Utah Administrative Code
The Utah Administrative Code is the body of all effective administrative rules as compiled and organized by the Division of Administrative Rules (see Subsection 63G-3-102(5); see also Sections 63G-3-701 and 702).
NOTE: For a list of rules that have been made effective since August 1, 2019, please see the codification segue page.
NOTE TO RULEFILING AGENCIES: Use the RTF version for submitting rule changes.
R164. Commerce, Securities.
Rule R164-11. Registration Statement.
As in effect on August 1, 2019
Table of Contents
- R164-11-1. General Registration Provisions.
- R164-11-2. Hearings for Certain Exchanges of Securities.
- R164-11-7b. Fund Impound.
- Date of Enactment or Last Substantive Amendment
- Notice of Continuation
- Authorizing, Implemented, or Interpreted Law
A. Preliminary Notes
(1) This R164-11-1 applies to public offerings registered by coordination or qualification pursuant to Sections 9 or 10 of the Utah Uniform Securities Act (the "Act"), except this rule shall not apply to offerings which are registered in twenty or more states, including the state of Utah.
(2) The purpose of the rule is to ensure full disclosure of material information, prohibit offerings which tend to work a fraud on purchasers and prohibit unreasonable amounts of promoters' profits.
(3) Failure to comply with the provisions of this rule shall be grounds for denial, suspension or revocation of the effectiveness of a registration statement.
(4) For purposes of this rule "development stage companies" shall mean those companies that devote substantially all of their efforts to acquiring or establishing a new business and in which either: 1) planned principal operations have not commenced or 2) there have been no significant revenues therefrom.
(5) Selected requirements of this rule may be waived by the Utah Securities Division ("Division") where an applicant makes a specific request for a waiver and the Division finds that such requirement(s) is/are not necessary or appropriate for the protection of investors.
(6) This rule applies to all registration statements filed on or after February 15, 1986.
B. NASAA Statements of Policy
All registration statements for oil and gas programs, church bonds, real estate investment trusts, publicly-offered cattle-feeding programs, real estate programs and equipment programs must satisfy the provisions of the appropriate statements of policy adopted by the North American Securities Administrators Association ("NASAA").
Offerings which are required under this paragraph B to satisfy, and do satisfy, the provisions of a NASAA statement of policy shall not be required to satisfy the provisions of paragraphs C and D of this R164-11-1.
C. Promoters' Investment in Development Stage Companies
An investment by promoters and shareholders in a development stage company shall be required as follows:
(1) Corporate Equity and Debt Offerings.
Prior to and during the effectiveness of a registration statement, where the registrant is the issuer, pertaining to an offering of securities which are corporate equity securities, which are securities convertible into corporate equity securities or which are corporate debt securities, the corporation shall have equity equal to at least the lesser of: 1) ten percent (10%) of the aggregate offering price of the securities which are registered or to be registered or 2) fifty thousand dollars ($50,000). Equity shall be equal to the sum of stated capital, capital surplus which was contributed in cash and retained earnings. Retained deficits will not reduce the equity of the company for purposes of this subparagraph. In no event shall capital contributed in the form of services or any evidence of indebtedness qualify as any portion of equity in order to meet the requirements of this subparagraph.
NOTE: Tangible property may be considered to satisfy this requirement, in the discretion of the Division, only where the value of such property is ascertained and supported by the registrant, where the value substantially exceeds the necessary equity requirement and where clear title to the property is held by the issuer.
(2) Partnership and Trust Certificate Offerings.
Prior to the effectiveness of a registration statement relating to partnership units, the registrant shall meet one of the following requirements:
(a) The general partner(s), promoter(s), and/or manager(s) have paid, in cash, at least an amount equal to five percent (5%) of the aggregate offering price of the securities to be registered to the issuer for equity interests in the issuer; or
(b) The general partner(s), promoter(s), and/or manager(s) have the ability to pay and commit themselves to pay, in cash, the lesser of: 1) five percent (5%) of the aggregate offering price of the securities to be registered or 2) fifty thousand dollars ($50,000); or
(c) The general partner(s), promoter(s), and/or manager(s) have an aggregate net tangible asset value exclusive of home, automobile, and home furnishings equal to ten percent (10%) of the aggregate offering price of the securities to be registered. Where a general partner, promoter or manager is also a general partner, promoter or manager of another partnership or trust for which this subparagraph was used to satisfy the equity requirements for a registered offering of that partnership or trust, the aggregate net tangible asset value will be reduced by the amount required to satisfy the equity requirements of the previous offering.
