• 19Mar

  Form 10 Registration Statements

  SEC Law Firm No Comments

  A Form 10 Registration Statement is a registration statement used to register a class of securities pursuant to Section 12(g) of the Securities Exchange Act of 1934 (“Exchange Act”). To explain a Form 10 registration statement, let’s start with what it isn’t. It is not used to register specific securities for sale or re-sale and does not change the transferability of any securities. That is, a Form 10 registration statement does not register a security for the purposes of Section 5[1] of the Securities Act of 1933 (“Securities Act”) . Following the effectiveness of a Form 10 registration statement, restricted securities remain restricted and free trading securities remain free trading.

  The Purpose of Form 10 Registration Statements

  Now onto what a Form 10 registration is. As indicated above a Form 10 registration statement is used to register a class of securities. Any Company with in excess of $10,000,000 in total assets and 750 or more record shareholders is required to file a Form 10 registration statement with the Securities and Exchange Commission (“SEC”). In addition, any company, whether publicly held or not and with or without assets, may voluntarily file a Form 10 registration statement at any time. A Form 10 registration statement automatically becomes effective sixty (60) days following filing.

  Upon effectiveness the Company which filed the Form 10 registration statement is subject to the reporting requirements of the Exchange Act. That is, they must file annual reports on Form 10-K, quarterly reports on Form 10-Q and periodic reports on Form 8-K. In addition, such Company is then subject to the proxy rules in Section 14 of the Exchange Act, and ownership rules and reporting requirements in Sections 13 and 16 of the Exchange Act.

  What Makes a Company Public?

  Interestingly, even though a Company that files a Form 10 registration statement becomes subject to the reporting requirements of the Exchange Act, a Form 10 registration statement does not make a company public, and there is no pre-requisite that a company be public prior to filing a Form 10. A public company, by definition, has public shareholders. A Form 10 registration statement can be filed by an entity with a single shareholder. Moreover, regardless of the filing of a Form 10, a Company must satisfy other regulatory obligations to trade on either the over the counter market (PinkSheets or Bulletin Board) or on an exchange (AMEX; NASDAQ; etc.). A prerequisite to trading on either the over the counter market or an exchange, would be to have public shareholders holding freely tradeable shares. As explained in this article, a Form 10 does not impact upon this requirement.

  Following the changes in Securities Act Rule 144 in February 2009, a Form 10 registration statement has become an important avenue for many previously non-reporting entities. Technically Rule 144 provides a safe harbor from the definition of the term “underwriter” such that a selling shareholder may utilize the exemption contained in Section 4(1) of the
  Securities Act of 1933, as amended, to sell their restricted securities.

  Rule 144 and Form Registration Statements

  In layman terms, Rule 144, allows shareholders to sell their unregistered shares. However, Rule 144(i), as amended, provides in pertinent part that the Rule is unavailable for the use by shareholders of any company that is or was at any time previously, a shell company. A shell company is one with no or nominal operations and either no or nominal assets, assets consisting solely of cash and cash equivalents or assets consisting of any amount of cash and cash equivalents and nominal other assets.

  In order to use Rule 144, a Company must have ceased to be a shell company, be subject to the reporting requirements of section 13 or 15(d) of the Exchange Act; filed all reports and other materials required to be filed by section 13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months (or for such shorter period that the issuer was required to file such reports and materials), other than Form 8-K reports; and have filed current “Form 10 information” with the Commission reflecting its status as an entity that is no longer a shell company, then those securities may be sold subject to the requirements of Rule 144 after one year has elapsed from the date that the issuer filed “Form 10 information” with the SEC.

  Evergreen Requirements

  In other words, if a non-reporting entity ever was a shell company, even ten years ago, one of the only ways its shareholders can avail themselves of Rule 144 is for that company to file a Form 10 registration statement and thereafter remain current in their Exchange Act reporting requirements. Note, that a company could comply with Rule 144(i) by the filing of an S-1 registration statement, which also contains “Form 10
  information.”

  Securities attorney Laura Anthony provides expert legal advice and ongoing corporate counsel to small public Companies as well as private Companies seeking to go public on the Over the Counter Bulletin Board Exchange (OTCBB). Ms. Anthony counsels private and small public Companies nationwide regarding reverse mergers, due diligence on public shells, corporate transactions and all aspects of securities law.

  Ms. Anthony is the Founding Partner of Legal & Compliance, LLC, a national corporate, securities and civil litigation law firm based in West Palm Beach, Florida. The firm’s corporate and securities attorneys provide technical legal services to small and mid-size private and public (OTCBB) Companies, entrepreneurs, and business professionals nationwide. Contact us today for a FREE consultation!

  [1] Section 5 of the Securities Act provides that it is unlawful to sell, offer to sell or offer to buy a security unless there is a registration statement in effect for such security, or a valid exemption exists.

  Tags: 10-k, evergreen requirements, form 10 registration statement, form 10 shells, form 10-k, going public, Rule 144, SEC Law Firm, SEC reporting requirements, securities attorney

• 22Jan

  Rule 144 and the Evergreen Requirement Examined

  SEC Law Firm No Comments

  Technically Rule 144 provides a safe harbor from the definition of the term “underwriter” such that a selling shareholder may utilize the exemption contained in Section 4(1) of the Securities Act of 1933, as amended, to sell their restricted securities. In addition, Rule 144 is used to remove the restrictive legend from securities in advance of a sale. In layman terms, Rule 144, allows shareholders to either remove the restrictive legend or sell their unregistered shares.

