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SEC Adopts Significant Amendments to Rules 144 and 145

November 20, 2007

On November 15, 2007, the Securities and Exchange Commission voted to adopt rule changes to modernize and improve capital-raising, reporting and disclosure requirements for smaller companies.  However, some of the changes, particularly those to Rule 144, are of significance to all public companies.  Among other things, the changes to Rule 144 will cut the holding period for restricted securities of public companies from one year to six months.

Changes to Rule 144

The amendments to Rule 144 will, among other things:

  • Decrease the holding period for restricted securities of reporting companies to six months;
  • For non-affiliates' sales, substantially simplify Rule 144 compliance by allowing free resale of securities of reporting companies after six months (subject to 144(c) current public information requirement until the securities have been held for one year) or of non-reporting companies after 12-months;
  • For affiliates' sales, revise the manner of sale requirements for equity securities and eliminate them for debt securities and relax the volume limitations for debt securities; and
  • For affiliates' sales, increase the thresholds that trigger a Form 144 filing requirement to either 5,000 shares or $50,000 within a three-month period (up from the current 500 shares or $10,000).

Other Changes

The rule changes will also affect Rule 145 (regarding resales of securities received in certain business combinations).  Other changes also approved by the Commission on November 15 will create new exemptions from Exchange Act registration for compensatory employee stock options (which otherwise may be required under current law if the number of holders exceeds 499 at the end of a company's fiscal year), and increase the number of smaller companies that are eligible for the modified reporting and disclosure system currently available to "small business issuers".

Effective Dates

The amendments to Rules 144 and 145 will be effective 60 days after publication in the Federal Register.  The amendments to the smaller company reporting and disclosure requirements will be effective 30 days after publication.  The new exemptions from Exchange Act registration for compensatory employee stock options will be effective as soon as they are published in the Federal Register, which should be useful to companies with calendar year ends that would otherwise have crossed the limits at December 31, 2007.  We will prepare a more detailed summary when the rules are published.