New rules that are being applied to our deal.
Business Combinations Involving Shell Companies
Shell Company Business Combinations as Sales to Shell Company Investors
The adopting release reiterated the SEC position that when a reporting shell company conducts a business combination with a company that is not a shell company, the substantive reality of the transaction is that reporting shell company investors effectively have exchanged their security representing an interest in the reporting shell company for a new security representing an interest in the combined operating company.
With a view to providing disclosure and liability protections to investors in reporting shell companies under these circumstances, new Rule 145a deems any business combination of a reporting shell company involving another entity that is not a shell company to involve a sale of securities to the reporting shell company’s securityholders.
Rule 145a is narrowly drawn and the adopting release notes it will not have any impact on conventional business combination transactions between operating businesses, including transactions structured as traditional reverse mergers and traditional business combination transactions that make use of only business combination related shells. However, it is not limited to de-SPAC transactions. Rule 145a will apply in situations where, in substance, a shell company business combination is used to convert a private company into a public company. To illustrate, the adopting release provides, “For example, the requirements applicable to reporting shell company business combinations adopted herein will apply to any company that sells or otherwise disposes of its historical assets or operations in connection with or as part of a plan to combine with a non-shell private company in order to convert the private company into a public one. This is true regardless of whether such sale or disposal of the legacy assets or operations occurs prior to or after the consummation of the business combination.”1
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