Tag Archives: Section 4(a)(1) lawyer

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.

 

 

What is Tacking Under Rule 144?

Tacking under Rule 144 allows a holder of restricted securities to aggregate the separate holding periods of prior holders in order to meet the Rule 144 holding period requirement.

Rule 144 Holding Periods:  Either Six Months or One Year

The holding period for mandatory SEC filers is 6 months.  These are fully reporting Issuers filing 10-K, 10-Q and 8-Ks and “subject to” the requirements of the Securities Exchange Act of 1934.

In contrast, the Rule 144 holding period for voluntary SEC filers and non-reporting Pink Sheets is 12 months.

Rule 144 Tacking is Allowed for Restricted Stock and Convertible Debt

Tacking is used for both restricted stock, and for convertible promissory notes, as well.

For example, if a Note is documented at over a year old, the Rule 144 holding period is likely met even if the Note holder converts into common stock immediately prior to seeking a Rule 144 legal opinion.  This is because the Note holder is allowed to tack the age of the Note onto the age of the newly issued stock to meet the 12 month holding period.

Tacking Under Rule 144 is Only Permitted to Non Affiliates

By permitting tacking, the SEC allows a selling security holder to include the holding period of a prior non-affiliate holder.   However, if the securities were purchased from an affiliate, tacking is not permitted and the holding period starts over.

For example, if a non affiliate shareholder who owned stock in an SEC mandatory filer for seven months sells stock in a private Stock Purchase Agreement to a new non affiliate shareholder today, the new shareholder has already exceeded the 6 month holding period.

Removing the restricted legend on the stock will require the new shareholder to provide documentation which shows the origin and history of the shares, including the prior holder’s purchase date and non affiliate status.

OTC Securities Lawyer Answers Rule 144 Questions on Tacking

Shareholders with questions regarding tacking under SEC Rule 144 or Section 4(a)(1) can contact OTC Bulletin Board and OTCMarkets securities attorney Matt Stout at (410) 429-7076 or mstout@otclawyers.com.

Tacking of Rule 144 Holding Periods for Distributions of Stock

Do pro rata distributions of restricted stock from a corporate entity shareholder to its individual shareholders affect the Rule 144 holding period?

No.  Under Rule 144(d), the holding period of the corporate entity shareholder may be tacked onto the holding period of an individual shareholder who receives the distribution of restricted stock.

Documenting the Origin and History of Rule 144 Restricted Stock

In order for a Rule 144 opinion letter to be issued by an experienced OTC Markets Pink Sheet and Bulletin Board securities attorney like Matt Stout, the shareholder must provide documentation showing the origin and history of the shares.  The main task of an OTC securities lawyer issuing Rule 144 legal opinions is to confirm when and how the securities were first issued, and then to track every transaction from that point forward.

Rule 144 Securities Attorney Matt Stout Drafts Legal Opinions for Shareholders

OTC securities lawyer Matheau J. W. Stout, Esq. reviews documents at no cost in preparation for drafting legal opinions under Rule 144 and Section 4(a)(1) for Pink Sheets and OTCMarkets OTCQB stocks.   Shareholders can email certificates and Rule 144 documentation to mstout@otclawyers.com or call Matt Stout at (410) 429-7076 to discuss Rule 144 and clearing restricted stock.

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 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.

How is the Six Month Holding Period Computed under Rule 144(d)(1)(i)?

For mandatory SEC filers, the Rule 144 holding period is Six (6) Months.  This means that under Rule 144(d)(1)(i), a minimum of Six (6) Months must pass from the date restricted securities are acquired from an Issuer or from an Affiliate of the Issuer, whichever is later (the “Acquisition Date”) and any resale of the restricted securities under Rule 144 (the “Resale Date”).

What is a Mandatory SEC Filer?

The Six (6) Month holding period only applies to mandatory SEC Filers.  A mandatory SEC filer is a public company that is, and for at least the immediately prior 90 days, has been subject to the reporting requirements of Exchange Act Section 13 or 15(d).

