Tag Archives: 144 letters

Rule 144 Holding Period for Shares Issued Per Anti-Dilution Rights

When does the Rule 144 holding period begin for shares received due to anti-dilution rights?

For purposes of Rule 144(d), additional shares of stock acquired from an Issuer pursuant to anti-dilution rights have the same holding period as the original shares governed by the anti-dilution provision.   Another way of saying this is that the new shares can tack onto the holding period of the old shares.

Shareholder Opinion Letters for OTC Markets and Bulletin Board Stocks

OTC securities attorney Matt Stout drafts Rule 144 and Section 4(a)(1) opinion letters for Shareholders of Pink Sheet and Bulletin Board companies trying to clear and sell restricted stock.

Questions regarding Rule 144 holding periods, shell status or Section 4-1 alternatives to Rule 144 can be emailed at mstout@otclawyers.com or (410) 429-7076.

What is the Rule 144 Holding Period for a Warrant Exercise?

Rule 144 Holding Period for Cashless Warrant Exercise

If the exercise of a warrant is “cashless” then a Shareholder is allowed to tack the holding period of the warrant onto the common stock under Rule 144(d)(3)(x).  This means that as long as there is no consideration whatsoever paid in order to exercise the warrant, the holding period of the common stock will tack back to the date of the warrant itself.

Rule 144 Holding Period for Warrant Exercises Upon Payment of Cash

In contrast, if the warrant exercise is not “cashless”, then the holding period will begin on the date of the warrant exercise.

De Minimus Payments to Exercise Warrants Under Rule 144

This is true even if the payment to exercise the warrant is “de minimis.”  That is, even if the amount paid to exercise the warrant is a very tiny amount of cash, the Shareholder will be prevented from tacking the holding period of the warrant to that of the common stock under Rule 144(d)(3)(x).

No Cost Review of Documents by Rule 144 Legal Opinion Lawyer Matt Stout

Shareholders in need of Rule 144 or Section 4(a)(1) legal opinions can contact OTC Bulletin Board and OTC Markets securities attorney Matt Stout for a no cost review of documents at (410) 429-7076 or via email at mstout@otclawyers.com.

 

 

Rule 144 Holding Period and Employee Stock Options

When does the Rule 144 holding period begin for restricted stock acquired under an Employee Stock Option plan?

The Option Grant Date Does Not Start the Rule 144 Holding Period

The Rule 144 holding period does not begin on the option grant date.  The grant of an option only gives an employee the right to acquire stock in the future.  The date of the employee’s stock option grant can never be used for Rule 144 holding period purposes, even if the exercise does not require the payment of cash or other consideration to the Issuer.

The Option Exercise Date Starts the Rule 144 Holding Period

The holding period under SEC Rule 144 starts on the date the option is exercised by the employee, and, unless the exercise is “cashless”, the full payment of the exercise price is made to the Issuer.  This is intuitive, since prior to exercising the option, the employee is not at risk, and the stock has not been in any way “earned” or “paid for.”

What is the Rationale Behind the Rule 144 Holding Period for Stock Options?

The SEC Rule 144 holding period does not begin to run until until the option is exercised.   The reason behind this is that because the employee did not pay for the option grant, prior to the issuance of the restricted stock, the employee “optionee” holds no investment risk in the Issuer.

The same rationale used here is consistent with that used when restricted stock is purchased through Subscription Agreement, since the Rule 144 holding period would not begin until the date of the check or wire transfer confirmation–when the subscription was actually paid for by the investor.

Rule 144 Securities Lawyer Matt Stout

OTC securities lawyer Matt Stout drafts Rule 144 and Section 4(a)(1) legal opinions for shareholders in OTC Markets and OTC Bulletin Board companies.   Copies of certificates and supporting documentation can be sent for a no cost review via mstout@otclawyers.com.   Shareholders who wish to clear restricted stock using Rule 144 opinion letters can contact Matt Stout at (410) 429-7076.

Securities Law Opinion Letters Under Rule 144 and 4(1)

Legal Opinions for OTC Markets Issuers and Shareholders

A large part of Matheau Stout’s securities law practice includes the research and drafting of legal opinions for the sale of restricted stock of Issuers listed on the OTC Bulletin Board, Pink Sheets and OTCMarkets.

Rule 144 Opinion Letters

The most common type of securities opinion letter is known as the 144 Letter, or Rule 144 Legal Opinion.   144 Letters are used by Transfer Agents when removing restricted legends from OTC stocks. Most brokerages specializing in OTC Bulletin Board and Pink Sheet stocks will not accept deposits of certificates without a Rule 144 legal opinion drafted by an experienced securities attorney like Matt Stout.

