Restricted Stock - Rule 144: Frequently Asked Questions

 
What is the advantage of restricted stock over stock options?

Restricted stock has value to you even when the stock price drops below the price on the date of grant. This may help you feel more of the wealth impact (and shareholder pain) of changes in your stock price. Options have little practical value to you if they are "under water" (i.e., the market price is lower than exercise price).

Incentive stock options (ISOs) meet the IRS requirements for special tax treatment. With ISOs, you do not have to pay regular income taxes at the time your exercise, but you must hold your shares for at least one year from the date of exercise and two years from grant date. When you sell your shares after the required waiting period, you will be subject to a capital gains tax based on the difference between the sale price and the grant price.

What is Rule 145?

Rule 145 governs the resale of securities acquired in mergers and acquisitions. Affiliates of a company acquired in a Rule 145 transaction can make public resales of the securities issued in the transaction by satisfying the public information, volume, and manner-of-sale requirements of Rule 144 discussed earlier. Nonaffiliates may sell such securities by complying with these requirements or by holding the securities for at least one year.

Can I sell my securities publicly if the conditions of Rule 144 have been met?

Even if you have met the conditions of Rule 144, you cannot sell your restricted securities to the public until the legend has been removed from the certificate. Only a transfer agent can remove the legend. Your William Blair & Company investment professional can assist you in this process.

How might I acquire restricted stock?

Restricted stock is usually acquired through:

• Merger and acquisitions
• Direct purchases from the company or an insider
• Stock options
• Stock purchase plan
• Gift

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