Tag Archives: rule 144 opinion

Selling Stock in Former Shell Companies Under Rule 144

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?

  1. The Issuer of the securities must have ceased to be a shell company;
  2. 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.”;
  3. 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
  4. 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 mstout@otclawyers.com.

 

 

Rule 144 Holding Period for Stock-for-Stock Acquisitions

Reverse Mergers of OTC Markets microcap companies are typically achieved using a stock-for-stock exchange under which the public company issues restricted stock in exchange for the private stock of the company being “vended in.”

Holding Period of Private Company Stock Does Not Tack under Rule 144

Shareholders in the private company may have already held their private stock for many years prior to the reverse merger.  Thus these private shareholders are often under the mistaken but intuitive impression that they can tack their ownership of the stock in the private company prior to the reverse merger in order to meet the holding period requirement under Under Rule 144.   However, this is not true.

Rule 144 Holding Period Starts Upon the Closing of the Share for Share Exchange

In a stock-for-stock acquisition or reverse merger achieved via a share exchange, the date of closing determines when the Rule 144 holding period starts.  Why?  Because the shareholders receiving OTC Bulletin Board or OTC Markets Pink Sheet public company shares are not at risk until the transaction actually closes and the public company’s shares are actually issued in exchange for the private company’s shares.

The Date of the Merger Agreement Does Start the Rule 144 Holding Period

For example, if the closing of the reverse merger will be delayed until the private company’s financials are audited, then the date of the Merger Agreement or the 8-K announcing the proposed Merger will not determine the start of the Rule 144 holding period.

When the closing is delayed for any reason, the Rule 144 holding period for those receiving the public company’s stock will not start until the reverse merger closes because the recipients will not be at economic risk until that time.

Rule 144 Securities Attorney Opinions by Matheau J. W. Stout, Esq.

Rule 144 has many nuances and experienced securities attorneys issue legal opinions only after a thorough review of all shareholder documents and Issuer filings.   Shareholders seeking Rule 144 or Section 4(a)(1) legal opinions can email documents to OTC securities lawyer Matt Stout at mstout@otclawyers.com or call (410) 429-7076 for a no cost review.

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.

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 Securities Exchanged under Securities Act Section 3(a)(9)?

When a Shareholder receives new securities in exchange for old securities of the same Issuer under Section 3(a)(9), the new securities received in the exchange assume the same character as the exchanged securities.

Tacking of the Holding Period is Allowed Under Section 3(a)(9) Securities Exchanges

This means that when restricted securities are exchanged, the new securities received under Section (a)(9) are also restricted, but the SEC allows tacking onto the holding period of the former securities.

Rule 144 Legal Opinion Letters by Experienced Securities Counsel

Shareholders receiving shares in 3(a)(9) exchanges can contact OTC Markets and OTC Bulletin Board securities lawyer Matt Stout for a no cost review of their exchange documents, and for the issuance of Rule 144 or Section 4(a)(1) legal opinions at (410) 429-7076 or mstout@otclawyers.com.