Rule 144 — Persons Deemed Not to be Engaged in a Distribution and Therefore Not Underwriters
Last Update: April 2, 2007
The interpretations replace the Rule 144 interpretations in the July 1997 Manual of Publicly Available Telephone Interpretations, the March 1999 Supplement to the Manual of Publicly Available Telephone Interpretations, and the November 2000 Current Issues and Rulemaking Project Outline. Some of the interpretations included herein were originally published in the Manual of Publicly Available Telephone Interpretations (as supplemented), and have been revised in some cases. The bracketed date following each interpretation is the latest date of publication or revision.
QUESTIONS AND ANSWERS OF GENERAL APPLICABILITY
Section 101. Rule 144 — General Guidance
Question: Is Rule 144 available to the issuer of the securities?
Question: How long must an underwriter wait before it resells the unsold portion of a sticky public offering as if it were compensation?
Answer: An underwriter may resell the unsold portion of a sticky public offering as if it were compensation (wait one year from close of offering, follow Rule 144 except for filing form), provided that one year has elapsed since the last sale under the registration statement. [April 2, 2007]
Question: Are securities that are received under Section 1145(a) of the Bankruptcy Code deemed restricted securities?
Answer: No. Securities received pursuant to a Bankruptcy Code proceeding under the circumstances described in Section 1145(a) of the Bankruptcy Code would not be deemed restricted securities because they would have been received in a “public offering” under Section 1145(c) of the Code. [April 2, 2007]
Question: If an institutional purchaser buys a block of shelf-registered securities directly from the issuer, will the securities be deemed restricted securities?
Answer: Where there is a sale of a block of shelf-registered securities directly by the issuer to an institutional purchaser, the securities will not be deemed to be restricted securities that are “acquired directly or indirectly from the issuer... in a transaction ... not involving any public offering.” However, the purchaser of the securities will still have to determine whether it may be deemed an underwriter in connection with resales of such securities. Such a determination will depend upon the facts of the particular case. [April 2, 2007]
Section 102. Rule 144(a)(1)
Section 103. Rule 144(a)(2)
Section 104. Rule 144(a)(3)
Question: What is a circumstance under which securities issued under stock option plans and excess compensation plans for directors will constitute restricted securities?
Answer: Securities often are issued under forms of employee benefit plans where the basis for non-registration of the distribution is other than a “no-sale” theory under Section 2(a)(3). Such plans include stock option plans and excess compensation plans for directors where the securities are issued pursuant to the Section 4(2) private offering exemption or Regulation D. All such securities issued after June 29, 1989 are restricted securities under Rule 144(a)(3). [April 2, 2007]
Question: Are shares acquired in a private transaction from the spouse of an affiliate deemed restricted securities?
Answer: Shares acquired in a private transaction from the spouse of an affiliate, who has the same home as the affiliate, are considered restricted securities, since the spouse and the affiliate are regarded as the same person under Rule 144(a)(2). [April 2, 2007]
Question: Are securities issued under Section 4(6) deemed restricted securities?
Answer: Securities issued under Section 4(6) are deemed restricted securities even though they are not referred to specifically in the definition of the term restricted securities set forth in Rule 144. [April 2, 2007]
Section 105. Rule 144(b)
Section 106. Rule 144(c)
Question: If securities are sold pursuant to Rule 144 at various times over a three-month period, at which time(s) must the issuer satisfy the “current public information” requirement?
Answer: If securities are sold pursuant to Rule 144 at various times over a three-month period, the issuer must continue to satisfy the “current public information” requirement at the time each sale is made, not just at the beginning of the period when the Form 144 is filed. [April 2, 2007]
Section 107. Rule 144(c)(1)
Question: When you have an effective Form S-1 registration statement followed by a registration statement pursuant to Exchange Act Section 12(g), when does the 90-day reporting period required by Rule 144(c) begin?
Answer: Where an effective Form S-1 registration statement is followed by registration pursuant to 12(g) of the Exchange Act, the 90-day reporting period required by Rule 144(c) commences with the effective date of the Form S-1. [April 2, 2007]
Question: If a company is current but not timely in its reporting obligations, may it check the “yes” box on the cover page of a Form 10-Q indicating that it has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months?
Answer: Yes. The company may check the “yes” box referred to above even if all required reports were not filed on time, so long as they are filed by the date of the filing of the Form 10-Q. [April 2, 2007]
Question: Do reports filed under Section 30(a) of the Investment Company Act satisfy the current public information requirement of Rule 144(c)(1)?
Answer: Yes. Reports filed under Section 30(a) of the Investment Company Act satisfy the current public information requirement of Rule 144(c)(1). [April 2, 2007]
Section 108. Rule 144(c)(2)
Question: Does the information standard of Rule 15c2-11 require that the information be current?
Answer: Yes. The public information standard of Rule 15c2-11 relating to issuers not subject to Sections 13(a) or 15(d) is met only if the Rule 15c2-11 information is current. It is irrelevant that broker-dealers may publish quotes on the issuer’s securities “piggy-backing” from their prior quotes based on Rule 15c2-11 information which was current at the time such quotations were initiated. [April 2, 2007]
Question: Do the financial statements of non-reporting issuers need to be audited or prepared in compliance with Regulation S-X in order to satisfy the “current public information” requirement of Rule 144(c)(2)?
Answer: No. The “current public information” requirement of Rule 144(c)(2) does not require the financial statements of non-reporting issuers to be either audited or prepared in compliance with Regulation S-X, since clauses (12) and (13) of Rule 15c2-11(a)(5) under the Exchange Act, to which Rule 144(c)(2) refers, do not require such financial statements. [April 2, 2007]
Section 109. Rule 144(d)
Question: To whom does the phrase “without recourse” in Rule 144(d)(3)(iv) refer?
