Securities Act Release No. 33-5995

November 8, 1978

ACTION: Final rule and form amendments.

SUMMARY: The Commission is amending Rule 144, which provides a safe harbor for the resale of securities, and two forms relating to it. The amendments are technical in nature and are designed primarily to conform the rule and the forms in their entirety to certain recent changes which relaxed the limitations on the amount of securities that can be sold under the rule and the manner in which such securities may be sold.

EFFECTIVE DATE: November 15, 1978.

FOR FURTHER INFORMATION CONTACT: Peter J. Romeo, Division of Corporation Finance, Securities and Exchange Commission, Washington, D.C. 20549, (202) 755-1240.

SUPPLEMENTARY INFORMATION: The Commission today announced the adoption of amendments to Rule 144 17 CFR 230.144, Form 144 17 CFR 239.144, and Form S-8 17 CFR 239-16b under the Securities Act of 1933 ("1933 Act") 15 U.S.C. 77a et seq.. The purpose and nature of the amendments are discussed in detail in the following sections of this release.

BACKGROUND

Rule 144 provides a safe harbor for the resale of "restricted securities" ¹ and securities held by affiliates ² of an issuer. The rule sets forth standards which, if met, permit persons who hold such securities to sell them publicly without the need for registration and without being deemed underwriters ³ under the 1933 Act.

In Release No. 33-5979 (September 19, 1978) 43 FR 43709 the Commission announced the adoption of certain significant amendments to Rule 144. The amendments directly affected the volume limitation and manner of sale requirements of the rule. Although other provisions of Rule 144, Form 144, and Form S-8 were indirectly affected by the changes, these other provisions, through oversight, were not amended at the time. To correct this oversight, were not amended at the time. To correct this oversight, and in order to implement the recent changes to the fullest degree possible, the Commission has determined to adopt the amendments described herein.

SUMMARY OF THE AMENDMENTS

For types of revisions have been made to the items referred to above. These are summarized in the paragraphs which follow.

1. References to Six-Month Periods Changed

As previously noted, the amendments announced in Release No. 33-5979 in part involved the volume limitation provisions of Rule 144. Formerly, the rule permitted a person to sell the amounts specified in the rule during periods of six months. The amendments reduced this six-month period for measuring sales to three months.

In making the above revision, the Commission amended paragraphs (e)(1) and (e)(2) of Rule 144, which deal directly with the volume limitation requirements. However, other parts of the rule which contain references to six-month measuring periods, including subparagraphs (ii) through (vi) of paragraph (e)(3), Note (ii)(c) to paragraph (g)(3), and paragraph (h), were not so amended. The references to six-month measuring periods in those other provisions have now been changed to three months so that the rule will now be consistent in all respects on this point. Similar changes have been made, were appropriate, in Form 144 and in General Instruction E to Form S-8.

2. Volume Limitation for Unlisted Securities Clarified

In amending the volume limitation provisions of Rule 144 in Release No. 33-5979, the Commission stated in the explanatory section of the release that, among other things, it was "eliminating the disparity that formerly existed in Rule 144 between the volume standards for listed securities and those for unlisted securities." This statement reflected the fact that under the revised rule trading volume reported through NASDAQ ⁴ for an unlisted security could be considered in determining the maximum amount of such securities that could be sold. Formerly, trading volume could be considered only if one were selling securities listed on a national securities exchange.

Notwithstanding the above statement, the Commissions staff has received a number of inquiries as to whether NASDAQ trading volume may be taken into account in connection with sales of unlisted securities under the rule. Apparently, these inquiries have been prompted by the fact that paragraph (e)(1) of the rule states that in determining the maximum amount of securities that may be sold under the rule, one may consider the average weekly volume of trading reported "on all national securities exchanges and reported through NASDAQ" (emphasis added). As pointed out by the persons making the inquiries, the use of the conjunction "and" suggests that NASDAQ trading volume is relevant only to sales of listed securities.

In order to dispel any further confusion in regard to the above matter, the Commission has amended paragraph (e)(1) to state that one may consider the average weekly volume of trading "reported on all national securities exchanges and/or reported through NASDAQ" (emphasis added). The use of the dual connective "and/or" will make it clear that for purposes of determining the volume limitation under Rule 144, both exchange volume and NASDAQ volume may be considered for listed securities, while NASDAQ volume may be considered for unlisted securities.

3. Requirement to File Amended Form 144 Eliminated

Paragraph (h) of Rule 144 until now has required the filing of a notice on Form 144 of a proposed sale of securities under the rule if the amount of securities to be sold during any six-month period exceeding 500 shares or the aggregate sale price was in excess of $10,000. In addition, the paragraph has required that if all of the securities for which a notice was filed were not sold within 90 days after the filing of the notice, an amended notice must be filed concurrently with the commencement of any further sales of the securities.

