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Under the proposed rules, a reverse merger company would be ineligible for listing on the NYSE unless the combined entity had, immediately prior to filing its initial listing application:
traded for at least one year in the U.S. over-the-counter market, on another national securities exchange, or on a regulated foreign exchange following the consummation of the reverse merger, and (i) if a domestic issuer, filed with the SEC a Form 8-K including all of the information required by Item 2.01(f) of Form 8-K, including all required audited financial statements, or (ii) if a foreign private issuer, filed the information described in (i) above on Form 20-F;
maintained on both an absolute and an average basis for a sustained period a minimum stock price of at least $4 per share; and
timely filed with the SEC all required reports since the consummation of the reverse merger, including the filing of at least one annual report containing audited financial statements for a full fiscal year commencing on a date after the date of filing with the SEC of the filing described in the first bullet above.
In addition, a reverse merger company would be required to maintain, on both an absolute and an average basis, a minimum stock price of at least $4 per share through listing.
A key point is that the NYSE specifically exempts or excludes certain reverse merger companies from its proposed heightened listing requirements. For example, a reverse merger company listing on the NYSE in connection with an Initial Firm Commitment Underwritten Public Offering2 occurring subsequent to, or concurrently with, the reverse merger that generates net proceeds to the company of $40 million or more would be exempt.3 Similarly, companies that qualify for initial listing under the NYSE’s special purpose acquisition company, or “SPAC,” listing standards would be excluded from the NYSE’s definition of a reverse merger company.
These requirements would be in addition to the NYSE’s other listing requirements. Furthermore, the NYSE would retain the discretion to impose even more stringent requirements on a case-by-case basis. Among the factors that might trigger further NYSE scrutiny are: an inactive trading market in the company’s securities; the existence of a low number of publicly held shares that were not subject to transfer restrictions; no filing of an SEC registration statement or other filing subject to review by the SEC; and disclosure of a material weakness or weaknesses in internal controls identified by management or the company’s auditor for which an appropriate corrective action plan had not yet been implemented.
As a comparison, the Nasdaq proposed rules would prohibit a company going public by combining with a public shell from applying to list until six months after the combined entity submits all required information about the transaction, including audited financial statements, to the SEC. Further, the Nasdaq proposed rules would require that the company maintain a $4 per share bid price on at least 30 of the 60 trading days immediately prior to submitting the application. Finally, Nasdaq would not approve any reverse merger company for listing unless it had timely filed its two most recent financial reports with the SEC if it is a domestic issuer (this could be two quarterly filings or a quarterly and an annual filing) or comparable information if it is a foreign private issuer.
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