Rule 145 – Registration And Resale Requirements
Rule 145 addresses the registration and resale requirements for securities issued in a merger, consolidation, acquisition of assets or reclassification of securities. In accordance with Rule 145 an offer or sale of securities occurs when shareholders 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. Like any other offer or sale of securities, a Rule 145 transaction must either be registered or there must be an available exemption.
Whether Rule 145 applies to a transaction hinges upon whether the shareholders vote or must vote on the transaction. Unless an exemption is available Rule 145 requires that the following transactions registration where shareholders vote on the transaction:
(i) reclassifications of securities which involve the substitution of a security for another security (for example in the conversion of one form of business entity such as a limited partnership to another form such as a corporation);
(ii) a merger or consolidation or similar plan or acquisition involving the exchange of securities in one entity for those of another, except for a transaction solely for the purpose of a change in 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.
Where shareholders vote on the transaction, they are making an investment decision. In the case of an asset sale, the investment decision is an exchange of an ultimate beneficial ownership interest in an asset for securities in the acquiring company.
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.
If either party to a 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 shell company requirements of Rule 144. These requirements include that the issuer no longer be a shell company, has filed Form 10 information; is subject to the reporting requirements of the Exchange Act for 12 months following the time that it filed Form 10 information, and is current with all Exchange Act reporting requirements.