Section 4(a)(1) Legal Opinion Letters

When Rule 144 is not available because the OTC Markets company is a current or former shell, experienced securities attorneys like Matheau J. W. Stout, Esq. can review certificates and documentation to see if Section 4(a)(1) can apply.

Section 4(a)(1) is also known commonly as Section 4-1, and is available only if the securities in question are greater than Two (2) Years old, and the Shareholder is not an Issuer, Underwriter or Dealer.

OTC Markets Securities Lawyer Matt Stout

Shareholders and Brokers can request SEC Rule 144 opinions from Matt Stout, Securities Lawyer by calling (410) 429-7076 or via email, at mjwstout@gmail.com or mstout@otclawyers.com.

More information on clearing restricted stock using Rule 144 and Section 4(a)(1) is available at securities law blogs published by Matheau J. W. Stout including 144letters.net144-Opinions.comRestrictedStock.co, andRestrictedStockOpinion.net.

What does an E Suffix Mean for an OTCBB Trading Symbol?

NASDAQ and OTCBB Companies Delinquent in SEC Filings

Whenever a public company trading on the NASDAQ or the OTC Bulletin Board (“OTCBB”) becomes delinquent in its SEC reporting obligations, the letter “E” is added to company’s ticker symbol.

NYSE Companies Delinquent in SEC Filings

Companies listed on the New York Stock Exchange (“NYSE”) which fall behind in their SEC reports receive the suffix “LF” following their trading symbol.

OTCMarkets Companies Delinquent in Filings

Public companies quoted on OTCMarkets.com which are delinquent in their SEC filings are marked “delinquent” first if they are on the OTCQB Market Tier.  After remaining delinquent for a period of time, they get further marked down to Pink Yield and are removed from the OTCQB.

Bulletin Board and OTC Markets Lawyer Matt Stout

Management and shareholders of SEC filers which are delinquent in their filings under the Securities Exchange Act of 1934 can contact securities attorney Matt Stout to discuss the implications for depositing restricted stock using Rule 144 legal opinion letters and Section 4(a)(1) opinions at (410) 429-7076 or mstout@otclawyers.com.

Removing Restrictive Legends from OTC Stock

 The most common questions by shareholders of OTC Markets stocks, including Pink Sheets and OTCBB Bulletin Board securities involve the removal of restrictive legends from stock certificates.

There are two common exemptions from registration which are used every day by OTC shareholders to clear and deposit restricted stock.  They are Rule 144 and Section 4(a)(1).

Rule 144 May Be Available to Remove a Restrictive Legend

Rule 144 is the most commonly used method for removing a legend from restricted stock. Many microcap shareholders quickly learn that their broker and the transfer agent require a Rule 144 legal opinion drafted by a securities attorney in order to sell restricted stock.

But Rule 144 is not available if the Issuer is a current or former “shell” and its filings are delinquent.  In those instances, shareholders can contact an experienced securities lawyer to review their supporting documents to see if Section 4(a)(1) can be used to clear their restricted stock.

Section 4(a)(1) Legal Opinions By Experienced Securities Attorneys

When Rule 144 is not available, and the securities are greater than Two (2) Years old, experienced OTC Markets securities counsel like Matt Stout can often provide a Section 4(a)(1) legal opinion to clear restricted stock.  A Section 4(a)(1) opinion is also commonly referred to by experienced securities lawyers simply as 4(1) opinion or 4-1 legal opinion.

Differences Between Rule 144 and Section 4(a)(1)

The main differences between a Rule 144 opinion and a Section 4(a)(1) opinion are

  1. Rule 144 Legal Opinions cannot be issued for a current shell company.
  2. Rule 144 Legal Opinions cannot be issued for a former shell company unless the company complies with the elements of the “Evergreen Rule” which basically means it emerged from shell status at least one (1) year ago, is subject to the reporting requirements of the Securities Exchange Act of 1934, has filed “Form 10 Information” including audited financials for a year, and is current in its SEC filings at the time of the opinion.
  3. Section 4(a)(1) opinions require that the shareholder and/or prior holders have held the securities for at least Two (2) Years in contrast to a shorter Rule 144 holding period of either six (6) months for mandatory SEC filers or one (1) year for non reporting Pink Sheets.
  4. Section 4(a)(1) opinions can be drafted for either current or former shell companies because “shell status” is not an element of 4-1.
  5. Section 4(a)(1) legal opinions cannot be drafted for shareholders considered an issuer, underwriter or dealer.

