Nasdaq is entrusted with the authority to preserve and strengthen the quality of and public confidence in its market. Nasdaq may use such discretion to deny initial listing, apply additional or more In so doing, the private companys shareholders generally own a substantial majority of the public company post-merger. Nasdaq routinely required Reverse Merger companies to file with the SEC at least one Form 10-K with audited financial statements covering periods subsequent to the reverse merger and would typically discount any stock price where only a small percentage of the company's shares were freely tradable. Although the current language of the Reverse Merger Rule is silent about whether a domestic issuer needs to timely file two consecutive periodic filings, the use of the phrase a period of not less than six months for foreign private issuers suggests that a similar six month period should apply to domestic issuers. Late filings of periodic reports will no longer merely affect public perception of managements capabilities; they will delay a listing application. On consideration of such appeal, a listing qualifications panel comprised of persons independent of Nasdaq may accept, reject or modify the staff's recommendations by imposing conditions. The SEC's approval of the exchanges' additional listing requirements for Reverse Merger companies reflects a dichotomy within the SEC where the Division of Enforcement has actively sought out accounting fraud among smaller public companies since last summer while the Division of Corporation Finance has sought to address Congress' desire to encourage small business capital formation. The National Law Review is not a law firm nor is www.NatLawReview.com intended to be a referral service for attorneys and/or other professionals. As of the date of the proposed Reverse Merger Rule, only NASDAQ has proposed such requirements for reverse merger companies. (B) maintained a closing price equal to the share price requirement applicable to the initial listing standard under which the Reverse Merger Company is qualifying to list for a sustained period of time, Regulatory Information. The Company must submit an application for the post-transaction entity with sufficient time to allow Nasdaq to complete its review before Such individuals are typically an officer, director, Substantial Shareholder Statement in compliance with Texas Rules of Professional Conduct. Honey, I Lost the Trade Mark: Manuka Honey Declared Not Exclusive to Energy & Sustainability Washington Update June 2023. about the business combination and the redemption rights as would be required under Regulation 14A of the Act, which regulates the solicitation of proxies. [t]here have been widespread allegations of fraudulent behavior by Reverse Merger companies, leading to oncerns that their financial statements cannot be relied upon;, it appeared that promoters and others intended to manipulate prices of Reverse Merger companies securities higher to help meet Nasdaqs initial listing bid price requirement; and, companies have gifted stock to artificially satisfy Nasdaqs public holder listing requirement.. However, a Reverse Merger does not include the acquisition of an operating company by a listed company satisfying the application: (A) 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 filing with the Commission or Other Regulatory In a reverse merger transaction, an existing public "shell company," which is a public reporting company with few or no operations,1 acquires a private oper-ating companyusually one that is seeking access to funding in the U.S. capital markets. In the past 5 years, we have witnessed many companies focused on emerging technologies, such as life sciences companies, seek to go public through reverse listing transactions, given the lower cost and expedited timeline such transactions offer in comparison to an initial public offering.

four annual reports with the Commission or Other Regulatory Authority containing all required audited financial statements for a full fiscal year commencing after filing the information described in that paragraph. It is uncertain whether these transactions can now be accomplished in the over-thecounter market or whether typical offering sizes can be increased to meet the new listing requirements. The six-month seasoning period and minimum stock bid price combine to reduce the likelihood that fraudulent companies list on NASDAQ. In a reverse listing, also called a reverse merger, a private company is acquired by a Nasdaq listed company through either a merger, share exchange or other type of business combination. Please e-mail me with info on news, seminars and e-newsletters. (3), the Reverse Merger Company must satisfy all applicable requirements for initial listing, including the minimum price requirement and the requirement contained in Rule 5210(e) that the Company not be delinquent in its filing obligation with the Commission

Retailers: What Anticounterfeiting and Antipiracy Strategies Work for Lower Colorado Basin States Compromise on Water Conservation. Neither Narrow Proposed Claim Construction nor Work Product Claim Are Some Tokens Securities? (as defined in Rule 5635(e)(3)), or consultant to the Company.

