Update from Dino: Q&A
Securities and Exchange Commission Accepts Michelex’ Offer of Settlement:
[Note: If you have trouble viewing this email, a copy is attached as a PDF: “Michelex Update_5_22_2013”]
On May 8, 2013, the Securities and Exchange Commission (“SEC”) announced a Temporary Suspension of Trading in Michelex, released an Order Suspending Trading and issued an Order Instituting Administrative Proceedings and Notice of Hearing Pursuant to Section 12(j) of the 1934 Securities and Exchange Act.
Based upon discussions with Senior Counsel for the SEC’s Division of Enforcement, and consultation with Michelex’ corporate counsel, Michelex Corporation presented the SEC with an Offer of Settlement for the purpose of settling the proceedings initiated against Michelex Corporation on May 8, 2013, pursuant to Rule 240(a) of the Rules of Practice of the Commission, 17 C.F.R. § 201.240(a). Michelex presented its offer (PDF: “Offer of Settlement of Michelex Corporation_5_15_13”) solely for settling the proceedings initiated by the SEC, and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party.
The SEC has accepted Michelex’ Offer of Settlement (SEC Release No. 69619) and pursuant to Section 12(j) of the Securities Exchange Act of 1934 (“Exchange Act”), each class of Michelex Securities registered pursuant to Exchange Act Section 12 have been revoked.
Michelex’ Board of Directors (“BOD”) believes it was in the best interest of Michelex, its shareholders and the investing public to present the aforementioned Offer of Settlement to the SEC. As a result, Michelex will have an opportunity to re-register its securities with the SEC, which in turn will provide an opportunity for the resumption of quotation and trading of Michelex Securities.
Following are some questions you may have, along with answers.
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Why did Michelex submit a Settlement Offer? Why not attempt to get the audits completed before the Administrative Judge made an initial ruling in the Administrative Proceedings?
Per discussions with the lead counsel for the SEC’s Division of Enforcement, it was very clear that the SEC would take the position that Michelex already had seven years to complete the audits and additional time was not warranted. If Michelex took actions that might forestall the proceedings and/or implementation of the SEC’s requested action of revoking Michelex’ registration under section 12 of the Exchange Act, Michelex might have been subject to additional enforcement actions; actions that might preclude Michelex’ ability to successfully re-register its securities.
Furthermore, Michelex’ last quarterly financial filing with the SEC was a Form 10-QSB for the period ended September 30, 2006. Thus, Michelex would need to complete approximately seven years of back-audits. Pursuant to the Settlement Offer, the re-registration process will only require filing audited financial statements for the last two years, which will potentially save Michelex upwards of $100,000 in auditing, legal and filing expenses. In addition, the time required to complete two years of audits will be much less than would be required for completing seven years of audits.
What is the process for re-registration of Michelex securities with the SEC, and will Michelex be eligible for re-quotation of its securities?
Michelex will have to file quarterly (Form 10-Q) and annual (Form 10-K) audited financials for the last two years of operations. The audits must be performed by a PCAOB (Public Company Accounting Oversight Board) registered accounting firm. Upon successful filing of the audited financial statements, and the filing of any other mandated Forms (e.g., Form 8-K’s), Michelex will have an opportunity to re-register its securities with the SEC via a Form 10 registration. Successful re-registration will enable a broker-dealer to file a Form 211with the Financial Industry Regulatory Authority (“FINRA”) representing that Michelex has satisfied all applicable requirements, including those of Rule 15c2-11and FINRA Rule 6432. Acceptance of the Form 211 submission will result in the resumption of quotation and trading for Michelex securities via the OTC Link interdealer quotation system (i.e., via market makers), albeit with a new ticker symbol.
As Michelex would be current in its filings with the SEC, upon successful submission of Form 211, Michelex would be denoted as an OTC QB stock via OTC Market Groups, not an OTC PINK stock (OTC Tiers):
OTCQB® - The Venture Marketplace
OTCQB is the venture marketplace for companies that are current in their reporting with a U.S. regulator. There are no financial or qualitative standards to be in this tier. OTCQB companies are SEC, Bank or Insurance reporting and must be Current in their disclosure.
Have other companies accepted revocation and re-registered?
Yes, this type of arrangement has been used before. Attached are two opinions in which the SEC noted that a company may re-register a previously revoked class of securities. In the Impax case, the reference is in the last sentence in the last paragraph on Page 14 (PDF “SEC Impax Opinion_Lexis Version”; highlighting added). In the matter of Cobalis Corporation, the reference is in footnote 33 at page 11, which also cites another decision with the same holding (PDF “SEC Cobalis Opinion_7_6_2011”; highlighting added).
Upon revocation of the registration of Michelex securities with the SEC, what happens to the shares of Michelex common stock in my brokerage account?
In the United States and Canada, a CUSIP (Committee on Uniform Securities Identification Procedures) number is used to identify stocks of registered companies and US Government and municipal bonds. The CUSIP number for Michelex common stock is 59410W208; this number will not change as a result of the SEC’s revocation of the registration of Michelex securities. However, Michelex’ ticker symbol, MLXO, will no longer be valid, and will be replaced with an alphanumeric code assigned by your brokerage firm; some brokerage firms will replace the ticker symbol with the stock’s CUSIP number.
For example, if you currently have 300,000 shares of Michelex common stock in a brokerage account (e.g., E-TRADE, Scottrade, etc.), those shares are currently denoted by the ticker symbol “MLXO” and the unique CUSIP number 59410W208. [Please note that, depending upon your user settings, the CUSIP number may not show up when you view your account online.] After revocation of the registration of Michelex securities with the SEC, your 300,000 shares of Michelex common stock will still appear on your brokerage statements, but the ticker symbol “MLXO” will be replaced with an alphanumeric identifier.
