DealLawyers.com Blog

Last Thursday, the SEC adopted amendments to Rule 145 that eliminate the “presumptive underwriter doctrine” under Rule 145(c), except for transactions involving blank check or shell companies. Under this doctrine, persons who are parties to, or affiliates of parties to, a Rule 145(a) business combination transaction (other than the issuer) were deemed to be underwriters with respect to public sales of shares received in a Rule 145(a) transaction. As a result, even if the acquiring company in a Rule 145(a) transaction registers the issuance of its shares, affiliates of the target company would not be able to publicly sell the shares they receive unless they are sold pursuant to a resale registration statement or in compliance with certain provisions of Rule 144.

Once the amendments to Rule 145 become effective – which will be 60 days after the amended rule is published in the Federal Register – affiliates of the target company will generally no longer be subject to these resale restrictions. Other amendments also conform the Rule 145(d) resale restrictions to certain of the approved amendments to Rule 144 that were also adopted.

From Gibson Dunn’s memo on the rule change: “The amendments to Rule 144 will increase the liquidity of restricted securities by significantly reducing the restrictions on resales, shortening the holding periods and eliminating manner of sale requirements, such as the volume limitations. As a result, the amendments will likely decrease the cost of capital for issuers of restricted securities by reducing the liquidity discount typically imposed on such securities, and by reducing the need for issuers to agree to file and maintain the effectiveness of resale registration statements for the benefit of investors who purchase restricted securities. The amendments to Rules 144 and 145 and the resulting greater access to capital are also likely to enhance the attractiveness of restricted securities as a form of acquisition currency.”