D. Business Plan and Use of Proceeds for Development State Companies
In a development stage company the business plan and the use of offering proceeds must be disclosed with specificity in the offering prospectus.
Where eighty percent (80%) or more of the net offering proceeds (total offering proceeds less offering expenses and commissions) is not specifically allocated for the purchase, construction or development of identified properties or products, discharge of indebtedness, payment of overhead, etc., the registrant shall comply with the following provisions:
(1) Eighty percent (80%) of the net offering proceeds shall be escrowed in a manner approved by the Division. The escrow shall continue until the registrant can specifically allocate the use of the proceeds, at which time the registrant shall amend or supplement the registration statement to disclose all material information concerning the proposed use of proceeds. Such disclosure shall be in the same form and quality as required in a registration statement.
(2) At the time of the amendment or supplement to the registration statement, the investors in the offering must be given no less than twenty (20) days to ratify or rescind his/her investments. Investors who choose to rescind his/her investments shall receive a pro rata refund of all offering proceeds. However, should enough investors request a refund such that the net tangible asset value of the company after the refund would be less than seventy-five thousand dollars ($75,000) the registrant shall make a pro rata refund of all unused offering proceeds to investors.
(3) The registrant shall not issue stock, deliver stock certificates or allow secondary trading of the stock until the offering proceeds have been released to the registrant.
E. Employment of Agents by Issuers
An issuer shall not employ agents to sell securities which are the subject of the registration statement until: 1) such agent is registered with the Division as an agent of the issuer; and 2) the issuer has filed with the Division a surety bond in the amount of twenty-five thousand dollars ($25,000) conditioned on the agents compliance with the Utah Uniform Securities Act and the rules of the Securities Division of the Utah Department of Commerce and covering the effective period of the issuer's registration statement.
(A) Authority and purpose.
(1) The Division enacts this rule under authority granted by Sections 61-1-11.1 and 61-1-24.
(2) This rule sets forth the procedure and requirements to be met when seeking a fairness hearing for certain exchanges of securities.
(3) A finding of fairness under Section 61-1-11.1 does not constitute a registration or exemption except as provided by Paragraph (H).
(1) "Director" means the Director of the Division of Securities, Utah Department of Commerce.
(2) "Division" means the Division of Securities, Utah Department of Commerce.
(3) "Interested person" means any officer, director or security holder of either party involved in the transaction, or any other person as the Division may permit.
The Division will only consider an application under Section 61-1-11.1 for a transaction where:
(1) Either party to the transaction is a domestic business entity formed, organized or incorporated under the laws of Utah;
(2) Either party to the transaction is a business entity whose headquarters or principal place of business is located in Utah; or
(3) Thirty percent (30 %) or more of the persons to whom it is proposed to issue securities or to deliver other consideration in an exchange under Subsection 61-1-11.1(1) are persons who are Utah residents.
(D) Application Requirements.
An application may be made to the Division under Subsections 61-1-11.1(1) and 61-1-11.1(5) by filing with the Division:
(1) Division Form 11--Application for Hearing for Certain Exchanges of Securities;
(2) NASAA Form U-2, Uniform Consent to Service of Process;
(3) A fee as specified in the Division's fee schedule; and
(4) Other documents as the Division may request.
(1) At least twenty (20) calendar days prior to the hearing, the applicant must provide written notice of the hearing, as approved by the Division, to any person to whom it is proposed to issue securities or to deliver other consideration in an exchange under Subsection 61-1-11.1(1). Such notice shall be effective pursuant to Subsection 16-10a-103(5). Such notice period may be waived upon the demonstration of good cause by the applicant.