  Rule 144(i), as amended, provides in pertinent part that the Rule is unavailable to issuers with no or nominal operations or no or nominal non-cash assets. That is the rule is unavailable for the use by shareholders of any company that is or was at any time previously, a shell company. A shell company is one with no or nominal operations and either no or nominal assets, assets consisting solely of cash and cash equivalents or assets consisting of any amount of cash and cash equivalents and nominal other assets.

  Form 10 Information

  In order to use Rule 144, a Company must have ceased to be a shell company, be subject to the reporting requirements of section 13 or 15(d) of the Exchange Act; filed all reports and other materials required to be filed by section 13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months (or for such shorter period that the issuer was required to file such reports and materials), other than Form 8-K reports; and have filed current “Form 10 information” with the Commission reflecting its status as an entity that is no longer a shell company, then those securities may be sold subject to the requirements of Rule 144 after one year has elapsed from the date that the issuer filed “Form 10 information” with the SEC.

  The Evergreen Requirement

  Rule 144 now affects any company who was ever in its history a shell company by subjecting them to additional restrictions when investors sell unregistered stock under Rule 144. The new language in Rule 144(i) has been dubbed the “evergreen requirement”. The new Rule has the impact of punishing a company that was ever a shell in perpetuity and more importantly, its investors. Brian Breheny, deputy director of the Securities and Exchange Commission’s corporate finance division, referred to the so-called evergreen requirement in Rule 144(i) of the Securities Act, as an “unfortunate result” and said it was “probably not something that the commission intended.”

  Going Public and Reverse Mergers

  Under the so called “Evergreen Requirement”, a company that ever reported as a shell must be current in its filings with the SEC for 12 months before investors can sell unregistered shares. Here is the hitch. As a result, the restrictive legend can never be removed in advance of a sale. The rule affects all companies going public through a reverse merger or SPAC. Moreover, the Rule effects all companies that have ever been a shell, even if a reverse merger was completed decades ago. It paints a “scarlet letter” on all former shell companies, as this requirement continues literally forever – famous former shells like Blockbuster Entertainment, Texas Instruments and Berkshire Hathaway are now burdened by this restriction decades after their reverse mergers.

  So basically, you have to register the shares to get the legend removed. Practitioners have requested that the SEC either amend the Rule or issue additional guidance removing this requirement from Companies that were no longer shells at the time the Rule was enacted. So far no such changes have been made.

  Securities attorney Laura Anthony provides expert legal advice and ongoing corporate counsel to small public Companies as well as private Companies seeking to go public on the Over the Counter Bulletin Board Exchange (OTCBB). Ms. Anthony counsels private and small public Companies nationwide regarding reverse mergers, due diligence on public shells, corporate transactions and all aspects of securities law.

  Ms. Anthony is the Founding Partner of Legal & Compliance, LLC, a national corporate, securities and civil litigation law firm based in West Palm Beach, Florida. The firm’s corporate and securities attorneys provide technical legal services to small and mid-size private and public (OTCBB) Companies, entrepreneurs, and business professionals nationwide. Contact us today for a FREE consultation!

  Tags: evergreen requirements, going public, public offerings, public shells, Reverse Mergers, Rule 144, SEC Law Firm, SEC reporting requirements, SEC Rule 144, securities attorney, underwriter defined

• 09Dec

  When Can Separate Issuer Offerings That Occur Within a Short Time Be Integrated?

  SEC Law Firm No Comments

  The integration doctrine prevents issuers from circumventing the registration requirements of the Securities Act of 1934 by determining whether two or more securities offerings are really one offering that does not qualify as an exempt offering, or an exempt offering is really part of a registered public offering.

  Securities Act Release No. 33-4552 (November 6, 1962) sets forth a five factor test that is used as a guideline in determining whether the separate offerings of an issuer that occur within a short time of one another will be integrated. These same factors are set forth in the Note to Rule 502(a) of Regulation D, which factors address whether the offerings:

  1. are part of a single plan of financing;
  2. involve the issuance of the same class of securities (convertible securities, warrants, and other
  3. derivative instruments generally are deemed to be the same class as the underlying security unless the terms of the primary security prohibit exercises until at least the one year anniversary date);
  4. are made at or about the same time;
  5. involve the same type of consideration is to be received; and
  6. are made for the same general purpose.

  Rule 502(a) provides for a six-month (soon to be 90 days) safe harbor wherein multiple private offerings that are conducted at least six (6) months apart will not be integrated. In addition, a private offering that is conducted at least six (6) months before or after a registered or exempt public offering will not be integrated with the public offering. Fortunately, effective February 4, 2008, the SEC changed the length of integration safe harbor from six (6) months to ninety (90) days.

  In addition, Rule 155 sets forth a safe harbor for abandoned private and public offerings (Release No. 33-7943, effective March 7, 2001). Generally, the rule creates safe harbors to allow: (i) a public offering immediately following an abandoned private offering and (ii) a private offering thirty (30) days after an abandoned public offering, without integrating the public and private offerings in either situation. These safe harbors provide issuers with more flexibility to react to volatile capital market conditions.

  Rule 155 does not replace, but rather supplements, the five factor test that will be used whenever the safe harbor is inapplicable. For example, the five-factor test, rather than Rule 155, would apply when evaluating whether two or more private offerings should be integrated with each other. Moreover, Rule 155 recognizes only Sections 4(2) and 4(6) and Rule 506 offerings as exempt offerings. Finally, Rule 155 is not available for shelf registration statements.

