Reverse Mergers & Public Shells - The End Has Come - Part 1.1 of 3

Liberalizing Communications Around the Time of Registered Offerings

The rules update and liberalize permitted offering activity and communications to allow more information to reach investors by revising the "gun-jumping" provisions under the Securities Act. The cumulative effects of these rules are:

• Well-known seasoned issuers are permitted to engage at any time in oral and written communications, including use at any time of a new type of written communication called a "free writing prospectus," subject to enumerated conditions (including, in some cases, filing with the Commission).
• All reporting issuers are, at any time, permitted to continue to publish regularly released factual business information and forward-looking information.
• Non-reporting issuers are, at any time, permitted to continue to publish factual business information that is regularly released and intended for use by persons other than in their capacity as investors or potential investors.
• Communications by issuers more than 30 days before filing a registration statement will be permitted so long as they do not reference a securities offering that is the subject of a registration statement.
• All issuers and other offering participants will be permitted to use a free writing prospectus after the filing of the registration statement, subject to enumerated conditions (including, in some cases, filing with the Commission). Offering participants, other than the issuer, will be liable for a free writing prospectus only if they use, refer to, or participate in the planning and use of the free writing prospectus by another offering participant who uses it. Issuers will have liability for any issuer information contained in any other offering participant's free writing prospectus as well as any free writing prospectus they prepare, use, or refer to.
• The exclusions form the definition of prospectus are expanded to allow a broader category of routine communications regarding issuers, offerings, and procedural matters, such as communications about the schedule for an offering or about account-opening procedures.
• The exemptions for research reports are expanded.

A number of these new rules include conditions of eligibility. Most of the rules, for example, are not be available to blank check companies, penny stock issuers, or shell companies.

The rules address the treatment under the Securities Act of electronic communications, including electronic road shows and information located on or hyper-linked to an issuer's website. The rules define written communication as any communication that is written, printed, a radio or television broadcast, or a graphic communication. The definition of graphic communication and, thus, electronic road show excludes communications that are carried live and in real-time to a live audience, regardless of the means of transmission. Electronic road shows for initial public offerings of common equity or convertible equity securities will have to make a bona fide electronic road show readily available to an unrestricted audience to avoid filing the electronic road show with the Commission. No other road shows will be subject to filing.

Liability Timing Issues

The Commission addressed the liability provisions under the Securities Act. In this regard, the Commission:

• Reaffirmed the interpretation and adopted an interpretive rule that, for purposes of disclosure liability under Section 12(a)(2) and Section 17(a)(2) of the Securities Act, when assessing whether a statement to an investor prior to or at the time of sale by a seller includes or represents a material misstatement or omits to state a material fact necessary to make the statement in light of the circumstances under which it was made, not misleading, information conveyed to the investor only after the time of the contract of sale should not be taken into account.
• Approved changes to the Securities Act procedures for shelf registration that will ensure that prospectus supplements filed after the initial effective date of a registration statement will be included in the registration statement for Securities Act Section 11 liability purposes.
• Approved rules that will establish a new Section 11 effective date for each takedown off a shelf registration statement for issuers and underwriters, and not for experts, directors, and signing officers. If an expert provides a new report or opinion in an Exchange Act report or in connection with the takedown that would require a consent, however, there would be a new effective date for that expert.

To be continued...

Reverse Merger & Public Shells: The End Has Come - Part 1 of 3

This is part 1 of 3 parts about "SEC Votes to Adopt Securities Act Rule Reform and Shell Company Regulations: Considers Matters Remanded by Court of Appeals"

FOR IMMEDIATE RELEASE 2005-99

Washington, D.C., July 1, 2005 - On June 29, 2005, the Commission voted to adopt changes to rules regarding various processes regulated under the provisions of the Securities Act of 1933; voted to adopt regulations to deter fraud and abuse in the securities markets through the use of shell companies; and considered matters remanded to the Commission by the U.S. Court of Appeals for the District of Columbia Circuit.

1. Rules Regarding Securities Offering Reform

The Commission voted to adopt modifications to the registration, communications, and offering processes under the Securities Act of 1933.

Categories of Issuers

In many cases, the amount of flexibility granted to issuers under the reforms is contingent on the characteristics of the issuer, including the type of issuer, the issuer's reporting history, and the issuer's equity market capitalization or amount of previously registered non-convertible securities, other than common equity. The rules divide issuers into four categories.

• A well-known seasoned issuer is a new class of issuer that is current and timely in its Exchange Act reports for at least one year and has either $700 million of worldwide public common equity float or has issued $1 billion of non-convertible securities, other than common equity, in registered offerings for cash, in the preceding three years.
• A seasoned issuer is a primary shelf eligible issuer.
• An unseasoned issuer is an issuer that is required to file reports pursuant to Sections 13 or 15(d) of the Exchange Act, but is not a primary shelf eligible issuer.
• A non-reporting issuer is an issuer that is not required to file reports pursuant to Sections 13 or 15(d) of the Exchange Act.

The most significant revisions to the Commission's communications rules and registration processes apply to well-known seasoned issuers.


To be continued....

Reverse Merger & Public Shells: The End Has Come

We have maintained for a long time that Public Shells were a gimmick for variety of reasons. The end has come to the Reverse Merger-Public Shells charade. Please read the recent Securities and Exchange Commisions release.

Thank you.

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