DECEMBER
2007
SEC APPROVES NEW RULE 144 FOR RESTRICTED STOCK RESALES
The new Rule 144 adopted by the United States Securities and Exchange Commission (“SEC”), to become effective February 15, 2008, is more complex than merely a reduced hold period for restricted stock. There are reduced hold periods in some circumstances, but there are also increased hold periods for shareholders of shell companies and investors in reverse merger transactions. The new Rule 144 reduces the hold period for restricted stock issued by U.S. and foreign reporting issuers, other than shell issuers. Rule 144 under the Securities Act of 1933 creates a safe harbor for the resale of restricted securities, without the securities being registered. Until now, restricted securities had to be held by a shareholder for one year from issuance before they could be sold in a market transaction, and after that, there were volume restrictions and other manner of sale conditions that applied to the resale. The new Rule 144 reduces the one year period to six months for shares of an issuer which has been a reporting issuer in the United States for at least 90 days before the sale, so long as the reporting issuer is not a shell company. Non-affiliate shareholders who have held restricted stock for six months will no longer be required to file Form 144 or to comply with manner of sale requirements, or even be subject to volume restrictions. So long as the issuing company has complied with its reporting requirements and has current information filed with the SEC, non-affiliates may freely trade their shares after six months. Non-affiliate shareholders have no obligations or limitations at all once one full year has elapsed from the date of issuance. An “affiliate” is someone who is under common control with the issuer, and includes senior officers, directors, and ten (10%) percent or greater shareholders. Affiliates get some benefits under the new Rule 144 rules. Affiliates may start to sell their stock six months after issuance, however the manner of sale requirements, including restricted volumes, sales through a broker, etc. are still in place, except for resales of debt securities. The threshold for affiliates being required to file a Form 144 has increased to $50,000 in value or securities being sold, or 5000 shares. If fewer shares at lesser value are sold, no Form 144 is required. The new rules do not reduce the hold period restrictions for non-reporting companies, but does eliminate the volume restrictions and manner of sale requirements for non-affiliates at the end of one year. The new Rule 144 makes resales of securities by any shareholder of a shell company much more difficult. Rule 144 cannot be relied upon for the resale of securities of a shell company, and may be relied on to sell securities of a former shell company only if all of the following conditions are met:
A “shell company” is defined as a company with no or nominal operations, and with no or nominal assets or assets consisting solely of cash and cash equivalents. This also means that any company conducting a reverse merger with a shell company will have its shares, including any financing shares and other shares held by affiliates and non-affiliates, restricted for at least a year from the time the RTO is completed and the Super 8-K filed, unless the shares are registered through a registration statement. We remind readers that the number of securities that may be registered in an RTO or financing transaction, or for that matter any registration statement, has been greatly reduced in the past two years by the SEC’s current interpretation of Rule 415. In addition, unregistered shares of shell companies held by non-affiliates which are now freely tradable under current rules because they have been held for at least two years or that are currently available for resale under Rule 144 because they have been held for over one year will become restricted securities and not saleable under the new Rule 144. Regulation S, dealing with issuances and resales of securities made outside the United States, is being changed to conform with the new reduced hold periods. In addition, the SEC has clarified and codified certain interpretations as to tacking of hold periods and when a restricted hold period is deemed to have commenced. When the new Rule 144 takes effect on February 15, 2008, it will have retroactive effect on securities issued before that date. Therefore, securities issued before February 15, 2008 may take advantage of the new rule.
SEC ADOPTS PROXY RULE AMENDMENTS ENCOURAGING ELECTRONIC SHAREHOLDER FORUMS
The Securities and Exchange Commission voted on November 28, 2007 to adopt amendments to the federal proxy rules under the Securities Exchange Act of 1934 to facilitate the use of electronic shareholder forums. The amendments are expected to open up new avenues for real-time communications among shareholders, and between shareholders and the companies they own. The amendments will clarify that participation in an electronic shareholder forum, which could potentially constitute a solicitation subject to the current proxy rules, will be exempt from most of the proxy rules if the conditions to the exemption are satisfied. In summary: Any participant in an electronic shareholder forum will be able to rely on the new exemption so long as his or her communications occur more than 60 days prior to the date announced by the company for its annual or special meeting of shareholders, and the communicating party does not solicit proxy authority while relying on the exemption. A participant in an electronic shareholder forum will be eligible to solicit proxy authority after the date that the exemption is no longer available, provided that the solicitation is conducted in accordance with Regulation 14A. Where the company announces a meeting of shareholders less than 60 days before the meeting date, the solicitation could not occur more than two days following the company’s announcement. In addition, the amendments provide that a shareholder, company, or third party acting on behalf of a shareholder or a company, that establishes, maintains or operates an electronic shareholder forum will not be liable under the federal securities laws for any statement or information provided by another person participating in the forum. The rule amendments will take effect 30 days after they are published in the Federal Register.