Shareholders in OTC Markets companies can contact securities attorney Matt Stout for a no-cost review of their restricted stock certificates and supporting documentation at (410) 429-7076 or mstout@otclawyers.com

 

Supporting Documentation for Rule 144 Legal Opinions

One of the most common questions a securities lawyer receives is “What do I need to provide in order to have the restricted legend removed from my certificate?”   The best answer is always for the Shareholder to provide all of the documentation in his or her possession showing the origin and history of the shares.

Shareholders seeking Rule 144 legal opinions should first create PDF files of the stock certificates, and any other supporting documents which can show that the elements of Rule 144 are met.  Then email all of this to the securities lawyer.  The securities lawyer’s process cannot really begin until this information is reviewed and very few questions can be answered until then since most answers depend on the specific facts of the Rule 144 transaction.

SEC and OTC Markets Filings That Mention the Rule 144 Transaction

If the Shareholder is aware of a past SEC filing (10-Q, 10-K, 8-K) or OTC Markets filing (Quarterly Report, Annual Report, or Information and Disclosure Statement) that mentions their transaction, they should note this.   A reference in a public filing to their shares, or the transaction which originated their shares is perhaps the most helpful, and the most rare piece of documentation that can be provided.

Aside from documentation in the Issuer’s public filings, depending on the transaction which originated the shares, this documentation could include:

Documents in Support of a Debt Conversion Under Rule 144

Not all of these documents may be available to the Shareholder in every Rule 144 transaction, but in a best case scenario, all of these would be provided:

  1. Promissory Note; and
  2. Debt Purchase Agreement, if applicable; and
  3. Conversion Agreement signed by the Issuer, if possible; and
  4. Conversion Notice; and
  5. Board Resolutions in which the Issuer acknowledges the debt and the conversion; and
  6. Proof of payment via check or wire transfer; and
  7. Non Affiliate letters signed by the Shareholder and the Prior Debt Holder.

Documents in Support of a Private Stock Purchase Under Rule 144

Many of these documents may not be available, but they are helpful to establish the chain of ownership under Rule 144.  Since the Issuer is not usually involved, there are less Board Resolutions and documents provided:

  1. Stock Purchase Agreement (“SPA”); and
  2. Proof of payment via check or wire transfer; and
  3. Non Affiliate letters signed by Shareholder and the Prior Holder (unless the SPA clearly states this); and
  4. Documents showing how the Seller acquired the Shares in the first place.

Documents in Support of Shares Earned Under a Consulting Agreement Under Rule 144

Not all of these may be in a Shareholder’s packet, but more is better:

  1. Consulting Agreement between Shareholder and Issuer, which hopefully sets forth exactly when the Shares are considered fully “paid for” or earned under Rule 144; and
  2. Board Resolution acknowledging Consulting Agreement and confirming how and when the Shares were earned.  This essentially takes the place of “proof of payment” in the other examples; and
  3. Non Affiliate letter signed by Consultant unless non affiliate status is addressed in the Consulting Agreement.

It is rare when Shareholders have all of these documents handy when they go to sell restricted stock, since this is often years after the Shares were originally acquired.   On those occasions, a securities lawyer with expertise in drafting legal opinions under Rule 144 looks at the total picture and can request additional letters, affidavits and information when necessary.

Shareholders can contact securities lawyer Matt Stout with questions regarding Rule 144 legal opinions, Section 4(1) opinion letters and clearing restricted stock in general at (410) 429-7076 or mstout@otclawyers.com.

 

 

How Do Stock Splits and Reverse Splits Affect Trading Volume Under Rule 144?

Affiliates of OTC Issuers Can Sell 1% Every 3 Months under Rule 144

Under Rule 144, Affiliates of OTC Bulletin Board (“OTCBB”) and OTC Markets OTCQB, OTCQX and Pink Sheet Issuers are only allowed to sell 1% of the total issued and outstanding shares during any 3 month period.

Affiliates of Exchange Listed Issuers Have a Choice Under Rule 144(e)

Affiliates of Issuers listed on national exchanges like the NASDAQ or NYSE MKT are allowed to sell either

  1. 1% percent of the issued and outstanding shares; or
  2. The average weekly trading volume during the 4 weeks before the Affiliate filed Form 144.

Stock Splits Do Not Affect the Affiliate’s Percentage of Ownership

Whether the Issuer is quoted on the Over-the-Counter markets or listed on a stock exchange, neither forward stock splits nor reverse stock splits will affect the trading volume limitations under Rule 144(e) since a forward or reverse split would not change the percentage of the Issuer’s stock that the Affiliate is allowed to sell during the time period chosen.

Calculate Available Volume Under Rule 144 Following a Stock Split

To calculate available trading volume following a forward stock split or reverse stock split, an Affiliate should measure the trading volume as if the split had occurred on the 1st day of the 3 month period, even if it occurs at some later point during the 3 months.

