The ideal shell is one that is squeaky clean: well-kept, organized and current records, with no history of unsavory behavior. These are not always easy to find. Form 10 shells are formed as blank check companies solely for the purpose of a reverse merger and generally are much less likely to raise these concerns. In looking at a shell with issues, the differentiation between "messy" and "dirty" is critical, because while sounding similar (think dishes), in the reverse merger world there exist stark differences. Shells are considered "messy" when there has been no shady activity suspected but the filings and recordkeeping are disorganized. This complicates discovering what has actually gone on in the shell prior to the planned merger. Often information is delivered gradually and is, well, messy and disorganized. They may be behind in their SEC filings or there may not be a way to conclusively tell who are the proper legitimate Board members. And ownership of shares may be problematic, it might be necessary to trace every securities issuance since inception to be sure. Ultimately, one can hope that "messy" shells can be scrubbed and brought up to date so that the terms of the reverse merger are clear. Conversely, "dirty" shells are characterized by having some questionable players or actions which are only discovered in due diligence. Be cautious if it appears the shell is or was an operating company, be sure that it went public with purposes beyond finding a merger or risk getting caught in the "footnote 32″ issue with the SEC (if you are unfamiliar with this term you can search it above for prior blog posts). Most important: make sure you have experienced and diligent professionals advising you to make sure the shell you are acquiring is carefully reviewed and, if necessary, cleaned up.
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