This bulletin is provided as an informational service to clients and friends of the firm. It is designed to provide timely information and links to news relevant to securities issues. We value your time and input, so please provide comments or questions to securitiesteam@gardere.com.


SEC AMENDS RULES 144 AND 145 
Changes Ease Resale Restrictions

The Securities and Exchange Commission recently adopted amendments to its Rules 144 and 145 that, among other things, significantly reduce limitations on public resales of restricted securities and securities held by affiliates.  The amendments are effective February 15, 2008 and apply to securities acquired both before and after that date. 

Background of Rule 144

The Securities Act of 1933 requires that all offers and sales of securities be registered with the SEC unless an exemption from registration is available.  Rule 144 sets forth objective conditions that, if satisfied, permit a person to publicly resell “restricted securities” or “control securities” under the exemption from registration set forth in Section 4(1) of the Securities Act.  “Restricted securities” are securities acquired directly or indirectly from an issuer in an offering exempt from registration (like a private offering); and “control securities” are securities held by an “affiliate” (i.e., a controlling person) of an issuer, whether they are restricted or not. 

Under Rule 144 in effect before the amendments, an affiliate, or a non-affiliate who has held restricted securities for less than two years, may resell if the following conditions are satisfied:

• There is current public information available about the issuer.
  
  
• If the securities are restricted, they have been held (after having been fully paid for) for at least one year.
  
  
• The securities are sold within applicable volume limitations, based on the outstanding securities or the average weekly trading volume.
  
  
• The resale complies with manner-of-sale restrictions – i.e., sale through or to a securities broker and without any solicitation of purchasers.
  
  
• The seller files a Form 144 no later than the sale date of sale if selling at least 500 shares or $10,000 of securities within the next three months.

Key Amendments to Rule 144

The key amendments to Rule 144 affect securities of “reporting companies” (i.e., issuers that have been subject to the periodic reporting requirements of the Securities Exchange Act of 1934 for at least 90 days) more than those of non-reporting companies, and they benefit “non-affiliates” (i.e., persons who are not, and have not been for at least 90 days, affiliates of the issuer) more than affiliates.

In brief, the amendments to Rule 144 include:

• The reduction of the holding period for resales of restricted securities of reporting companies from one year to six months.
  
  
• The elimination of substantially all of the Rule 144 conditions for non-affiliates, who may resell restricted securities of reporting companies freely after the six-month holding period, subject only to the availability of current public information until one year from the acquisition of the restricted securities.
  
  
• The reduction of the time after which non-affiliates may resell restricted securities of non-reporting companies without any Rule 144 conditions from two years to one year.

• The elimination of the manner-of-sale restrictions for debt securities and the modification of them for equity securities.

• The addition of an alternative volume limitation for debt securities, permitting up to 10% of a tranche to be resold in any three-month period.

• The increase of the thresholds at or above which Form 144 must be filed.

• The simplification of the text of the Rule.

The following table summarizes the principal revisions to Rule 144:

Codification of Staff Positions on Rule 144

The amendments to Rule 144 also codify the following SEC staff positions:

• Securities offered and sold under the Section 4(6) exemption, like those offered and sold under similar private-offering exemptions, are restricted securities.
  
  
• Securityholders may tack the Rule 144 holding period for restricted securities held before a transaction solely to form a holding company with the holding period for the securities received in that transaction, if various conditions are met.
  
  
• Securities acquired from an issuer solely in exchange for other securities of the same issuer are generally deemed acquired when the securities surrendered for conversion or exchange were acquired, even if the surrendered securities were not convertible or exchangeable by their terms.
  
  
• Upon a cashless exercise of non-compensatory options or warrants, the newly acquired underlying securities are generally deemed acquired when the options or warrants were acquired, even if the options or warrants did not permit cashless exercise by their terms.
  
  
• Rule 144 is not available for the resale of securities issued by companies that are, or were, reporting or non-reporting shell companies; except that Rule 144 becomes available after a reporting company has ceased to be a shell company, has filed current information on Form 10 or a similar form at least a year ago, and has complied with the reporting requirements of the Exchange Act for at least 12 months.
  
  
• A pledgee may sell pledged restricted securities without having to aggregate the sale with sales of other pledgees of the same securities from the pledgor, if the pledgees are not acting in concert and they are not the same “person” under Rule 144.
  
  
• A securityholder with a 10b5-1 plan may modify Form 144 to represent that he had no knowledge of non-public material adverse information about the issuer as of the date on which he adopted the trading plan or gave the trading instructions, specifying that date and indicating that his representation speaks as of that date.

Amendments to Rule 145