  Concurrent Private and Registered Offerings in PIPE Transactions

  The primary legal consideration in any PIPE (private investment in public entity) investment is ensuring that the issuer takes all steps necessary to make the investment a valid private placement. The issuer must conduct the PIPE offering in a manner that does not involve any general solicitation or advertisement. In this context, an issuer that had considered a public offering and filed a registration statement with the SEC may be deemed to have engaged in a general solicitation for the offering, and the issuer would have to completely abandon that offering by withdrawing the registration statement for a period of time before engaging in the PIPE transaction.

  SEC Rule 155

  Rule 155 does not alter the position taken by the SEC staff in its no-action letters to Black Box Inc. and Squadron, Ellenoff, Pleasant & Lehrer. In these letters, the staff indicated that it would not integrate a registered offering and a concurrent unregistered offering made only to Qualified Institutional Buyers (as defined by Rule 144A under the 1933 Act) and no more than two or three large accredited institutional investors.

  Given that a PIPE transaction inherently involves a private placement of securities and a subsequent public offering, the PIPE transaction has higher integration risks. To ensure that the PIPE transaction is respected as two separate transactions, the initial private placement must be “complete” prior to filing of any registration statement for the underlying securities. In the standard PIPE transaction, meeting this requirement normally does not pose a problem since the registration statement is filed following the closing of the PIPE transaction.

  Private Placement Completion

  The SEC will consider a private placement complete if: (a) all of the purchasers have fully paid the purchase price for the securities in the private offering, or (b ) each purchaser is irrevocably obligated to purchase a set number of securities, the purchase price is fixed and the transaction cannot be renegotiated.

  The SEC has permitted concurrent registered and private offerings to be made under the conditions set forth in its Black Box and other related “no action” letters (described above). A “Black Box PIPE” would be undertaken, for example, during a period when the company has on file an effective resale or shelf registration statement. In such situations, the SEC requires that the private offering be made only to: (a) persons who are qualified institutional buyers (QIBs) as defined in Rule 144A(a) under the Securities Act, and/or (b) no more than two or three large institutional accredited investors.

  Securities attorney Laura Anthony provides expert legal advice and ongoing corporate counsel to small public Companies as well as private Companies seeking to go public on the Over the Counter Bulletin Board Exchange (OTCBB). Ms. Anthony counsels private and small public Companies nationwide regarding reverse mergers, due diligence on public shells, corporate transactions and all aspects of securities law.

  Ms. Anthony is the Founding Partner of Legal & Compliance, LLC, a national corporate, securities and civil litigation law firm based in West Palm Beach, Florida. The firm’s corporate and securities attorneys provide technical legal services to small and mid-size private and public (OTCBB) Companies, entrepreneurs, and business professionals nationwide. Contact us today for a FREE consultation!

  Tags: going public, Over The Counter Bulletin Board, PIPE offerings, PPM, private placement, public offering, regulation d, Reverse Mergers, Rule 144, rule 155, rule 502(a), SEC Law Firm, SEC reporting requirements, SEC Rule 144, SEC rule 155, securities attorney

• 11Nov

  Rule 144 and Pink Sheet Shells; Selling Shares Post Merger

  Reverse Mergers No Comments

  One of the most common inquiries received by securities attorneys today involves Issuers wanting to know when they and their shareholders can sell their shares on the open market following a merger with a Pink Sheet shell. In many cases, the answer they get is not the answer they want; twelve months after the Pink Sheet Company becomes a fully reporting entity.

  If a private entity has merged with a Pink Sheet shell under the assumption that they can avoid the Securities and Exchange Commission (SEC) reporting requirements, this revelation is devastating. As a result of the amendments to Rule 144 and Rule 145, enacted in February, 2009, private companies that wish to go public on the Pink Sheets are advised to do so directly, and not through a reverse merger with a shell company.

  Rule 144

  Technically Rule 144 provides a safe harbor from the definition of the term “underwriter” such that a selling shareholder may utilize the exemption contained in Section 4(1) of the Securities Act of 1933, as amended, to sell their restricted securities. In layman terms, Rule 144, allows shareholders to sell their unregistered shares. When a private entity merges with a Pink Sheet shell, the shareholders of the private entity receive restricted shares. Historically, other than registration, Rule 144 provided the only method for such shareholders to sell their shares on the open market. The February 2009 amendment eliminated this ability.

  Rule 144(i), as amended, provides in pertinent part that the Rule is unavailable to issuers with no or nominal operations or no or nominal non-cash assets. That is the rule is unavailable for the use by shareholders of any company that is or was at any time previously, a shell company. A shell company is one with no or nominal operations and either no or nominal assets, assets consisting solely of cash and cash equivalents or assets consisting of any amount of cash and cash equivalents and nominal other assets.

  When a Shell is No Longer a Shell

  In order to use Rule 144, a Company must have ceased to be a shell company, be subject to the reporting requirements of section 13 or 15(d) of the Exchange Act; filed all reports and other materials required to be filed by section 13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months (or for such shorter period that the issuer was required to file such reports and materials), other than Form 8-K reports; and have filed current “Form 10 information” with the Commission reflecting its status as an entity that is no longer a shell company, then those securities may be sold subject to the requirements of Rule 144 after one year has elapsed from the date that the issuer filed “Form 10 information” with the SEC.

  Lastly, Rule 145, which is the rule that addresses the issuance of securities in mergers, consolidations and reclassifications, was amended to provide an analogous provision.

