How do you Spell Relief? W-O-R-M/W-U-L-F-F: SEC Proposes Permitting Rule 144 Availability for Shell Shares After Merger!
By David Feldman at 23 June, 2007, 7:54 pm
The 114 page SEC proposal on Rule 144 changes, in addition to the 65-page Form S-3 proposals, have now hit the SEC’s website. The Rule 144 proposal was posted yesterday.
Let’s break out the champagne! I have great news that was not discussed when the staff summarized the new proposals at an SEC hearing a month ago. Are you ready? Are you sure? The SEC is proposing making Rule 144 available for the resale without registration of restricted securities issued by a reporting shell company, at least 90 days after a reverse merger is completed and the “Form 10 information” (ie so-called super 8-K) is filed acknowledging that the shell has ceased to be a shell.
Ladies and gentlemen in the reverse merger world, this is huge and a major positive change in SEC policy with regard to shell companies. One of the big fears of all those acquiring and setting up shells is ensuring that their shares are registered, since Worm/Wulff and its SEC staff interpretations said 144 was never available. Now private companies merging with shells can be less concerned about negotiating registration rights for former shell owners, or what will happen if registration is not completed. In addition, if shell founders choose to add more shareholders to their roster, helping increase the shareholder base, those shareholders now will have tradable shares under Rule 144 without registration post-merger.
One wrinkle still needs to be examined further, as it is not yet clear what time periods post-merger will apply to allow resale under 144. On the one hand the language suggests that 144 starts to be available for former shell owners 90 days after the Form 10 information is filed upon the merger. Then, however, the language seems to suggest that the 144 holding period (which in most cases under the new proposal will be six months) starts on the later of the date the shareholder got the shares and the date the Form 10 information is filed. Thus it would seem there is no scenario where a shareholder will wait less than 6 months post-merger to have 144 available. I’m hoping the Staff can clarify this issue shortly, as it appears they want the 90-day period to have some meaning. In any event, none of that takes away from the enormity of this change.
I will continue to report on other goodies I may find as I slog through this exciting material. As I said speaking at the Value Rich conference in New York this week (and the Reverse Merger Conference in San Francisco last week), welcome all to the dawn of a new era in small and microcap regulation.
This is not legal advice, blah blah, consult your counsel, etc. etc. Do I need to keep saying this?
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