What is the Acquisition Date for the Purposes of Rule 144?

The Acquisition Date is the date on which the restricted securities were acquired by being “paid for” or “fully earned.”  This is often much earlier than the date of a stock certificate.

How to Calculate the Rule 144 Holding Period in a Debt Conversion

For shares originating in a debt conversion, Rule 144 allows tacking onto the holding period of a Promissory Note.   In that case, the Acquisition Date would be the later of the date of Note, or the date funds were paid to the Company in the form of wire transfer or check, if the Note is evidence of a loan.   The Acquisition Date could then be years before a Notice of Conversion or a stock certificate was even issued.

How to Calculate the Rule 144 Holding Period for a Subscription Agreement

For stock purchased from the Issuer via Subscription Agreement, the Rule 144 holding period will begin on the later of the date the Subscription Agreement was countersigned, or on the date the Shareholder purchased the shares via wire transfer or check.  That is, a Shareholder cannot start the Rule 144 holding period merely by promising to buy shares by signing the Subscription Agreement–the shares must be paid for.

How to Calculate the Rule 144 Holding Period for a Consulting Agreement

For stock awarded as compensation under a Consulting Agreement, when the Rule 144 holding period would start depends on the language of the document and when the services were provided.  The shares awarded under a Consulting Agreement must be “fully earned” by providing services.

In some cases, the document itself will specify the “term” or period of time in which services are to be provided, and the rate at which a number of shares is earned.  In cases where the document was vague, confirmation from the Company’s CEO or confirmed by correspondence between the parties or Transfer Agent can be used to verify when the shares were considered “fully earned.”

Rule 144 Legal Opinions by OTC Securities Lawyer Matheau J. W. Stout, Esq.

OTC Securities attorney Matt Stout reviews documents at no cost for Shareholders seeking legal opinions under Rule 144 or Section 4(a)(1).   Shareholders who want to clear and sell restricted stock, or who want to remove the restricted legend from securities can contact OTCLawyers at (410) 429-7076 or mstout@otclawyers.com.

Rule 144 Holding Period for Voluntary SEC Filers

What is a Voluntary SEC Filer?

A “voluntary filer” in a public company which continues filing SEC reports like the 10-K, 10-Q and 8-K, after its S-1 Registration Statement becomes effective, without technically being required to do so.

For the purposes of calculating a Rule 144 holding period, Voluntary SEC filers are not considered “subject to” the filing requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”) because they are not obligated to file Exchange Act reports under either of those sections.

Does Having an Effective S-1 Affect the Rule 144 Holding Period?

Having an S-1 Registration Statement, which is filed under the Securities Act of 1933, rather than under the Exchange Act, does not make a filer “mandatory.”  An SEC filer goes from “voluntary” to “mandatory” by filing certain Exchange Act forms, like the 8A-12g or the Form 10 Registration Statement.   These Exchange Act forms obligate the public company to file the 10-K, 10-Q, and 8-K, by making the company “subject to” the filing requirements of Exchange Act Section 13 or 15(d).

Mandatory SEC Filers Have a Six Month Holding Period Under Rule 144

The Six (6) Month holding period requirement in Rule 144(d)(1)(i) applies only to the restricted securities of a public company that is, and has been for at least 90 days immediately prior to the sale, “subject to” the reporting requirements of Exchange Act Section 13 or 15(d).

Voluntary Filers Have a One Year Holding Period Under Rule 144

Because of this distinction, the One (1) Year holding period requirement in Rule 144(d)(1)(ii) applies to the restricted securities of voluntary filers.

Rule 144 and Section 4(a)(1) Opinion Letter Attorney Matt Stout

Shareholders in OTCQB and OTC Bulletin Board companies can contact Rule 144 and S-1 lawyer Matt Stout with questions on clearing and depositing restricted stock at (410) 429-7076 or mstout@otclawyers.com for a no cost review.

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.

 

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.