  Securities attorney Laura Anthony provides expert legal advice and ongoing corporate counsel to small public Companies as well as private Companies seeking to go public on the Over the Counter Bulletin Board Exchange (OTCBB). Ms. Anthony counsels private and small public Companies nationwide regarding reverse mergers, due diligence on public shells, corporate transactions and all aspects of securities law.

  Ms. Anthony is the Founding Partner of Legal & Compliance, LLC, a national corporate, securities and civil litigation law firm based in West Palm Beach, Florida. The firm’s corporate and securities attorneys provide technical legal services to small and mid-size private and public (OTCBB) Companies, entrepreneurs, and business professionals nationwide. Contact us today for a FREE consultation!

  Tags: form 10 registration statement, form 8-k, going public, pink sheet shells, pink sheets, public shells, registration statement, Reverse Mergers, Rule 144, Rule 145, SEC Law Firm, SEC reporting requirements, securities attorney

• 06Nov

  Securities Law Update: Intrastate Offerings Section 3(a)(11) and Rule 147 Examined

  Securities Attorneys No Comments

  Section 3(a)(11) of the Securities Act of 1933, as amended (Securities Act) provides an exemption from the registration requirements of Section 5 of the Securities Act for “[A]ny security which is a part of an issue offered and sold only to persons resident within a single State or Territory, where the issuer of such security is a person resident and doing business within or, if a corporation, incorporated by and doing business within, such State or Territory.” (“Intrastate Exemption”) Rule 147 promulgated under the Securities Act provides for further application of the Intrastate Exemption.

  Rule 147, Issuers and Corporate Counsel

  In addition to complying with Rule 147, Issuers and their counsel need to be cognizant of and comply with applicable state securities laws regulating intrastate offerings. The Intrastate Exemption is only available for bona fide local offerings. That is, the Issuer must be a resident of, and doing business, within the state in which all offers and sales are made and no part of the offering may be offered or sold to nonresidents. Because of the strict rules against any sales or offers to non-residents, Issuers conducting concurrent or consecutive offerings, need to be extra careful to avoid the integration of any non-intrastate transactions with the Intrastate Exemption. Integration occurs when two or more offerings are considered a single offering such that all requirements for the exemption relied on in each offering must be present for each and every sale in all of the integrated offerings.

  Rule 502(a) and Securities and Exchange Commission (SEC) release 33-4434 set forth the factors to be considered in determining whether two or more offerings may be integrated. In particular, the following factors need to be considered in determining whether multiple offerings are integrated: (i) are the offerings part of a single plan of financing; (ii) do the offerings involve issuance of the same class of securities; (iii) are the offerings made at or about the same time; (iv) is the same type of consideration to be received; and (v) are the offerings made for the same general purpose.

  Safe Harbor Provisions

  In addition, Rule 147(b)(2) provides an integration safe harbor. That is, offerings made under Section 3 or Section 4(2) of the Securities Act or pursuant to a registration statement will not be integrated with an Intrastate Exemption offering if such offerings take place six month prior to the beginning or six month following the end of the Intrastate Exemption offering. To rely on this safe harbor, during the six month periods, an Issuer may not make any offers or sales of securities of the same class as those offering in the intrastate offering. Rule 147(b)(2) is merely a safe harbor. Issuers and practitioners may still conduct their own analysis in accordance with the five factor test enumerated above.

  For purposes of the Intrastate Exemption, an Issuer shall be deemed to be a resident of the state in which: (i) it is incorporation or organized if it is an entity requiring incorporation or organization; (ii) its principal office is located if it is an entity not requiring incorporation or organization; or (iii) his or her principal residence is located, if an individual.

  Earmarks of Intrastate Exemptions

  For purposes of the Intrastate Exemption, an Issuer shall be deemed to be doing business within a state if: (i) the Issuer derived at least 80% of its gross revenues in the past six months from that state; (ii) the Issuer had 80% of its assets located in that state in the most recent semi-annual fiscal year; (iii) the Issuer intends to use and uses at least 80% of the net proceeds from the Intrastate offering in connection with the operation of a business or of real property, the purchase of real property located in, or the rendering of services in that state; and (iv) the principal office of the Issuer is located within that state.

  For the purpose of determining the residence of an offeree or Purchaser: (i) a corporation, partnership, trust or other form of business organization shall be deemed to be a resident of a state if, at the time of the offer and sale, it has its principal office within such state; (ii) an individual shall be deemed to be a resident of a state if, at the time of the offer and sale, his or her principal residence is within that state; and (iii) a corporation partnership, trust or other form of business organization formed specifically to take part in an Intrastate offering, will not be resident of the state unless all of its beneficial owners are resident of that state.

  Resale Prohibitions

  Even though securities issued relying on the Intrastate Exemption are not restricted securities for purposes of Rule 144, Rule 147(e) prohibits the resales of any such securities for a period of nine months except for resales made in the same state as the Intrastate Offering. Moreover, market makers or dealers desiring to quote such securities after the nine month period must comply with all the requirements of Rule 15c2-11 regarding current public information.

  There is no prohibition in Rule 147 regarding general advertising or general solicitation as long as such general advertising or solicitation complies with applicable state law and does not result in an offer or sale to non-residents of such state.

  Although the Intrastate Exemption is available for sales by Issuers only, and not for resales, the SEC has interpreted the rule to permit offers and sales by control persons of the Issuer as well. The Intrastate Exemption rule is not available to any person with respect to any offering which, although in technical compliance with the rules, is part of a plan or scheme to make interstate offers or sales of securities.

