10.10.2. Rule 144A
Rule 144A provides a safe harbor for broker-dealers and investors to resell their restricted securities without being subject to Rule 144’s holding periods and other limits, by selling to a QIB. Once a QIB purchases a restricted security, it can sell it to other QIBs under Rule 144A.
Rule 144A is widely used by both foreign and U.S. companies to raise capital in U.S. markets. However, Rule 144A only applies to secondary market sales, which means that issuers cannot use Rule 144A to sell securities directly to QIBs. Instead, an issuer that wants to take advantage of Rule 144A starts by using a different exemption (often Reg D or Reg S) to sell its securities to a group of broker-dealers. The broker-dealers then resell them to QIBs under Rule 144A. A broker-dealer that resells securities using the Rule 144A safe harbor is not considered an underwriter.
Rule 144A–eligible securities include both equity and debt securities issued by either U.S. or foreign companies. The following are not included:
• Equity securities listed on a national exchange
• Preferred stock that can be converted to exchange-listed common stock
• Open-end funds (mutual funds), unit investment trusts, or exchange-traded funds
A company may see a Rule 144A equity offering as an alternative to an IPO or as a stepping-stone to an IPO. While preparing for an IPO, a company may parlay the work it put toward a registration statement for an IPO into offering documents for a Rule 144A transaction. While an offering document is recommended for a 144A transaction, it is not required by the SEC. Instead sellers in a Rule 144A transaction must provide reasonably current financial information about the issuer to investors upon request. This information includes:
• A brief description of the issuer’s business, products, and services
• The issuer’s most recent balance sheet, income statement, and retained earnings statement
• Similar