Nasdaq stands for integrity and ethical business practices in order to enhance investor confidence, thereby contributing to the financial Alcohol BeverageBanking/LenderCOVID-19Consumer FinanceCredit UnionData PrivacyEminent DomainEmployee BenefitsFirm NewsFranchisingGovernment Contracts/DefenseHealth CareLabor & EmploymentManufacturing & DistributionMunicipalitiesReal EstateTaxTitle Insurance, Copyright 1999-2023 Kaufman & Canoles, P.C. A Long Hot Summer: Effective Variable Rates Subject to Increase ( U.S. Supreme Court Unanimously Finds Subjective Intent Controls in $1.185 Billion PFAS Settlement For Water Utilities. Chinas National Intellectual Property Administration to Cease Upcoming NYSE and NASDAQ Clawback Requirements, Latin America Energy Updates: January April 2023. While reverse mergers are not inherently problematic and a number of reputable Chinese companies have used them to restructure in preparation for listing in the United States, they have been disproportionately used by fraudulent Chinese companies. Disclaimer. Nikola, who's stock closed at $0.57 on Thursday, has been battling mounting losses, high cash burn and sluggish demand for its battery-powered trucks. BETO Announces Novel State-of-the-Art Workflow Technology to BETO Launches New Renewable Carbon Resources Web Page. The shareholders of the private operating company exchange their shares for most of the shares of the public company, thereby gaining a controlling interest in the public shell company. Although the Reverse Merger Rule by its terms does not apply to firm commitment, underwritten offerings, companies would be wise not to read too much into that distinction. For foreign private issuers (the shell is not a US entity and the company has not voluntarily elected to file on domestic forms), this requirement would impose an obligation to file financial statements for a period of not less than six months. According to the SECs release (No. The Nasdaq Stock Market, Nasdaq, The Nasdaq Global Select Market, The Nasdaq Global Market, The Nasdaq Capital Market, ExACT and Exchange . Foreign private issuers are required by the SEC to file an annual report six months after the end of the fiscal year but not quarterly reports; NASDAQ further requires, under Listing Rule 5250(c)(2) that a company file on Form 6-K an interim report including balance sheets and income statements for the first half of the fiscal year within six months after the end of the second quarter. Reverse Mergers (1) A Company that is formed by a Reverse Merger (a "Reverse Merger Company") shall be eligible to submit an application for initial . On November 8, 2011, the SEC approved requests by the Nasdaq Stock Market, New York Stock Exchange and NYSE Amex to adopt additional initial listing requirements that would make it harder for companies that go public through a reverse merger or similar transaction (Reverse Merger companies) to become exchange listed, or to uplist. Specifically, the new requirements would prohibit a Reverse Merger company from listing its shares on all three major U.S. stock exchanges until: The new listing requirements would not apply to a Reverse Merger companys listing application if (i) the listing is in connection with a firm commitment underwritten public offering providing gross proceeds to the company of at least $40 million or (ii) the reverse merger occurred five or more years before applying to list so that at least four annual reports on Form 10-K with audited historical financial information have been filed by the company with the SEC following the one-year trading period. In making this change, Nasdaq notes that the Reverse Merger Rules' seasoning . Merger contingency - Some companies enter into merger agreements but require that the party being acquired have at least a certain stock price level.

shall be described in the written decision of the Adjudicatory Body. The Nasdaq Listing Center is our secure online document and information portal.
Jayun Koo is a Haynes and Boone associate in the Capital Markets and Securities Practice Group. A reverse merger company will no longer be subject to the minimum price trading requirement of Section 102.01F of the Manual if it has satisfied the one year trading requirement of Section 102.01F and has filed at least four annual reports with the SEC or other regulatory authority containing all required audited financial statements for a full fiscal year commencing after filing the information required by Section 102.01F (described in the first bullet point under the discussion of Section 102.01F). (a) Business Combinations with non-Nasdaq Entities Resulting in a Change of Control. A reverse merger company will be prohibited from applying to list on Nasdaq until the combined entity has traded in the U.S. over-the-counter market, on another national securities exchange, or on a regulated foreign exchange for at least one year following the filing of all required information about the reverse merger transaction with the SEC or other regulatory authority, including audited financial statements for the combined entity; The reverse merger company will have to maintain a $4 closing price for a sustained period of time but not less than 30 of the most recent 60 trading days immediately prior to submitting the listing application and as well as at least 30 of the most recent 60 trading days prior to the approval of the listing; and. Such determinations will be made on a case-by-case basis as necessary The NYSE and NYSE Amex have not yet proposed similar rules. Focusing on voluntary reverse splits These new rules are discussed below.What Is a Reverse Merger?Many private companies seek to access U.S. capital markets by acquiring control of existing public companies. Amended June 16, 2009 (SR-NASDAQ-2009-052). This alert has been prepared by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. Investigations and Enforcement; Reference Library. Workplace Strategies Watercooler 2023: Ogletree Deakins Annual EPA PFAS Enforcement Tools Lining Up for Aggressive Future. Reverse merger transactions are treated as share acquisitions for tax purposes[7]and are typically structured as a reverse triangular merger, as follows: If this legislation is adopted by the Senate (having already overwhelmingly passed the House), reverse merger transactions may be further sidelined. PCI DSS 4.0: Third-party Service Providers And Risk Management, The company (i) has completed a one-year pre-listing seasoning period by trading in the U.S. over-the-counter market or on another regulated U.S. or foreign exchange following the reverse merger and (ii) has timely filed all required reports with the SEC (essentially requiring at least one full fiscal year of the Reverse Merger companys periodic reports, including a Form 10-K with audited historical financial statements), and. report must contain audited financial statements for a full fiscal year commencing after filing the information described in paragraph (1)(A) above; and.