  Securities attorney Laura Anthony provides expert legal advice and ongoing corporate counsel to small public Companies as well as private Companies seeking to go public on the Over the Counter Bulletin Board Exchange (OTCBB). Ms. Anthony counsels private and small public Companies nationwide regarding reverse mergers, due diligence on public shells, corporate transactions and all aspects of securities law.

  Ms. Anthony is the Founding Partner of Legal & Compliance, LLC, a national corporate, securities and civil litigation law firm based in West Palm Beach, Florida. The firm’s corporate and securities attorneys provide technical legal services to small and mid-size private and public (OTCBB) Companies, entrepreneurs, and business professionals nationwide. Contact us today for a FREE consultation!

  Tags: 15c-211, going public, intrastate exemption, intrastate offerings, OTCBB, otcbb securities, Over The Counter Bulletin Board, registered offerings, Reverse Mergers, Rule 144, rule 147, rule 502(a), SEC Law Firm, SEC reporting requirements, section 3(a)(11), securities attorney

• 05Nov

  SEC Rule 144: Pledged Securities, Holding Periods and Subscriptions Agreements

  SEC Law Firm No Comments

  Securities which are bona fide pledged may be tacked to the holding period of the pledgor as long as the pledge has full recourse against the pledgor. Gifted securities may be tacked with the holding period of the donor. Securities transferred to a trust may be tacked with the holding period of the settlor. Likewise securities transferred to a 401(k) or other individual retirement account will tack to the original issuance date. Securities obtained by beneficiaries of an estate may be tacked with the holding period of the deceased.

  Securities acquired solely by the cashless exercise of an option or warrant are deemed to have been issued on the date of issuance of the underlying option or warrant; provided however, that the payment of any consideration, even a de minimus amount of cash, for the newly issued securities will restart the holding period. Accordingly, securities issued upon exercise of options or warrants in a stock option plan are deemed issued upon exercise of such option or warrant and not before.

  Subscription Agreements

  For purposes of Rule 144, shares acquired pursuant to anti-dilution rights attaching to restricted securities are restricted securities themselves, but their holding period dates back to the original placement of shares, not the exercise of the anti-dilution provisions. The holding period for restricted securities acquired pursuant to a subscription agreement begins at the time the agreement is accepted by the issuer, rather than the date it is signed by the purchaser or the date the shares are issued, assuming the full purchase price has been paid.

  When relying on Rule 144 for the resale of over the counter traded securities (Pink Sheets or Bulletin Board), sellers may only sell 1% of the outstanding securities of the issuer in every 90 day period. Calculations of volume restrictions based on trading volume are only available for the sale of exchange traded securities.

  The manner of sale requirements, require that securities sold in reliance on Rule 144 be sold only in broker’s transactions, directly with a market maker or in a riskless principal transactions. Moreover, the person selling the securities may not arrange for the solicitation of sale orders. The posting of a customer limit order is not considered a solicitation for purposes of this rule.

  Finally, and importantly, Issuers and sellers must be aware that Rule 144 is not available for the sale of securities initially issued by a shell company or any issuer that has at any time previously been a shell company unless all the requirements of Rule 144(i)(2) are met. These requirements include that the issuer no longer be a shell company, is subject to the reporting requirements of the Exchange Act for 12 months following the time that it filed Form 10 information indicating it was no longer a shell company, and is current with all Exchange Act reporting requirements.

  Securities attorney Laura Anthony provides expert legal advice and ongoing corporate counsel to small public Companies as well as private Companies seeking to go public on the Over the Counter Bulletin Board Exchange (OTCBB). Ms. Anthony counsels private and small public Companies nationwide regarding reverse mergers, due diligence on public shells, corporate transactions and all aspects of securities law.

  Ms. Anthony is the Founding Partner of Legal & Compliance, LLC, a national corporate, securities and civil litigation law firm based in West Palm Beach, Florida. The firm’s corporate and securities attorneys provide technical legal services to small and mid-size private and public (OTCBB) Companies, entrepreneurs, and business professionals nationwide. Contact us today for a FREE consultation!

  Tags: 15c-211, form 10-k, going public, OTCBB, Over The Counter Bulletin Board, pink sheets, public shells, restricted securities, Reverse Mergers, Rule 144, SEC Law Firm, securities attorney, subscription agreements, unrestricted securities

• 04Nov

  SEC Rule 144: Current Public Information and Reporting Requirements

  SEC Law Firm No Comments

  The current public information requirement is measured at the time of each sale of securities. That is, the Issuer, whether reporting or non-reporting, must satisfy the current public information requirements as set forth in Rule 144(c) at the time that each resale of securities is made in reliance on Rule 144. Most attorney opinion letters and Forms 144 cover a three month period and many Sellers sell securities over that three month period. However, the Seller (or person selling on behalf of Seller such as the broker dealer) is required to make a determination that current public information is available at the time of each sale.

  Accordingly, if a reporting issuer does not file a required Q or K during this period, or 15c2-11 information lapses for a non-reporting issuer, sales must cease until the current public information requirement is again satisfied. Moreover, Sellers are taking a risk by selling during the 5-day or 15-day period following the filing of a Form 12b-25 because if the late report is not filed, such sales would not have been made in compliance with Rule 144. On the contrary, if the report is filed, the sales made after the filing of the 12b-25, still satisfy the current public information requirements.

