Max & Erma’s Not Going Private

Max & Erma’s Restaurants (MAXE) announced yesterday that they have withdrawn their plans to go private with a reverse split. They stated their reasoning as follows:

The Company’s Board of Directors on March 29, 2005, withdrew the 1-for-200 reverse stock split proposal which was publicly announced on January 19, 2005, subject to approval of a vote of its stockholders, after which stockholders who owned less than one whole share would be cashed out at $16 per share. On March 2, 2005, the Securities and Exchange Commission (SEC) extended the compliance date for non-accelerated filers, which included the Company, to comply with Section 404 of the Sarbanes-Oxley Act (Section 404). With the extension, the Company will not be required to include in its annual reports a report by management on the Company’s internal controls over financial reporting and an accompanying auditor’s report until the filing of its annual report for fiscal 2006, which fiscal year ends October 29, 2006. There are also two recent initiatives underway concerning the future application of Section 404 to non-accelerated filers. First, the SEC has established the SEC Advisory Committee on Smaller Public Companies to assist the Commission in evaluating the current securities regulatory system relating to smaller public companies, including the internal control requirements. Second, the Committee of Sponsoring Organizations (COSO) has established a task force to develop new guidance for smaller companies regarding internal controls that it intends to publish this summer. One of the primary reasons for the Company’s 1-for-200 reverse stock split proposal was to enable the Company to save substantial annual compliance costs that it would have begun to incur in fiscal 2005, by deregistering as an SEC reporting company and thereby making Section 404 inapplicable to it. Because of the SEC’s recent extension in the date for compliance, COSO’s initiatives to study the application of the new internal controls requirements to smaller public companies, and a material increase in the estimated number of shares held by stockholders with fewer than 200 shares that would have been cashed out in the proposed reverse stock split, the Company’s Board of Directors determined to withdraw the reverse stock split proposal.

The playing field has changed for small companies and many of them that are in the process of going private may also decide not to go though with their buybacks. I think it is prudent now to reconsider these opportunities until things settle down.

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