Rule 144 allows holders of restricted or control securities to sell those securities in the open market without filing a registration statement under the Securities Act of 1933, provided certain conditions are met by the seller, the broker and the company. Rule 144 has a basic 6-month holding period for a reporting company and a basic one-year holding period for non-reporting companies. In both instances, other conditions must also be met. At no time may shares be resold under Rule 144 if the issuing company is now or ever has been a shell or blank check company as defined by Rule 405.
Definitions:
Restricted/Control Securities In general, restricted securities are acquired from a company or a control person (also referred to as an affiliate) of the company in a non-public transaction (private placement.) Such securities are unregistered, can only be resold under certain conditions and usually bear a legend to that effect. Securities acquired by a control person in any manner, including an open market purchase, are control securities. Control securities can also be restricted securities depending on how they were acquired. Restricted securities can also be control securities if the person or entity is using the Issuing Corporations’ address for mailing. Restricted and control securities obtained by third parties as gifts or donations, or pledged for a loan, may be sold under appropriate circumstances, through Rule 144.
Control Person
A control person is anyone who directly or indirectly controls the management and affairs of a company. Senior officers, directors and certain large shareholders are usually considered control person. Whether a control relationship exists is a factual determination usually made by the company or its legal counsel.
As a seller under Rule 144, a control person is also defined to include the following: relatives living in the same household as the control person; trusts, estates, corporation or other entities in which the control person has a 10% ownership interest; and trusts and estates in which the control person serves as a trustee, executor or a similar capacity. The sale and/or transfer of all shares labeled as control, must be completed trough a brokerage transaction, meaning it must be done at a brokerage firm. The transfer agent cannot remove control designations under normal circumstances.
Volume Limitations and Manner of Sale
The amount of securities that may be sold by affiliates under Rule 144 during any three-month period is the greater of:
- 1% of the class of securities outstanding
- The average weekly reported volume of trading in the securities during the four calendar weeks prior to the filing with the SEC of Form 144, Notice of Proposed Sale. “ Manner of sale” denotes that the sale is to be made through a brokerage.
Blank Check or Shell Companies
Under the new Rules, effective as of February 15, 2008, Rule 144 will not be available for the resale of securities initially issued by either a reporting or a non-reporting shell company or an issuer that has been at any time previously a reporting or non-reporting shell company unless it meets all of the following conditions:
- It has ceased being a shell company
- It is now subject to all Exchange Act reporting obligations
- It has filed 12 months (4 quarters) of SEC Form 10’s in which the company has declared to not be a shell.
Our Policy Regarding Legal Opinions Presented for Legend Removal
Legal Opinions presented to First American Stock Transfer, Inc. for the removal of Rule 144 legends must be addressed directly to First American Stock Transfer, not a brokerage firm. We can accept copies, via a brokerage firm as long as we are the addressee. In addition, all attorneys who present opinions to us on behalf of either issuers or shareholders must conduct an independent review of the facts presented to them. We do not accept legal opinions that are based solely on representations made to the attorney by the shareholders or the issuers. We also do not accept legal opinions in which the attorney disclaims responsibility for the facts presented.
Conditions of Rule 144 for the Sale of Restricted or Control Stock of Reporting Companies
***During the initial six month holding period there are no re-sales permitted under Rule 144***
Holding Period
Non-Affiliates:
Restricted securities must be fully paid for and beneficially owned for a period of at least six months prior to sale. During the period between six months and one year, legend may be removed for unlimited public resales of stock held by non-affiliates as long as there is sufficient current public information available. After one year, non-affiliates need not comply with any other Rule 144 requirement and may complete and submit the appropriate Rule 144 Letter on our website under Online Forms along with their certificate and medallion-guaranteed stock powers.
Affiliates:
Restricted securities may be resold through a brokerage transaction after six months in accordance with the following Rule 144 requirements:
- Current public information is available
- Volume limitations are adhered to
- The Manner of Sale requirements for equity securities are followed
- A Form 144 is filed with the SEC. These conditions must continue to be followed by affiliates despite the age of the shares.
Conditions of Rule 144 for the Sale of Restricted or Control Stock of Non-Reporting Companies
***During the initial first year holding period there are no re-sales permitted under Rule 144***
Holding Period
Non-Affiliates:
Restricted securities must be fully paid for and beneficially owned for a period of at least one year prior to sale. After one year, non- affiliates need not comply with any other Rule 144 requirement and may complete and submit the appropriate Rule 144(d) Letter on our website under Online Forms along with their certificate and medallion-guaranteed stock powers.
Affiliates:
Restricted securities may be resold after one year in accordance with the following Rule 144 requirements:
- Current public information is available
- Volume limitations are adhered to
- The Manner of Sale requirements for equity securities are followed
- A Form 144 is filed with the SEC. These conditions must continue to be followed by affiliates despite the age of the shares.
Shareholder’s Representation letter for removal of Rule 144 restriction