Click links below to view answers:
How do I remove restrictive legends?
Rule 144 allows holders of restricted or control securities to sell those securities in the open market without filing a registration statement under the Securities Act of 1933, provided certain conditions are met by the seller, the broker and the company. Rule 144 has a basic 6-month holding period for a reporting company and a basic one-year holding period for non-reporting companies. In both instances, other conditions must also be met. At no time may shares be resold under Rule 144 if the issuing company is now or ever has been a shell or blank check company as defined by Rule 405.
Definitions: Restricted/Control Securities
In general, restricted securities are acquired from a company or a control person (also referred to as an affiliate) of the company in a non-public transaction (private placement.) Such securities are unregistered, can only be resold under certain conditions and usually bear a legend to that effect. Securities acquired by a control person in any manner, including an open market purchase, are control securities. Control securities can also be restricted securities depending on how they were acquired. Restricted securities can also be control securities if the person or entity is using the Issuing Corporations’ address for mailing. Restricted and control securities obtained by third parties as gifts or donations, or pledged for a loan, may be sold under appropriate circumstances, through Rule 144.
A control person is anyone who directly or indirectly controls the management and affairs of a company. Senior officers, directors and certain large shareholders are usually considered control person. Whether a control relationship exists is a factual determination usually made by the company or its legal counsel.
As a seller under Rule 144, a control person is also defined to include the following: relatives living in the same household as the control person; trusts, estates, corporation or other entities in which the control person has a 10% ownership interest; and trusts and estates in which the control person serves as a trustee, executor or a similar capacity. The sale and/or transfer of all shares labeled as control, must be completed trough a brokerage transaction, meaning it must be done at a brokerage firm. The transfer agent cannot remove control designations under normal circumstances.
Volume Limitations and Manner of Sale
The amount of securities that may be sold by affiliates under Rule 144 during any three-month period is the greater of: 1) 1% of the class of securities outstanding, or 2) the average weekly reported volume of trading in the securities during the four calendar weeks prior to the filing with the SEC of Form 144, Notice of Proposed Sale. “ Manner of sale” denotes that the sale is to be made through a brokerage.
Blank Check or Shell Companies
Under the new Rules, effective as of February 15, 2008, Rule 144 will not be available for the resale of securities initially issued by either a reporting or a non-reporting shell company or an issuer that has been at any time previously a reporting or non-reporting shell company unless it meets all of the following conditions: 1) it has ceased being a shell company, 2) it is now subject to all Exchange Act reporting obligations, 3) it has filed 12 months (4 quarters) of SEC Form 10’s in which the company has declared to not be a shell.
Our Policy Regarding Legal Opinions Presented for Legend Removal
Legal Opinions presented to First American Stock Transfer, Inc. for the removal of Rule 144 legends must be addressed directly to First American Stock Transfer, not a brokerage firm. We can accept copies, via a brokerage firm as long as we are the addressee. In addition, all attorneys who present opinions to us on behalf of either issuers or shareholders must conduct an independent review of the facts presented to them. We do not accept legal opinions that are based solely on representations made to the attorney by the shareholders or the issuers. We also do not accept legal opinions in which the attorney disclaims responsibility for the facts presented.
***During the initial six month holding period there are no re-sales permitted under Rule 144***
Restricted securities must be fully paid for and beneficially owned for a period of at least six months prior to sale. During the period between six months and one year, legend may be removed for unlimited public resales of stock held by non-affiliates as long as there is sufficient current public information available. After one year, non-affiliates need not comply with any other Rule 144 requirement and may complete and submit the appropriate Rule 144 Letter on our website under Online Forms along with their certificate and medallion-guaranteed stock powers.
Restricted securities may be resold through a brokerage transaction after six months in accordance with the following Rule 144 requirements: 1) Current public information is available, 2) Volume limitations are adhered to, 3) the Manner of Sale requirements for equity securities are followed, and 4) a Form 144 is filed with the SEC. These conditions must continue to be followed by affiliates despite the age of the shares.
Conditions of Rule 144 for the Sale of Restricted or Control Stock of Non-Reporting Companies
***During the initial first year holding period there are no re-sales permitted under Rule 144***
Restricted securities must be fully paid for and beneficially owned for a period of at least one year prior to sale. After one year, non- affiliates need not comply with any other Rule 144 requirement and may complete and submit the appropriate Rule 144(d) Letter on our website under Online Forms along with their certificate and medallion-guaranteed stock powers.