Affiliates of OTC, NASDAQ and NYSE MKT Issuers with questions regarding selling restricted stock under SEC Rule 144 can contact securities lawyer Matt Stout at (410) 429-7076 or mstout@otclawyers.com.

Can Stock in Shell Companies Be Sold Under Rule 144?

What is a Rule 144 Legal Opinion Letter?

A Rule 144 legal opinion is a letter drafted by a securities attorney to a Transfer Agent that states whether or not a specific transaction complies with the requirements of SEC Rule 144.  Rule 144 has separate elements or requirements that must be met, and supported with documentation, in order for a restricted stock certificate to be cleared for sale under Rule 144.

One of the requirements for compliance with Rule 144 is that the Issuer is not a shell company.

What is a Shell Company under Rule 144?

A shell company under SEC Rule 144 is an Issuer that has either

  1. No operations or nominal operations;
  2. Assets that consists only of cash and cash equivalents; or
  3. Assets that consist of any amount of cash and cash equivalents and nominal other assets.

 What if the Issuer Used to Be a Shell Company But is Not Currently a Shell?

If the Issuer was ever classified or declared a shell company in its past, then the Issuer must have provided current public information for a minimum period of time since it ceased to be a shell, and it must be current in its reporting to the SEC, not under the OTC Markets Alternative Reporting Standard.

SEC Reporting Companies That Used to Be a Shell under Rule 144

For SEC reporting companies that file Forms 10-Q, 10-K and 8-K, these Issuers must be current in their SEC quarterly and annual report filings.  If the Issuer was ever a shell in its past, it must have filed these reports for at least 12 months since it stopped being a shell.

These Issuers will be quoted on the OTC Markets OTCQB or OTCQX market tiers.  They may also be quoted on the OTC Bulletin Board, if the Issuer has chosen to apply for OTCBB.  But a current SEC reporting company that is “fully reporting” will be shown as an OTCQB, at least, on OTCMarkets.com.

Pink Sheets That Used to Be a Shell under Rule 144

Non SEC reporting companies (Pink Sheets) that are subscribed to OTC Markets OTCIQ system, will be shown as a “Pink Current” Issuer on OTCMarkets.com, meaning that the Issuer is current in its quarterly financials, annual financials and disclosure statement filings under the Alternative Reporting Standard.

If a Pink Sheet public company was ever a shell in its past, broker-dealers and clearing firms are not likely to ever accept a Rule 144 legal opinion to clear its stock even if it has ceased being a shell.  This is true under Rule 144 no matter how long ago the Pink Sheet ceased to be a shell.

Pink Sheets that are not current in their filings will be shown as “Pink Limited Information” or Pink Yield Sign, while those Pink Sheets that have missed several filings will be shown as “Pink No Information” or Pink Stop Sign.

Shareholders of Pink Sheet Issuers that were formerly shells can contact Matt Stout, securities attorney for further information on other SEC provisions which may be useful in clearing their Shares under the facts specific to their case.

Current Public Information and the Alternative Reporting Standard Under Rule 144

Current Public Information Under Rule 144

Under SEC Rule 144, there must be “adequate current information” about the OTC Markets Issuer publicly available before the sale of restricted stock can be made. According to the SEC for “reporting companies” that file quarterly and annual financial reports with the SEC via its EDGAR filing system, this generally means that those Issuers have complied with the periodic reporting requirements of the Securities Exchange Act of 1934.

The reporting companies’ compliance with those reporting requirements is easily seen on OTC Markets via the current OTCQB or OTCQX designation, which demonstrates that an Issuer is current in its filings.

Current Information Under the Alternative Reporting Standard for Pink Sheets

For “non-reporting” companies, that are not subject to the reporting requirements under the Securities Exchange Act of 1934, this current information requirement means that certain company information is publicly available via OTCMarkets.com in the form of Quarterly and Annual reports showing the Issuers unaudited balance sheet, profit & loss statement and cash flow statement are posted.

It also means that the Pink Sheet Issuer’s Information and Disclosure Statement is posted on time, as well as.   The OTC Markets disclosures include information regarding the nature of the Issuer’s business operations, the bios of its officers and directors, and its share and debt structure.

OTC Pink Current

A Pink Current designation on OTCMarkets.com provides investors with the knowledge that the Pink Sheet Issuer has timely filed all of its disclosures and financials on OTCIQ in compliance with the Alternative Reporting Standard.

If those disclosures and financials are detailed and professionally prepared, they can be as informative and revealing to investors as an SEC Form 10-Q or 10-K.

A Pink Current Issuer is considered to have satisfied the requirement of “adequate public information” under Rule 144.