ABA Journal’s 10th Annual Blawg 100
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Rule 145 addresses the registration and resale requirements for securities issued in a merger, consolidation, acquisition of assets or reclassification of securities. Rule 145 sets forth the Securities and Exchange Commission (SEC) view that an offer, offer to sell, offer for sale or sale occurs when there is submitted to security holders a plan or agreement pursuant to which such security holders are asked to vote on an exchange of their existing securities for new securities in a merger, consolidation, acquisition of assets or reclassification of securities transaction. Offers, offers to sell, offers for sale or sales all require registration pursuant to Section 5 of the Securities Act of 1933, as amended (Securities Act) unless an exemption to such registration is available.
Securities Registration Required
Accordingly, unless an exemption is otherwise available, Rule 145 requires that the following transactions require registration if security holders vote on such transaction (i) reclassifications of securities which involve the substitution of a security for another security; (ii) a merger or consolidation or similar plan or acquisition in which securities of a corporation or other entity are exchanged for securities in another corporation or other entity (other than a transaction solely for the purpose of a change of domicile); and (iii) transfers of assets where the consideration paid is securities of the purchaser corporation or entity and such securities will be distributed to the seller’s security holders.
The key points of Rule 145 are that the security holders vote on the transaction, thus making an investment decision and those voting security holders will be giving up the securities in one corporation or entity in exchange for the securities in another corporation or entity. In the case of an asset sale, the securities given up are the beneficial interest in the assets sold.
Restricted versus Unrestricted Securities
Securities received in a Rule 145 transaction are restricted or unrestricted to the same extent that the tendered or exchanged securities were restricted or unrestricted. However, unlike dividends and other in-kind distributions, restricted securities received in a Rule 145 transaction do not tack with the holding period of the securities surrendered or exchanged in the transaction. That is, a new holding period begins for restricted securities received in a Rule 145 transaction.
Provided however, if either party to the Rule 145 transaction was a shell company at the time the security holders voted on the transaction, Rule 145 specifically prohibits the resale of securities received in the transaction unless all of the requirements of Rule 144(i)(2) are met. These requirements include that the issuer no longer be a shell company, is subject to the reporting requirements of the Exchange Act for 12 months following the time that it filed Form 10 information indicating it was no longer a shell company, and is current with all Exchange Act reporting requirements.
The Author
Laura Anthony, Esq.
Founding Partner
Legal & Compliance, LLC
Corporate, Securities and Going Public Attorneys
LAnthony@LegalAndCompliance.com
Securities attorney Laura Anthony and her experienced legal team provides ongoing corporate counsel to small and mid-size private companies, OTC and exchange traded issuers as well as private companies going public on the NASDAQ, NYSE MKT or over-the-counter market, such as the OTCQB and OTCQX. For nearly two decades Legal & Compliance, LLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions as well as registration statements on Forms S-1, S-8 and S-4; compliance with the reporting requirements of the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; Regulation A/A+ offerings; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers, ; applications to and compliance with the corporate governance requirements of securities exchanges including NASDAQ and NYSE MKT; crowdfunding; corporate; and general contract and business transactions. Moreover, Ms. Anthony and her firm represents both target and acquiring companies in reverse mergers and forward mergers, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. Ms. Anthony’s legal team prepares the necessary documentation and assists in completing the requirements of federal and state securities laws and SROs such as FINRA and DTC for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the OTC Market’s top source for industry news, and the producer and host of LawCast.com, the securities law network. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Las Vegas, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.
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