March 4, 2008
Rule 144 and 145 Changes
Effective February 15th, new versions of SEC Rules 144 and 145 went into effect. There are some major changes hidden here. First, Rule 144 reduces the required holding period to only six months for "restricted stock" of a reporting issuer. Reporting issuers will be much encouraged to use private stock offerings. More important perhaps is that investors of non-reporting issuers that are looking to become reporting issuers in IPOs will enjoy a 90 a scant required ninety day holding period after the IPO. The investors no longer need to demand listing covenants (piggy-back or S8 offerings) in their investment contracts. Second, Rule 145 eliminates the presumption underwriter doctrine for all target shareholders taking stock in a stock swap acquisition if there are no shell companies involved. Stock swap acquisitions in strategic acquisitions, for example, allow recipients of stock to sell everything they get immediately (as long as they are not controlling shareholders after the deal). The rule also favors strategic buyers over buyout buyers in an auction, as the recipient shareholder in the buyout still are subject to resale restrictions. These are major changes. Again the SEC is tinkering with the private equity markets (always a worry) but a reduction of requirements here makes sense.
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