Answer: The phrase “without recourse” appearing in Rule 144(d)(3)(iv) refers to recourse against the pledgor personally in the usual situation where the pledgor and borrower are the same person. This interpretation would not apply, however, if the pledgor and borrower were different persons, because Rule 144(d)(3)(iv) requires recourse only against the borrower under the note. [April 2, 2007]
Question: Did the amendments to Rule 144(d)(1) adopted in Release No. 33-6862 change the resale situation for closely-held entities making in-kind distributions of restricted securities of an affiliated issuer?
Answer: The amendment to Rule 144(d)(1) adopted in Release No. 33-6862 did not change the resale situation for closely-held entities making in-kind distributions of restricted securities of an affiliated issuer. The transfer of the restricted securities from the portfolio of the closely-held entity to its equity holders will not disturb the holding period if the distribution is made ratably and without the payment of consideration for the transfer. See Question 34, Release No. 33-6099. [April 2, 2007]
Question: After the Supreme Court’s decision in Rubin v. United States, 449 U.S. 424 (1981), do the provisions of Rule 144(d) still permit the tacking of holding periods of a pledgor and pledgee?
Answer: It is the Division’s view that the provisions of Rule 144(d) permitting tacking of holding periods of a pledgor and pledgee continue to apply, notwithstanding the Supreme Court’s decision in Rubin v. United States, 449 U.S. 424 (1981) that a pledge may be a sale for determining application of the anti-fraud provisions of the federal securities laws. [April 2, 2007]
Question: Does Rule 144(d)(3)(vii) apply only to securities owned by the decedent?
Answer: Yes. Paragraph (d)(3)(vii) of Rule 144, which provides an exemption from the one-year holding period requirement of the rule for sales of restricted securities by a non-affiliate estate, applies only to securities owned by the decedent. It does not exempt a non-affiliate estate from the one-year holding period requirement in the case of securities acquired by the estate upon the exercise of stock options held by the decedent. [April 2, 2007]
Question: May a person transfer restricted securities into such person’s individual retirement account without interrupting the Rule 144(d) holding period for the securities?
Answer: A person may transfer restricted securities to such person’s individual retirement account without interrupting the holding period for such securities for purposes of Rule 144(d). [April 2, 2007]
Question: An individual acquires shares pursuant to anti-dilution rights attaching to restricted securities. Are these newly acquired shares restricted securities?
Answer: For purposes of Rule 144, shares acquired pursuant to anti-dilution rights attaching to restricted securities are restricted securities themselves but their holding period is dated from the original placement of shares, not the exercise of the anti-dilution provisions. [April 2, 2007]
Question: When does the holding period for restricted securities acquired pursuant to a subscription agreement begin?
Answer: 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 that the full purchase price has been paid. [April 2, 2007]
Question: What is the restricted security and holding period status of securities exchanged for other securities of the issuer under Section 3(a)(9)?
Answer: When securities are exchanged for other securities of the issuer under Section 3(a)(9), the securities received assume the character of the exchanged securities. Thus, for example, if restricted securities are exchanged, the new securities are deemed restricted and tacking of the holding period of the former securities is permitted. [April 2, 2007]
Section 110. Rule 144(d)(1)
Question: On what date does the holding period for restricted securities acquired under an employee stock option begin?
Answer: The holding period for restricted securities acquired under an employee stock option always begins on exercise of the option and full payment to the issuer of the exercise price. The date of the option’s grant may never be used for this purpose, even if the exercise involves no payment of cash or other consideration to the issuer. Because the option is issued to the employee without any payment for the grant, the optionee holds no investment risk in the issuer before the exercise. [April 2, 2007]
Section 111. Rule 144(d)(2)
Section 112. Rule 144(d)(3)
Question: Does a change in the legal form of enterprise re-start the holding period for restricted securities of the issuer?
Answer: A change in the legal form of an enterprise from a partnership or a limited liability company to a corporation normally will re-start the holding period for restricted securities of the issuer. However, a holder may tack holding periods in this context if the following conditions are satisfied:
Question: Does the payment of even a de minimis amount of cash upon a warrant exercise preclude the holder from tacking the holding period of the warrant to that of the common stock under Rule 144(d)(3)(ii)?
Answer: Yes. The payment of even a de minimis amount of cash upon a warrant exercise would preclude the holder from tacking the holding period of the common stock to the warrant under Rule 144(d)(3)(ii). The warrant exercise must be “cashless” (similar to the analysis under Section 3(a)(9)) in order to tack the holding period of the common stock to the warrant. [April 2, 2007]
Section 113. Rule 144(e)
Question: What exchanges are encompassed by the term “national securities exchanges” in Rule 144(e)?
Answer: The term “national securities exchanges,” as used in Rule 144(e), encompasses only exchanges that are registered with the Commission pursuant to Section 6(a) of the Exchange Act. Because Canadian exchanges are not so registered, the volume of securities traded on such an exchange may not be taken into account when computing the amount limitation under Rule 144. [April 2, 2007]
Question: Is the Over-the-Counter Bulletin Board an “automated quotation system” for purposes of Rule 144(e)?
Answer: No. The Over-the-Counter Bulletin Board is not an “automated quotation system” for purposes of Rule 144(e). As a consequence, the market-based volume limitation the rule allows for securities listed on an exchange is unavailable for securities quoted only over the Over-the-Counter Bulletin Board. [April 2, 2007]
Question: What effect(s) do stock splits and reverse stock splits have on available volume under Rule 144(e)?
Answer: Stock splits and reverse stock splits, which are not events of sale under the Securities Act, have no real effect on available volume under Rule 144(e). In other words, the split or reverse split should not change the proportion of the issuer’s securities that a holder of restricted or control securities should be permitted to sell in the rule’s three-month measuring period. To calculate available volume after a split or reverse split, a Rule 144 seller should give effect to the split or reverse split throughout the whole three-month period, as though it had occurred on the first day of the period, even though the record and effective dates were later. This method may be used for the rule’s one-percent measurement or the market-based alternative for securities listed on an exchange. [April 2, 2007]
Question: In determining the amount of securities that an individual may sell pursuant to General Instruction C.2(b) of Form S-8, does the individual need to aggregate the amount of securities that the individual has sold pursuant to Rule 144?
