Rule 144 is the most common exemption from registration of microcap stock, and is often cited by securities attorneys in legal opinions used to deposit restricted shares in OTCMarkets companies.
However, Rule 144 can never be used if the Issuer is currently a shell company. If the Issuer is a former shell, Rule 144 can only be used by a shareholder if certain conditions apply. These requirements for former shells are known informally as “The Evergreen Rule.”
What are the Requirements of the Evergreen Rule under Rule 144?
- The Issuer of the securities must have ceased to be a shell company;
- The Issuer must be “subject to” the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”). This means the Issuer must be a “mandatory SEC filer” or “fully reporting.”;
- The Issuer must have filed all reports and other materials required to be filed by Section 13 or 15(d) of the Exchange Act, during the last 12 months, other than Form 8-K reports; and
- The Issuer must have filed current ‘‘Form 10 information.” This includes audited financials and could be done in a Form 10, but is more likely achieved in a combination of other SEC filings, including a “Super 8-K.”
If the foregoing requirements of the Evergreen Rule are met, then Rule 144 might be available, subject to all other applicable Rule 144 conditions, such as Affiliate status, and holding period.
Section 4(a)(1) Alternative to Rule 144 for Current and Former Shells
In many cases, the requirements of the Evergreen Rule cannot be met. For instance, if an Issuer is currently marked a shell company, or if a former shell is delinquent in its SEC filings, then Rule 144 cannot be used. If the securities are greater than Two (2) Years old, Section 4(a)(1) may offer a solution.
Requirements of Section 4(a)(1) Legal Opinions
Matheau J. W. Stout, Esq. drafts Section 4(a)(1) legal opinions for shareholders who are not “issuers, underwriters or dealers.” Because shell status is not an element of Section 4(a)(1), these legal opinions can issued for Non Affiliate shareholders in current shells or former shell companies.
Current information is also not an element of Section 4(a)(1), such that these opinions can also be drafted even when the Issuer is delinquent in its filings, and marked as a Yield Sign or Stop Sign at OTCMarkets.com.
Section 4(a)(1) is concerned with the shareholder, rather than the Issuer. Section 4(a)(1) opinions cite case law extensively and are typically much longer than the average Rule 144 opinion, as they go into great detail when examining whether or not a shareholder can be classified as an issuer, underwriter, or dealer in securities.
Securities Attorney Drafting Section 4(a)(1) Opinion Letters for Shareholders
Shareholders with stock in current or former shell companies quoted on the OTC Bulletin Board or OTC Markets can contact OTC securities lawyer Matt Stout for a no cost review of their certificate and supporting documents at (410) 429-7076 or firstname.lastname@example.org.