In view of the fact that the measuring period for determining the volume limitation for sales under the rule has been reduced from six months to three months, it now appears that the requirement for filing an amendment notice after the 90 day period mentioned above has elapsed is superfluous. That is, 90 days is comparable to the new three month period, no useful purpose would be served by requiring an amended notice after 90 days. Accordingly, the Commission has deleted from paragraph (h) the sentence which required the filing of an amended Form 144 in the circumstances mentioned above.

4. Statements Concerning Expanded Method of Selling Inserted

The amendments to Rule 144 announced in Release No. 33-5979 now permit sales of securities under the rule to be made directly to a market maker in lieu of selling such securities through a broker. Formerly, the rule required that all sales of securities under it be made in brokers transactions. In order to implement this change fully, the Commission has inserted in paragraph (h) of the rule, as well as Form 144, statements which indicate that the notice on Form 144 shall be transmitted for filing concurrently with either the placing with a broker or an order to execute a sale under the rule or the execution directly with a market maker of such a sale. In addition, the form has been revised to require, in connection with sales to a market maker, the name of any such entity.

TEXT OF THE AMENDMENTS

1. 17 CFR 230.144 is amended to read as follows:

§230.144 Persons deemed not to be engaged in a distribution and therefore not underwriters.

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(e) Limited on amount of securities sold. Except as hereinafter provided, the amount of securities which may be sold in reliance upon this rule shall be determined as follows:

(1) Sales by affiliates. If restricted or other securities are sold for the account of an affiliate of the issuer, the amount of securities sold, together with all sales of restricted and other securities of the same class for the account of such person within the preceding three months, shall not exceed the greater of (i) one percent of the shares or other units of the class outstanding as shown by the most recent report or statement published by the issuer, or (ii) the average weekly volume of trading in such securities reported on all national securities exchanges and/or reported through the automated quotation system of a registered securities association during the four calendar weeks preceding the filing of the notice required by paragraph (h), or, if no such notice is required, the date of receipt of the order to execute the transaction by the broker or the date of execution of the transaction directly with a market maker, or (iii) the average weekly volume of trading in such securities reported through the consolidated transaction reporting system contemplated by Rule 17a-15 under the Securities Exchange Act of 1934 during the four-week period specified in subdivision (ii) of this subparagraph.

(2) Sales by persons other than affiliates. The amount of restricted securities sold for the account of any person other than an affiliate of the issuer, together with all other sales of restricted securities of the same class for the account of such person within the preceding three months, shall not exceed the amount specified in paragraph (e)(1)(i), (1)(ii), or (1)(iii) of this section, whichever is applicable.

(3) Determination of amount. For the purpose of determining the amount of securities specified in paragraphs (e)(1) and (2) of this rule, the following provisions shall apply:

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(ii) The amount of securities sold for the account of a pledgee thereof, or for the account of a purchaser of the pledged securities, during any period of three months within two years after a default in the obligation secured by the pledge, and the amount of securities sold during the same three-month period for the account of the pledgor shall not exceed, in the aggregate, the amount specified in subparagraph (1) or (2) of this paragraph, whichever is applicable.

(iii) The amount of securities sold for the account of a donee thereof during the period of three months within two years after the donation, and the amount of securities sold during the same three-month period for the account of the donor, shall not exceed, in the aggregate, the amount specified in subparagraph (1) or (2) of this paragraph, whichever is applicable;

(iv) Where securities were acquired by a trust from the settlor of the trust, the amount of such securities sold for the account of the trust during any period of three months within two years after the acquisition of the securities by the trust, and the amount of securities sold during the same three-month period for the account of the settlor, shall not exceed, in the aggregate, the amount specified in subparagraph (1) or (2) of this paragraph, whichever is applicable;

(v) The amount of securities sold for the account of the estate of a deceased person, or for the account of a beneficiary of such estate, during any period of three months and the amount of securities sold during the same period for the account of the deceased person prior to his death shall not exceed, in the aggregate, the amount specified in subparagraph (1) or (2) of this paragraph, whichever is applicable; Provided, That no limitation on amount shall apply if the estate or beneficiary thereof is not an affiliate of the issuer;

(vi) When two or more affiliates or other persons agree to act in concert for the purpose of selling securities of an issuer, all securities of the same class sold for the account of all such persons during any period of three months shall be aggregated for the purpose of determining the limitation on the amount of securities sold;

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(g) Brokers transactions.

