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!

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?

The New Phone Book's Here! The New Phone Book's Here!

No I am not going crazy. I just love the old Steve Martin movie, "The Jerk," where he gets all excited when he discovers on his front stoop is his brand new Yellow Pages. I had a similar exciting reaction when I saw the first of the full proposals on the SEC website yesterday.

You can download them at http://www.sec.gov/rules/proposed.shtml. I will be taking a look over the weekend and hope to have something to say in a few days. Note that the only proposal they have released relates to allowing smaller companies to begin to use short-form registration on Forms S-3 and F-3 on a limited basis. This is a major step and will allow smaller issuers to do "shelf" registrations to make raising capital easier.

Hope to be back to you soon on this. I also believe the rest of the proposals should be out in the next few days.

Also, I may be attending a Congressional hearing next week where SEC Chairman Cox is expected to testify before the House Financial Services Committtee.

Have a great week and happy summer!

A Few RM Conference Highlights

Greetings from warm and sunny San Francisco where DealFlow Media's Reverse Merger Conference is winding down. The conference was fabulous and included almost 350 attendees. Here are a few random tidbits I gleaned from some of the reports and panels:

1. Things are good and getting better, especially with the new SEC small public company proposals. We still await, however, the full rule proposal language, and are hopeful there will be additional good news when it is released.

2. There were 206 reverse mergers in 2006, a slight increase from the prior year and virtually tied with the number of IPOs.

3. The aggregate market value of reverse merged companies upon merger in 2006 was a staggering $8.4 billion!

4. There were 59 trading SPACs at the end of 2006.

5. In the first quarter of 2007, there were 53 reverse mergers with a huge $3 billion market cap - 100% higher than the prior year quarter!

6. In 2006 almost 50% of reverse mergers incorporated a contemporaneous financing or "alternative public offering" with a total raised of $850 million or an average of $9.4 million per deal.

7. Chinese transactions constituted 26% of all reverse mergers last year but the total value of those deals is about half of the value of all Chinese deals done in 2005.

8. The average IPO in 2006 raised $216 million, continuing to raise the bar for traditional IPOs.

9. A new study at the University of Pittsburgh showed, among other things, that 91% of companies are still in existence three years after their reverse merger. This contrasts with a previous study suggesting that amount was about half as large.

10. The Pitt study also showed that the median speed to complete a reverse merger was 51 days vs. an average of 111 days for a traditional IPO.

11. One should not write off London's AIM market as there may be certain advantages in certain situations for certain companies.

12. The new issue of The Reverse Merger Report released at the conference includes a full expose on footnote 32 shells, I urge all to read it, and if you are not a subscriber, become one!

See you back in NY..

Hope to See You All This Week

Blogees- I am off to San Francisco on Tuesday to attend the Reverse Merger Conference sponsored by DealFlow Media. If you hadn't planned to and can make it at the last minute, it is both money and travel time well spent, as they expect hundreds of the leading figures in the RM and smallcap world to attend.

My panel is on the first morning, Wednesday, and we will talk about the new SEC proposals. Unfortunately, even though it's been more than two weeks since the announcement, the SEC has not yet posted the actual proposed rules. Sometimes they continue to tweak the language even after the announcement, and maybe that's what is happening here.

There is still much to talk about, and almost all good, with regard to even what we know now about the proposals. So I'm looking forward to some time on the Left Coast and reconnecting with my RM friends. Should be a great couple of days! As soon as I see something posted by the SEC, I'll take a look at it and give you some thoughts. Might take a couple days to read it though.

Have a great week all!

A Worldwide Phenomenon

As we await the full disclosure of the SEC's proposals, your humble blogger has been happily surprised to see a sudden and dramatic increase in visits to this site. Thanks so much! To give you a sense, in just the last month, blogees have come from Riyadh, Bangkok, Moscow, Shanghai, Milan, Taiwan, Tokyo, Seoul, Nairobi, Athens, Madrid, Ireland, Australia, New Zealand, the UK, etc. Of course the vast majority of visitors are from the good old US of A.

I thank you so very much for all your support and repeat visits, and hope all of you are going to buy my book! Seriously, I'm really having fun posting my thoughts and suggestions on here, and as someone who remembers the days when we moved from manual to electric typewriters, still a bit awed and amazed by the entire computer and Internet culture. I will continue to do my best to earn your visits. I welcome any and all suggestions on how to improve the blog, or even the occasional compliment or two!

Oh, those of you in the NY area, be careful on the roads as my 17-year old has now obtained her driver's license! As the kids say...ttys...(for Michael Williams that's "talk to you soon").

Full SEC Proposals Coming

Watch this week for the full text of most of the six major smaller public company rule proposals from the SEC (keep checking http://www.sec.gov/rules/proposed.shtml, or just wait until I report shortly thereafter). As we know, only brief summaries of the key aspects of the proposals were discussed in an SEC open hearing on May 23, and since then we've been awaiting the complete release of the proposals.

I assume, as is often the case, that there are a number of aspects of the proposals which have not yet been made public. Hopefully the as yet undisclosed parts of the text will be additional positive, happy news for smaller issuers and their financing partners. Yet we always worry that the "fine print" takes more than it gives. As I am the eternal optimist (which sometimes gets me in trouble!), I am hopeful that I will be reporting by the end of the week some additional goodies for the beleaguered (sp?) small and microcap world.

Hopefully the very positive momentum created by last week's announcements will be maintained and strengthened. Fingers crossed!