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Title 3 . Commerce, Community, and Economic Development
Chapter 8 . Land Sales
Section 180. Escrow and lock-in of promotional shares

3 AAC 08.180. Escrow and lock-in of promotional shares

(a) The administrator will, in the administrator's discretion, require that a promoter deposit some or all of the promoter's promotional shares into an escrow account with an escrow agent, according to the terms of an escrow agreement, as a condition to registering a public offering of equity securities. The administrator will, in the administrator's discretion, require a lock-in agreement on substantially the same terms and conditions as an escrow agreement.

(b) Unless a promoter must comply with (d) of this section,

(1) the following formula determines the number of promotional shares to be deposited in escrow:

number of promotional shares to be escrowed = (number of shares held by promoters) ö [(total amount paid by promoters for all shares held by promoters) ö (public offering price per share x .85)]; and

(2) if the result from the formula in (1) of this subsection is not a whole number, that result must be rounded to the nearest whole number.

(c) If the total paid by the promoter described in (b) of this section is paid in something other than cash, then the value attributed to that consideration must be acceptable to the administrator.

(d) The administrator will, in the administrator's discretion, require that all promotional shares be deposited in escrow if the issuer's latest audited financial statements contain an auditor's report or footnote that contains an opinion or statement regarding the ability of the issuer to continue as a going concern.

(e) The administrator will, in the administrator's discretion, require each promoter to deposit promotional shares into escrow on a pro rata basis.

(f) Except as provided in 3 AAC 08.182, a depositor shall have the same voting rights as a shareholder who purchases equity securities under the public offering.

(g) If, while promotional shares are held in escrow, a depositor receives or is granted certificates representing stock dividends and shares resulting from stock splits of escrowed shares, recapitalizations, or other activities or events that change the number of shares or affect the initial sale of escrowed shares, those certificates must be deposited with and held by the escrow agent subject to the terms of the escrow agreement. Any cash dividends that are granted to or received by a depositor while promotional shares are held in escrow must be deposited with and be held by the escrow agent subject to the terms of the escrow agreement, unless those cash dividends are approved by a majority of the independent directors of the issuer. The escrow agent shall invest those cash dividends as directed by the depositor. Those cash dividends and any interest earned on them may be disbursed only in proportion to the number of shares released from escrow.

(h) Equity securities that are received by a depositor as the result of the conversion or exercise of convertible securities, warrants, options, or rights to purchase common stock or similar securities while the depositor's promotional shares are in escrow must be deposited with and held by the escrow agent subject to the terms of the escrow.

(i) Until the public offering has been terminated, the issuer shall include a summary of the escrow agreement in the prospectus, subsequent amendments to the prospectus, annual reports to shareholders, proxy statements, and other disclosure materials that are used to make investment decisions.

(j) The issuer shall pay the escrow agent reasonable compensation, as set out in the escrow agreement, for the escrow agent's services. If the escrow agent is required to render additional services that are not expressly provided for in the escrow agreement, or if the escrow agent is made a party to or intervenes in any action, suit, or proceeding pertaining to the agreement, the issuer and depositors shall pay the escrow agent reasonable compensation for the additional services provided. If additional services are provided, the escrow agent, after giving written notice to the depositors and issuer, may deduct reasonable compensation from any cash dividends, interest, and proceeds that the escrow agent holds for distribution under the escrow agreement.

(k) The issuer and the depositors shall hold the escrow agent harmless from and indemnify it for any cost or liability regarding any administrative proceeding, investigation, litigation, interpretation, implementation, or interpleading relating to the escrow agreement, including the release of promotional shares and the disbursement of dividends, interest, or proceeds, unless the cost or the liability arises from the escrow agent's failure to abide by the terms of the escrow agreement.

( l ) The escrow agreement must be binding upon the depositors, their heirs and assignees, and upon the issuer and escrow agent and their successors.

(m) Notwithstanding (b) of this section, promoters may not sell promotional shares that are not subject to escrow during the time that the issuer offers its securities to the public in a self-underwritten offering.

History: Eff. 2/20/72, Register 41; am 4/19/2000, Register 154

Authority: AS 45.55.110

AS 45.55.950


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Last modified 7/05/2006