Restricted securities may be resold after one year in accordance with the following Rule 144 requirements: 1) Current public information is available, 2) Volume limitations are adhered to, 3) the Manner of Sale requirements for equity securities are followed, and 4) a Form 144 is filed with the SEC. These conditions must continue to be followed by affiliates despite the age of the shares.
What is the current rule for 144 stock?
The following has been taken directly from the website:
It is a summary of Rule 144 effective as of February 15, 2008.
Rule 144: Selling Restricted and Control Securities
When you acquire restricted securities or hold control securities, you must find an exemption from the SEC’s registration requirements to sell them in the marketplace. Rule 144 allows public resale of restricted and control securities if a number of conditions are met. This overview tells you what you need to know about selling your restricted or control securities. It also describes how to have a restrictive legend removed.
What Are Restricted and Control Securities?
Restricted securities are securities acquired in unregistered, private sales from the issuer or from an affiliate of the issuer. Investors typically receive restricted securities through private placement offerings, Regulation D offerings, employee stock benefit plans, as compensation for professional services, or in exchange for providing “seed money” or start-up capital to the company. Rule 144(a)(3) identifies what sales produce restricted securities.
Control securities are those held by an affiliate of the issuing company. An affiliate is a person, such as a director or large shareholder, in a relationship of control with the issuer. Control means the power to direct the management and policies of the company in question, whether through the ownership of voting securities, by contract, or otherwise. If you buy securities from a controlling person or “affiliate,” you take restricted securities, even if they were not restricted in the affiliate’s hands.
If you acquire restricted securities, you almost always will receive a certificate stamped with a “restricted” legend. The legend indicates that the securities may not be resold in the marketplace unless they are registered with the SEC or are exempt from the registration requirements. The certificates of control securities are usually not stamped with a legend.
What Are the Conditions of Rule 144?
If you want to sell your restricted or control securities to the public, you can follow the applicable conditions set forth in Rule 144. The rule is not the exclusive means for selling restricted or control securities, but provides a “safe harbor” exemption to sellers. The rule’s five conditions are summarized Holding Period. Before you may sell any restricted securities in the marketplace, you must hold them for a certain period of time. If the company that issued the securities is subject to the reporting requirements of the Securities Exchange Act of 1934, then you must hold the securities for at least six months. If the issuer of the securities is not subject to the reporting requirements, then you must hold the securities for at least one year. The relevant holding period begins when the securities were bought and fully paid for. The holding period only applies to restricted securities. Because securities acquired in the public market are not restricted, there is no holding period for an affiliate who purchases securities of the issuer in the marketplace. But the resale of an affiliate’s shares is subject to the other conditions of the rule.
Additional securities purchased from the issuer do not affect the holding period of previously purchased securities of the same class. If you purchased restricted securities from another non- affiliate, you can tack on that non-affiliate’s holding period to your holding period. For gifts made by an affiliate, the holding period begins when the affiliate acquired the securities and not on the date of the gift. In the case of a stock option, such as one an employee receives, the holding period begins as of the date the option is exercised and not the date it is granted.
Adequate Current Information. There must be adequate current information about the issuer of the securities before the sale can be made. This generally means that the issuer has complied with the periodic reporting requirements of the Exchange Act.
Trading Volume Formula. If you are an affiliate, the number of equity securities you may sell during any three-month period cannot exceed the greater of 1% of the outstanding shares of the same class being sold, or if the class is listed on a stock exchange or quoted on Nasdaq, the greater of 1% or the average reported weekly trading volume during the four weeks preceding the filing a notice of sale on Form 144. Over-the-counter stocks, including those quoted on the OTC Bulletin Board and the Pink Sheets, can only be sold using the 1% measurement.
Ordinary Brokerage Transactions. If you are an affiliate, the sales must be handled in all respects as routine trading transactions, and brokers may not receive more than a normal commission. Neither the seller nor the broker can solicit orders to buy the securities. Filing a Notice of Proposed Sale With the SEC. If you are an affiliate, you must file a notice with the SEC on Form 144 if the sale involves more than 5,000 shares or the aggregate dollar amount is greater than $50,000 in any three-month period. The sale must take place within three months of filing the Form and, if the securities have not been sold, you must file an amended If I Am Not an Affiliate of the Issuer, What Conditions of Rule 144 Must I Comply With? If you are not (and have not been for at least three months) an affiliate of the company issuing the securities and have held the restricted securities for at least one year, you can sell the securities without regard to the above conditions. If the issuer of the securities is subject to the Exchange Act reporting requirements and you have held the securities for at least six months but less than one year, you may sell the securities as long as you satisfy the current public information condition.
