Some Rule 144 Tidbits

Dear blogees: I have read the new Rule 144 release initially. There are a few things that are not clear to me that I am discussing with colleagues and others to report about later. In the meantime, here are some interesting tidbits, which should be taken together with my brief summary from the other day below:

1. Paying purchase price. They are not changing the prior 144(d) requirement that the holding period does not commence until the full purchase price is paid when shares are acquired by purchase.

2. New issuers. The new six-month holding period will only apply to issuers that have been subject to SEC reporting requirements for at least 90 days before the Rule 144 sale. Those considering a self-filing as a method to go public should take note. This should not effect those completing reverse mergers with shells subject to the reporting requirements.

3. Removal of Restrictive Legends. They made clear that they do not object if issuers remove legends from securities held by non-affiliates after all of the applicable conditions in Rule 144 are satisfied. Presumably this will mean after holding for one year. This is because, despite the reduction in the holding period to six months, the issuer must remain current in its filings for the next six months until one year.

4. No more Rule 144(k). The entire 144(k), which allowed resale without any restrictions after two years previously, is taken out and replaced by the rule that says all non-affiliates can sell in six months without restriction so long as the company remains current in its filings for the next six months.

5. Worm/Wulff Changes - Important Insight into “Nominal.” Footnote 172 of the final release indicates that a real startup company, or as they also put it, a “company with a limited operating history,” would not be deemed a shell company because its operations are not nominal. This is very different from the informal guidance we had previously received as to the definition of “nominal.” This would seem to help very tiny newly public companies to avoid the prohibition on using Rule 144 if you are a shell company, since the SEC is declaring these tiny companies not to be shells. But it might have the unintended consequence of further encouraging the creation of so-called “footnote 32 shells” which I have written about many times in the past. For sure this will be the subject of much more in depth analysis over the months to come.

6. Form 144: Form 144 filings will be eliminated for non-affiliates. Affiliates will still have to file. In a change from the proposal, affiliates have to file Form 144 if the trade involves over $50,000 or 5,000 shares. They had proposed 1,000 shares. In addition, while we had thought they would not act to help affiliates who have to file both Form 144 and Form 4, in a piece of good news they said “we expect to issue a separate release in the future to provide affiliates that are subject to both the Form 4 and Form 144 filing requirements with greater flexibility in satisfying their requirements.”

7. More on Worm/Wulff codification: As mentioned, they went for a one-year post reverse merger and release of Form 10 information holding period for former holders of a shell. There are several things that are unclear in the release that I am hoping to gain some clarity on in the near future. In the meantime, one clarification was good - they confirmed that the Form 10 information will be deemed filed (and the clock starting to tick on the one year period) when the initial filing is made with the Commission, even if they subsequently comment on the “super” 8-K filing and request changes. Kudos to Sichenzia Ross for requesting this clarification. Stay tuned on all this.

8. Adjustment to Regulation S. In response to comments, the release reduces the Regulation S “distribution compliance period” from one year to six months. Since that period in offshore offerings was always meant to be tied to the 144 holding period, this change made sense.

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