Rule 144 Amendments come into effect on February 15, 2008
Securities acquired in an unregistered offering, as well as securities held by affiliates of the issuer, may (whether acquired in a registered offering or not) only be sold upon registration with the SEC or pursuant to an exemption from these registration requirements. SEC Rule 144 has allowed securities to be resold without registration once they have been held one year, and in certain cases two years, and when other conditions have been satisfied. The SEC substantially revised Rule 144 to permit sales to be made sooner with fewer restrictions. Although the new relief is not available to securities of shell companies, security holders of most public reporting issuers will benefit from decreased holding periods and elimination of the volume limitations and manner of sale requirements.
In the revised Rule 144, the period securities must be held before becoming freely tradable depends on whether the issuer is a public (reporting) company or non-public (non-reporting) company, as well as whether the holder is an affiliate of the issuer or not affiliated, as set out in the chart
VOLUME LIMITS AND MANNER OF SALE RESTRICTIONS
For most non-affiliate selling security-holders, the volume limitations and “manner of sale” restrictions have been completely lifted. Affiliate sellers must still comply with manner of sale restrictions and may sell no more each quarter than the greater of (a) the average weekly trading volume; or (b) 1% of the outstanding shares. The SEC has removed the manner of sale restrictions for sales of debt securities and has also adjusted several other provisions relating to volume and manner of sale limitations.
The SEC also clarified the ability, in certain cases, of security-holders to “tack,” that is to add, the periods in which they held other securities when calculating the holding period under Rule 144.
- Holders of securities received on conversion or exchange of other securities, such as options, warrants, convertible preferred stock, or convertible debt, may generally include the time they held the prior security when calculating the holding period.
- Holders of securities issued in a corporate reorganization may generally tack the period they held the predecessor securities, provided the reorganization solely involved the insertion of a new holding company as set out in the Rule.
The SEC increased the thresholds above which affiliates are required to file a Form 144. Affiliates will be required to file a Form 144 if the affiliate’s intended sale will result in total sales over the prior three months exceeding $50,000 in value or 5,000 shares. Non-affiliates are not required to file a Form 144.
MARKET EFFECTS – REGISTRATION RIGHTS AGREEMENTS
The decreased holding period may affect issuer obligations and stockholder rights under existing registration rights agreements once the amended Rule 144 takes effect.