  Non-Reporting Issuers

  For non-reporting issuers, the current public information requirement requires that information set forth in Rule 15c2-11 be publicly available and current. It is irrelevant that broker dealers may publish quotes on the securities or that the securities are piggy-back qualified. Although pinksheets.com is not affiliated with the Securities and Exchange Commission (“SEC”) and the SEC has not commented on the Pink Sheets self-imposed reporting requirements and tiers of reporting information, in light of the fact that the Pink Sheets models its voluntary reporting requirements after Rule 15c2-11, attorneys and sellers of securities, should feel confident relying on the existence of current information on pinksheets.com to satisfy the current public information requirement of Rule 144.

  In lieu of relying upon information posted on PinkSheets.com, a Seller desiring to rely on Rule 144 for the sale of securities of a non-reporting issuer, would need to ensure themselves that such 15c2-11 information was available and current by other means. These other means could include if such information was posted on the Issuers website, or such information was in the possession of the broker-dealer facilitating the sale.

  Holding Periods

  The holding period is determined as of the date of the proposed sale, provided however, that Rule 144 makes numerous specific provisions for the calculation of the holding period and enumerates specific instances when a holding period may be tacked onto the holding period of previously issued securities. In determining the holding period where the securities were paid with a promissory note, installment contract or other obligation to pay in the future, the holding period does not begin until payment has been made in full unless the promissory note or installment contract provides for full recourse against the purchaser of the securities, is secured by fair value collateral other than the securities purchased, and has been paid in full prior to the proposed Rule 144 sale date.

  Securities acquired from the issuer as a dividend or pursuant to a stock split, reverse split or recapitalization shall be deemed to have acquired at the same time as the securities on which the dividend is paid or the securities surrendered in the recapitalization. If securities were acquired by the Issuer solely in exchange for other securities of the same issuer, such as in a 3(a)(9) transaction, the newly acquired securities are deemed to be acquired at the same time as the securities surrendered in the exchange or conversion.

  Securities attorney Laura Anthony provides expert legal advice and ongoing corporate counsel to small public Companies as well as private Companies seeking to go public on the Over the Counter Bulletin Board Exchange (OTCBB). Ms. Anthony counsels private and small public Companies nationwide regarding reverse mergers, due diligence on public shells, corporate transactions and all aspects of securities law.

  Ms. Anthony is the Founding Partner of Legal & Compliance, LLC, a national corporate, securities and civil litigation law firm based in West Palm Beach, Florida. The firm’s corporate and securities attorneys provide technical legal services to small and mid-size private and public (OTCBB) Companies, entrepreneurs, and business professionals nationwide. Contact us today for a FREE consultation!

  Tags: 12b-25, 15c-211, form 10-k, form 10-q, going public, non-reporting issuers, OTCBB, Over The Counter Bulletin Board, pink sheets, public shells, Reverse Mergers, Rule 144, SEC Law Firm, SEC reporting requirements, Section 3(a)(9), securities attorney

• 03Nov

  SEC Rule 144: Resale Conditions and Exempt Transactions

  SEC Law Firm No Comments

  There are many questions regarding the application of Securities Act of 1933 (“Securities Act”) Rule 144 for the resale of securities. Section 4(1) of the Securities Act provides an exemption for a transaction “by a person other than an issuer, underwriter, or dealer.” Therefore, an understanding of the term “underwriter” is important in determining whether or not the Section 4(1) exemption from registration is available for the sale of the securities. Rule 144 provides a safe harbor from the definition of “underwriter”. If all the requirements for Rule 144 are met, the seller will not be deemed an underwriter and the purchaser will receive unrestricted securities.

  As Rule 144 only addresses the resale of restricted securities, the rule first defines “restricted securities”. Restricted securities include: (i) securities acquired directly or indirectly from the Issuer, of from an affiliate of the Issuer (affiliate includes spouses and family members living in the same household), in a transaction or chain of transactions not involving a public offering; (ii) securities acquired from the Issuer in a Regulation D or Rule 701 transaction; (iii) securities acquired in a transaction or chain of transaction under Rule 144A; (iv) Securities acquired from the Issuer in a Regulation CE transaction; (v) Securities acquired in a transaction under Regulation S; (vi) Securities required in a rights offering to the same extent that the holder already held restricted securities; (vii) Securities required in a Rule 145 transaction to the same extent that the tendered or exchanged securities were restricted; and (viii) Securities acquired from the Issuer in transaction exempt under Section 4(6).

  Condition of Rule 144

  Rule 144 provides certain conditions to be met for sales by both affiliates and non-affiliates which conditions vary depending on whether the Issuer of the securities is a reporting or non-reporting Issuer. The following chart summarizes the Rule 144 requirements:

  	Affiliate or Person Selling on Behalf of an Affiliate	Non-Affiliate (and has not been an affiliate during the prior three months)
  Restricted Securities of Reporting Issuers	During six-month holding period – no resales under Rule 144 permitted   After six month holding period – may resell in accordance with all Rule 144 requirements, including: Current public information Volume limitations Manner of sale requirements Filing of Form 144	During six-month holding period – no resales under Rule 144 permitted   After six month holding period but before one year – unlimited public resales under Rule 144 except that the current public information requirement still applies   After one year holding period – unlimited public resales under Rule 144; need not comply with any other Rule 144 requirements
  Restricted Securities of Non-Reporting Issuers	During one year holding period – no resales under Rule 144 permitted   After one year holding period – may resell in accordance with all Rule 144 requirements, including: Current public information Volume limitations Manner of sale requirements Filing of Form 144	During one year holding period – no resales under Rule 144 permitted   After one year holding period – unlimited public resales under Rule 144; need not comply with any other Rule 144 requirements

   
  The six month holding period only applies to issuers that are subject to the reporting requirements of the Securities Exchange Act of 1934 (“Exchange Act”). As a voluntary filer is not subject to the Exchange Act reporting requirements, the longer one year holding period is applicable. However, the determination of whether the issuer is reporting or non-reporting is made as of the time of the proposed sale, as is the determination of the other Rule 144 requirements. Accordingly, if following the issuance of securities, a non-reporting issuer files a Form 10 registration statement and becomes subject to the reporting requirements of the Exchange Act, the six month holding period would apply.

