David Feldman's book, Reverse Mergers: Taking a Company
Public Without an IPO, now in its third printing, was published in 2006
by Bloomberg Press (available on http://www.amazon.com).
View David Feldman's reverse merger blog at www.reversemergerblog.com.
Joseph Smith and David Feldman are coauthors of PIPES:
Revised and Updated Edition - A Guide to Private Investments in Public Equity
(Bloomberg Press, 2005) available on http://www.amazon.com.
In the News
David
Feldman quoted in June 14, 2007 issue
of Reverse Merger Report in an article
about SEC proposed changes for APOs.
SEC
Proposes Changes That Could Boost APOs
by
Meghan Leerskov
Rule
changes proposed by the Securities and
Exchange Commission may expand the eligibility
of micro cap companies to use short-form
S-3 registration statements to issue
stock, and reduce restricted-stock holding
periods. The changes could make it easier
for reverse merger companies to raise
capital and make investing in such companies
much more appealing to investors.
The proposed changes, which were among
a series of six measures presented in
an SEC meeting last month, are intended
to modernize and improve capital raising
and reporting requirements for smaller
companies. The proposals have been enthusiastically
received by attorneys and spors active
in reverse mergers, who believe the
changes could dramatically increase
the use of shell mergers in conjunction
with private placements.
The proposed changes won't be adopted
by the SEC for at lteast 30 to 60 days,
to give the public and opportunity to
comment.
The proposed Form S-3 amendments would
allow companies with public floats of
less than $75 million to sell up to
20% of their float in a one-year period
in offerings registered on Form S-3.
Under existing regulations, only companies
with public floats of $75 million or
more can issue registered stock through
S-3.
S-3 issuers would have to be current
in their SERC filings, and companies
that have been shells within one year
would not be able to use the short form
registration.
The commission was reportedly considering
an alternate proposal with an even shorter
time frame for shells to use S-3. Several
securities attorneys who RMR
spoke with have committed to pushing
for a reduced time frame in their comments
to the SEC.
The proposed amendments would also shorten
the Rule 144 holding period to six months,
in many cases, for holders of restricted
stock who arent affiliated with the
companies which shares they hold. Holders
of short positions could have their
holding period returned to the current
one year.
Currently, Rule 144 requires PIPE investors
to hold their unregistered shares for
one year, or register their stocks with
the SEC before reselling. The SEC has
become fickle about approving such registrations
under a recent reinterpretation of Rule
415, which regulates shelf registrations.
If this proposal is adopted, PIPEs issued
concurrently with a reverse merger may
increasingly be structured without registration
rights.
"It is my experience that most PIPE
resale registration statements take
about that long, if not longer, to get
effective," says Tim Keating, founder
of Keating Investments. "So why bother
with the registration statement? The
issuer saves a lot of legal fees, accounting
and audit fees, time and hassle."
Also, Keating notes, after the proposed
six-month holding period, a non-affiliate
investor would not be subject to 144s
volume limitation restriction.
Many securities attorneys expect that
PIPE discounts could decline significantly
due to the shorter holding period, and
that a smaller discount should lead
to a lower cost of capital and more
PIPE issuances for reverse mergers and
companies.
"Small business is going to
get a major jolt," says David Feldman,
found of New York law firm Feldman Weinstein
& Smith.
Feldman cautions, however, that reverse
mergers involving Form 10-SB shells
with no immediately tradable stock will
still need to register.
Under the new proposals, the Rule 144
holding period would be one year for
securities issued by non-reporting companies,
many of which are listed on the Pink
Sheets.
Spencer Feldman, an attorney with Greenberg
Traurig, expressed some concern that
shortening the Rule 144 holding period
might put pressure on reverse merger
companies to beef up their aftermarket
plans, or face a sell-off at the six-month
mark. "Young companies that do a reverse
merger might not quite have their act
together in six months. They could find
themselves under tremendous pressure
and their stock could get dumped. Companies
are going to need to coordinated after-market
activity more than they do now," he
says.
A proposal to streamline small business
reporting could change Regulation SB
disclosure requirements for smaller
companies into standard S-K reporting.
The alteration, which would seemingly
do away with Form 10-SB used to create
virgin shells, won't necessarily put
the kibosh on the reverse merger vehicles,
however. Securities attorneys expect
that a scaled disclosure option will
be available on form 10 - simply providing
the same information on a different
form.
It is difficult to speculate how quickly
the SEC will finalize the proposals.
Many are ruminating that they may be
approved late this year.
