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Authorized US Representative for F-1 Registration Statements

Foreign companies that are not incorporated or domiciled in the United States use SEC Form F-1 Registration Statement to “go public.”   The Form F-1 is similar to the familiar S-1 Registration Statement used by domestic or US based companies to file an IPO.   One difference is that the F-1 requires the signature of the Registrant’s Authorized US Representative, which is most often the company’s US based securities attorney.

Who Qualifies as an Authorized US Representative on Form F-1?

The term Authorized US Representative is discussed in Securities Act Release No. 6360 (Nov. 20, 1981), which states that

the Commission generally accepts the signature of an individual who is an employee of the registrant or an affiliate, or who is the registrant’s counsel or underwriter in the United States for the offering, because the signature clearly identifies an individual that is connected with the offering as subject to the liability provisions of the Securities Act. By similar reasoning, the Commission generally has refused to accept the appointment of a newly formed or shell corporation in the United States as the authorized representative.

US Securities Lawyer for Foreign Companies Going Public

US based securities attorney Matheau J. W. Stout, Esq. serves as Authorized US Representative on Form F-1 Registration Statements for foreign companies seeking to go public on the OTC Markets.   OTC Securities Lawyer Matt Stout can work alongside local counsel outside of the United States to coordinate the filing of a Form F-1, and subsequent quarterly and annual filings, and can recommend PCAOB auditors familiar with Non US companies going public.

 

Continuous S-1 Offering under Securities Act Rule 415

SEC Form S-1 does not provide for forward incorporation by reference of Exchange Act reports filed after the S-1 Registration Statement is declared Effective.

Post-Effective Amendment to Form S-1 for Material Changes

Because of this, when an S-1 is used for a continuous offering per Securities Act Rule 415, a Post-Effective Amendment is needed under Securities Act Section 10(a)(3) to reflect fundamental changes or to disclose material changes in the plan of distribution.  The Post-Effective Amendment is required pursuant to the Issuer’s Item 512(a) undertakings.

Changes via S-1 Prospectus Supplement

Changes which are not fundamental or material can be made to Prospectus contained in the S-1 Registration Statement by filing a Prospectus Supplement.

S-1 Lawyer Matt Stout Helps Microcap Companies Go Public

Matheau J. W. Stout, Esq. represents entrepreneurs seeking to go public via S-1 Registration Statement.  Companies interested in becoming quoted on the OTB Bulletin Board or OTC Markets OTCQB can contact Matt Stout, securities lawyer, at (410) 429-7076 or mstout@otclawyers.com for a free consultation.

Graphics Used in S-1 Registration Statements

Many companies filing IPOs to go public on the OTC Bulletin Board or OTC Markets using S-1 Registration Statements choose to include text or artwork inside the front and back cover pages of the prospectus.

Graphics are permitted in an S-1 Registration Statement, subject to certain best practices.

  1. Registrants should refer to Rule 304 of Regulation S-T to ensure that the graphics are in compliance;
  2. The graphic presentations must accurately represent their actual current business;
  3. Graphics must not depict products that do not exist or are not the Registrant’s actual products;
  4. Registrants cannot include testimonials or statistical data that are taken out of context; and
  5. Registrants should not identify specific customers that are not representative of the registrant’s overall customer base;
  6. Graphics should not use industry jargon or terms that are unfamiliar to the average investor;
  7. The graphic presentation should not include extensive narrative text that repeats information already contained in the Summary or Business Overview sections;
  8. Graphic presentations cannot be confusing or obscure other Prospectus disclosures, and
  9. No graphic presentation should give prominence to selected portions of the Registrant’s business or operations.

S-1 Attorney Offers No Cost Consultations to Discuss Going Public

Microcap companies and entrepreneurs seeking to go public on the OTCQB or OTCBB via S-1 Registration Statements can contact OTCMarkets securities attorney Matt Stout for a free consultation at (410) 429-7076 or mstout@otclawyers.com.

How to Update the Prospectus for a Continuous Offering on Form S-1

If a microcap company files an S-1 Registration Statement for a continuous securities offering, how should its prospectus be updated to reflect new information in subsequent 10-Q and 10-K reports?

When SEC Form S-1 is used for a continuous offering, the prospectus may should be revised periodically to reflect new information because unlike Form S-3, the S-1 does not provide for incorporation by reference of subsequently filed periodic reports.