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Notes. (i) * * *

(ii) The reasonable inquiry required by paragraph (g)(3) of this section should include, but not necessarily be limited to, inquiry as to the following matters:

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(c) The amount of securities of the same class sold during the past three months by all persons whose sales are required to be taken into consideration pursuant to paragraph (e) of this section;

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(h) Notice of proposed sale. If the amount of securities to be sold in reliance upon the rule during any period of three months exceeds 500 shares or other units or has an aggregate sale price in excess of $10,000, three copies of a notice on Form 144 shall be filed with the Commission at its principal office in Washington, D.C.; and if such securities are admitted to trading on any national securities exchange, one copy of such notice shall also be transmitted to the principal exchange on which such securities are so admitted. The Form 144 shall be signed by the person for whose account the securities are to be sold and shall be transmitted for filing concurrently with either the placing with a broker of an order to execute a sale of securities in reliance upon this rule or the execution directly with a market maker of such a sale. Neither the filing of such notice nor the failure of the Commission to comment thereon shall be deemed to preclude the Commission from taking any action it deems necessary or appropriate with respect to the sale of the securities referred to in such notice.

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II. 17 CFR 239.144 is amended to read as follows:

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§239.144 Form 144, for notice of proposed sale of securities pursuant to §230.144 of this chapter.

(a) Except as indicated in paragraph (b) of this section, this form shall be filed in triplicate with the Commission at its principal office in Washington, D.C. by each person who intends to sell securities in reliance upon §230.144 of this chapter and shall be transmitted for filing concurrently with either the placing with a broker of an order to execute a sale of securities or the execution directly with a market maker of a sale of securities.

(b) This form need not be filed if the amount of securities to be sold during any period of three months does not exceed 500 shares or other units and the aggregate sale price thereof does not exceed $10,000.

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III. Form 144 under the Securities Act of 1933 is amended to read as follows:

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Secs. 2(11), 4(1), 4(4), 19(a), 48 Stat. 74, 77, 85; secs. 201, 203, 209, 210, 48 Stat. 904, 906, 908; secs. 1-4, 6, 68 Stat. 683, 684; sec. 12, 78 Stat. 580 (15 U.S.C. 77b(11), 77d(1), 77d(4), 77s(a)).

IV. General Instruction E to Form S-8 is revised to read as follows:

239.16b Form S-8, for registration under the Securities Act of 1933 of securities to be offered to employees pursuant to certain plans.

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E. Unavailability of the Form S-8 Prospectus for Reoffers or Resales.

The Form S-8 prospectus will not be available for reoffers or resales of securities acquired pursuant to this registrations statement by affiliates of the issuer, as defined in Rule 405 under the Act. However, such affiliates may reoffer or resell such securities pursuant to a separate prospectus, filed with the registration statement on this Form S-8, prepared in the following manner:

(1) Such prospectus may be prepared in accordance with the requirements of Form S-16 if:

(a) The issuer, at the time of filing such prospectus, satisfies the conditions set forth in the Rule as to the Use of Form S-7; or

(b) The amount of securities proposed to be reoffered or resold pursuant to the prospectus, by each person affiliated with the issuer, and any other person with whom he is acting in concert for the purpose of selling securities of the issuer, does not exceed, during any three months period, the amount specified in Rule 144(e), calculated as of the date of filing such prospectus.

(2) Such prospectus shall be prepared in accordance with the requirements of Form S-1 under the Act, if subparagraph (1), above, does not permit the use of a prospectus on Form S-16.

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Secs. 6, 10, 19(a), 48 Stat. 79, 81, 85; secs. 205, 209, 48 Stat. 906, 908, sec. 8, 68 Stat. 685; sec. 1, 79 Stat. 1051; sec. 308(a)(2), 90 Stat. 57; 15 U.S.C. 77f, 77j, 77s(a).

STATUTORY BASIS

The amendments to Rule 144 and Form 144 have been adopted by the Commission pursuant to the Securities Act of 1933, particularly Sections 2(11), 4(1), 4(4) and 19(a) thereof. The amendments to Form S-8 have also been adopted pursuant to the 1933 Act, particularly Sections 6, 10 and 19(a) thereof.

Because all of the amendments adopted today generally are of a technical nature and do not impose any new substantive requirements, the Commission finds that prior notice and public comment under the Administrative Procedure Act (5 U.S.C. 553) are not necessary.

By the Commission.

George A. Fitzsimmons

Secretary

¹ The term "restricted securities" includes securities acquired in nonpublic offerings, such as those under sec. 4(2) of the 1933 Act, as well as securities acquired in offerings made in reliance upon rule 240 (17 CFR 230.240) under the Act.

² An "affiliate" of an entity is defined in rule 405 (17 CFR 230.405) under the 1933 Act as "a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the (entity)."

³ The term "underwriter" is broadly defined in sec. 2(11) of the 1933 Act and includes persons who acquire securities "with a view to * * * distribution."

⁴ NASDAQ is the name of the automated quotation service of the NASD, Inc.