New rules revise some limits on sales of restricted stock

Unless you are a senior officer or director, or you own a large percentage of a company's stock (i.e., you're an affiliate), you can sell your restricted shares after holding them for as little as six months. That's far sooner than the prior one-year holding period.

The rule changes also eliminate other requirements, including the need for a nonaffiliate to file Form 144 with the SEC.

The six-month holding period (which starts when the shares are fully paid for) applies only to restricted stock of companies required to file periodic reports with the SEC that are current in those filings.

For shareholders of nonreporting companies and companies that are not current, the one-year holding period will still apply before the restricted shares can be publicly sold.

A PRIMER ON RULE 144

Before selling shares of stock to the public, a company (also known as an issuer) must register those shares with the SEC unless an exemption from registration is available.

Rule 144 is one such exemption that allows the public resale of restricted shares (securities acquired in unregistered, private sales from the issuer or an affiliate of the issuer) and control shares (securities held by affiliates of the company, regardless of how the affiliate acquired the shares), providing a number of requirements are met.

If you are an affiliate, the rule changes are less beneficial to you, though you too will have the shorter six-month holding period. Otherwise, Rule 144's prior restrictions will still apply as follows:

- You may sell, in any three-month period, no more than the greater of 1 percent of the outstanding shares or the average weekly trading volume for the four weeks preceding the sale (if the shares trade on an exchange);

- You may sell only through unsolicited ordinary broker or market-maker transactions; and

- You must file a Form 144 with the SEC .

The filing thresholds for Form 144 have been raised to either 5,000 shares or $50,000 market value in any three-month period, including sales by certain related persons. This is up from 500 shares or $10,000 under the previous Rule 144).

For restricted shares of nonreporting companies that have current public information available, you still have to hold your shares for one year and meet all the above requirements.

GETTING HELP

Holders of restricted and control stock have unique needs. Often, they want to sell shares to improve their portfolio diversification, generate cash or make gifts to family and donations to charity. As long as they follow Rule 144, they can treat restricted and control shares almost as they would any other shares.

If you currently own restricted or control shares, or if you have a concentrated position in your company's stock, you should speak with a financial advisor who is familiar with Rule 144's requirements. Together, you can assess how you could use your shares for liquidity, asset protection and wealth transfer through loans, sales, trading plans, hedging and gifting without running afoul of federal securities laws or your company's trading policy.

- Contact William Creekbaum at 689-8704 or William.a.creekbaum@smithbarney.com.

The views expressed here are those of the author and do not necessarily reflect the views of Smith Barney or its affiliates.