SunWorks Inc (SUNWQ)

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Mergers, Share Acquisitions and Business Combination Transactions

Suppose you are not a Shell Company and you want to acquire or combine with another business with your stock either through a merger, a share exchange, asset purchase or some other form of business combination transaction. Because the shareholders of the business you are acquiring aren’t paying cash for your stock, you may think that these type of transactions are outside the scope of Section 5 and thus you don’t have to worry about the federal securities laws.

Unfortunately, you would be wrong. The SEC deems the exchange of stock for stock to be the sale of a security just the same as the sale of stock for cash and as such is covered by Section 5. Totally covered, meaning that both the issuance of your stock to the owners/shareholders of the business you acquire to be covered by Section 5 and the resale of the stock you issue by these owners/shareholders covered by Section 4(2).

What this means to you

If the business you are acquiring has more than 35 shareholders, if you cannot determine in advance their Accredited/Non-Accredited Investor status, which is usually the case, Reg. D is not available and you will have to file a Registration Statement on Form S-4 or, if you are a foreign private issuer, Form F-4. Because this Registration Statement is reviewed in the same manner as Form S-1 or F-1, your closing of the business combination will be delayed several months until the SEC clears your filing.

What this means to the owner/shareholders of the business you acquire

Assuming an owner/shareholder of the business is not an officer, director or affiliate of your company after the business combination, under SEC Rule 145, these persons are not presumed to be underwriters and thus may resell your securities under Section 4(1) as free trading securities without complying with Rule 144. Assuming an owner/shareholder of the business is an officer, director or affiliate of your company after the business combination, they must resell your shares in accordance with Rule 144. Pursuant to Rule 144.d.viii, the holding period for your shares starts all over again on the date of closing of the business combination.

If you are a shell company, there is no exemption from underwriter status under Rule 145 and, in general, your shares can only be sold by owners/shareholders of the acquired business, whether or not Affiliates, generally in accordance with Rule 144.i. discussed above.h

http://www.goingpublicinformation.com/business_combinations.htm