SEC Significantly Revises Rule 144
By: SCOTT J. DORFMAN
April 2008
On February 15, 2008, a final rule of the Securities and Exchange Commission (SEC) became effective which provides significant changes to Rule 144 regarding the sale of restricted and controlled securities, promulgated under the Securities Act of 1933 (the Securities Act). Rule 144 creates a safe harbor for the sale of securities under the exemption set forth in Section 4(1) of the Securities Act. According to the SEC, the changes should provide for more efficient access to the private capital markets. Most importantly, the changes will shorten the period in which shareholders of reporting companies must hold restricted securities before resale from one year to six months, both for affiliates and nonaffiliates. Also, all resale restrictions for nonaffiliates of reporting and non-reporting companies will end after one year.
The major changes include:
- The holding period for reporting company restricted securities is shortened from one year to six months.
- Nonaffiliates of reporting companies may freely resell restricted securities they have held for six months, subject only to the requirement that current information about the such reporting company is public and available.
- Nonaffiliates may freely resell restricted securities they have held for one year, with no restrictions whatsoever.
- Form 144 filing requirements for nonaffiliates are eliminated.
- Form 144 filing thresholds for affiliates are raised. Under the previous rule, an affiliate was required to file if the intended sale exceeded either 500 shares or $10,000 within a three-month period. The amended rule raises the threshold to the lesser of 5,000 shares or $50,000.
- For debt securities, the “manner of sale” requirement is eliminated, and the volume limitations are relaxed by adding an alternate test that permits the sale of up to 10 percent of a tranche in any three-month period.
The SEC defines a “nonaffiliate” under Rule 144 as any person who is not an affiliate of the issuer and has not been an affiliate during the preceding three months.
Affiliates should note that they will continue to be restricted from reselling any restricted securities, whether of reporting or non-reporting companies, under Rule 144 during the six-month holding period. After the holding period, they may resell in accordance with applicable Rule 144 requirements, including the rule’s volume and manner of sale limitations and the requirement that public information be made current and available. Affiliates must also file Form 144 even after the holding period.
If you have questions about Rule 144 or its recent amendments, please feel free to call Scott Dorfman or any other member of the Fredrikson & Byron Securities Practice group at 612.492.7000.
Takeaway
Revised Rule 144 shortens the required holding period for restricted securities, while also eliminating or simplifying Rule 144 filing requirements.