Answer: No. General Instruction C.2(b) to Form S-8 provides that if the registrant, at the time of filing, does not satisfy the registrant requirements for use of Form S-3 or Form F-3, the amount of both control and restricted securities to be reoffered by means of the reoffer prospectus by each person, and any other person with whom such person is acting in concert for the purpose of selling securities of the registrant, shall be limited during any three-month period to the amount specified in Rule 144(e). This limitation is strictly a limitation on the number of securities to be resold pursuant to the registration statement, and does not require aggregation of such securities with securities to be sold by the same person pursuant to Rule 144. The application of this instruction is reassessed each time the Form S-8 is updated pursuant to Securities Act Section 10(a)(3). [April 2, 2007]
Section 114. Rule 144(e)(1)
Question: Is a public offering included in the volume computation when computing the average weekly trading volume of the issuer during the four-week period?
Answer: In computing average weekly trading volume where there is a public offering of shares by the issuer during the four-week period, the public offering is not included in the volume computation; however, increased volume in the aftermarket as a result of the offering can be included for purposes of the rule. [April 2, 2007]
Question: How is the four-week period for computing the average weekly trading volume computed?
Answer: For purposes of computing volume limitations under Rule 144(e)(l)(ii) and (iii), the “four calendar weeks preceding the filing of notice” on Form 144 are the four weeks preceding the week in which the form is transmitted for filing in accordance with Rule 144(h). See Question 38, Release 33-6099. [April 2, 2007]
Section 115. Rule 144(e)(2)
Section 116. Rule 144(e)(3)
Question: Are resales of securities sold in reliance upon the Regulation S safe harbor excluded from aggregation under Rule 144?
Answer: Yes. Rule 144(e)(3)(vii) excludes from the aggregation calculation any securities sold pursuant to an effective Securities Act registration statement, pursuant to Regulation A, or pursuant to a transaction exempt under Section 4. Resales of securities sold in reliance upon the Regulation S safe harbor are similarly excluded from aggregation under Rule 144. [April 2, 2007]
Section 117. Rule 144(f)
Question: Can a principal of a brokerage firm use that firm to effect an ordinary “brokers’ transaction” for the principal’s personal account under Rule 144(f)?
Answer: Yes. A principal of a brokerage firm may use that firm to effect an ordinary “brokers’ transaction” for the principal’s personal account under Rule 144(f). [April 2, 2007]
Question: Does the publication of a customer limit order in accordance with Exchange Act Rule 11Ac1-4 constitute the solicitation or arrangement for the solicitation of orders to buy securities within the meaning of Rule 144(f)(1)?
Answer: No. The publication of a customer limit order in accordance with Exchange Act Rule 11Ac1-4 would not constitute the solicitation or arrangement for the solicitation of orders to buy securities within the meaning of Rule 144(f)(1). See Goldman, Sachs & Co. (Dec. 6, 1996). [April 2, 2007]
Section 118. Rule 144(g)
Section 119. Rule 144(g)(1)
Section 120. Rule 144(g)(2)
Section 121. Rule 144(g)(3)
Section 122. Rule 144(h); Form 144
Question: Does an amendment to Form 144 need to be filed in the event that a person does not sell the securities referred to in the Form?
Answer: No. If a person who has filed a Form 144 does not sell the securities referred to therein, no amendment reflecting this fact need be filed. [April 2, 2007]
Question: Does an amended Form 144 need to be filed to reflect a company’s listing on a national securities exchange or a stock split?
Answer: No. A Form 144 need not be amended to reflect: (1) a company’s listing on a national securities exchange; or (2) a stock split. [April 2, 2007]
Question: If a person intends to use two brokers, must the person allocate a specific number of shares to each broker on the Form?
Answer: A person who files a Form 144 indicating that it may sell shares through either of two brokers need not allocate a specific number of shares to each broker on the form. [April 2, 2007]
Question: Does the de minimis exemption of Rule 144(h) apply to each individual seller in situations where sales are required to be aggregated under Rule 144(e)?
Answer: Yes. In a situation where sales under Rule 144 are required to be aggregated for purposes of Rule 144(e), the de minimis exemption of Rule 144(h) (for filing Form 144), nonetheless, applies to each individual seller. [April 2, 2007]
Question: When a Form 144 must be filed, is a waiting period required between the time the person places an order with a broker and the time the broker executes the order?
Answer: When Rule 144(h) requires a person to file Form 144, no waiting period is required between the time the person places an order with a broker and the time the broker executes the order so long as the person concurrently with giving the order transmits the form to the Commission and the principal exchange on which the securities are listed. [April 2, 2007]
Question: Should a Form 144 be amended to reflect a change in broker?
Answer: Yes. A Form 144 should be amended to reflect a change in broker. However, amending Form 144 to reflect a change in the broker does not permit the calculation of a new volume limitation based on trading. [April 2, 2007]
Question: What is the effect of an amended Form 144 that is filed to correct inaccuracies?
Answer: An amended Form 144 may be filed to correct inaccuracies in the original Form 144 at the time of, or subsequent to, its filing. However, the filing of an amended Form 144 does not cure any deficiencies with regard to sales made after filing the initial Form 144 and prior to the filing of the amended Form 144. [April 2, 2007]
Section 123. Rule 144(i)
Question: Under what circumstances does a sell order that is placed with a broker at above the current market price contravene Rule 144(i)?
Answer: Rule 144(i) requires a bona fide intention to sell within a reasonable time. The fact that a sell order is placed with a broker at a price above the current market does not contravene Rule 144(i), unless the price reflected in the sell order was not consistent with a bona fide intention to sell within a reasonable time. [April 2, 2007]
Section 124. Rule 144(j)
Question: May restricted securities be tendered in connection with a tender offer without compliance with Rule 144?
