Rule 144 Q&A

Securities Lawyer 101

Rule 144 Q & AGuidelines for Removing Restricted Legends from Shares

Published by:Hamilton & Associates Law Group, P.A.101 Plaza Real South, Suite 202 NorthBoca Raton, Florida 33432www.securitieslawyer101.com

Hamilton & Associates Law Group, P.A. All Rights Reserved101 Plaza Real South, Suite 202 NBoca Raton, FL 33432Telephone: (561) 416-8956www.SecuritiesLawyer101.com

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Rule 144 Q & A

The Securities Act of 1933, as amended (the “Securities Act”) requires the sale of a security to beregistered under the Securities Act, unless the security or transaction qualifies for an exemptionfrom registration. Rule 144 of the Securities Act provides a safe harbor that permits holders of"restricted securities" to resell their securities in the public market if specific conditions are met.

This Securities Lawyer 101 Series discusses the most common questions we receive about Rule144’s Safe Harbor.

Q. What is Section 5 of the Securities Act of1933 (the “Securities Act”)?

A. Section 5 of the Securities Act requiresthat all offers and sales of securities beregistered with the Securities and ExchangeCommission (the “SEC”) or exempt from theregistration requirements.

Q. What is the “safe harbor” provided by Rule144?

A. Rule 144 provides a safe harbor from theregistration requirements of Section 5 of theSecurities Act to certain holders of securities,if certain requirements are met. Therequirements of Rule 144 vary dependingupon whether the holder of the shares is anaffiliate or non-affiliate of the issuer.

Q. What are the requirements for non-affiliatesof the issuer to rely upon the “safe harbor”under Rule 144, for their resales?

A. The conditions of the Rule 144 safe harborare: (i) adequate current public informationwith respect to the issuer, (ii) a holding periodfor restricted securities, and (iii), in the caseof affiliates’ sales, certain volume limitationsand manner of sale requirements. Inaddition, there may be a notice requirementif the amount of securities sold, exceedscertain amounts.

Q. How does a shareholder comply with Rule144’s adequate current public informationrequirement?

A. For purposes of Rule 144, theinformational requirements depend uponwhether the issuer is an SEC reportingissuer. A reporting issuer is a company withsecurities registered under the Securities Actand/or the Securities Exchange Act of 1934(the “Exchange Act”).

For shareholders of a reporting company tocomply with the informational requirementsof Rule 144, the company must have beensubject to the SEC’s reporting requirementsfor at least 90 days prior to the proposed saledate and have filed all reports required by theExchange Act during the preceding 12months or for such shorter time period thatthe issuer was required to file reports.

For a non-reporting issuer to comply with thereporting requirements of Rule 144, it mustprovide the information required by Rule15c2-11 of the Exchange Act.

Q. What is the holding period required by Rule144?

A. Shareholders seeking to sell restrictedsecurities of an SEC reporting issuer whohas complied with the requirements above,


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must hold their shares for sixmonths. Shareholders seeking to sellsecurities of non-reporting companies musthold their shares for twelve months.

Q. When does the holding period of Rule 144start?

A. Generally, the holding period starts on thedate that consideration was paid, for thesecurities.

Q. When does the holding period begin underRule 144 or a cashless exercise of options orwarrants?

A. If the options or warrants were acquiredfrom the issuer and have a cashlessexercise, the underlying security shall bedeemed to have been acquired at the sametime as the options or warrants.

Q. What is tacking for the purposes of Rule144?

A. Rule 144 allows the holding periods ofholders to be added to that of prior non-affiliate holders.

Q. When does the holding period start forsecurities purchased by a promissory note orother similar obligation?

A. A promissory note or similar obligation topay the purchase price, or entering into aninstallment purchase agreement with aseller, is deemed full payment only if thepromissory note, obligation or contract (1)provides the seller full recourse against thepurchaser of the securities, (2) is secured bycollateral, other than the purchasedsecurities, with a fair market value at leastequal to the purchase price of the purchasedsecurities, and (3) shall have beendischarged by payment in full prior to the saleof the securities.

Q. When does the holding period start forsecurities acquired through a dividend orstock split?

A. Securities that were acquired from anissuer as a dividend or pursuant to a stocksplit, reverse split or recapitalization shall bedeemed to have been acquired at the sametime as (i) the securities upon which thedividend was paid, (ii) the securities subjectto the split, or (iii) the securities surrenderedin the recapitalization.

Q. When does the holding period start forsecurities acquired from the issuer in aconversion?

A. If the securities sold were acquired fromthe issuer solely in exchange for othersecurities of the same issuer, the newlyacquired securities shall be deemed to havebeen acquired at the same time as thesecurities surrendered for conversion orexchange, even if the securities surrenderedwere not convertible or exchangeable bytheir terms.

Q. What are the informational requirements ofRule 15c2-11 that apply to shareholders of non-reporting companies relying upon Rule 144?

A. Rule 144 requires that the company havecurrent public information available. For anon-reporting company this means theissuer must have the information required byRule 15c-211 available. Rule 15c-211requires that the broker or dealer haveextensive specified information about theissuer in its records and make suchinformation reasonably available to potentialinvestors. Rule 15c-211 requires thefollowing information be disclosed:

The exact name of the issuer and anypredecessor;

The address of the issuer’s principalexecutive offices;


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The state of the issuer’sincorporation;

The exact title and class of thesecurity;

The par or stated value of thesecurity;

The number of shares outstanding asof the end of the issuer’s most recentfiscal year;

The name and address of the issuer’stransfer agent;

The nature of the issuer’s business; The nature of the issuer’s products or

services; The nature and extent of the issuer’s

facilities; The names of the chief executive

officer and members of the board ofdirectors;

The issuer’s most recent balancesheet and profit and loss and retainedearnings statements;

Similar financial information for thatpart of the two preceding fiscal yearsas the issuer or its predecessor, ifany, has been in existence;

Whether the broker or dealer or anyassociated person is affiliated,directly or indirectly, with the issuer;and

Whether the quotation is beingsubmitted or published directly orindirectly on behalf of the issuer orany director, officer or other person,who is directly or indirectly thebeneficial owner of more than 10% ofthe outstanding equity securities ofthe issuer, and, if so, the identity ofsuch person, and the basis for anyexemption under the federalsecurities laws for any sales ofsecurities on behalf of that person.

For further information about Rule 144, please contact Brenda Hamilton, Securities Attorney at 101 PlazaReal South, Suite 202 North, Boca Raton, Florida, (561) 416-8956, or by email [email protected]. This securities law Q&A is provided as a general informational service toclients and friends of Hamilton & Associates Law Group, P.A. and should not be construed as, and doesnot constitute legal advice on any specific matter, nor does this create an attorney-client relationship.Please note that the prior results discussed herein do not guarantee similar results.

Rule 144 Q&A

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