SEC Approves Seasoning of Reverse Merger Companies

SEC Approves Seasoning of Reverse Merger Companies

On November 8th, the US Securities and Exchange Commission approved rule changes requested by the three major US stock exchanges, Nasdaq, the NYSE Amex and the New York Stock Exchange. In sum, companies completing reverse mergers with SEC-reporting shell companies will now have to "season" by trading on the over-the-counter markets or another national exchange for one year, and timely filing all its periodic reports with the SEC before seeking to uplist to these major exchanges. Companies completing reverse mergers with special purpose acquisition companies (SPACs) are exempt from seasoning.

In addition to waiting to move up, the post-reverse merger company will have to have its stock trade at the same price as the larger exchange's initial listing price for a sustained period before applying to list. This would not be required for a company that completed its reverse merger at least four years prior to applying to uplist.

One can bypass seasoning if the company is coming to the larger exchange with a firm commitment underwritten public offering with gross proceeds of at least $40 million. This applies on all three exchanges.

There was some hope that, based on a comment letter from WestPark Capital, there might be an exemption for Form 10 share exchange transactions, but this was rejected.

My thoughts? To come...

For additional insights on reverse mergers, SPACs, other alternatives to traditional initial public offerings, the small and microcap markets and the economy, visit the Reverse Merger and SPAC Blog  by David N. Feldman, Esq., Partner of Richardson & Patel LLP.

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