Tag Archives: matheau stout sec

When Does the Rule 144 Holding Period Begin When Payment is Escrowed?

As many OTC investors know, Bulletin Board and Pink Sheet Issuers raising capital using a Private Placement Memorandum (“PPM”) sometimes choose to escrow all subscription payments until a minimum amount is raised.

When an OTC private placement offering is made on this type of “minimum/maximum basis”, shares are not issued to investors and proceeds are not delivered to the Issuer from an escrow account unless and until the target minimum amount is sold.

Rule 144(d) Applied to PPM Investors with Escrowed Funds

Under Rule 144(d), the holding period for shares acquired in an OTC Markets company using a “minimum/maximum” offering begins when the shareholder pays for the shares and payment is deposited in the escrow account.

When is the Shareholder Committed to Purchase PPM Shares?

The reason that the Rule 144 holding period begins before the release of the escrowed funds is because the shareholder is committed to participate in the offering if the minimum amount is sold, and that factor is not in the shareholder’s control once the payment is sent and accepted for deposit by the escrow agent.

When are the Shareholder’s Funds At Risk under Rule 144?

This is the moment when the shareholder’s funds are “at risk.”  In contrast, if the language of the subscription or escrow agreement somehow gave the shareholder the right to withdraw the funds upon request, then the funds would not be considered “at risk” and the Rule 144 holding period would not begin to run.

Rule 144 Opinion Attorney Offers No Cost Review of Documents

OTC securities lawyer Matt Stout reviews shareholder documents at no cost in preparation for issuing Rule 144 and Section 4(a)(1) legal opinions to clear restricted stock.

Questions about the Rule 144 holding period, Affiliate Status, and Shell Status are reviewed and if a legal opinion cannot be issued there is no cost to the shareholder.  Contact Matt Stout with Rule 144 questions at (410) 429-7076 or mstout@otclawyers.com.

S-1 Registration Statements and Incorporating SEC Filings by Reference

S-1 Incorporation by Reference of Previously Filed Exchange Act Reports

The SEC allows S-1 Registration Statement filers to use “backwards” incorporation by reference of previously filed Securities Exchange Act reports, like the 10-K, 10-Q, 8-K and other documents.

When an S-1 becomes Effective the prospectus filed as part of the Form S-1 Registration Statement must identify all previously filed Exchange Act reports and materials that are incorporated by reference.

Incorporation by Reference via Pre-Effective Amendment to an S-1

When an S-1 registrant wants to incorporate by reference an Exchange Act report that is filed after the filing date of the S-1 Registration Statement (or S-1/A) but prior to Effectiveness, a Pre-Effective Amendment must include a specific reference to such Exchange Act report in the Prospectus filed as part of the S-1.

Exchange Act Reports Must Be Readily Accessible on a Website

The ability to incorporate by reference a previously filed Exchange Act reports and other materials in an SEC Form S-1 is only allowed when the Issuer makes its incorporated Exchange Act reports and other materials readily accessible on a website maintained by or for the Issuer.  There are widgets available that make this requirement easy to satisfy, either by providing actual copies of the Exchange Act reports or by providing direct links to the SEC filings on EDGAR.

Microcap Securities Attorney Helps Companies Go Public Via S-1

Management of microcap companies seeking to file an S-1 Registration Statement to go public on the OTC Bulletin Board or OTC Markets OTCQB can contact S-1 Lawyer Matt Stout for a no cost consultation at mstout@otclawyers.com or (410) 429-7076.

 

What is the S-1 Quiet Period?

The S-1 “Quiet Period,” starts when a company files an S-1 Registration Statement with the SEC and ends when the SEC staff declares the S-1 “Effective.”

During the S-1 Quiet Period, the federal securities laws place certain limitations on what information a company can release to the public. Companies that fail to comply with S-1 Quiet Period may be found to be “gun-jumping.”

Well-Known Seasoned Issuers and the S-1 Quiet Period

Well-known seasoned issuers, (“WKSI”) include those household names every investor recognize trade on the NYSE or NASDAQ.  They are in the regular habit of releasing news anyway and are thus permitted anytime to use oral and written communications, including a “free writing prospectus,” subject to enumerated conditions (including, in some cases, filing with the Commission).  WKSI are eligible to file a Form S-3 rather than an S-1.

No OTC Markets or OTC Bulletin Board company is going to fall under the category of a Well-Known Seasoned Issuer, and all Issuers with stock quoted on the over-the-counter markets should be especially careful with all communications during the S-1 Quiet Period.

SEC Reporting Issuers and the S-1 Quiet Period

All SEC reporting issuers are permitted to continue publishing or posting regularly released factual business information and forward-looking information.  This applies to those already public companies that are filing an S-1 Registration Statement after already having a trading symbol or “ticker” and after already being subject to the reporting requirements of Section 12 of the Securities Exchange Act of 1934.

