SEC posts new interps under Rule 144 // Cooley // Global Law Firm

By Cydney Posner

General Guidance

Rule 144 is not available to the issuer of the securities.
An underwriter may resell the unsold portion of a sticky public offering under Rule 144 as if it were compensation, but it must wait six months from the last sale under the registration statement and follow Rule 144 except for filing the form.
Securities received pursuant to a Bankruptcy Code proceeding under the circumstances described in Section 1145(a) would not be deemed restricted securities because they would have been received in a "public offering" under Section 1145(c) of the Code.
When 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 may, depending upon the facts and circumstances of the particular case, be deemed an underwriter in connection with resales of the securities.
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.
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 Securities Act Release No. 5306 (Sept. 26, 1972). For example, a subsidiary (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 the plan.
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 U.S. markets may indicate, as suggested by Securities Act Release No. 7190 (June 27, 1995), an evasive scheme to avoid registration, which would invalidate any safe harbor claim.
A person who holds only restricted securities and has held them for less than the requisite Rule 144(d) holding period cannot effect a short sale of securities of that class and then cover with his or her restricted securities (even though the restricted securities are now eligible for sale) since the initial short sale did not qualify under Rule 144. See Securities Act Release No. 6099, Question 82 (Aug. 2, 1979).
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 these shares in the following manner:

(1) provided that six months 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(c), (e), and (f), except for the notice requirement. See Securities Act Release No. 6099, Question 10 (Aug. 2, 1979);
(2) 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;
(3) 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
(4) 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 six-month period from the date of the transfer to the employees.

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. Instead, the company will rely on Section 4(2) for its registration exemption. Because the offer and sale of the securities under the plan of reorganization are 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.
The cessation of affiliate status is a facts-and-circumstances determination, and counsel should not assume that it ceases instantly when, for example, the former affiliate resigns from his or her position at the company.
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).
A private purchaser wishes to invest directly in an issuer but wants to acquire unrestricted securities. Through arrangements and understandings with the issuer, an existing shareholder 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 existing shareholder. Corp Fin took the position that the shares taken by the private purchaser from the existing shareholder would be restricted securities within the meaning of Rule 144(a)(3) and the holding period would date to the private acquisition. A public resale of the shares acquired from the existing shareholder without regard to the conditions of Rule 144 would raise serious issues under Section 5 for all parties to the transactions.

Rule 144(a) — Definitions

There may be circumstances under which securities issued under stock option plans and excess compensation plans for directors will constitute restricted securities, for example, where the basis for non-registration of the distribution is not the "no-sale" theory under Section 2(a)(3), but rather the Section 4(2) private offering exemption or Reg D.
Shares acquired in a private transaction from the spouse of an affiliate are deemed restricted securities if the spouse has the same home as the affiliate. In that case, the spouse would be regarded as the "same person" as the affiliate under Rule 144(a)(2)(i).
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. Whether the trust is an "affiliate" of the issuer under Rule 144(a)(1) and whether the trust and the settlor are the same "person" under Rule 144(a)(2) are separate questions to be resolved under the separate standards of Rules 144(a)(1) and (a)(2), respectively. Further, the affiliate status of the trust is not necessarily changed by the use of an independent trustee.
In a private transaction, an affiliate purchased common stock of its company from a non-affiliate who acquired the shares in the open market. Since the shares are not restricted securities within the meaning of Rule 144(a)(3), the Rule 144(d)(1) holding period requirement 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.
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.
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 the securities to be restricted because the securities were not "sold" to the spouse by the affiliate.
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. The warrants will be deemed restricted securities for purposes of Rule 144.

