Form 10 Shells – Doing Fine Thanks

A large percentage of the Form 10 shells my law firm represents that are awaiting transactions face an important decision in the next month or so. Do they want to continue filing with the SEC, file their Form 10-K due at the end of March, pay the auditors, pay us, etc.? Or give up, take them private or simply “go dark” and stop filing? I am very pleased to report that I have not had one client with Form 10 shells decide not to renew for another year of service with us. This speaks volumes, and well timed after the President’s speech last night. What does it say? That the dealmakers who set up these shells believe the deal world will pick up in the near future, and they are prepared to continue to go out of pocket to back up that belief. In fact, several clients are talking about adding more shells to their inventory.

I pitched a savvy potential new client the other day who is considering a reverse merger. His CFO had public company experience but he did not. When I explained the different types of shells, this smart but RM-inexperienced executive who already has a large shareholder base in his company said, “Then why would anyone go with a trading shell with an operating history vs. a Form 10?” I explained that the Form 10s have the value of facilitating a PIPE financing sooner than a self-filing, and cost significantly less than a trading shell, and have no history to scrub. I further explained that with a Form 10 the stock could be trading in as little as 3 months, but more importantly, the PIPE will be closed and the company gets its financing. There are times when a trading “legacy” shell can make sense (such as where an investor cannot put money in except if he can mark his investment to market every day). But the folks who created over 400 Form 10 shells must have figured out something.

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