When you acquire restricted
securities or hold control securities, you must find an exemption from the SEC's
registration requirements to sell them in the marketplace. Rule 144 allows
public resale of restricted and control securities if a number of conditions are
Restricted securities are securities acquired in unregistered, private sales
from the issuer or from an affiliate of the issuer. Investors typically receive
restricted securities through private placement offerings, Regulation D
offerings, employee stock benefit plans, as compensation for professional
services, or in exchange for providing "seed money" or start-up capital to the
Control securities are those held by an affiliate of the issuing company. An
affiliate is a person, such as a director or large shareholder (10% or more), in
a relationship of control with the issuer. Control means the power to direct the
management and policies of the company in question, whether through the
ownership of voting securities, by contract, or otherwise.
If you acquire restricted
securities, you almost always will receive a certificate stamped with a
"restricted" legend. The legend indicates that the securities may not be resold
in the marketplace unless they are registered with the SEC or are exempt from
the registration requirements. The certificates of control securities are
usually not stamped with a legend.
Rule 144 Conditions
If you want to sell your
restricted or control securities to the public, you can follow the conditions
set forth in Rule 144. The rule is not the exclusive means for selling
restricted or control securities, but it provides a "safe harbor" exemption to
sellers. The rule's five conditions are summarized below:
Before you may sell restricted securities in the marketplace, you must hold
them for at least one year. The one-year holding period begins when the
securities were bought and fully paid for. The holding period applies only to
Current financial information must be made available to the buyer. Companies
that file 10-K and 10Q reports satisfy this requirement.
After the one-year holding period, the number of shares you may sell during
any three-month period cannot exceed the greater of 1% of the outstanding
shares of the same class being sold, or if the class is listed on a stock
exchange or quoted on Nasdaq, the greater of 1% or the average reported weekly
trading volume during the four weeks preceding filing of Form 144 (Notice of
Proposed Sale) with the SEC.
The sales must be handled in all respects as routine trading transactions, and
brokers may not receive more than a normal commission. Neither the seller nor
the broker can solicit orders to buy the securities.
Filing Notice With
At the time you place your order, you must file a notice with the SEC on Form
144 if the sale involves more than 500 shares or the aggregate dollar amount
is greater than $10,000 in any three-month period. The sale must take place
within three months of filing the form and, if the securities have not been
sold, you must file an amended notice.