Tip of the Week: Post-Merger Registration

Life used to be so simple.  Before the summer of 2005, companies merged with shells, after which any shareholders holding restricted, or untradable shares, would register their shares for resale and be able to sell them in a matter of a few months.  Sometimes, this registration encompassed almost all the shares outstanding in the merged company.  Trading then commenced, and the reverse merger technique was validated.

Life is not as simple today.  As we have discussed often, the SEC now restricts what percentage of a company’s public “float” (ie shares owned by nonaffiliates) can be registered for resale at one time.

When you are contemplating getting shares to become tradable after a merger, plan carefully and ensure that you are registering the shares most needed at the time. Luckily, despite recent limitations, in many post-reverse merger situations the SEC staff has been more lenient than in other situations, understanding that the float starts out very limited.

This problem, under the SEC’s Rule 415, has been somewhat ameliorated by the Rule 144 changes effective in February 2008. Since the holding periods to allow resale of restricted shares was reduced in many cases to six months, the need to ensure registration following a PIPE has been somewhat reduced. But be careful!

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