Rule 144(b) — Conditions To Be Met

The tacking provisions in Rule 144(d)(3) may be applied in determining whether, under Rule 144(b)(1)(i), the Rule 144(c)(1) condition (current public information for reporting issuers) has been met for the one-year period.
Where a non-affiliate acquired securities in a private transaction under Rule 144(b)(1), the fact that it executed an investment letter for the acquired securities would not prevent it from reselling the securities without any restrictions under Rule 144.
An affiliate pledges restricted securities of an Exchange Act reporting issuer (an issuer that is, and has been for at least the 90-day period immediately before the sale, subject to the reporting requirements of Exchange Act Section 13 or 15(d)) 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 (who has not been an affiliate during the preceding three months) may utilize Rule 144(b)(1)(i) to sell the securities, provided six months have elapsed from the time of the pledge and the Rule 144(c)(1) condition is satisfied as required under Rule 144(b)(1)(i). 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 six-month holding period requirement of Rule 144(d)(1)(i).
Provided that the donor and donee have held the stock for a combined period of six months and that the Rule 144(c)(1) condition is satisfied as required under Rule 144(b)(1)(i), a non-affiliate donee (who has not been an affiliate during the preceding three months) who receives stock of an Exchange Act reporting issuer from an affiliate donor may resell the stock under Rule 144(b)(1)(i) without a three-month waiting period because the donor and the donee are not the same "person" as defined in Rule 144(a)(2).
A non-affiliate estate may utilize Rule 144(b)(1), even though the decedent was an affiliate.
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 the securities may not utilize Rule 144(b)(1), even though the delivery of the securities takes place more than three months after such person loses affiliate status.
Where a trust holds restricted securities for the benefit of the affiliate-settlor’s children (who are adults and do not live with the settlor) and neither the independent trustee nor the beneficiaries are affiliates or have been affiliates during the preceding three months, the trustee may sell the restricted securities under Rule 144(b)(1).
A person owns 20% of newly formed Company A and has held restricted securities of Company B for more than one year. The person, who is not an affiliate of Company B and has not been an affiliate during the preceding three months, effects a negotiated sale of the restricted securities to Company A, in accordance with all of the applicable requirements of Rule 144(b)(1). As a result, Company A now owns unrestricted securities of Company B.

Rule 144(c) — Current Public Information

In the event of a series of sales of securities over a three-month period, if the "current public information" requirement must be satisfied, the issuer must continue to satisfy this requirement at the time each sale is made.
When the conditions of Rule 144(c)(1) must be satisfied in selling securities under the Rule 144 safe harbor, there is a risk in selling under Rule 144 during the 5-day or 15-day period following the filing of the 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.
When a Form S-1 registration statement is declared effected followed by a registration statement pursuant to Exchange Act Section 12(g), 90-day reporting period required by Rule 144(c)(1) commences with the effective date of the Form S-1.
Reports filed under Section 30(a) of the Investment Company Act satisfy the current public information requirement of Rule 144(c)(1).
The public information standard of Rule 15c2-11 relating to issuers not subject to Section 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 that was current at the time the quotations were initiated.
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 Reg S-X, as that is not required by clauses (xii) and (xiii) of Exchange Act Rule 15c2-11(a)(5), to which Rule 144(c)(2) refers.
Rule 144(c)(1) applies only to issuers that are, and have been for at least 90 days immediately before the sale, subject to the reporting requirements of Exchange Act Section 13 or 15(d). A voluntary filer is not "subject to" Exchange Act Section 13 or 15(d) because it is not obligated to file Exchange Act reports pursuant to either of those provisions. Accordingly, the current public information requirement in Rule 144(c)(2), not 144(c)(1), is applicable to voluntary filers.
A corporation had a registered public offering in 2000. Since then, it has continually filed periodic reports under Section 15(d) of the Exchange Act, even though it has always had fewer than 300 record holders. The corporation has just had a second public offering. In view of the history of voluntary reporting, the 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.
An issuer was required to file a Form 10-K on February 14, 2005. 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 1. The issuer was unable to file on March 1, and thereby became delinquent. A director sold the issuer’s stock on March 4 pursuant to Rule 144. Before the sale was made, the director’s broker checked with the Corp Fin staff, and was told that the issuer was current in its Exchange Act filings. This information was 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 staff member as to the current reporting status of an issuer, and staff members therefore will decline to answer inquiries on such matters.
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 Reg S-X. Restricted debt securities of the subsidiary could be sold in accordance with the provisions of the rule.