  Securities attorney Laura Anthony provides expert legal advice and ongoing corporate counsel to small public Companies as well as private Companies seeking to go public on the Over the Counter Bulletin Board Exchange (OTCBB). Ms. Anthony counsels private and small public Companies nationwide regarding reverse mergers, due diligence on public shells, corporate transactions and all aspects of securities law.

  Ms. Anthony is the Founding Partner of Legal & Compliance, LLC, a national corporate, securities and civil litigation law firm based in West Palm Beach, Florida. The firm’s corporate and securities attorneys provide technical legal services to small and mid-size private and public (OTCBB) Companies, entrepreneurs, and business professionals nationwide. Contact us today for a FREE consultation!

  Tags: OTCBB, Over The Counter Bulletin Board, pink sheets, restricted securities, Reverse Mergers, Rule 144, SEC Law Firm, SEC reporting requirements, securities attorney, securities resale, unrestricted securities

• 28Oct

  Five Essential Conditions for Unregistered Spin-Offs

  Corporate Law Firm No Comments

  A spin-off occurs when a parent company distributes shares of a subsidiary to the parent company’s shareholders such that the subsidiary separates from the parent and is no longer a subsidiary. In Staff Legal Bulletin No. 4, the Securities and Exchange Commission (SEC) explains how and under what circumstances a spin-off can be completed without the necessity of filing a registration statement.

  In particular, the subsidiary shares (the shares distributed to the parent company shareholders) do not need to be registered if the following five conditions are met: (i) the parent shareholders do not provide consideration for the spun-off shares; (ii) the spin-off is pro-rata to the parent shareholders; (iii) the parent provides adequate information about the spin-off and the subsidiary to its shareholders and to the trading markets; (iv) the parent has a valid business purpose for the spin-off; and (v) if the parent spins-off restricted securities, it has held those securities for at least one year. Below is a discussion of each of the five conditions.

  Essential Conditions

  The first condition is that the parent shareholders do not provide consideration for the spun-off shares. This is because if value is provided, a “sale” has occurred and a “sale” requires registration under Section 5 of the Securities Act of 1933, as amended, unless an exemption is available. In a spin-off, an exemption is rarely available due to the wide variety of shareholders receiving the spun-off shares.

  The second condition is that the spin-off must be pro rata. When the spin-off is pro rata, the parent shareholders have the same proportionate interest in the parent and the subsidiary both before and after the spin-off. If a spin-off is not pro rata, the shareholders’ relative interests change and some shareholders give up value for the spun-off shares, requiring registration pursuant to the first condition.

  The third condition requires that adequate information be provided to the shareholders. If the subsidiary is a non-reporting company it can satisfy this condition by providing the shareholders with an information statement which satisfies the Section 14 proxy rules of the Securities Exchange Act of 1934 prior to or contemporaneously with providing the spun-off shares. In addition, the non-reporting subsidiary must file a Form 10 registration statement, which can be accomplished after the spin-off but prior to trading on the spun-off subsidiary, begins. A reporting subsidiary is deemed to have satisfied its information requirements as long as it is current in its reporting obligations, plus provides any pertinent information directly related to the spin-off itself.

  Adequate Information Requirement

  Where both the parent company and the subsidiary are non-reporting, the adequate information requirement is met if the by the date of the spin-off: (i) the parent provides the shareholders with an information statement which satisfies the Section 14 proxy rules of the Securities Exchange Act of 1934’ (ii) the shares are restricted until such time as a Form 10 is filed; and (iii) the transfer restrictions are enforced such as by means of stop transfer instructions to the transfer agent.

  The fourth condition is that there is a valid business purpose for the spin-off. Although there may be many valid business purposes, the SEC specifically recognizes the following as valid: (i) allowing management of each business to focus solely on that business; (ii) providing employees of each business stock-based incentives linked solely to her or her employer; (iii) enhancing access to financing by allowing investments into each business separately; and (iv) enabling the companies to do business with each other’s competitors.

  Invalid Purposes

  Likewise, although there are numerous purposes that would not be valid, the SEC specifically lists the following as not valid: (i) creating a market in the spun-off securities without providing adequate information and (ii) creating a public market in a shell or development stage company.

  Finally, the last condition is that the parent has held the shares for a minimum of one year. This is so the receiving shareholder may tack with the parent’s holding period and thereby satisfy the holding period requirements of Rule 144.

  The SEC has also taken the position, that as long as all the above conditions have been satisfied, the spin-off will not require registration under Rule 145 merely because the shareholders have voted on the spin-off and/or assets are transferred into the subsidiary as part of the spin-off. Furthermore, except where specifically delineated above (non-reporting parent and subsidiary) as long as all the above conditions are satisfied, the shares issued in the spin-off are not restricted securities.