Answer: Yes. Restricted securities may be tendered in connection with a tender offer without compliance with Rule 144. The rule is not the exclusive means for reselling restricted securities. [April 2, 2007]
Section 125. Rule 144(k)
INTERPRETIVE RESPONSES REGARDING PARTICULAR SITUATIONS
Section 201. Rule 144 — General Guidance
201.01 Rule 144 is not available for sales of an issuer’s securities by its subsidiary, since a parent-issuer may not do indirectly through a subsidiary what it may not do directly under Rule 144. See Release No. 33-5306. For example, a subsidiary, which is not a bank or trust company, that acts as trustee for its parent’s employee benefit plan would not be permitted to rely on Rule 144 for sales of its parent’s securities in connection therewith. [April 2, 2007]
201.02 Unregistered resales of restricted securities may be made in markets outside the United States, including foreign exchanges, in reliance on Rule 144 or the safe-harbor provisions of Regulation S. Any arrangement to return the restricted securities to United States markets may indicate, as suggested by Release No. 33-7190, an evasive scheme to avoid registration, which would invalidate any safe-harbor claim. [April 2, 2007]
201.03 A person holds only restricted securities and has held them for less than one year. Such person cannot effect a short sale of securities of that class, and then cover with such person’s restricted securities (even though the restricted securities are now eligible for sale) since the initial short sale did not qualify under Rule 144. See Question 82, Release No. 33-6099. [April 2, 2007]
201.04 Rule 144 is not available for the sale of securities acquired by an underwriter or finder as compensation for services rendered in connection with a registered public offering. The securities held by the underwriter or finder are not considered restricted securities because they were not acquired in a transaction or chain of transactions not involving any public offering. As such, Rule 144 may not be relied upon for their sale. However, Rule 144 may be applied constructively for the resale of such shares in the following manner:
(a) provided that one year has elapsed since the last sale under the registration statement, an underwriter or finder may resell the shares in accordance with the provisions of Rule 144, except for the notice requirement. See Question 10, Release No. 33-6099;
(b) a purchaser of the shares from an underwriter or finder receives restricted securities unless the sale is made with an appropriate, current prospectus, or unless the sale is made pursuant to the conditions contained in (a) above;
(c) a purchaser of the shares from an underwriter or finder who receives restricted securities may include the underwriter’s or finder’s holding period, provided that the underwriter or finder is not an affiliate of the issuer; and
(d) if an underwriter or finder transfers the shares to its employees, the employees may tack the firm’s holding period for purposes of Rule 144(d), but they must aggregate sales of the distributed shares with those of other employees, as well as those of the underwriter or finder, for a one-year period from the date of the transfer to the employees. [April 2, 2007]
201.05 A company in bankruptcy proposes to issue stock to an unrelated party for the acquisition of another business. Although the issuance will be part of the court-approved reorganization plan, it will not meet the requirements for the Securities Act exemption afforded by Section 1145(a) of the Bankruptcy Code because the issuance will not be in exchange for a bankruptcy claim or administrative expense. The company will rely on Section 4(2) of the Securities Act for its registration exemption. Because the offer and sale of the securities under the plan of reorganization is not exempt under Section 1145, the securities are restricted securities under Rule 144(a)(3) and may be publicly resold under Rule 144 or registered prior to resale. [April 2, 2007]
201.06 A former affiliate who wishes to sell non-restricted securities may sell without compliance with Rule 144 as soon as his or her “affiliate” status has ceased. The cessation of affiliate status is a facts-and-circumstances determination and counsel should not assume that it ceases instantly. Rather, the former affiliate should wait some amount of time – either the 3-month period of Rule 144(k), by analogy, or until the issuer files its next periodic report, before publicly selling the non-restricted securities without complying with Rule 144. [April 2, 2007]
201.07 A company issued securities under Section 3(a)(6) but has lost its eligibility to use that exemption in the future. Shares held by affiliates of the company may be resold pursuant to the provisions of Rule 144 (except for the holding period provisions). [April 2, 2007]
201.08 A private purchaser wishes to invest directly in an issuer but hopes to acquire unrestricted securities. Through arrangements and understandings with the issuer, a stockholder with shares that are either restricted securities currently eligible for sale under Rule 144 or unrestricted securities sells the shares to the private purchaser. At about the same time, the issuer sells an equivalent number of shares to the stockholder. The Division’s view is that the shares taken by the private purchaser from the stockholder will be restricted securities within the meaning of Rule 144(a)(3). The holding period will date to the private acquisition. A public resale of the shares acquired from the stockholder without regard to the conditions of Rule 144 would raise serious issues under Section 5 of the Securities Act for all parties to the transactions. [April 2, 2007]
Section 202. Rule 144(a)(1)
Section 203. Rule 144(a)(2)
203.01 An affiliate settlor transfers unrestricted shares to a charitable remainder trust. The control securities are the only asset of the trust. The entire income interest in the trust is held by the affiliate and the affiliate’s family members sharing the same residence. Income distributions are made annually. The trust is the same person as the settlor under Rule 144(a)(2) and as a result is itself an affiliate of the issuer. This conclusion is not changed by the use of an independent trustee. [April 2, 2007]
Section 204. Rule 144(a)(3)
204.01 An affiliate purchased common stock of its company in a private transaction from a non-affiliate who acquired the shares in the open market. Since such shares are not restricted securities within the meaning of Rule 144(a)(3), the one-year holding period requirement of Rule 144(d)(1) does not apply to resales of these shares by the affiliate. However, all of the other requirements of the rule would have to be complied with by the affiliate for any of its sales of the shares under the rule. [April 2, 2007]
204.02 Securities were inadvertently sold to a Company’s employees under a “stale” Form S-8 registration statement. For purposes of resale by the purchasing employees, the securities would be treated as if they were unrestricted so as not to penalize innocent purchasers under the “stale” Form S-8. [April 2, 2007]
