I recently read an explanation from Perkins Coie law firm concerning Rule 144 and how it affects OTCBB companies that file as “shell companies”. Here is a direct quote issued by the firm:

January 22, 2008

Shell Company Securities.

“Rule 144 generally may not be relied on for the resale of securities initially issued by a current or former shell company, other than a business combination-related shell company. A shell company is one that has 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. However, Rule 144 is available for the resale of securities of a shell company if the issuer is a former shell company and satisfies certain other conditions, including the condition that one year elapse from the date that the issuer initially files with the SEC the information required by Form 10 before any securities may be resold. The SEC does not mean for this codification to capture startup companies because the SEC does not believe that startup companies satisfy the condition of having no or nominal operations.”

You can read the rest of the Perkins Coie article at:

http://www.perkinscoie.com/news/pubs_detail.aspx?op=updates&publication=1589

Now let’s decipher this information. If a company buys a shell that has been reporting as a shell company then investors who have purchased restricted securities from them may still be subject to the one year holding rule for securities versus the six month holding rule. However, it is unclear how the new rules apply if:

1. A privately held company sold securities prior to purchasing an OTCBB shell that was previously reporting as a shell company or

2. A privately held company first purchased an OTCBB shell that previously filed as a shell company and the new company then filed their super 8K, name change of the company, issued a new cusip number, trading symbol and started reporting as an ongoing concern. After the new company became fully reporting they then sold restricted securities.

Now if a company buys a shell that is not reporting as a shell company then presumably the new company would not have to be concerned about these issues. I will pass on additional information concerning the interpretation of Rule 144 as it relates to shell companies and the sale of securities as we receive it

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