  Securities attorney Laura Anthony provides expert legal advice and ongoing corporate counsel to small public Companies as well as private Companies seeking to go public on the Over the Counter Bulletin Board Exchange (OTCBB). Ms. Anthony counsels private and small public Companies nationwide regarding reverse mergers, due diligence on public shells, corporate transactions and all aspects of securities law.

  Ms. Anthony is the Founding Partner of Legal & Compliance, LLC, a national corporate, securities and civil litigation law firm based in West Palm Beach, Florida. The firm’s corporate and securities attorneys provide technical legal services to small and mid-size private and public (OTCBB) Companies, entrepreneurs, and business professionals nationwide. Contact us today for a FREE consultation!

  Tags: due diligence, going public, OTCBB, Over The Counter Bulletin Board, public company spin-offs, registration statement, Reverse Mergers, Rule 144, Rule 145, SEC Law Firm, SEC reporting requirements, securities attorney

• 22Oct

  The Demise of the Death Spiral – SEC Interpretation of Rule 415

  Securities Attorneys No Comments

  Without fanfare, publications, or other notice, in mid 2006, PIPE investors and the Issuers that utilized them noticed a big difference in the way that the Securities and Exchange Commission’s (SEC) division of corporate finance reviewed and commented upon, resale registration statements. Although the SEC staff contended that its position on Rule 415 had not changed, there was, incontrovertibly, a dramatic impact felt by Issuers and PIPE investors.

  For years, Issuers had relied upon Rule 415 in order to register the resale of shares issued in PIPE transactions (a “secondary offering”). Rule 415 governs the registration requirements for the sale of securities to be offered on a delayed or continuous basis, such as in the case of the take down or conversion of convertible debt and warrants. In the years prior to 2006, Issuers would register shares they sold in a PIPE transaction, which could represent in excess of 50% of their outstanding public float.

  Convertible Debt and Subsequent Resale

  In a typical convertible debt and/or warrant PIPE transaction, the exercise price to convert the debt or warrant was based on a discount to current market price. Accordingly, the PIPE investor would convert a small percentage of the debt or warrant into common shares and immediately sell those shares on the open market, thus forcing down the price of the stock. The PIPE investor would then convert another small percentage of the debt or warrant at a discount to the new lower market price and again immediately re-sell the shares, further depressing the market price. This process could continue infinitum until all of the debt or warrants had been converted leaving the Company’s stock price considerably lower than where it started. Thus the term “death spiral”.

  The SEC recognized this pattern and the negative effect it had on the marketplace. Beginning in mid 2006, the SEC staff began tightening the availability of Rule 415 for secondary offerings, particularly where the number of shares being registered exceeded 30% of the Issuers public float. The SEC was able to do this without rule amendments or such by simply taking the position that the registration of in excess of 30% of the public float should be closely reviewed and possibly considered a primary offering and not a secondary offering at all. A primary offering is one where the securities are being sold by the Issuer (or in this case on behalf of the Issuer) as opposed to a third party, such as a PIPE investor.

  Primary versus Secondary Offerings

  The consequences of deeming an offering a primary offering as opposed to a secondary offering are two-fold. First, Rule 415, the rule that allows securities to be registered for sale on a delayed or continuous basis, is generally unavailable for primary offerings by small business issuers. Second, a primary offering requires that each of the investors named as a selling security holder be identified as an underwriter. Underwriter status exposes the named underwriter to full liability for any misstatements or omissions in that registration statement (subject to a due diligence defense). Most PIPE investors want to be just that, investors, not guarantors of the statements, or misstatements, of an Issuer.

  Toxic Offerings

  The SEC staff made it clear that its interpretation of Rule 415 was meant to curtail death spirals and other “toxic offerings” which tended to flood the market with penny stocks whose value continued to decline. The SEC’s efforts worked. Since mid 2006 the number of Rule 415 registered PIPE offerings declined dramatically. Prominent PIPE investors such as Cornell Capital and the Laurus Fund significantly decreased their investments in small business issuers.

  Small business issuers found it considerably harder to attract PIPE and other speculative investors. In fact, it is the pressure from these small business issuers that has since prompted other changes in federal securities laws, such as the decreased holding period under Rule 144, and the use of registration exemptions to lure investors, such as Section 3(a)(9) and (10) of the Securities Act.

  Reverse Merger Exceptions

  It should be noted as well, that in the past year, the SEC staff is again routinely allowing the registration of securities in excess of 30% of the public float in cases where the registrant was a shell company and has just completed a reverse merger or other transaction that causes it to cease being a shell company. Presumably this has been to assist small business issuers attract investors following the depressive effects of the prohibition of the use of Rule 144 for companies that are or become shell companies.

  Securities attorney Laura Anthony provides expert legal advice and ongoing corporate counsel to small public Companies as well as private Companies seeking to go public on the Over the Counter Bulletin Board Exchange (OTCBB). Ms. Anthony counsels private and small public Companies nationwide regarding reverse mergers, due diligence on public shells, corporate transactions and all aspects of securities law.

  Ms. Anthony is the Founding Partner of Legal & Compliance, LLC, a national corporate, securities and civil litigation law firm based in West Palm Beach, Florida. The firm’s corporate and securities attorneys provide technical legal services to small and mid-size private and public (OTCBB) Companies, entrepreneurs, and business professionals nationwide. Contact us today for a FREE consultation!

  Tags: going public, OTCBB, Over The Counter Bulletin Board, PIPE offerings, Reverse Mergers, Rule 144, rule 415, SEC Law Firm, SEC reporting requirements, Section 3(a)(10), Section 3(a)(9), securities attorney

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