Question

Rock Corporation proposes to merge with Quarry, Inc. Quarry will first obtain the approval of its shareholders; then, by operation of law, the Quarry shares will become shares of the survivor corporation, Rock Quarry, Inc. Is it necessary to register the Rock Quarry shares? Suppose that prior to the merger Felda Flintstone owned 30% of Quarry’s stock, which she had acquired three years before in a private placement. She will own only 2% of the Rock Quarry shares and will not be an officer or director of Rock Quarry. May she freely resell her Rock Quarry shares? Would it matter whether they were registered in connection with the merger?

Answer 1

Answer:

The case discusses about R Corporation and Q industry, based in USA, who merged together and made a single company RQ industry. Prior to the merger, Mrs. FF had acquired 30% stock of Q Corporation and after the merger she got only 2% stock of RQ industry. Also she was not an employee or member of board.

In light of the case, it would be necessary for RQ Company to register its shares once it is determined that an investment offering involves a security.
Section 5 of the 1933 Act requires the registration of all offers and sale of securities in the U.S, unless an exemption from registration is available.

Since RC is a private company and stocks are not freely traded in the market, Ms. F would have to take permission from the board of the director of the company before selling the security. After getting the permission from board of director, F can easily sell the security freely in the open market.
If a company is registered with SEC. the investors are able to easily trade in the market and this is why it matters if the company is registered for the purpose of merger.