Post Effective Amendments to Form S-1

For example, in a continuous offering on a Form S-1 pursuant to Rule 415(a)(1)(ix), an OTCQB company wants to update the prospectus to include Exchange Act reports filed after the effective date of the Form S-1.

In that case, if the company files a post-effective amendment, it could incorporate by reference previously filed Exchange Act reports like the 10-K and 10-Q if it satisfied the conditions in Form S-1 allowing incorporation by reference.

Item 512(a)(1) of Regulation S-K also requires some changes, including a Section 10(a)(3) update, to be reflected in a post-effective amendment.

Rule 424(b) Prospectus Supplement

Other changes can be made in a prospectus supplement filed pursuant to the various categories under Rule 424(b) of the Securities Act of 1933.

S-1 Registration Statement Attorney Free Consultation

Matheau J. W. Stout, Esq. answers questions regarding S-1 Registration Statements and going public via S-1 at mstout@otclawyers.com or (410) 429-7076.  There is no cost for an initial consultation to explain the mechanics of filing an IPO via S-1 in order to become a publicly traded company on the OTC Bulletin Board or OTC Markets.

 

What are the Regulation S Safe Harbor Categories?

There are Three Issuer Safe Harbor Categories under Regulation S

The Regulation S issuer safe harbor contains three categories of offerings, depending on the nationality and reporting status of the Issuer, and whether or not there is substantial US market interest in the securities.

The three categories represent increasing protections to make sure that the securities offered in a Regulation S offering are not part of an unregistered distribution of securities in the United States.

Regulation S Safe Harbor Category 1

The first Issuer Safe Harbor under Regulation S contains the least restrictive conditions and is for offerings of securities of Foreign Companies:

  1. with no substantial US market interest in these foreign securities,
  2. securities offered and sold in “overseas directed offerings,”
  3. securities backed by the full faith and credit of a foreign government, and
  4. securities offered and sold pursuant to certain employee benefit plans.

For offerings in Category 1, there are no requirements other than the Regulation S General Conditions.  Category 1 Regulation S securities are not the subject of legal opinions by US securities attorneys.

Regulation S Safe Harbor Category 2

The second Issuer Safe Harbor under Regulation S applies to offerings that are not eligible for Category 1.  These would include the following:

  1. equity securities of a reporting foreign company; or
  2. debt securities of a reporting foreign or US Issuer or a non-reporting foreign company.

In addition to the Regulation S General Conditions, certain other offering restrictions apply and no offer or sale may be made to a US Person or for the account or benefit of a US Person (other than a distributor) for a period of 40 days.

Category 2 Regulation S securities are rarely the subject of legal opinions by US securities attorneys.  Today it would be very difficult to find a brokerage firm which would accept for deposit any restricted securities using the 40 day holding period.  Most, if not all, of such brokers were based offshore and have since been shut down.  Nevertheless, when some think if Reg S, they assume the holding period is only 40 days.   Even in the heyday of offshore brokerages, this was only true for stock of “reporting” foreign companies, since debt securities would need to be converted into stock anyway in order for deposit and trading.

Regulation S Safe Harbor Category 3

The third Regulation S Issuer Safe Harbor contains the most restrictive conditions and applies to all securities not eligible for Categories 1 and 2. This includes the following:

  1. equity securities of a reporting US Issuer;
  2. any securities of a non-reporting US Issuer; and
  3. equity securities of a non-reporting foreign company that has a substantial US market interest in its equity securities.

Category 3 encompasses nearly all Regulation S securities which are the subject of legal opinions drafted by US securities attorneys.  In practice, the holding period requirements of Reg S Category 3 are similar to Rule 144 for OTCMarkets or OTC Bulletin Board public companies.

Other Offering Restrictions Under Regulation S for Sales to US Persons under Category 3

In addition to the Regulation S General Conditions, certain other offering restrictions apply and no offer or sale may be made to a US Person or for the account or benefit of a US Person (other than a distributor) for the following periods:

Equity securities of Non-Reporting Issuers: One Year.  This is the same as a Non-Reporting OTC Markets Pink Sheet or Voluntary SEC Filer under Rule 144.

Equity securities of Reporting Issuers: Six Months.  This is the same as a Mandatory SEC Filer like an OTCQB or OTCBB stock under Rule 144.

Debt Securities: 40 Days.  In practice, this is of no consequence, because in order for the US Shareholder to deposit and sell stock under Reg S Category 3, “Debt Securities” are converted into “Equity Securities” so the respective Six Months or One Year holding periods will still apply.

