SEC Proposes Significant Amendments To Rules 144 And 145

On June 22, 2007, the Securities and Exchange Commission proposed amendments to Rule 144 to reduce the holding periods, to reduce the restrictions on resale of securities by non-affiliates and to make a number of other changes. The proposed amendments to Rule 145 would limit its applicability to transactions involving a shell company. If adopted as proposed, the new rules would make it substantially easier for most holders to resell restricted and control securities.

Background - - The Current Rules

Rule 144

provides an exemption from the registration requirements of the Securities Act of 1933 for certain resales of "restricted" and "control" securities. "Restricted" securities are securities acquired, directly or indirectly, from the issuer or an affiliate of the issuer, in a transaction not involving a public offering. "Control" securities are securities held by an affiliate of the issuer that are not restricted securities, including securities purchased on the open market. The current rule permits: affiliates of an issuer to resell control securities, subject to volume limitation; affiliates and non-affiliates of an issuer to resell restricted securities, subject to volume limitation after a one-year holding period; and non-affiliates (who have not been affiliates during the prior three months) to resell restricted securities without limitation after a two-year holding period.

Rule 145

provides that exchanges of securities in connection with mergers and other transactions subject to shareholder vote constitute sales of those securities, and effectively restricts resales of securities received in such transactions by parties to the transaction and their affiliates.

Proposed Changes to Rule 144

The proposed changes would:

• Decrease the holding period for restricted securities of reporting companies to six months (subject to tolling [extension] if the holder has engaged in certain hedging transactions, but in no event longer than one year); The holding period for restricted securities of non-reporting companies would remain one year.

• Eliminate the volume limitation, manner of sale and notice (filing Form 144) requirements for non-affiliates so that they can resell securities freely after the applicable holding period (non-affiliates of reporting companies would be subject to the current public information requirement until one year after the acquisition of the securities);

• Eliminate the "manner of sale" requirements for debt securities, non-participating preferred stock and asset-backed securities;

• Increase the thresholds that trigger a Form 144 filing requirement for affiliates to either 1,000 shares or $50,000 within a three-month period; and

• Codify several Staff positions relating to Rule 144. One staff position being codified is that upon the cashless exercise of options or warrants, the newly acquired underlying securities are deemed to have been acquired when the options or warrants were acquired, even if the options or warrants originally did not provide for cashless exercise by their terms. If the holder provided consideration other than solely securities of the issuer to amend the options or warrants to allow for cashless exercise, then the newly acquired underlying securities are deemed to have been acquired on the date of the amendment. Another staff position being codified is that the grant of options or warrants that are not purchased for cash or property, such as employee stock options, does not create investment risk, and therefore does not start the holding period under Rule 144.

Proposed Changes to Rule 145

The proposed changes would eliminate the restrictive resale provisions in Rule 145, except with regard to Rule 145(a) transactions that involve a shell company (other than a business related shell company), and coordinate the resale requirements of Rule 145 with the proposed resale requirements for Rule 144.

Proposed Changes to Form 144

The proposed amendments would eliminate the requirement for non-affiliates to file Form 144. The filing threshold for affiliates would be raised to either 1,000 shares or $50,000.

Form 144 would be amended to include information regarding security holders' hedging activities and to include a representation that they do not know of any material adverse information about the company as of the date they adopt a plan under Exchange Act Rule 10b5-1.

Coordination of Form 144 Filing Requirements with Form 4 Filing Requirements

Rule 144 requires the seller to transmit a Form 144 for filing concurrently with the placing of an order to sell, if the sale exceeds certain filing thresholds. The proposed amendment would eliminate the filing requirement entirely for non-affiliates, and therefore it would only apply to affiliates. Because many affiliates under Rule 144 are also insiders under Section 16 of the Exchange Act, who are required to report changes in beneficial ownership such as purchases and sales of securities on Form 4, the SEC is considering coordination of Form 4 and Form 144 requirements.

Comment Period

Comments on the proposed rules are due September 4, 2007.

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