It's a dog and pony show brother.
Look at the 11 billion preferred shares authorized, and the series C shares conversion in the AOI. It's smoke and mirrors...
Btw, Dror's 1,000,000 preferred shares convert to 1 billion common. LOL
If folks spout SPL@ to hype 'Drorscams' as anything other than a soon to be debt ridden dilution machine, then they got some soul searching to do after witnessing what happened to those shareholders.
This is merely a way to expedite the merger and bypass SEC proxy rules, it's cheaper, and provides a tax incentive, albeit section 251 forces them to at the same time reorganize previous liabilities into a sub, but that by no means make them disappear...they simply get repackaged.
Acquisitions often employ a "two-step" structure in which the acquiror first launches a tender or exchange offer for any and all outstanding shares. Upon the close of the tender or exchange offer, the acquiror then acquires any shares not tendered in the offer by way of a second-step merger to complete the acquisition.
A "two-step" transaction begins with the tender or exchange offer, subject to a minimum condition that the acquirer obtain more than 50 percent of the outstanding voting stock of the target, followed by a "back-end" merger that squeezes out the remaining target stockholders if 90 percent of the target's outstanding shares are tendered. However, if the 90 percent threshold is not achieved in the tender offer, the acquirer would need to complete the second step via a traditional long-form merger requiring SEC-compliant proxy statements and a stockholder vote.
This dog and pony show takes advantage of Delaware corporate law (section 251) to skip the SEC proxy process and would permit an acquirer to complete a two-step transaction without obtaining a stockholder vote as long as the acquirer were able to purchase a majority of the outstanding stock in the offer.
Section 251(g) provides that no stockholder vote of a constituent corporation is necessary to authorize a merger with or into a single direct or indirect wholly owned subsidiary if certain conditions are met. At the same time separating previous liabilities. This has nothing to do with hundreds of thousands in debt that they're transfering from Simple Cork, except that those holders will likely be issued a new class of preferred shares which each at par convert to 10k shares.
This break down is a little long, so read it when you have time.
A reorganization with Section 251(g) involves a reorganization of three entities, two of which would be newly created and leaving the company, recognized by the SEC as the successor issuer and leaving the predecessor issuer as a subsidiary, with all historical debts, as well as assets, in a subsidiary, with the parent company being the surviving public entity.
It provides for the newly formed holding company/successor issuer to become the public entity, without a vote of the stockholders of the constituent corporations. The predecessor issuer becoming a direct, wholly-owned subsidiary of a new public holding company, with all debts residing therein.
These are the steps to achieve the tax-free (under section 368(a)(1) of the Internal Revenue Code) merger/reorganization, conforming to Section 251(g) of the Delaware General Corporation Law as a shell cleanup tool...
First, the public company (Predecessor Corporation) re-domiciles, for example, to Delaware or Colorado, being the jurisdictions of choice (Delaware takes preference, having the benefit of in common law precedent).
Then there are two new companies which must be formed, in order to conform to the rules as outlined in Delaware Section 251(g), as follows:
First, the existing public company (Predecessor Corp) forms, as it subsidiary, a new company which ultimately becomes the holding company and, consequently, the successor issuer/new public company or “Hold-Co”. Then Hold-Co, as its first course of business, forms a new company, as it subsidiary, which is “Merger Sub”.
Then there are two separate agreements that occur, a Merger Agreement and a Share Exchange Agreement, as follows: The result of the Merger Agreement is that Hold-Co survives and Merger Sub does not.
The results of the Share Exchange Agreement is that all outstanding shares of common stock and preferred stock of the Predecessor Corporation are automatically converted into identical shares of common stock or preferred stock, as applicable, of Hold Co, on a one-for-one basis, and the Predecessor’s existing stockholders and other equity holders become stockholders and equity holders, as applicable, of Hold Co in the same amounts and percentages as they were in the Predecessor prior to the Reorganization.
The stock transfer agent would actually issue new shares to the shareholders likely in book entry form, for ease of administration and cost.
As a result, Hold-Co becomes the parent company and Predecessor Corporation becomes its wholly-owned subsidiary (which the SEC refers to as a “totally held” subsidiary), with its assets and liabilities locked in that wholly-owned subsidiary. This series of transactions, collectively, constitute a reorganization pursuant to a reorganization under the applicable provisions of Section 368(a)(1)(B) of the IRS Code of 1986, as amended and conforming to the provisions of Section 251(g) of the Delaware Corporate Act.
The final step is that the "Predecessor Corp" changes its name to "Predecessor Services" (typically that name ascribe to Merger Sub) and the newly formed Hold Co (as the successor issuer) changes its name to that previously held by the Predecessor Corporation. In Delaware, the “combination” of the participants in the 251(g)-styled reorganization provides for the share exchange, automatically.