Can the Securities Be Sold Publicly If the Conditions of Rule 144 Have Been Met?
Even if you have met the conditions of Rule 144, you can’t sell your restricted securities to the public until you’ve gotten the legend removed from the certificate. Only a transfer agent can remove a restrictive legend. But the transfer agent won’t remove the legend unless you’ve obtained the consent of the issuer— usually in the form of an opinion letter from the issuer’s counsel—that the restricted legend can be removed. Unless this happens, the transfer agent doesn’t have the authority to remove the legend and execute the trade in the marketplace.
To begin the process, an investor should contact the company that issued the securities, or the transfer agent of the company’s securities, to ask about the procedures for removing a legend. Since removing the legend can be a complicated process, if you’re considering buying or selling a restricted security, it would be wise for you to consult an attorney who specializes in securities law.
What If a Dispute Arises Over Whether I Can Remove the Legend?
If a dispute arises about whether a restricted legend can be removed, the SEC will not intervene. The removal of a legend is a matter solely in the discretion of the issuer of the securities. State law, not federal law, covers disputes about the removal of legends. Thus, the SEC will not take action in any decision or dispute about removing a restrictive legend. http://www.sec.gov/investor/pubs/rule144.htm
Return to Top
What is Notice & Access? How do I vote my proxy?
“Notice & Access” (final rule made effective January 1, 2008) is the avenue most companies must pursue when deciding how to disseminate the materials for an upcoming meeting. Under Notice and Access, there are two options. Under the first option, a company would send only a Notice (with no proxy card) 40 days prior to the shareholder meeting indicating the Internet access and availability of proxy materials for a shareholder to view and vote, while providing that shareholder with a paper or e-mail copy of the proxy materials, only upon request. Under the second option, aka the Full Set Delivery option, companies follow procedures similar to the traditional format whereby they send a full set of paper proxy materials with a proxy card to the shareholder, along with the Notice. Full Set proxy documents include (1) the Notice of Annual Meeting; (2) the form of Proxy to be voted; and (3) the applicable legal documents that pertain to matters to be voted at the meeting, including the Proxy Statement, and often, an Annual Report. Under this second choice, the company does not need to send the materials a full 40 days prior to the meeting.
There is a third option that is a hybrid of the two. In this option, a Notice is sent to all shareholders 40 days prior to the meeting. Then, prior to the meeting, a full set of materials is sent to a portion of the shareholders, often those with a higher percentage of shares that could affect the outcome of the vote.
Broadridge (www.broadridge.com/investor-communications) is an information hub-type company that currently oversees the majority of the street voting for beneficial owners. Mediant Communications is now under contract to coordinate the street voting for any of the brokerage firms using Legent Clearing Corporation and the ICI (Investment Company Institute) oversees the proxy responsibility of mutual fund holders. Both Broadridge and Mediant usually perform the broker search (the breakdown of how many beneficial owners own shares at each of the brokerage/clearing firms using Broadridge or Mediant.) It is also these entities that produce the “NOBO” (non-objecting beneficial owners) list for issuers and their transfer agents. This allows the issuer to know who all of their non-objecting beneficial owners are, in order to make contact and send materials. There are also the “OBOs” (these are the beneficial owners who object to the issuer and others knowing who they are) and only Broadridge or Mediant may make contact with them.
How Do I Vote My Proxy?
Any shareholder of the companies that we service, can directly access their account information and place their vote for an upcoming annual or special meeting if the issuing company has chosen this service for their shareholders.
Within the initial Notice & Access materials sent to each shareholder will be instructions for accessing the Corporate proxy materials in addition to accessing your account and voting, via an assigned login and password. (Please keep this confidential information protected.) Once you have been assigned your login and initial password, you can vote upcoming proxies.
This same access will allow you to view your entire account of certificated and book-entry holdings with issue and cancel dates and known existing restrictions (“stops”), print statements as of the date of the printing, change your address, view past proxies voted, view dividends posted as received and/or re-invested and communications posted to your account. Again, if the issuing company has not yet opted for this service, please let them be aware of your wishes. They must approve the service first.
The name of the service, embedded in our software, is “iStockTrack” and it ties you, the investor, directly with shareholder accounting services on the Internet. You will need to know the Ticker symbol and number assigned to the company before you type your own login and initial password. Call us if you have any questions concerning your access.
What is Cost Basis and Why is it important?