If you require legal or professional advice, kindly contact an attorney or other suitable professional advisor. The National Law Review is a free to use, no-log in database of legal and business articles. If you would ike to contact us via email please click here. In a speech on March 5, 2011, Luis Aguilar, Commissioner of the Securities and Exchange Commission (SEC), criticized the use of reverse mergers of private companies into public trading shells as a disturbing trend that seems to have challenging implications for capital formation and investor protection. On April 18, 2011, The NASDAQ Stock Market LLC (NASDAQ) filed a proposed rule change with the SEC designed to impose additional listing requirements on companies that become public through reverse mergers. Now at least 50 percent of a companys round lot holders must each hold unrestricted securities with a market value of at least $2,500. We have also defended the largest broker-dealers on Wall Street in high stakes customer and industry arbitrations; our broker-dealer lawyers You are responsible for reading, understanding and agreeing to the National Law Review's (NLRs) and the National Law Forum LLC's Terms of Use and Privacy Policy before using the National Law Review website. The Nasdaq Stock Market, Nasdaq, The Nasdaq Global Select Market, The Nasdaq Global Market, The Nasdaq Capital Market, ExACT and Exchange . Nasdaq Companies, from new public Companies to Companies of international stature, are publicly recognized as sharing these important objectives. A reverse listing transaction also provides investors with an accelerated path to liquidity and exposes a private company to a new universe of investors. Because the IPO markets have been so difficult for smaller capitalization issuers during the past four years, the proposals for enhanced listing standards will discourage these companies from pursuing reverse mergers, the only other practical way for them to obtain the benefits of public listed stock to expand their businesses. U.S. Department of Education Delays Release of Title IX Final Rules Californias Workplace Violence Bill Passes State Senate and Heads to Leaves of Absence Four Key (and Surprising) Points for Navigating Israel Approves the First Animal-Free Protein for Food Use. Will be made on a case-by-case basis as necessary the NYSE and Amex! Bid price combine to reduce the likelihood that fraudulent companies list on Nasdaq workforce Positive Post-Accident Marijuana Test. Agreement on terms and conditions of a unanimously recommended all share merger when a business! Party being acquired have at least a certain stock price level these important objectives is! 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Operating company replaces the board of directors and management of the Adjudicatory Body on Nasdaq market where companies. ) ( 3 ) ), or consultant to the company 's past corporate governance activities companies... Price level Haynes and Boone associate in the Capital Markets and Securities Practice Group @ kaufcan.com Positive Post-Accident Marijuana Test., are publicly recognized as sharing these important objectives Exchange for each redx share is a... Require legal or professional advice, kindly contact an attorney or other professional if you require legal or advice. Companies contemplating a reverse listing transaction also provides investors with an accelerated path to liquidity and a... Be a referral service for attorneys and/or other professionals agreement on terms and conditions of a unanimously all... They will delay a listing application should not be based solely upon advertisements for listing. Not a Law firm nor is www.NatLawReview.com intended to be a referral service for attorneys and/or professionals! A publicly-held shell company America Energy Updates: January April 2023 contact an attorney or other suitable professional.! Such determinations will be made on a case-by-case basis as necessary the NYSE and NYSE Amex have yet! Companies contemplating a reverse listing transaction also provides investors with an accelerated path to liquidity and exposes a private to... Late filings of periodic reports will no longer merely affect public perception of managements capabilities ; they delay... Guarantee a similar outcome nasdaq reverse merger rules date of the proposed reverse merger occurs when privately-held... Technology to beto Launches new Renewable Carbon Resources Web Page > if you such. Bankruptcy and Liquidation, and reverse Mergers, Nasdaq 's US listing Center is powered by ExACT x27 ;.... 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The SEC supported the exchanges right to provide listed status only to those that are bona fide companies with sufficient public float, investor base, and trading interest likely to generate depth and liquidity sufficient to promote fair and orderly markets.. Based on this review, Nasdaq may determine that the regulatory history rises to the level of a public interest concern, but may also consider whether remedial measures proposed by the Company, if taken, would allay that concern. Increase in Nonimmigrant Visas Fees at Consulates Delayed to June 17 Debt Ceiling Showdown Yields Significant Permitting Reform Legislation, Illinois Poised To Become Latest State To Mandate Pay Transparency, NLRB General Counsel Targets Non-Compete Agreements as Unlawful. Attorney Advertising Notice: Prior results do not guarantee a similar outcome. In addition, pursuant to its discretionary authority, Nasdaq will review the Company's past corporate governance activities. (3) A Reverse Merger Company will not be subject to the requirements of this Rule 5110(c) if, in connection with its listing, it completes a firm commitment underwritten public offering where the gross proceeds to the Reverse Merger The Company must file tender offer documents with the Commission containing substantially the same financial and other information Any legal analysis, legislative updates or other content and links should not be construed as legal or professional advice or a substitute for such advice. . Get the latest articles from Life Science Leader delivered to your inbox.

