and other interested parties.

2. Each agreement for the establishment of an escrow shall include:

a. The date of the agreement;

b. The names and addresses of the issuer, the depository, and any other parties to the agreement;

c. The terms of the escrow, including a specific reference to section 11-51-302(6), C.R.S.;

d. The conditions under which the escrowed funds are to be released to the issuer or are to be distributed, and by whom and in what manner such distribution is to be effected;

e. Whether the escrowed funds will earn interest, and if so, a description of the manner in which interest accrued on the escrowed funds will be used or otherwise distributed; and

f. A statement that the proceeds of the escrow may not be released to the issuer until the lapse of more than nine (9) days after the receipt by the Commissioner of notice of the proposed release of funds from such escrow or upon authorization of the Commissioner of any earlier release.

3. The Commissioner may, in the Commissioner's sole discretion, authorize release of funds escrowed pursuant to section 11-51-302(6), C.R.S., prior to the lapse of nine (9) days after receipt by the Commissioner of the notice provided in paragraph C. below. In such cases, the Commissioner shall provide the issuer with such authorization in writing in a form that may be presented to the depository.

C. A notice of proposed release of funds from escrow under section 11-51-302(6), C.R.S., shall be filed with the Commissioner on Form ES. Proof of filing of the Form ES with the Commissioner may be established by a receipt or other writing upon which the Commissioner, by stamp or other writing, evidences that the Form ES was received.

D. The notice shall contain, at a minimum, the following information:

1. The gross amount of aggregate proceeds received from the sale of any and all of the securities registered in this offering;

2. Whether the offering has closed;

3. Whether any additional funds may be received by the issuer in exchange for securities issued in the offering;

4. Whether a transaction or series of transactions has been completed which commit(s) at least fifty percent (50%) of the gross amount of aggregate proceeds for use in one or more specific lines of business;

5. A description of each transaction, including the dates of each transaction, the parties to each transaction, the amount committed in each transaction, a description of how the proceeds are to be spent under the terms of each transaction, and the specific lines of business; and,

6. Any additional information the Securities Commissioner may require as material to the Commissioner's determination.

3 CCR 704-1-51-3.4

38 CR 01, January 10, 2015, effective 1/30/2015

38 CR 08, April 25, 2015, effective 6/1/2015

38 CR 18, September 25, 2015, effective 10/15/2015

39 CR 01, January 10, 2016, effective 1/30/2016

40 CR 01, January 10, 2017, effective 1/30/2017

40 CR 12, June 25, 2017, effective 7/15/2017

41 CR 13, July 10, 2018, effective 7/31/2018

43 CR 05, March 10, 2020, effective 3/30/2020

46 CR 05, March 10, 2023, effective 3/30/2023