Securities & Corporate Governance - SEC Eliminates Rule 145 Limitations for Most Business Combination Transactions
On November 15, the SEC significantly limited the transactions covered by Rule 145. As noted in its press release, these changes will be effective in January 2008 (60 days after publication in the Federal Register). The SEC release concerning the rule amendments has not yet been disseminated by the SEC.
Rule 145 provides that exchanges of securities in business combination transactions which are subject to target shareholder approval constitute “sales” of such securities for 1933 Act purposes. Currently, Rule 145(c) sets forth the “presumptive underwriter” doctrine which holds that parties to a Rule 145 transaction and their affiliates, other than the issuer, are presumed to be underwriters with respect to the securities that they acquire in the transaction. Further, because these parties are deemed to be underwriters, all of the securities that they acquire in the transaction become subject to Rule 145(d) resale restrictions, which are similar to the restrictions set forth under Rule 144.
Rule 145 has now been changed to eliminate the presumptive underwriter provision - except with respect to transactions involving blank check or shell companies. This will eliminate Rule 145 resale restrictions for securities acquired in most business combination transactions. Such securities would still be subject to Rule 144 restrictions if the security holder becomes an affiliate of the acquiring company, but otherwise would be freely tradable.
For transactions involving blank check or shell companies, the resale provisions of Rule 145(d) have been conformed to the newly revised Rule 144.