This would not apply to a company which is doing its “IPO” or initial public offering, since by nature that company is private, and not yet “fully reporting” under the Securities Exchange Act of 1934.  That is, the Company is not yet releasing 10-K, 10-Q, and 8-K filings as required under the 34 Act.

Non-Reporting Issuers and the S-1 Quiet Period

Non-reporting issuers include both private companies filing an S-1 Registration Statement in order to “go public” on the OTC Bulletin Board (“OTCBB”) or OTCQB and those already public voluntary filers, Pink Sheet or Gray Sheet companies that are not SEC filers under the 34 Act.

These Non-Reporting companies can, at any time, continue publishing factual business information that is regularly released and intended for use by persons other than in their capacity as investors or potential investors.

Companies going public on the OTCBB or OTCQB by filing an S-1 Registration Statement should carefully consider the content and tone of all communications, whether they are news releases or simply posts on their blog or website.  Any reference to the the pending S-1 Registration Statement, the prospectus, or the offering, is a bad idea during the S-1 Quiet Period and may be considered “gun jumping.”

If Non-Reporting companies feel compelled to release any news during the S-1 Quiet Period they should have such news or press releases reviewed by experienced securities legal counsel prior to such releases.  S-1 lawyer Matt Stout can review news releases before they are posted.

Permitted Communications and the S-1 Quiet Period

The key issue to the S-1 Quiet Period is timing.   Communications by all Issuers more than 30 days before filing an S-1 Registration Statement will be permitted by the SEC so long as they do not reference a securities offering that is the subject of a pending or contemplated S-1 Registration Statement.

Companies planning to file an S-1 Registration Statement should review all of their past communications to see if they may have inadvertently run afoul of this 30 day guideline, and if so, should consult with an experienced S-1 lawyer like Matheau J. W. Stout, Esq. to decide when the file their S-1 Registration Statement.

S-1 Lawyer Matt Stout Can Advise Companies on the S-1 Quiet Period

Companies interested in going public via S-1 or those public Issuers planning a resale S-1 to register securities already sold in a Private Placement can contact S-1 securities lawyer Matt Stout at (410) 429-7076 or mstout@otclawyers.com.

 

What is the 3(a)(10) Exemption from Registration?

Section 3(a)(10) of the Securities Act of 1933 is an exemption from SEC registration for offers and sales of securities when the following conditions are met:

The securities must be issued in exchange for “securities, claims, or property interests” but not in exchange for cash (Usually convertible debt is exchanged for the Issuer’s common stock);
A court or “authorized governmental entity” must conduct a fairness hearing and approve the terms and conditions of the exchange.

What Are The Requirements of 3(a)(10)?

Before issuing an Order which approves a settlement between an Issuer and a Creditor, for instance,

  1. The Court must find that the terms and conditions of the settlement are “fair to those to whom securities will be issued”; and
  2. The Court must be advised by the Issuer before the fairness hearing that the Issuer intends to rely upon Section 3(a)(10) as an exemption from registration for the securities being exchanged for the Issuer’s debt; and
  3. The Court must actually hold a fairness hearing before approving the the terms and conditions of the settlement; and
  4. The fairness hearing must be open to everyone to whom securities would be issued if the proposed settlement is accepted; and (In the typical 3(a)(10) case, there is one creditor which is exchanging convertible debt which may have been purchased from one or multiple debt holders.)
  5. Adequate notice must be provided to all Parties; and
  6. There cannot be “any improper impediments” to the appearance at the fairness hearing by any Party that should be present.

Legal Representation for Issuers and Debt Holders in 3(a)(10) Matters

Securities lawyer Matt Stout represents OTC Markets public companies and their debt holders in resolving 3(a)(10) litigation and settlement of bona fide and documented 3(a)(10) claims in accordance with the SEC requirements discussed here.

3(a)(10) Lawyer for OTC Markets Companies

OTC Bulletin Board and OTC Markets Issuers that would like to learn more about how 3(a)(10) works in practice can contact securities attorney Matt Stout at (410) 429-7076 or mstout@otclawyers.com.

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.

What is a Reverse Stock Split?

A reverse stock split is a FINRA corporate action which, once approved, reduces the number of shares and causes a temporary proportionate increase in the per share price.

In theory, a reverse stock split is supposed to have no effect on the value of a shareholder’s stock in the Company.  However, following a reverse stock split, many Issuers do not maintain their post-reverse share price, since eventually the market will determine where it lands.

