There are many questions regarding the application of Securities Act of 1933 (“Securities Act”) Rule 144 for the resale of securities. Section 4(1) of the Securities Act provides an exemption for a transaction “by a person other than an issuer, underwriter, or dealer.” Therefore, an understanding of the term “underwriter” is important in determining whether or not the Section 4(1) exemption from registration is available for the sale of the securities. Rule 144 provides a safe harbor from the definition of “underwriter”. If all the requirements for Rule 144 are met, the seller will not be deemed an underwriter and the purchaser will receive unrestricted securities.
As Rule 144 only addresses the resale of restricted securities, the rule first defines “restricted securities”. Restricted securities include: (i) securities acquired directly or indirectly from the Issuer, of from an affiliate of the Issuer (affiliate includes spouses and family members living in the same household), in a transaction or chain of transactions not involving a public offering; (ii) securities acquired from the Issuer in a Regulation D or Rule 701 transaction; (iii) securities acquired in a transaction or chain of transaction under Rule 144A; (iv) Securities acquired from the Issuer in a Regulation CE transaction; (v) Securities acquired in a transaction under Regulation S; (vi) Securities required in a rights offering to the same extent that the holder already held restricted securities; (vii) Securities required in a Rule 145 transaction to the same extent that the tendered or exchanged securities were restricted; and (viii) Securities acquired from the Issuer in transaction exempt under Section 4(6).
Condition of Rule 144
Rule 144 provides certain conditions to be met for sales by both affiliates and non-affiliates which conditions vary depending on whether the Issuer of the securities is a reporting or non-reporting Issuer. The following chart summarizes the Rule 144 requirements:
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Affiliate or Person Selling on Behalf of an Affiliate
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Non-Affiliate (and has not been an affiliate during the prior three months)
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Restricted Securities of Reporting Issuers
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During six-month holding period – no resales under Rule 144 permittedAfter six month holding period – may resell in accordance with all Rule 144 requirements, including:
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During six-month holding period – no resales under Rule 144 permittedAfter six month holding period but before one year – unlimited public resales under Rule 144 except that the current public information requirement still appliesAfter one year holding period – unlimited public resales under Rule 144; need not comply with any other Rule 144 requirements
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Restricted Securities of Non-Reporting Issuers
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During one year holding period – no resales under Rule 144 permittedAfter one year holding period – may resell in accordance with all Rule 144 requirements, including:
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During one year holding period – no resales under Rule 144 permittedAfter one year holding period – unlimited public resales under Rule 144; need not comply with any other Rule 144 requirements
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The six month holding period only applies to issuers that are subject to the reporting requirements of the Securities Exchange Act of 1934 (“Exchange Act”). As a voluntary filer is not subject to the Exchange Act reporting requirements, the longer one year holding period is applicable. However, the determination of whether the issuer is reporting or non-reporting is made as of the time of the proposed sale, as is the determination of the other Rule 144 requirements. Accordingly, if following the issuance of securities, a non-reporting issuer files a Form 10 registration statement and becomes subject to the reporting requirements of the Exchange Act, the six month holding period would apply.
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