BRITISH COLUMBIA CHANGES INSIDER TRADING RULES
On December 21, 2007, some amendments to the Securities Act and Securities Rules will come into effect. The Act amendments, most significantly: repeal section 86 [trading or informing where undisclosed change] and replace it with new section 57.2 of the Securities Act, which prohibits insider trading in securities of any publicly traded issuer, not just a reporting issuer, and prohibits those with inside information from recommending or encouraging others to trade, even if the inside information is not specifically disclosed; repeal section 128 [trades by insiders] and replace it with new section 57.3, which prohibits trading with knowledge of potentially market-moving orders (“front running”) from any investor, not just a mutual fund or managed portfolio, regardless of personal gain; add new section 57.4 of the Securities Act which incorporates into the Act defences to insider trading that are currently in section 161 of the Securities Rules and extends the defences to front running; repeal and replace section 136 [liability in special relationship if material fact or material change undisclosed] to provide a remedy to any investor who traded between the time of the insider trading and the time the inside information is publicly disclosed, not just the investor on the other side of an insider trade; and repeal and replace section 155(5) to clarify that the maximum fine for manipulation and fraud, insider trading and front running is triple the profit made by all persons because of the contravention, not just the profit earned by one of them. The Act amendments also: repeal and replace section 54(2) to prohibit advisors and others from making false statements to persuade investors to enter or maintain a trading or advising relationship; and repeal and replace section 77 to remove references to certificates of no default that are no longer issued. The Rule amendments: repeal section 161, which contains exemptions from the insider trading prohibition, as it is replaced by the new section 57.4 of the Act, which now contains defences to the insider trading and front running prohibitions; add section 184.4 to provide a cap on damages for insider trading liability; and add section 187.1 to set out how to determine profit for various offences under the Act. If you have any questions on how the changes to the Insider Trading Rules affect you, contact any member of Clark Wilson’s Corporate Finance / Securities Group.
CLARK WILSON WELCOMES RINA JASWAL
CLARK WILSON LLP'S CORPORATE FINANCE / SECURITIES LAW GROUP
Clark Wilson LLP’s Corporate Finance/ Securities Law Group
assists companies listed on Canadian and U.S. stock exchanges and
over-the-counter trading markets, including NASDAQ, Amex, TSX and
the OTC Bulletin Board. Our attorneys are qualified to practice in
various Canadian and United States jurisdictions. We are experienced
in Canadian, United States and cross-border transactions; U.S. and
Canadian regulatory filing and SEC registrations; reverse takeovers;
and mergers and acquisitions. For more information, contact Bernard
Pinsky or any member of our Corporate Finance/ Securities Law
Group.
If you would like to be added or removed from this mailing
service, please send requests to webmaster@cwilson.com,
including Securities Law Bulletin in your
subject line.
|
We are pleased to welcome 
Admitted to
practice law in:
British Columbia
California
Admitted to
practice law in:
British Columbia
California
Admitted to
practice law in:
British Columbia
New York
Admitted to
practice law in:
British Columbia
Florida
Virginia
District of Columbia
Admitted to
practice law in:
British Columbia
Washington State
Admitted to
practice law in:
British Columbia
Alberta
practice law in:
British Columbia
Admitted to
practice law in:
British Columbia
Admitted to
practice law in:
British Columbia
Washington State
Admitted to
practice law in:
British Columbia
Admitted to
practice law in:
British Columbia
Alberta
Admitted to
practice law in:
British Columbia