204.03 An affiliate transfers securities acquired in the open market to her spouse (a non-affiliate) pursuant to, and on or subsequent to the date of, a court-approved divorce settlement agreement. The non-affiliate spouse need not consider such securities restricted because the securities were not “sold” to the spouse by the affiliate. [April 2, 2007]
204.04 An underwriter receives as compensation for managing an exempt industrial development bond offering warrants to purchase securities of the corporation using the industrial development bond-financed facility. Such warrants will be deemed restricted securities for purposes of Rule 144. [April 2, 2007]
Section 205. Rule 144(b)
Section 206. Rule 144(c)
Section 207. Rule 144(c)(1)
207.01 There is a risk in selling under Rule 144 during the 5-day or 15-day period following the filing of Form 12b-25, because if the missing report or portion thereof is not filed during that period, the issuer may be deemed not current until it is filed. [April 2, 2007]
207.02 A corporation had a registered public offering in 1981. Since then, it has continuously filed periodic reports under Section 15(d) of the Exchange Act, even though it has always had fewer than 300 shareholders. The corporation has just had a second public offering. In view of the history of voluntary reporting, the Division staff was of the view that holders of restricted securities need not wait 90 days from the effective date of the registration statement before commencing sales of such securities pursuant to Rule 144, assuming the issuer is current in its voluntary reporting. [April 2, 2007]
207.03 An issuer was required to file a Form 10-K on February 14, 1983. Because its executive offices had burned down in early February, the issuer filed a Form 12b-25 for an extension of time, extending the due date for the Form 10-K to March 2. The issuer was unable to file on March 2, and thereby became delinquent. A director, however, sold the issuer’s stock on March 4 under Rule 144. Before the sale was made, the director’s broker checked with the Division’s staff, and was told that the issuer was current in its Exchange Act filings. This information was, of course, incorrect. The issuer’s attorney was advised that Rule 144 was not available for the sale by the director, because the director’s relationship to the issuer was such that the director had reason to believe that the issuer was not current in reporting. It should be noted that a seller under Rule 144 may not rely on a verbal representation by any Division staff member as to the current reporting status of an issuer, and Division staff members therefore will decline to answer inquiries on such matters. [April 2, 2007]
207.04 A parent has guaranteed the outstanding debt securities (all of which are unlisted) of its wholly owned subsidiary and furnishes summarized disclosure with respect to the subsidiary in its Exchange Act reports. The subsidiary does not file Exchange Act reports. In these circumstances, the subsidiary will be deemed to satisfy the public information requirement of Rule 144(c)(1) with respect to the guaranteed debt securities so long as its parent satisfies that requirement with respect to itself and continues to provide summarized disclosure concerning the subsidiary in accordance with Rule 3-10 of Regulation S-X. Restricted debt securities of the subsidiary could be sold in accordance with the provisions of the rule. [April 2, 2007]
Section 208. Rule 144(c)(2)
Section 209. Rule 144(d)
209.01 A pledgor who is an affiliate defaults on a loan that is secured by stock acquired in the open market. The pledgee may sell the stock without regard to the holding period requirement of Rule 144. A new holding period for the pledgee is not necessary because the securities were acquired solely by operation of the pledge agreement and therefore are not deemed to have been “sold” to the pledgee by the affiliate. Although Rule 144(k) applies only to restricted securities by its terms, the Division staff has agreed that Rule 144(k) could be applied constructively where a non-affiliate pledgee acquires control securities and where under the calculation method prescribed by Rule 144(d)(3) a two-year holding period exists. These positions also would apply to an assignee of the rights under the pledge. [April 2, 2007]
209.02 If a preferred stockholder tenders shares to the issuer and receives in return cash plus a new series of preferred, the stockholder may tack its holding period for the old preferred to that for the new series. [April 2, 2007]
209.03 New investors in a closely-held investment partnership, and existing partners to whom assets have been redistributed upon withdrawal of other partners, may rely on the position on tacking set forth in Question 34(a) of Release No. 33-6099, provided the fundamental character of the partnership is not changed. [April 2, 2007]
209.04 In a stock-for-stock acquisition, the closing will be delayed until the acquired corporation’s year-end revenues have been determined, giving the acquiring corporation an out if such revenues do not reach a pre-determined level. The Rule 144 holding period for recipients of the acquiring corporation’s stock will not begin until the closing because the recipients will not be at economic risk until that time. [April 2, 2007]
209.05 A closely-held corporation distributes restricted securities pro rata and without consideration to its shareholders, three limited partnerships, which in turn distribute the restricted securities pro rata and without consideration to their partners (about 10 people in each instance). Tacking of holding periods from corporation to partnership, and partnership to partner, is permitted for purposes of Rule 144(d). [April 2, 2007]
209.06 Question 22 of Release No. 33-6099, dealing with the holding period under Rule 144(d) for restricted securities under an employee benefit plan, does not apply where restricted securities are issued to an employee in connection with an individually negotiated employment agreement. The employee’s holding period begins to run at the time the securities vest, assuming any conditions, such as continued employment, have been fulfilled. [April 2, 2007]
209.07 A convertible debenture was originally convertible into common stock. The terms of the convertible debenture were unilaterally modified by the issuer to provide that the debenture could be converted into either common stock or bonds of the issuer. The view was expressed that the holding period for the bonds received upon conversion could be tacked to the holding period for the convertible debentures even though the debentures were not convertible into bonds when they were originally issued. [April 2, 2007]
209.08 Pro rata redemptions of partnership interests in a closely-held investment partnership with partners receiving distributions of restricted securities in kind, as for example in liquidation, would allow partners to tack the partnership holding period for purposes of Rule 144(d). [April 2, 2007]
209.09 An affiliate transfers restricted stock to a corporation of which the affiliate owns 84%. The corporation intends to sell the restricted stock and convey to the affiliate an interest in the corporation equal to the proceeds of the sale. Tacking by the corporation of the affiliate’s holding period would not be permitted for purposes of Rule 144 because the transfer to the corporation is deemed to be a private sale which commences a new holding period for the purchaser. [April 2, 2007]
