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 referenced in an article from
the The PIPEs Report about the SEC's
new approval of proposed Rule 144 amendments
on November 20th, 2007
SEC
Smiles on PIPE Hedge Investors:
Extension of Restricted Selling for
Hedged Shares Dumped
By
Joe Gose
Posted 11/20/07
The
Securities and Exchange Commission,
considered among many PIPE players as
a regular bearer of turkeys, last Thursday
scooped out some gravy instead. The
commission approved Rule 144 amendments
that will shorten the holding period
for investors who own restricted shares
in reporting companies to six months
from one year one of the biggest pro-PIPE
changes to occur in years. But in a
surprising move, the SEC also abandoned
the contentious idea of resurrecting
the tolling provision.
That provision, eliminated from Rule
144 in 1990, would have extended the
holding period for up to an additional
six months for non-affiliate investors
who sold short an issuer or engaged
in other hedging activities while holding
that same issuer's restricted shares.
The holding period would have been extended
for the amount of time hedging strategies
were in place, up to six months.
Hedging proponents roundly criticized
the proposal, citing lack of evidence
that hedging had led to abuse in the
context of Rule 144> Commenters also
declared that the provision would make
hedging more expensive, be hard to police,
and make the U.S. derivatives market
less competitive. At the hearing to
consider adoption of the proposal last
week, SEC staffers acknowledged they
were persuaded by those comments, though
they promised to monitor hedging activities
of restricted security holders and to
revisit the issue as needed.
"The comment process can
work," said David Feldman, a partner
with the New York law firm of Feldman
Weinstein & Smith, who, along with
other PIPE experts, has supported most
of the Rule 144 amendments. "There
was a drum-beat of opposition to the
tolling provision from a lot of different
quarters," Feldman said. "PIPE
players are now free to hedge and short
all they want, and they still can get
out in six months. That's huge."
Still, a helping of uncertainty surrounds
certain of Rule 144's minutiae. While
the new Rule 144 amendment will become
effective 60 days after publication
in the Federal Register, commission
staffers didn't discuss whether final
rules would be retroactive. That would
allow investors who have held restricted
securities for at least six months prior
to the effective date to sell them.
After the meeting, SEC officials, through
a spokesman, declined to say whether
the final release would specifically
address retroactivity, but the spokesman
suggested that the subject may be open
to interpretation once the rule becomes
effective. The vote last week marks
the first step in what PIPE experts
anticipate will be a significant restructuring
of the PIPE market in coming months.
The commission last May introduced several
proposals crucial to PIPEs, and it is
expected to hold hearings and vote on
remaining amendments, which include
expanding Form S-3 eligibility and Regulation
D revisions, by the end of the year.
In addition to shortening the holding
period for investors, the new Rule 144
will eliminate volume and manner-of-sale
restrictions for non-affiliates those
limitations expired after two years
under current rules. Affiliates, however,
will still be subject to volume and
manner-of-sale restrictions, but the
sales threshold that will trigger a
Form 144 filing will increase to 5,000
shares (an increase from the original
proposal of 1,000 shares) or $50,000,
up from 500 shares or $10,000. Plus,
although not in the original proposal,
the SEC will relax the Rule 144(e) volume
limitations for debt securities by adding
a new alternative test that will allow
the resale of up to 10% of a tranche
in any three-month period.
The new rules also codify certain staff
interpretations relating to Rule 144.
Owners of restricted shares in non-reporting
companies will still be subject to a
one-year holding period.
The new rules will aid small businesses
that raise capital in private transactions,
said John White, director of the SEC's
Division of Corporation Finance, by
increasing liquidity of securities issued
by the companies and reducing discounts
that investors receive. In recent discussions
of the proposed Rule 144 changes, however,
PIPE experts have debated whether the
reduction in discounts would be significant.
The commission also approved final rules
that will replace the current "small
business issuer" category with
a new expanded category of "smaller
reporting companies" that will
include issuers with less than $75 million
public float or revenues of less than
$50 million in the last fiscal year
if a float is incalculable. Among other
changes, the rules will phase out current
SB forms, allow smaller reporting companies
to use the commission's scaled disclosure
and reporting requirements, and allow
firms to comply with the scaled financial
and non-financial disclosures on an
item-by-item basis. The SEC predicts
that the new rules, which become effective
30 days after publication in the Federal
Register, will affect about 1,500 companies.