Rule 144(d) — Holding Period for Restricted Securities

The phrase "without recourse" appearing in Rule 144(d)(3)(iv) refers to recourse against the pledgor personally in the usual situation in which 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.
Closely held entities may make in-kind distributions to their equity holders of restricted securities of an affiliated issuer without disturbing the holding period of the restricted securities if the distribution is made ratably and without the payment of consideration for the transfer. See Securities Act Release No. 6099 (Aug. 2, 1979), at Question 34, and the Hale and Dorr interpretive letter (June 12, 1991).
Notwithstanding the Supreme Court’s decision in Rubin v. United States, 449 U.S. 424 (1981) that a pledge may be a sale for purposes of determining application of the anti-fraud provisions of the federal securities laws, Corp Fin views the provisions of Rule 144(d) to expressly permit the tacking of holding periods of a pledgor and pledgee and, therefore, to continue to apply.
Rule 144(d)(3)(vii) applies only to securities owned by the decedent. Paragraph (d)(3)(vii), which provides an exemption from the Rule 144(d) holding period requirement 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 holding period requirement in the case of securities acquired by the estate upon the exercise of stock options held by the decedent.
A person may transfer restricted securities into his or her individual retirement account without interrupting the Rule 144(d) holding period for the securities.
For purposes of Rule 144, shares acquired pursuant to anti-dilution rights attaching to restricted securities are restricted securities themselves, but their holding period dates back to the original placement of shares, not the exercise of the anti-dilution provisions.
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.
When securities are exchanged for other securities of the issuer under Securities Act 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.
The one-year holding period requirement in Rule 144(d)(1)(ii) applies to the restricted securities of a voluntary filer. The six-month holding period requirement in Rule 144(d)(1)(i) is applicable only to the restricted securities of an issuer that is, and has been for at least 90 days immediately before the sale, "subject to" the reporting requirements of Exchange Act Section 13 or 15(d). A voluntary filer is not "subject to" Exchange Act Section 13 or 15(d) because it is not obligated to file Exchange Act reports pursuant to either of those provisions. Consequently, the one-year holding period requirement in Rule 144(d)(1)(ii) applies to the restricted securities of a voluntary filer.
Under Rule 144(d)(1)(i), a minimum of six months must elapse between the date of acquisition of the restricted securities from an issuer or from an affiliate of the issuer, whichever is later, and any resale of those securities under Rule 144. This period covers the six months immediately preceding the date of sale under the rule. For example, on May 15, X acquires restricted securities in a transaction not involving any public offering from an issuer. Assuming that the six-month holding period did not restart at any point since May 15 and that the other applicable conditions of Rule 144 would be met at the time of sale, X may sell the securities under Rule 144 on November 15, provided that the issuer is, and has been for at least the immediately preceding 90 days, subject to the reporting requirements of Exchange Act Section 13 or 15(d) at that time.
The holding period for restricted securities acquired under an employee stock option always begins on the exercise of the option and full payment to the issuer of the exercise price, not on the grant date, 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 has no investment risk in the issuer before the exercise.
A change in the legal form of an enterprise from a partnership or a LLC to a corporation normally will restart 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:

(1) the controlling agreement entered into at the time of the partnership's or LLC’s formation specifically contemplated the change of form;
(2) the partners or members seeking to tack had no veto or voting rights over the reorganization;
(3) the reorganization does not result in a change in the business or operations of the surviving entity;
(4) the proportionate equity interests in the successor are the same as the interests in the predecessor entity; and
(5) the equity holders provide no additional consideration for the securities they receive in exchange for their equity interests in the predecessor entity.