209.10 Investor A purchased 100 shares of restricted stock by executing a promissory note which did not meet the requirement of Rule 144(d)(2). Since such an obligation is not considered to be “full payment of the purchase price” under the rule, Investor A’s holding period commences only at such time or times as Investor A actually makes payment on the note. Investor A paid off half the amount of the note over one year ago and, accordingly, the holding period requirement for 50 shares (half the total of 100) has been met. Investor A recently sold 50 shares of the restricted stock in a registered offering. The question presented was whether the shares sold in the registered offering must be regarded as the shares as to which the holding period had run. Although Rule 144 does not establish a guide for this situation, it was decided that Investor A could deem the registration statement to relate solely to the shares for which the holding period requirement had not been satisfied. As a result, Investor A may now sell all of the remaining 50 shares under Rule 144. [April 2, 2007]
209.11 Securities have been escrowed by an issuer as a contingent payment in connection with an acquisition. The escrow agreement gives the intended beneficiary the right to sell the securities during the life of the escrow, on condition that the sale proceeds are returned to the escrow account. Rule 144(d)(3)(iii) provides that securities acquired as a contingent payment in connection with the sale of a business shall be deemed to have been acquired at the time of the sale, for purposes of the holding period requirement of Rule 144(d). This provision, however, applies only to those securities that have actually been acquired in satisfaction of a contingency. Since the shares in this case are still subject to a contingency and have not been formally acquired, the beneficiary may not rely on Rule 144(d)(3)(iii) to satisfy the holding period requirement of the rule for sales made during the period the escrow arrangement is in effect. [April 2, 2007]
209.12 A corporation distributes to its employees as a bonus restricted securities of an affiliated issuer which it acquired at an earlier date. For purposes of the holding period provisions of Rule 144(d), the employees would not be able to tack the corporation’s holding period to their own. The employer-employee relationship of the parties suggests that the distribution is being made as a form of compensation for service rendered, rather than as a gift (for which tacking would be permitted). [April 2, 2007]
209.13 An employee acquires restricted stock pursuant to a “price hook” plan, whereby the employee pays only a portion of the purchase price when acquiring the stock from the company. The remainder is to be paid when the stock is resold. The stock may not be resold under Rule 144, because the holding period requirement cannot be met under this arrangement, as the stock will not be fully paid for until the time of sale. [April 2, 2007]
209.14 Convertible notes with accrued but unpaid interest are exchanged for shares of the issuer. The holding period for the notes can be tacked to the holding period on the shares under Rule 144(d)(3)(ii) only if the exchange “consist[s] solely of other securities of the same issuer.” Although the right to receive payment for the accrued interest could be construed as additional consideration that is inconsistent with Rule 144(d)(3)(ii), the Division staff’s view is that the holding period for the convertible notes can be tacked to the holding period for all of the shares received in the exchange. This position is consistent with the Division staff’s view of the same issue under Section 3(a)(9) of the Securities Act, which exempts certain exchanges where securities of the same issuer are the only consideration. [April 2, 2007]
209.15 A private offering is made on a minimum/maximum basis (i.e., shares are not issued and proceeds not delivered to the company from an escrow account unless a minimum amount is sold). The Rule 144 holding period for shares acquired in such an offering would begin at the time a shareholder pays for its shares and its payment is deposited in the escrow account. At that time, the shareholder is at risk for purposes of Rule 144(d), since it is committed to participating in the offering if the minimum amount is sold. [April 2, 2007]
209.16 A Nevada corporation that holds restricted securities of another issuer effects a merger to change its domicile to Delaware. The restricted securities become the property of the Delaware successor as a result of the merger. Because of the exception for migratory transactions in Rule 145(a)(2), the merger is not a sale within the meaning of the Securities Act. The holding period of the Nevada predecessor for the restricted securities is not disturbed by the succession. [April 2, 2007]
209.17 The holder of restricted securities of a foreign private issuer exchanges them for an equivalent number of American Depositary Receipts with the depositary. The ADR will be a restricted security itself with a holding period identical to that on the underlying security. The ADR may be sold in reliance on Rule 144 to the same extent the underlying security could have been sold. Note that Form F-6, which relates to the issuance of depositary shares evidenced by American Depositary Receipts, requires that the deposited securities be offered and sold in transactions registered under the Securities Act or exempt from registration. See General Instruction I.A(2) of Form F-6. [April 2, 2007]
209.18 An affiliate holder of restricted securities bona fide pledges the securities to a bank to secure payment of a loan. In the event of default, the bank is required to exhaust the collateral before proceeding against the pledgor personally. For purposes of Rule 144(d)(3)(iv), the pledge is a recourse arrangement, so that the bank will have the benefit of the pledgor’s holding period. [April 2, 2007]
Section 210. Rule 144(d)(1)
Section 211. Rule 144(d)(2)
211.01 A promissory note, secured by the restricted securities purchased with the note, will meet the collateral standard of Rule 144(d)(2)(ii) if the note is also secured by other property with independent fair market value at least equal to the purchase price of the restricted securities. [April 2, 2007]
211.02 An officer purchases securities from an issuer paying the full purchase price in cash. Thereafter, the officer purchases an equal number of shares through the use of a promissory note, securing the note with the officer’s first purchase of securities. The use of such collateral to secure the promissory note is within the requirements of Rule 144(d)(2)(ii), and the holding period for the second purchase would begin when the note is given to the issuer. [April 2, 2007]
211.03 A company sold shares to its employees pursuant to a private placement. The employees could borrow the entire purchase price from a non-affiliate bank, giving a note guaranteed by the company and placing the shares in escrow. If the company had to repay the note, it could repurchase the shares at book value. The Division staff took the position that this arrangement was in substance the same as giving a note to the company in payment for the shares and, therefore, pursuant to Rule 144(d)(2), full payment of the purchase price was not satisfied. [April 2, 2007]