Very Important New Law for All Issuers, Transfer Agents, and Brokerage Firms Effective January 1, 2011
As an Issuer, you are just as responsible for this information as we are. IRS could fine all entities who do not provide this information at $50.00 per missed statement, and 10% of the total cost basis amount for intentional disregard of the new law. This can, potentially, be in the millions of dollars. Call us if you have any questions!
In October 2008, George W. Bush signed into law the Emergency Economic Stabilization Act. As part of that Act, the IRS included a proviso that all equity securities and units of investment trusts bought after January 1, 2011 will be required to maintain, pass-through and report all cost bases on all transactions. For years, the brokerage industry has maintained this information on a voluntary basis and the mutual fund industry has both maintained and, in the case of sales, reported this information on 1099B forms. It was up to the investor, however, to report the correct cost basis for individual sales of equity securities to Do you know how to allot cost basis on every transaction?
Now, the issuer (YOU!) and the transfer agent (US!) will be required to maintain all tax lot cost basis information for any transfers of shares that occur after January 1, 2011. The Depository Trust & Clearing Corporation is designing new software to accommodate all pass-through information through their CBRS program. This may or may not be a program in which issuers will be allowed access. As your transfer Our software has been updated and designed to handle the new law. We will require more information from you, however. For any new issuances completed after January 1st, we will require the following additional information: cost basis per lot, and the date the money changed hands or services were rendered. If the shares are for services rendered, you will have to place a value on those services at the point when the shares are issued. We will maintain this per lot cost basis in the shareholder’s account See new Transfer Request Form and (proposed) Issuance Resolution required for use on or after January 2011. When a transfer occurs, we must pass the information through to an applicable person, via a transfer statement. The transfer statement must be sent within 15 days. The recipient is not allowed to pay for this information unless they are also the presenter of the transfer request. In most instances it may be you, the issuer, who will be billed for the additional work that we are tasked with performing.
Statements are required to sent within 15 days and Issuers may have to pay for them. If we receive an applicable transfer request and the cost basis is not included, we are required to make one request for the information. If it still is not provided, we code the transaction as “uncovered”. The IRS will be tracking both covered and uncovered transactions. If the tax lot cost basis is incorrect we also must send a corrected statement within 15 days of the discovery of the error. The shareholder has the right to choose which tax lot’s cost basis to use, especially in the case of book entry shares, but if the holder does not specify, the FIFO (first in, first out) method will be used. If the shareholder opts to choose a different tax lot, we must be notified by settlement date – which, in the case of private transfers, is the date the transfer is made on the books of the issuer. If a certificate is presented, it, alone, is evidence of the correct tax lot to use for the report.
FIFO allocation will be used unless otherwise notified.
Two situations, in particular, bear additional attention: the gifting of shares and inheritance. If a tax lot is not specified and no cost basis is presented, we must assume that the shares are gifted. In a case such as this, the tax lot of the donor is used in combination with the fair market value on the day the shares are transferred. This, then, becomes the cost basis that we will maintain and pass-through to a recipient.
Gifting will require report of fair market value on day of gift and donor’s cost basis.
In the case of inheritance shares that are transferred, the estate representative must inform the agent of the cost basis, per lot, of presented shares. The representative must also notify the agent of the proportional share per recipient. If the proportional share per recipient and cost basis allocation is not provided, the agent will use the FIFO method and allocate an equal proportion per lot to each recipient. Remember, that the agent must send one request, first, if the information is not provided with the transfer request. If the information is not received within 15 days, the transaction will be coded as “uncovered”. However, 15 days is too late to wait and be provided the information before completing the transfer. Therefore, we will send the request, continue to perform the transfer as required, code it as uncovered, and then, later, correct the tax lot cost basis and send a corrected statement when the information is received.
All inheritance allocations will be equally proportional per lot to each recipient unless otherwise notified.
One additional situation is the occurrence of a corporate action. Corporate actions require adjustments of the cost bases for each share of stock proportional to the split, distribution, etc. Starting in January of 2011, each Issuing Company will be required to produce an internally generated number applicable and unique to each corporate action that reflects either the adjustment per new share or the cost basis percentage of older shares, so that proportional adjustments, per that specific corporate action, can be performed on the shares presented for transfer. Failure to provide the unique Corporate Action Number will result in a rejection of the transfer request. The Corporate Action Number will be required by FINRA prior to approval of your corporate action request applications.
This is a technical and complicated new law and the problematic issues within the law have not yet been resolved. Please call us if you have any questions.
We have provided this information as a service to investors. It is neither a legal interpretation nor a statement of SEC policy. If you have questions concering the meaning or application of a partial law or rule, please consult with an attorney who specializes in security law.