(2) The notice must contain the following information:
(a) A brief statement of the facts that give rise to the hearing, including an outline of the terms and conditions of the proposed transaction;
(b) A statement of the issues to be considered at the hearing, together with the relevant statutes and rules;
(c) The time and place of the hearing as specified by the Division;
(d) The procedures for participating in the hearing by telephone or affidavit as approved by the Division; and
(E) Any other information requested by the Division.
(3) Prior to or at the hearing, the applicant must file an affidavit with the Division stating that a notice has been sent, in compliance with Subparagraphs (E)(1) and (E)(2), to all persons to whom it is proposed to issue securities or to deliver other consideration in an exchange under Subsection 61-1-11.1(1), including a description of how and when the notice was sent.
(1) Within a reasonable time after the receipt of an application meeting the requirements of Section 61-1-11.1 and this rule, the Division may schedule a hearing to be conducted under Subsection 61-1-11.1(2).
(2) A hearing under Section 61-1-11.1 shall be conducted by a hearing officer designated by the Director.
(3) Any interested person may attend a hearing under Section 61-1-11.1.
(4) Any interested person may participate in the hearing by giving written notice to the Division at least two (2) days prior to the hearing, indicating such person's intention to appear and participate in the hearing. Interested persons may participate:
(a) In person;
(b) By telephone; or
(c) By affidavit.
(5) The hearing shall be recorded electronically and transcribed by the Division. The transcription costs will be assessed to the Applicant. Upon request, the Division will hire a court reporter at the requester's expense.
(G) Findings and Order.
Within a reasonable time after completion of the hearing, the Director shall issue an order pursuant to Subsection 61-1-11.1(3).
The Issuer may request that the Division determine that the transaction is exempt from registration under Subsection 61-1-14(2)(s).
A. Preliminary Notes
(1) R164-11-7b applies only to public offerings which are registered by qualification pursuant to Section 10 of the Utah Uniform Securities Act (the "Act") and the rules thereunder.
(2) This R164-11-7b and R164-10-2 both require certain documents to be filed and provide that failure to comply with these requirements is cause for denial, suspension or revocation of the effectiveness of a registration statement.
(3) This rule R164-11-7b is a statement of what has been the position of the Utah Securities Division (the "Division") in the past under Rule A67-03-12 and applies to all registration statements which become effective on or after May 10, 1983.
B. Term of Impound
(1) The applicant for registration by qualification under Section 10 of the Act and the rules thereunder may choose a term of not less than one month and not more than one year from the effective date of the registration statement.
(2) The term of the impound shall be expressed by the number of months and shall not be expressed by the number of days.
C. Amount to be Impounded
(1) The amount to be impounded shall be the greater of:
(a) Twenty-five percent of the aggregate offering price of the securities to be registered plus offering expenses; OR
(b) The minimum amount required to sustain the business proposed by the registrant for one full year from the release of the impound; OR
(c) The minimum amount proposed to be sold by the applicant pursuant to the registration statement.
D. Where Funds are to be Impounded
Funds may be impounded at any federal or state bank or savings institution.
E. Conditions of Impound
(1) The applicant shall file a completed FORM 11-7b with the Division as part of the registration statement.
(2) The conditions of impound are stated on FORM 11-7b and are herein incorporated as requirements of this R164-11-7b.
F. Release of Impounded Funds
(1) The impounded funds shall be released only by an ORDER OF THE DIVISION.
(2) The impounded funds shall be released to the registrant where:
(a) All registration requirements which, pursuant to the rules of the Division needed to be met by such date, have been met;
(b) The registrant requests the release in writing; and
(c) The Division receives written confirmation from the financial institution impounding the funds of the amount which has been deposited into the impound.
G. Certain Registrants
Where the registrant in a registration by qualification is a security holder who is not conducting a public offering for or on behalf of the issuer of the securities which are to be sold in the offering, no fund impound is required by this R164-11-7b; provided, however, that where an offering has a "minimum" required to be sold in order to consummate the transaction, a fund impound is required.
February 2, 2010
June 2, 2017
For questions regarding the content or application of rules under Title R164, please contact the promulgating agency (Commerce, Securities). A list of agencies with links to their homepages is available at http://www.utah.gov/government/agencylist.html or from http://www.rules.utah.gov/contact/agencycontacts.htm.