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)(x). 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.
The applicable length of the Rule 144(d) holding period requirement (i.e., whether it is six months under Rule 144(d)(1)(i) or one year under Rule 144(d)(1)(ii)) is determined as of the time of the proposed Rule 144 sale, not the date of the acquisition of the securities from the issuer or an affiliate of the issuer. For example, on March 5, 2008, a non-reporting issuer sold shares of its common stock to an investor pursuant to a private placement. Three weeks later, the issuer filed a registration statement on Form 10 to register its common stock under Exchange Act Section 12(g). On October 1, 2008, the investor wished to resell the shares he had acquired on March 5 from the issuer. The applicable holding period requirement for these shares as of October 1 would be the six-month holding period under Rule 144(d)(1)(i), since the issuer was, and had been for at least the immediately preceding 90 days, subject to the reporting requirements of Exchange Act Section 13 or 15(d) on that date. Conversely, if the issuer had been an Exchange Act reporting issuer on March 5, 2008, but was not subject to the reporting requirements of Section 13 or 15(d) (or had not been for at least the immediately preceding 90 days) as of October 1, 2008, the one-year holding period under Rule 144(d)(1)(ii) would be applicable to the securities as of October 1. Accordingly, the investor would not have satisfied the Rule 144(d) holding period requirement as of that date.
Where an affiliate-pledgor defaults on a loan that had been secured, in a bona fide pledge, by restricted securities, the non-affiliate pledgee (who has not been an affiliate during the preceding three months) may resell the restricted securities under Rule 144 by complying with the applicable conditions in Rule 144(b)(1). Depending upon the circumstances, tacking pursuant to Rule 144(d)(3)(iv) may be permitted in determining whether the holding period requirement in Rule 144(d) has been satisfied.
Where a non-affiliate donee (who has not been an affiliate during the preceding three months) receives a gift of restricted securities from an affiliate donor, the non-affiliate donee may resell the restricted securities under Rule 144 by complying with the applicable conditions in Rule 144(b)(1). Tacking pursuant to Rule 144(d)(3)(v) may be permitted in determining whether the holding period requirement in Rule 144(d) has been satisfied.
An affiliate-pledgor defaults on a loan that is secured, in a bona fide pledge situation, 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.
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.
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) in Securities Act Release No. 6099 (Aug. 2, 1979), provided the fundamental character of the partnership is not changed.
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 the 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.
A closely held corporation distributes restricted securities of an issuer pro rata and without consideration to its shareholders, which are three limited partnerships. Each of these limited partnerships, in turn, distributes the restricted securities pro rata and without consideration to its partners (about 10 people in each instance). Tacking of holding periods from corporation to partnerships, and from partnership to partners, is permitted for purposes of Rule 144(d).
Question 22 of Securities Act Release No. 6099 (Aug. 2, 1979) (which provides that the holding period under Rule 144(d) for restricted securities that time-vest under an employee benefit plan commences when the securities are allocated to the account of an individual plan participant) 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.
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).
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 because the transfer to the corporation is deemed to be a private sale, which commences a new holding period for the purchaser.
Investor A purchased 100 shares of restricted stock of a reporting company by executing a promissory note which did not meet the requirement of Rule 144(d)(2). Since this 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 six months 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, assuming Rule 144(c) is satisfied.
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.
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 services rendered, rather than as a gift (for which tacking would be permitted).
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.
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 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 Securities Act Section 3(a)(9), which exempts certain exchanges where securities of the same issuer are the only consideration.
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.
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.
The holder of restricted securities of a foreign private issuer exchanges them for an equivalent number of ADRs with the depositary. The ADR will be a restricted security with a holding period identical to that of the underlying security and may be sold in reliance on Rule 144 to the same extent as the underlying security. Note that Form F-6, which relates to the issuance of depositary shares evidenced by ADRs, 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.
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.
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.
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 this 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.
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. This arrangement, in substance, is 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 has not been satisfied.
A non-affiliate acquired warrants from an issuer more than two years ago as 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. 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. The holding period for the shares received upon exercise of the restricted stock warrant would be the shorter of the holding period of the warrants or of the other securities used in payment of the exercise price.
Where a seller surrendered a secured promissory note of the issuer as consideration for the cashless exercise of a warrant from the same issuer, Corp Fin 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, 494 U.S. 56 (1990), and, therefore, it would not qualify as a security of the issuer for purposes of tacking under Rule 144(d)(3)(ii).
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 of good faith and recourse against the borrower, the lender would be able to tack the borrower’s holding period under Rule 144(d)(3)(iv).
A company issues a convertible note with interest payable in shares of the company. In determining whether the Rule 144(d)(1) holding period requirement has been satisfied, the holding period of the note may not be tacked to the holding period of the shares received as interest prior to the conversion of the note. For example, tacking under Rule 144(d)(3)(ii) is not available because the shares received as interest would not be acquired from the company in an exchange transaction for other securities of the company. The result is the same (tacking is not permitted) when the decision to receive the interest on the convertible note in the form of shares is at the discretion of either the note holder or the company.