A reverse stock split would follow these steps:

  1. Shareholders vote to reverse split the stock in order to increase share price in the hopes of attracting institutional investors who might otherwise shy away from the Company based on its sub penny stock price.  SEC filers will use the Form 14 at this stage.
  2. Board of Directors approves a reverse stock split and authorizes management to file the appropriate documents with the State and FINRA.
  3. CEO files a Certificate of Change/Amendment (in Nevada, for instance) which details the amount of the reverse split and the proposed effective date, which is usually at least ten days hence.
  4. Issuer counsel files for a new CUSIP.
  5. Issuer counsel files for a new Corporate Action with FINRA and provides all of the supporting shareholder and Board documentation to show approval.
  6. Company announces the proposed reverse split in a news release, 8-K, etc.
  7. FINRA reviews and approves the reverse stock split if all of the necessary corporate formalities have been followed.
  8. DTC requires a legal opinion from outside securities counsel on the new, post-reverse-split shares.

OTC Markets companies considering a reverse stock split, name change, forward split or other FINRA corporate action can contact securities lawyer Matt Stout at (410) 429-7076 or via 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

 

What is an SEC Comment Letter?

The term SEC Comment Letter generally refers to correspondence from the Securities and Exchange Commission (“SEC”) staff to public companies which are SEC filers.  An SEC Comment Letter is sent by the SEC to an Issuer when an Issuer’s SEC filing needs further clarification.

SEC Comments on an S-1 Registration Statement

One example of an SEC Comment Letter is in response to an Issuer’s filing of an S-1 Registration Statement.  An S-1 Comment Letter is sent by SEC staff who review the disclosures set forth in an S-1 when there are questions that need to be answered or typos which need to be corrected.  There may be a series of SEC Comment Letters and Issuer response letters that go back and forth until the S-1 is finalized and declared effective by the SEC staff.

SEC Comment Letters on 10-K, 10-Q, Reg A, and 8-K Filings

The SEC can also issue an SEC Comment Letter in response to disclosures made in a public company’s 10-K, 10-Q, Regulation A, or 8-K, or in any other SEC filing, such as a Form 10.

SEC Comment Letters are Searchable in EDGAR

SEC comment Letters and the responses by Issuers or their securities lawyers are contained in the SEC’s EDGAR database as “correspondence.” The SEC made this correspondence public record in 2005 for filings made after August 1, 2004 which were reviewed by the SEC staff.

SEC Comment Letters Can Address Questions of Disclosure

SEC Comment Letters usually ask for additional information so the SEC staff can understand the Issuer’s disclosure.  Sometimes the SEC requests that an Issuer revise disclosures in a document already filed with the SEC if the facts and circumstances warrant such a change.  In other cases, the SEC will allow prior filings to remain, but request that the Issuer provide additional or different disclosures in future SEC filings.

Are SEC Comment Letters Legally Binding?

There are often several rounds of letters between the SEC and an Issuer’s securities attorney  until the SEC is satisfied with the information provided and changes made. SEC Comment Letters provide SEC staff positions on the issues discussed but are not an official or legally binding statement of the SEC’s views on the particular issues. SEC Comment Letters are expressly limited to the specific facts and circumstances of the named filing in question and do not automatically apply to other filings or to other SEC filers.

Experienced Securities Lawyers Can Respond to SEC Comment Letters

OTC public companies that received an SEC Comment Letter in response to an S-1 Registration Statement or to any other disclosure in an SEC Filing can contact securities attorney Matt Stout at (410) 429-7076 or mstout@otclawyers.com.

 

What is Schedule 13D?

Schedule 13D is known as a Beneficial Ownership Report

The term “beneficial owner” is defined under SEC rules, and is basically any person who directly or indirectly shares voting power or the power to sell the security.  For example, this would include individuals who are the majority member of an LLC and the Trustee of a Trust.

Schedule 13D Must Be Filed By Shareholders of Greater Than 5%

When a person or group becomes the beneficial owner of greater than Five Percent (5%) of a voting class of an Issuer’s equity securities registered under Section 12 of the Securities Exchange Act of 1934, the beneficial owner is required to file a Schedule 13D with the SEC.

Under certain circumstances the shorter Schedule 13G may be used.  Shareholders owning more than 5% in non reporting companies such as voluntary filers and Pink Sheets are not required to file a Schedule 13D or Schedule 13G.

Who Has the Obligation to File a Schedule 13D?

It is important to note that the beneficial owner has the obligation to file a Schedule 13D, not the public company, since the nature of “beneficial ownership” might prevent the Issuer from knowing which individuals are behind all of its corporate entity shareholders, such as LLCs or Trusts.

Schedule 13D filings for most publicly traded companies are searchable in the SEC’s EDGAR database system.

Matt Stout, OTC securities attorney, works with shareholders to issue Rule 144 legal opinions and to assist with SEC filings, such as Schedule 13D and SEC Forms 3, 4, and 5.