Yesterday the Securities and Exchange Commission approved additional listing requirements for companies that apply to list on the NYSE, Nasdaq or Amex following completion of a reverse merger with a shell company.
Under the new rules a reverse merger company will not be eligible for listing until it:
- completes a one-year “seasoning period” by trading in the U.S. over-the-counter market or on another regulated U.S. or foreign exchange;
- timely files all periodic reports required to be filed with the Commission, including at least one annual report containing audited financial statements for a full fiscal year commencing on a date that is after the date of the filing of all information required to be filed about the reverse merger; and
- maintains a minimum closing stock price of at least $4 per share for a sustained period of time, but not less than 30 of the most recent 60 trading days, prior to the filing of its listing application .
In addition, each of the NYSE and Amex rules reserve the discretion to impose more stringent listing requirements in the case of a particular reverse merger company based on, among other things:
- an inactive trading market in the company’s securities;
- the existence of a low number of publicly held shares that are not subject to transfer restrictions;
- if the company has not had a Securities Act registration statement subject to a comprehensive review by the Commission; or
- if the company has disclosed that it has material weakness in its internal controls which have been identified by management and/or the company’s independent auditors and has not yet implemented an appropriate corrective action plan.
There are two exceptions. A reverse merger company will not be subject to the additional listing requirements if it is applying to list its securities on NYSE, Nasdaq or Amex in connection with a firm commitment underwritten public offering where the proceeds to the company will be at least $40 million and the offering occurs subsequent to or concurrently with the reverse merger.
Alternatively, if the reverse merger company satisfies the one-year “seasoning-period” and has filed at least four annual reports containing audited financial statements, then it may apply for listing under any one of the respective exchanges’ other initial listing standards.