Rule 144(e) — Limitation on Amount of Securities Sold

The term "national securities exchanges," as used in Rule 144(e), encompasses only exchanges that are registered with the SEC 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 volume limitation under Rule 144.
The OTC Bulletin Board is not an "automated quotation system" for purposes of Rule 144(e). Consequently, the market-based volume limitation that the rule allows is unavailable for securities quoted only over the OTCBB.
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) because the split or reverse split should not change the proportion of the issuer’s securities that an affiliate is permitted to sell during the rule’s three-month measuring period. To calculate available volume after a split or reverse split, an affiliate 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.
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 the person is acting in concert), will 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 those 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 Section 10(a)(3).
In computing average weekly trading volume, a public offering by the issuer during the four-week period would not be 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.
For purposes of computing volume limitations under Rule 144(e)(l)(ii) and (iii), the period of "four calendar weeks preceding the filing of notice" on Form 144 is the four weeks preceding the week in which the form is transmitted for filing in accordance with Rule 144(h). See Securities Act Release No. 6099 (Aug. 2, 1979), at Question 38.
A company’s common stock trades both on an individual share basis and in units, with 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.
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.
An affiliate 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. Such sales would be within the volume limitations of Rule 144(e). See Securities Act Release No. 6099 (Aug. 2, 1979), at Question 46.
An affiliate of an issuer is the general partner of three limited partnerships that hold restricted securities of the issuer. If the 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 Rule 144 sales of the distributed securities with (1) the Rule 144 sales of the distributed securities by the other partners who are affiliates of the issuer and (2) the Rule 144 sales of the same class of securities by the limited partnerships, for a period of six months following the distribution (if the issuer had been subject to the reporting requirements of Section 13 or 15(d) for a period of at least 90 days immediately before the distribution) or one year following the distribution. Further aggregation may also be required if the affiliate is "acting in concert" with other persons under Rule 144(e)(3)(vi). Absent "acting in concert," the affiliate partners and the limited partnerships need not aggregate their sales of the distributed shares with the sales of the distributed shares by partners who are not affiliates of the issuer. The non-affiliate partners are not subject to the volume limitation under Rule 144(e).
An affiliate closely held investment partnership distributed all of its restricted securities of the issuer. held in its portfolio to all of its partners on a pro rata basis and without consideration from its partners. The partners who are affiliates of the issuer must aggregate their Rule 144 sales of the distributed shares with (1) the Rule 144 sales of the distributed shares by all other partners who are affiliates of the issuer and (2) the Rule 144 sales of the same class of securities by the partnership, for a period of six months following the distribution (if the issuer had been subject to the reporting requirements of Section 13 or 15(d) for a period of at least 90 days immediately before the distribution) or for a period of one year following the distribution. Aggregation may also be required if the partners are "acting in concert" under Rule 144(e)(3)(vi). Absent "acting in concert," the partnership and the partners who are affiliates of the issuer need not aggregate their sales of the distributed shares with the sales of the distributed shares by partners who are not affiliates of the issuer. The non-affiliate partners are not subject to the volume limitation under Rule 144(e).
Warrants originally issued in tandem with common shares are now trading separately. Holders of the warrants who wish to sell rather than exercise the warrants 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).
A company has notified its transfer agent of the issuance of additional common stock. No other announcement has been made. Rule 144(e)(1)(i) 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)(1)(i).
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 the securities on all national securities exchanges and/or reported through the automated quotation system of a registered securities association. The affiliate would have to rely solely on the reported volume.
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 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), those 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.
When aggregation is required to determine compliance with Rule 144(e), non-U.S. sales must be aggregated with domestic sales.

Rule 144(f) — Manner of Sale

A principal of a brokerage firm may use that firm to effect ordinary "brokers’ transactions" for the principal’s personal account under Rule 144(f).
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)(2). See the Goldman, Sachs & Co. no-action letter (Dec. 6, 1996).

Rule 144(h) — Notice of Proposed Sale

An amendment to Form 144 is not required to be filed in the event that a person does not sell the securities referred to in the Form.
An amendment to Form 144 is not required to reflect either a company’s listing on a national securities exchange or a stock split.
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.
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.
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.
When sales are required to be aggregated under Rule 144(e), the de minimis exemption of Rule 144(h) applies to each individual seller who is required to file a Form 144.
When a person is required to file a 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 SEC and the principal exchange on which the securities are listed.
The fact that a sell order is placed with a broker at a price above the current market price does not contravene the requirement in Rule 144(h) that the filer have a bona fide intention to sell the securities, unless the price reflected in the sell order was not consistent with a bona fide intention to sell within a reasonable time.
An affiliate distributee from a partnership who is required to aggregate its sales with those of other affiliate distributees need not file a Form 144 if the affiliate distributee sells no more than 5,000 shares or shares with a market value not exceeding $50,000 in any three-month period, notwithstanding sales made by other distributees.
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.
An affiliate of the issuer 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 affiliate wishes to make additional 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 affiliate may not file an amended Form 144 to accomplish additional sales because a Form 144 must represent the affiliate’s intent at the time of its filing. The affiliate 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.
A Form 144, filed on behalf of an affiliate of the issuer by an attorney-in-fact, should be accompanied by a signed copy of the power of attorney. After the power of attorney 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.
An affiliate of the issuer proposes to make Rule 144 sales of both common stock and securities convertible into common stock. For purposes of determining whether the 5,000 shares or $50,000 threshold requirement for 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).
After an affiliate files a 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.

Rule 144(i) — Unavailability to Securities of Issuers with No or Nominal Operations and No or Nominal Non-Cash Assets

Rule 144(i)(1) states that the Rule 144 safe harbor is not available for the resale of securities "initially issued" by a shell company (other than a business combination-related shell company) or an issuer that has "at any time previously" been a shell company (other than a business combination-related shell company). Consequently, the Rule 144 safe harbor is not available for the resale of those securities unless and until all of the conditions in Rule 144(i)(2) are satisfied at the time of the proposed sale.
Rule 144(i) applies to securities issued before February 15, 2008, the effective date of the amendment adopting Rule 144(i).

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