Securities Attorneys for Selling Regulation S Stock

As a practical matter, all securities sold pursuant to the registration exemption under Regulation S will undergo scrutiny from brokerage compliance officers when the shareholder attempts to clear stock for resale.

Unless the typical Six Months or One Year holding periods are met, it is highly unlikely that US Shareholders will be able to deposit any Reg S stock, regardless of the public’s impression that the holding period is “only 40 days.”  Once those holding periods are met, it may also be possible to obtain a Rule 144 legal opinion even though the original private offering was done under Regulation S.  If the stock is greater than two years old, it may also be possible for a Section 4(a)(1) opinion to be drafted.

It is important to provide an experienced securities attorney like Matt Stout with all documentation showing the origin and history of the Reg S shares when seeking a legal opinion to clear Regulation S stock.

Regulation S Shareholders can contact securities lawyer Matt Stout at mstout@otclawyers.com or (410) 429-7076 to discuss the Regulation S General Conditions and Safe Harbors at no cost.

What are the General Conditions for a Regulation S Offering?

What is Regulation S?

Under Regulation S, certain offers and sales of securities occurring outside of the United States are not subject to the registration requirements contained in Section 5 of the Securities Act of 1933 (“Securities Act”).

Regulation S sets forth some non-exclusive safe harbors for extraterritorial offers, sales, and resales of securities under Rules 903 and 904 of the Securities Act.

General Conditions of Regulation S Offerings

In general, an offering may qualify for an exemption from registration under Regulation S if it meets the following two conditions:

  1. The offer or sale is made in an “offshore transaction”; and
  2. There are no “directed selling efforts” in the United States.

What is an Offshore Transaction under Regulation S?

An Offshore Transaction under Regulation S is defined as one in which:

  1. The offer is not made to a person in the United States; and either
  2. The Buyer is outside the United States, or
  3. The Seller and any person acting on the Seller’s behalf reasonably believe that the Buyer is outside the United States; or
  4. The transaction is executed in, on or through a physical trading floor of an established foreign securities exchange that is located outside the United States; and
  5. Neither the seller nor any person acting on its behalf knows that the transaction has been pre-arranged with a buyer in the United States.

What are Directed Selling Efforts under Regulation S?

Under Regulation S, Directed Selling Efforts refers to any activity related to “conditioning the market” in the United States for any of the securities being offered in reliance on Regulation S.

An example of Directed Selling Efforts could include placing an advertisement in a publication “with a general circulation in the United States” that refers to the offering of securities being made in reliance upon Regulation S.

Another example of Direct Selling Efforts could be the use of a website directed to US Persons, which does not include express disclaimers stating that that Reg S Offering is not intended for or available to US Persons.

Regulation S Securities Attorney Matheau J. W. Stout, Esq.

Securities lawyer Matt Stout is available to answer questions regarding compliance with Regulation S Offerings and the process of clearing and depositing restricted stock sold under Reg S at (410) 429-7076 or mstout@otclawyers.com.

OTC Bulletin Board and OTC Markets Issuers seeking advice on a Regulation S Private Placement directed to Non US Persons can contact Matheau J. W. Stout, Esq. for a free consultation to discuss best practices for the PPM.

When Does the 90-Day Reporting Period Required by Rule 144(c)(1) Begin?

Companies that go public via S-1 Registration Statement can later file an 8-A12(g) or an 8-A12(b) in order to become “subject to” the reporting requirements of the Securities Exchange Act of 1934 (“Exchange Act”).

Filing the SEC Form 8-A makes the company a “mandatory SEC filer” rather than a “voluntary filer” and allows shareholders to clear restricted stock under a Rule 144 holding period of six months rather than one year.

In order to qualify for the six month holding period under Rule 144, the public company must have been subject to the SEC reporting requirements for 90 days.  The question arises as to when the 90 Day Reporting Period begins.

The Effective Date of the S-1 Starts the 90 Day Reporting Period

When a company goes public via S-1 Registration Statement, and then files a registration statement pursuant to Exchange Act Section 12(g), the 90-day reporting period required by Rule 144(c)(1) begins on the Effective date of the S-1.

Contact Securities Attorney Matt Stout to Discuss Going Public via S-1

Microcap companies seeking to go public on the OTC Bulletin Board and OTC Markets OTCQB via S-1 Registration Statement or to become subject to the Exchange Act can contact S-1 Lawyer Matt Stout at no cost to discuss the process at mstout@otclawyers.com or (410) 429-7076.