Section 212. Rule 144(d)(3)
212.01 A non-affiliate acquired warrants from an issuer more than two years ago in partial consideration for the sale of a subsidiary. The non-affiliate wanted to pay the exercise price with shares of the issuer that it planned to purchase just prior to the exercise (for tax reasons) and then tack the holding period of the warrants to the holding period for the shares received upon exercise. The holding period of warrants that are turned in for the spread’s worth of shares underlying the warrants (a “cashless exercise”) can be tacked to the holding period for the shares received. See Morgan Stanley & Co. (June 30, 1993). However, under these facts, because the proposed transaction would allow the non-affiliate to do indirectly what the non-affiliate could not do directly (pay the exercise price in cash and tack the holding period of the warrants to the holding period of the shares received upon exercise), tacking would not be permitted under Rule 144. A person using securities to exercise restricted stock purchase warrants should use the shorter of the holding period on the warrants or on the other securities used in payment to find the holding period for the shares received on exercise. [April 2, 2007]
212.02 Where a seller surrendered a secured promissory note of the issuer as consideration for the cashless exercise of a warrant from the same issuer, the Division staff was of the view that the holding period of the note could not be tacked to the common stock received upon the exercise of the warrant. Under the particular facts, the note did not appear to be a “security” under the standards enunciated in Reves v. Ernst & Young, 110 S. Ct. 945 (1990), and therefore, it would not qualify as a security of the issuer for purposes of tacking under Rule 144(d)(3)(ii). [April 2, 2007]
212.03 An affiliate of an issuer secures a loan with restricted securities. The restricted securities are hypothecated to the lender, rather than pledged, and an irrevocable stock power is granted. On a default under the loan, the lender could use the two instruments to cause legal title to be transferred to itself. For purposes of the lender’s holding period calculation, the hypothecation agreement and the irrevocable stock power may be construed as the equivalent of a pledge. Subject to the requirements for good faith and recourse against the borrower, the lender would be able to use the borrower’s holding period under Rule 144(d)(3)(iv). [April 2, 2007]
Section 213. Rule 144(e)
213.01 A company’s common stock traded both on an individual share basis and in units, each unit consisting of one share of common stock together with a detachable warrant. For purposes of Rule 144, the volume limitation for the common stock may be computed on the basis of all common shares traded, including those traded as part of a unit, since the common shares in the units are separable from the warrants. [April 2, 2007]
213.02 H transfers stock to W in connection with a divorce settlement. H and W need not aggregate sales under Rule 144 once they are no longer married. Moreover, they will not be deemed to be selling in concert merely because of the settlement arrangement. [April 2, 2007]
213.03 An individual sells both restricted convertible notes and restricted shares. The shares attributable to the notes sold plus the shares sold separately amount to less than one percent of the outstanding stock. The Division’s view is that such sales would be within the volume limitations of Rule 144(e). See Question 46, Release No. 33-6099. [April 2, 2007]
213.04 Where a U.S. partnership distributes restricted securities to its partners, and one of the partners, an Irish corporation, makes sales in Canada, such sales must be aggregated with the domestic sales of the other partners to determine compliance with Rule 144(e) where aggregation with the other partners otherwise is required. [April 2, 2007]
213.05 An affiliate of an issuer is the general partner of three limited partnerships which hold restricted securities of the issuer. If such limited partnerships transfer the restricted securities to all the partners, the affiliate must, for purposes of determining its volume limit under Rule 144(e), aggregate its sales with those of the other partners under Rule 144 for a one-year period following the distribution (or until non-affiliates may sell the restricted securities pursuant to Rule 144(k), whichever is sooner). [April 2, 2007]
213.06 A closely-held investment partnership distributed all of its restricted securities of ABC Co. held in its portfolio to all of its partners on a pro rata basis and without consideration from its partners. The partners must aggregate their sales of the distributed shares for a period of up to one year following the distribution for purposes of determining compliance with the volume limitations of Rule 144. See Question 45, Release No. 33-6099. Sales by the individual partners of ABC Co. shares acquired other than from the partnership need not be included in the aggregation computation. [April 2, 2007]
213.07 Warrants originally issued in tandem with common shares are now traded separately. Holders of the warrants who wish to sell rather than exercise them must consider the warrants a class of securities separate from the common stock for purposes of complying with the volume limitations of Rule 144(e). [April 2, 2007]
Section 214. Rule 144(e)(1)
214.01 A company has notified its transfer agent of the issuance of additional common stock. No other announcement has been made. The rule permits the sale of one percent of the shares outstanding as shown by “the most recent report or statement published by the issuer.” The notice to the transfer agent is insufficient publication to allow use of the increased number of shares for purposes of the alternative one percent volume limit of Rule 144(e). [April 2, 2007]
214.02 An affiliate wishing to sell shares pursuant to Rule 144 discovered that a broker-dealer had executed, during the last week of the four-week period, a 100,000 share trade in the issuer’s stock that had not been reported in the average weekly reporting volume of trading of such securities on all national securities exchanges and/or reported through the automated quotation system of a registered securities association. The Division staff advised that the issuer would have to rely solely on the reported volume. [April 2, 2007]
Section 215. Rule 144(e)(2)
Section 216. Rule 144(e)(3)
216.01 If a pledgor defaults on several pledges, each pledgee may resell restricted collateral securities in the amount permitted by Rule 144, less any sales made by the pledgor during the relevant period. In making its volume computation, the pledgee need not take into account any sales made by the other pledgees if there is no other basis for aggregating such sales. [April 2, 2007]
