Securities Act of 1933 (“Securities Act”) Rule 144 sets forth certain requirements for the use of Section 4(1) 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.” “Issuer” and “dealer” have pretty straight forward meanings under the Securities Act but the term “underwriter” does not. 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.
Following the amendments to Rule 144 in 2008, a shareholder cannot simply have a legend removed from restricted shares following the holding period, but rather, must have a present intent to sell in order to have a legend removed. Moreover, following the revisions in 2008, Rule 144 is not available to shell companies, or former shell companies that are not current in their Exchange Act filing requirements. The requirements of Rule 144 must exist as of the date of sale.
Although not set out in the statute, all transfer agents and Issuers, and most clearing and brokerage firms, require an opinion of counsel as to the application of Rule 144 prior to removing the legend from securities and allowing their sale under Rule 144. An opinion letter is generally valid for ninety (90) days from the date of issuance. Accordingly, an attorney may issue an opinion and a transfer agent act to remove a restrictive legend, following which, the requirements of Rule 144 may no longer be valid (such as if a former shell company fails to file its quarterly report or ceases operations and becomes a shell, etc..)
In other words, attorneys, transfer agents and brokers must be certain that all of the conditions of Rule 144 are met prior to taking action to remove a restrictive legend, but only the Seller can ensure that all the conditions are present at the actual time of sale. In order to protect themselves in issuing opinion letters and removing legends, transfer agents and most attorneys now require a letter from the Seller making certain representations and affirmations regarding their eligibility to rely on Rule 144 in the sale of their securities. This letter is commonly referred to as a Seller’s Representation Letter.
The affirmations commonly required and contained in the Seller’s Representation Letter, are:
1. The Seller is the beneficial owner of the subject securities;
2. The Seller has been the beneficial owner of the subject securities for the required holding period (the holding period varies from six months to one year depending on whether the Issuing Company is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended);
3. Confirmation that the Seller is not an affiliate of the Issuing Company and has not been an affiliate for at least 3 months, or that the Seller is an affiliate and is therefore subject to the Rule 144 volume restrictions on sales (drip rules);
4. Confirmation that the Seller is not an underwriter and is not selling the securities for the purpose of making a distribution for or on behalf of the Issuer;
5. Confirmation that the Seller is selling for his/her own account and not for the benefit of a third party, or the Issuer; and
6. Confirmation that the Seller is aware of the Rule 144 requirements and will sell only in accordance with such requirements, including the manner of sale requirements (through a broker).
Attorney Laura Anthony,
Founding Partner, Legal & Compliance, LLC
Securities, Reverse Mergers, Corporate Transactions
Securities attorney Laura Anthony provides ongoing corporate counsel to small and mid-size public Companies as well as private Companies intending to go public on the Over the Counter Bulletin Board (OTCBB), now known as the OTCQB. For more than a decade Ms. Anthony has dedicated her securities law practice towards being “the big firm alternative.” Clients receive fast and efficient cutting-edge legal service without the inherent delays and unnecessary expense of “partner-heavy” securities law firms.
Ms. Anthony’s focus includes but is not limited to compliance with the reporting requirements of the Securities Exchange Act of 1934, as amended, (“Exchange Act”) including Forms 10-Q, 10-K and 8-K and the proxy requirements of Section 14. In addition, Ms. Anthony prepares private placement memorandums, registration statements under both the Exchange Act and Securities Act of 1933, as amended (“Securities Act”). Moreover, Ms. Anthony represents both target and acquiring companies in reverse mergers and forward mergers, including preparation of deal documents such as Merger Agreements, Stock Purchase Agreements, Asset Purchase Agreements and Reorganization Agreements. Ms. Anthony prepares the necessary documentation and assists in completing the requirements of the Exchange Act, state law and FINRA for corporate changes such as name changes, reverse and forward splits and change of domicile.
Contact Legal & Compliance LLC for a free initial consultation or second opinion on an existing matter.
Laura Anthony, Attorney
Legal & Compliance, LLC
330 Clematis Street, Ste. 217
West Palm Beach, FL 33401
Toll Free: 1.800.341.2684