 

How are Free Trading Shares Issued Under 3(a)(10)?

Creditors of OTC Markets companies often contact securities lawyer Matheau J. W. Stout, Esq. with questions about exchanging bona fide claims for free trading stock under 3(a)(10).   OTC Bulletin Board and Pink Sheet Issuers also have questions about how they can clear debt and payables from their balance sheets using 3(a)(10).

In many respects, 3(a)(10) is easy to understand, but there are certain rules that must be followed in order for the stock issued to be eligible for the 3(a)(10) exemption from registration.

What Makes 3(a)(10) Advantageous to Creditors?

3(a)(10) permits claims arising from legitimate and documented unpaid invoices or contracts to be exchanged for free trading stock, which helps creditors that did not receive a promissory notes from the Issuer.

3(a)(10) also provides a Court Order to a successful Plaintiff which is binding on the Issuer.  This makes future conversions of the Claim Amount easier, since the Issuer cannot later refuse to honor the Settlement Agreement reached in the 3(a)(10) case.

3(a)(10) transactions are by their nature a matter of public record, such that the entire claim settlement process and the issuance in accordance with the 3(a)(10) exemption from registration are done transparently.  This transparency has an inherent advantage to creditors holding 3(a)(10) claims under the Court Order, making it easier to obtain opinions, and clear stock later.

Why is 3(a)(10) Advantageous to Issuers?

An OTC company with debt and mounting accounts payable clogging its balance sheet is unlikely to attract new investors or lenders unless the balance sheet can be cleaned up.

3(a)(10) provides an opportunity for an Issuer to settle multiple claims within one lawsuit, often at a discount, limiting the expense and time associated with litigation, and providing the certainty of a Court Order which specifies the criteria under which shares will be issued.

The transparency of a 3(a)(10) lawsuit, settlement and Court Order also benefits the Company by providing certainty to its shareholders and would-be financial partners.  There is no guess work as to the Company’s liability to issue shares under a 3(a)(10) settlement, and no question as to the Court Order.

What is a Bona Fide 3(a)(10) Claim?

Bona fide means “genuine” or “real.”  The claim holder has the responsibility for documenting the bona fide nature of the monies owed, and copies of the unpaid invoices, contracts or other correspondence are attached to the Complaint in a 3(a)(10) lawsuit.

Documentation is easier when the debts or claims are in SEC filings or OTC Markets reports. Email correspondence evidencing services provided, monies owed and collection activities are also helpful in proving the bona fide nature of a 3(a)(10) claim.

Of course, promissory notes and wire transfer confirmations evidencing loans to an OTC Bulletin Board or OTC Markets Pink Sheet Issuer also can prove a debt is bona fide.

Requirements for the Section 3(a)(10) Exemption from Registration

Section 3(a)(10) of the Securities Act of 1933 (the “Act”) provides an exemption from the registration of securities under the following criteria:

  1. The securities must be issued in exchange for a bona fide claim; and
  2. The terms of the issuance and exchange must be found by a court to be “fair” to those receiving shares; and
  3. Notice of the Fairness Hearing must be provided to those to receive shares and they must be afforded the opportunity participate in a Fairness Hearing; and
  4. The issuer must advise the court prior to a Fairness Hearing that it intends to rely on the exemption provided in Section 3(a)(10) of the Act; and
  5. There cannot be any impediments to the appearance of interested parties at the Fairness Hearing.

What is Not Allowed in a 3(a)(10) Transaction?

Aside from the need to document the bona fide nature of the claims exchanged in a 3(a)(10) transaction, the main pitfall all creditors and Issuers need to be wary of is the temptation to secretly funnel money to the Issuer or its Affiliates.

In some cases, the SEC has found that claims were fabricated by insiders.  The claims were for services which were not provided, or were actually fake invoices from companies secretly controlled by Affiliates.  This is prohibited.

In other cases, plaintiffs in 3(a)(10) cases were secretly sending an Issuer’s Affiliates a percentage of monies made when the free trading stock was sold.  This is prohibited.

3(a)(10) should be used as a transparent exchange of bona fide claims for securities only.  The fact that an Issuer’s balance sheet will be cleared of old debt is in itself a clear benefit to the Issuer and this should result in future financing opportunities without the need for any surreptitious kickbacks.

Securities Lawyer With Expertise in 3(a)(10) Matters

Experienced securities attorneys like Matt Stout perform due diligence on aged debt, promissory notes and invoices to confirm their bona fide nature in preparation for 3(a)(10) transactions.