For additional information on CUSIP numbers, please follow these links:
SEC: CUSIP Number
Investopedia: What is a CUSIP number?
Upon revocation of the registration of Michelex securities with the SEC, will I still be able to buy and sell shares of Michelex common stock via my brokerage account?
No1. As Michelex common stock will not be quoted by market makers via the OTC Link interdealer quotation system, you will not be able to trade shares of Michelex common stock via your brokerage account until Michelex has successfully re-registered its Securities with the SEC and FINRA has accepted a Form 211 filing on behalf of Michelex. As noted above, acceptance of the Form 211 submission will result in the resumption of quotation and trading for Michelex securities via the OTC Link interdealer quotation system (i.e., via market makers), albeit with a new ticker symbol.
For additional information regarding the OTC market, please refer to the following links:
SEC: OTC Market
OTC Markets Investor FAQs
Note 1 Michelex takes no position on whether shareholders should seek out alternate venues for trading (e.g., Grey Market; description on OTC Market Tiers page); those decisions are solely the responsibility of the individual shareholder.
Upon revocation of the registration of Michelex securities with the SEC, what happens to my paper certificates for shares of Michelex common stock?
The CUSIP number for Michelex common stock will not change as a result of the SEC’s revocation of the registration of Michelex securities. As your physical certificates only show Michelex’ CUSIP number, not a ticker symbol, your certificates will not need to be re-issued.
I have restricted certificates for shares of Michelex common stock. How does revocation of the registration of Michelex securities by the SEC affect my ability to have the restrictions removed?
The restrictions on your certificates are Rule 144 restrictions. Transfer agents, including Michelex’ transfer agent, Colonial Stock Transfer, will not remove restrictions from securities if the company is a shell company. Exchange Act Rule 12b-2 defines a Shell Company thusly:
The term shell company means a registrant, other than an asset-backed issuer as defined in Item 1101(b) of Regulation AB, that has:
1. No or nominal operations; and
2. Either:
i. No or nominal assets;
ii. Assets consisting solely of cash and cash equivalents; or
iii. Assets consisting of any amount of cash and cash equivalents and nominal other assets.
Per Colonial Stock Transfer’s Request Form for the removal of stock restrictions for non-shell companies, the company cannot have been a shell company, as described in Rule 144(i)(1) at any time within the preceding 12 month period (Rule 144 Seller’s Representation Letter: Non-Affiliate of a Non-Shell Company).
Thus, in order to have restrictions removed from your certificates of Michelex common stock, Michelex has to become a non-shell company. In addition, the following conditions must be met:
• the issuer is subject to the reporting requirements of section 13 or 15(d) of the Exchange Act;
• the issuer has filed all reports and other materials required to be filed by section 13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months, other than Form 8-K reports; and
• one year has elapsed since the issuer has filed current ‘‘Form 10 information’’ with the Commission reflecting its status as an entity that is no longer a shell company.
[From: SEC Revisions to Rules 144 and 145: A Small Entity Compliance Guide. Note that in the context of this answer, removing restrictions is equivalent to being able to sell restricted securities.]
Basically, Michelex must not be a shell company (i.e., Michelex must have assets/operations), must be current in its SEC reporting requirements, have re-registered its securities via a Form 10 registration and one year must have elapsed since the Form 10 was filed. Revocation of the registration of Michelex securities by the SEC will not delay your ability to have restrictions removed from your certificates, as one year must have elapsed since Form 10 or Form 10 information was filed. In fact, one could make the argument that the overall time required to have restrictions removed will be decreased, as Michelex will only need to file Form 10 Information (i.e., audited financials) for the past two years, not the past seven and a half years.
For additional information, please refer to the following links and/or contact Colonial Stock Transfer Company.
Removing 144 Restrictions
Rule 144 Seller’s Representation Letter: Non-Affiliate of a Non-Shell Company
Does Michelex have a plan to acquire assets and/or begin operations?
Yes. Michelex’ current Board of Directors has been working towards securing assets and/or a partner, removing liabilities and completing audits and other required SEC-mandated requirements since being seated. When the SEC contacted Michelex in April of 2012 regarding delinquent filings, Michelex was close to securing a majority ownership position in a late development stage pharmaceutical company. If that deal had been executed, Michelex was prepared to retain a PCAOB firm to begin SEC-required audits. In fact, in its communication with the SEC last year, Michelex noted that it was agreeable to a stipulation that if Michelex had not made all necessary filings by an agreed upon date, Michelex would voluntarily agree to de-registration pursuant to Section 12j of the Securities and Exchange Act of 1934. Michelex made that offer based upon advice of counsel, knowing that Michelex could potentially reduce compliance costs by upwards of $100,000 and reduce the time required to become fully current in its reporting obligations via the re-registration process.
Michelex will continue to provide updates to shareholders and the investing public regarding the process of securing assets and/or operating partners, the initiation and completion of audits, the filing of required forms with the SEC and the process of having a Form 211 submitted to FINRA. As has been the practice of the current BOD, Michelex will not release information regarding the signing of Agreements and/or Contracts until such documents have been executed.
If you have additional questions, please contact:
Dino A. Sawyer
Vice President, Administration and Investor Relations
Michelex Corporation
207-406-2588 (Office)
866-848-9508 (Fax)
Dino_Sawyer@michelex.com
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