216.02 Non-affiliates pledged unrestricted bank holding company securities to the holding company’s affiliated bank as collateral for loans made by the affiliated bank in the ordinary course of its business. Following default, the affiliated bank foreclosed and sought to sell the holding company securities. The Division staff took the position that sales of pledged securities by the affiliated bank could be effected pursuant to Rule 144 since the bank was effecting the sale as a pledgee in a bona fide loan situation and its decision to sell was occasioned solely by the borrowers’ default. For purposes of Rule 144(e), the Division staff also took the position that such sales would have to be aggregated with any other sales by the bank as pledgee, but not with other sales by the pledgors. The latter conclusion was based on the fact that had the pledgors sold the securities themselves, they would not have been subject to Rule 144. The bank could not, however, use Rule 144(k) to effect its resales. [April 2, 2007]
216.03 An affiliate of an issuer gives shares to a person who, in turn, gives some of those shares to a second donee during the holding period. The affiliate and both donees will be required to aggregate their sales for purposes of the volume test of Rule 144(e) for one year from the date of the affiliate’s gift. If the shares are restricted securities and the first donee is an affiliate, the two donees will be required to aggregate for one year from the date of the gift from one donee to the other. [April 2, 2007]
Section 217. Rule 144(f)
Section 218. Rule 144(g)
Section 219. Rule 144(g)(1)
Section 220. Rule 144(g)(2)
Section 221. Rule 144(g)(3)
Section 222. Rule 144(h); Form 144
222.01 A distributee from a partnership who is required to aggregate its sales with those of other distributees for a one-year period need not file a Form 144 if such distributee sells no more than 500 shares or shares with a market value not exceeding $10,000 in any three-month period, notwithstanding sales made by other distributees. [April 2, 2007]
222.02 A subsidiary bank, acting in its fiduciary capacity, sells unrestricted shares of its holding company parent for an unaffiliated trust account. Form 144 need not be filed solely because of the bank’s involvement, because the bank is not making a sale for its own account. [April 2, 2007]
222.03 A holder of restricted securities or an affiliate files a notice on Form 144 reporting the proposed sale of less than the full amount of securities that could be sold under the volume tests of Rule 144(e). During the same three-month period, the holder wishes to make further Rule 144 sales in an amount that, taken together with the original sales, would not exceed the maximum number of securities that could have been sold at the time of the notice. The holder may not file an amended Form 144 to accomplish additional sales because a Form 144 must represent the holder’s intent at the time of its filing. The holder may file a new Form 144 to sell additional securities, so long as these new sales satisfy the volume limitations existing when the new Form 144 is filed. [April 2, 2007]
222.04 A Form 144, filed on behalf of a selling security holder by an attorney in fact, should be accompanied by a signed copy of the power of attorney. After such confirmation is attached to the Form 144, it does not have to be re-filed as an attachment to subsequently filed Forms 144 while it remains in effect. [April 2, 2007]
222.05 The holder of restricted securities proposes to make Rule 144 sales of both common stock and securities convertible into common stock. For purposes of determining whether the 500 unit or $10,000 condition to filing Form 144 has been met, the convertible securities should be regarded as having been converted into the common stock in the same manner as provided by Rule 144(e)(3)(i). [April 2, 2007]
222.06 After a seller’s filing on Form 144, the issuer declares a stock split. No new filing is required within the three-month period to sell the entire number of shares, on a post-split basis, for which the seller had originally filed. [April 2, 2007]
Section 223. Rule 144(i)
Section 224. Rule 144(j)
Section 225. Rule 144(k)
225.01 Where a non-affiliate acquired securities in a private transaction under Rule 144(k), the fact that it mistakenly executed an investment letter for the acquired securities would not prevent it from reselling the securities without any restrictions. [April 2, 2007]
225.02 A donee to whom an affiliate gives securities which were acquired in the open market (and therefore are not restricted), may utilize Rule 144(k) for the resale of the securities, provided that at the time of resale they have been held for a combined period of two years by the donee and donor. The lack of a “sale” transaction between the donor and donee permits the holding periods of each to be tacked. [April 2, 2007]
225.03 An affiliate pledges restricted securities to a non-affiliate pledgee on a non-recourse basis. The non-affiliate pledgee receives those restricted securities after the affiliate pledgor defaults. The non-affiliate pledgee may utilize paragraph (k) of Rule 144 to sell the securities, provided two years have elapsed from the time of the pledge. If, however, the pledge had been made with recourse, the pledgee could tack the pledgor’s holding period to its own for purposes of satisfying the two-year requirement of Rule 144(k). [April 2, 2007]
225.04 A deceased affiliate of an issuer acquired restricted securities less than a year ago. If the decedent’s estate is not an affiliate of the issuer, Rule 144(d)(3)(vii) will relieve the estate of a holding period; however, this relief does not mean that the estate will be deemed to have held the securities for two years for purposes of eliminating all resale restrictions under Rule 144(k). If the estate cannot rely on Rule 144(k), then paragraphs (c), (h), and (i) of Rule 144 will continue to apply. [April 2, 2007]
225.05 Provided that the donor and donee have held the stock for a combined period of two years, a non-affiliate donee who receives stock from an affiliate donor may resell the stock under Rule 144(k) without a three-month waiting period because the donor and the donee are not the same ”person” as defined in Rule 144(a)(2). [April 2, 2007]
225.06 A non-affiliate estate may utilize Rule 144(k), even though the decedent was an affiliate. [April 2, 2007]
225.07 A person who enters into a binding contract for the sale of restricted securities within three months after ceasing to be an affiliate of the issuer of such securities may not utilize Rule 144(k), even though the delivery of the securities takes place more than three months after such person loses affiliate status. [April 2, 2007]
225.08 The settlor of a trust for the benefit of the settlor’s children (who are past the age of majority and do not live with the settlor) is an affiliate of the issuer, some of whose restricted securities are held by the trust. Neither the independent trustee nor the beneficiaries are affiliates. The trustee may sell restricted securities under Rule 144(k). [April 2, 2007]
225.09 A person owns 20% of newly formed Company A. That person has held restricted securities of Company B for more than two years. The person, who is not an affiliate of Company B, effects a negotiated sale of the restricted securities to Company A, in accordance with all of the requirements of paragraph (k) of Rule 144. As a result, Company A now owns unrestricted securities of Company B. [April 2, 2007]