3(a)(10) securities lawyer Matt Stout represents both OTC Markets companies and their debt holders with bona fide claims in 3(a)(10) settlement agreements and drafts legal opinions for clearing restricted stock under 3(a)(10).

Tacking onto the Holding Period of Convertible Notes under Rule 144

Does Accrued Interest Affect the Holding Period Under Rule 144(d)?

When Convertible Promissory Notes with accrued but unpaid interest are exchanged for stock in a public company, the Rule 144 holding period for the Notes can be tacked to the holding period for the stock under Rule 144(d)(3)(ii) only if the exchange consists only “of other securities of the same Issuer.”

That means no additional consideration can be paid in the exchange other than the securities themselves and is consistent with Section 3(a)(9) of the Securities Act of 1933,

Accrued Interest is Not Considered Additional Consideration Under Rule 144

This brings up the question of whether or not accrued but unpaid interest on the Note is construed by the SEC as additional consideration inconsistent with Rule 144(d)(3)(ii).

The SEC’s position is that the right to receive payment for the accrued interest is not additional consideration, and the holding period for the Convertible Promissory Notes can be tacked to the holding period for all shares of stock received in the exchange.

Rule 144 Securities Lawyer Opinion Letters for Debt Conversions

Matheau J. W. Stout, Esq. reviews Notes at no cost in preparation for issuing Rule 144 legal opinions for debt holders in OTC Markets and OTC Bulletin Board companies.  Debt holders can email documents to mstout@otclawyers.com or call Matt Stout at (410) 429-7076 for a free consultation on Rule 144, or on the Section 4(a)(1) alternative to Rule 144 if the securities are at least 2 years old.

When is an Amendment to Form 144 Needed?

Affiliate Shareholders of OTC Markets and Bulletin Board public companies are those serving as Officers, Directors, control persons or owners of more than 9.99% of the Issuers voting securities of any class (“Affiliates”).

Affiliates Submit SEC Form 144 When Selling Restricted Stock

Affiliates of OTC companies know that in order to clear and sell restricted stock, they need to fill out a Form 144 and submit that to their broker, which will allow them to sell up to 1% of the total issued and outstanding common stock of the Issuer within a 90 day period.

Increasing the Number of Shares Sold Requires an Amendment to Form 144

Under Rule 144(h), an amendment to SEC Form 144 needs to be filed if the Affiliate wishes to sell more securities during the 90 day period than was originally declared for sale on the original Form 144.

For example, if an Affiliate files a notice on SEC Form 144 for the proposed sale of less than the full amount of shares that could be sold under the volume limitations set forth in Rule 144(e), but then decides to sell up to 1% of the issued and outstanding, an amendment is needed.  For this reason, it may be wise for Affiliates to consider simply using the 1% number in the original Form 144 filing.

No Form 144 Amendment is Needed if the Affiliate Shares are Unsold

Under Rule 144(h), if the Affiliate filed a Form 144, but does not sell all of the securities referred to during the 90 day period, no amendment needs to be filed with the SEC.

No Form 144 Amendment is Needed Due to a Stock Split

If after an Affiliate’s filing of Form 144, the OTC Issuer declares a stock split,  no new Form 144 filing is needed within the 90 day period to sell the correct number of post-split shares which equate to the number of pre-split shares the Affiliate had already declared on Form 144.  The broker will simply make the adjustment and inform the Affiliate of the new maximum to be sold under the Rule 144 volume trading limitations.

No Form 144 Amendment is Needed to Change Brokers

Individual brokerages may have their own policies on this, but the SEC does not require a new Form 144 or amendment to be filed when an Affiliate uses more than one broker, since it is the share number and trading volume limitation which governs trading, and not the brokerage used to execute the trades.

Likewise, under Rule 144(h), an Affiliate filing Form 144 who indicates that the Affiliate may sell shares through more than one broker is not required to allocate a specific number of shares to each broker on Form 144.

OTC Securities Lawyer Helps Affiliates Sell Restricted Stock

Management and control persons of OTC Markets and Bulletin Board public companies can contact Matt Stout for referrals to OTC brokers and assistance filling out SEC Form 144.   Securities lawyer Matt Stout reviews certificates, filings and documents at no cost to determine if a Rule 144 legal opinion can be issued.   Shareholders can email Matheau J. W. Stout, Esq. at mstout@otclawyers.com or call (410) 429-7076.