Risk & Compliance

Katy Bar the Filing Costs

A unusual reverse stock split plan by Katy Industries is intended to reduce its stockholder rolls so it can de-register its shares and save on regu...
Stephen TaubOctober 13, 2008

Katy Industries is orchestrating an intriguing two-step process with the ultimate goal of de-registering its shares.

The company, which makes industrial and home-consumer cleaning products, including Brillo, said its plan will reduce costs by eliminating SEC reporting requirements and Sarbanes-Oxley Act compliance and auditing requirements.

Katy said it will continue to give stockholders annual audited financial statements and quarterly unaudited statements, and to solicit proxies in connection with its annual stockholder meeting, even though it won’t be required to do so.

Under its plan, Katy will complete a 500-to-1 reverse stock split of shares. Stockholders owning fewer than 500 shares immediately before the reverse stock split will get $2 in cash for each common share and will no longer be a stockholder of the company. Those who don’t want do be cashed out may purchase additional shares in the open market before the reverse split in order to reach the 500-share threshold.

Stockholders owning 500 or more common shares will receive one share for each 500 common shares held and, in lieu of any fractional shares following the reverse stock split, will get $2 in cash for any pre-split shares that result in the fraction.

The company’s stock, which trades on the OTC Bulletin board, surged 75 percent on the news, to around $1.40 per share.

The goal is to wind up with fewer than the 300 shareholders that are required to register with the Securities and Exchange Commission. It did not say what it plans to do if it winds up with more than 300 shareholders.

The company said a special shareholder meeting to vote on the plan will take place in early 2009.