a business combination described in Nasdaq Rule 5110(a) wherein a listed company combines with a non-Nasdaq entity, resulting in a change of control of the listed company and potentially allowing the non-Nasdaq entity to obtain a Nasdaq listing, sometimes called a back-door listing. redx pharma - boards of redx and jounce reached agreement on terms and conditions of a unanimously recommended all share merger. New Exchange Requirements For more information, please contactTony Baschat (804) 771.5725 orawbasch@kaufcan.com. We have been lead defense counsel in hundreds of securities class actions, derivative actions, and investigations and enforcement actions by the SEC, FINRA, and state regulators, including some of the largest, most complex, and highly publicized regulatory actions and securities fraud cases filed in recent times.

the combined Company must meet the requirements for initial listing. Finally, the SEC found that the rule exclusions for a $40 million firm commitment underwritten public offering at or about the time of listing or the filing of at least four annual reports with the SEC reasonably accommodate[s] issuers that may present a lower risk of fraud or other illegal activity. In determining the level of such a public offering, the SEC noted that only with a sizeable underwritten public offering does an issuer undergo the due diligence and vetting required to warrant the same treatment as issuers that were not formed through a reverse merger. but in no event for less than 30 of the most recent 60 trading days prior to approval. If the Company's application for initial listing has not been approved prior to consummation of the transaction, Nasdaq will issue a Staff Delisting Determination and begin delisting proceedings pursuant to the Rule 5800 Series.

Nasdaq may also use its discretionary authority, for example, when a Company files for protection under any provision of the federal bankruptcy laws or comparable foreign laws, when a Company's independent accountants issue a disclaimer opinion on financial (B) maintained a closing price equal to the share price requirement applicable to the initial listing standard under which the Reverse Merger Company is qualifying to list for a sustained period of time, And What Does It Mean for Taxes? In light of these facts, we believe that fewer private companies may choose to pursue reverse listing transactions unless the target Nasdaq companies have sufficient cash on hand to avoid the need to file an S-4 registration statement or the private company has sufficient resources to complete a lengthier transaction. (a) At least 90% of the gross proceeds from the initial public offering and any concurrent sale by the company of equity securities must be deposited in a trust account maintained by an independent trustee, an escrow account maintained The National Law Review - National Law Forum LLC 3 Grant Square #141 Hinsdale, IL 60521 Telephone (708) 357-3317 ortollfree(877)357-3317. The Nasdaq CM is the market where private companies contemplating a reverse merger are most likely to seek a listing. For domestic issuers (the shell was a US entity or the company is a smaller reporting company that elects to file on domestic forms), this requirement means that the issuer has filed at least two periodic financial reports (Forms 10-Q and/or 10-K). in its market, to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and to protect investors and the public interest. In addition, a Reverse Merger Company will no longer be subject to the requirements of this Rule 5110(c) once it has satisfied the one-year trading requirement contained in paragraph (1)(A) above and has filed at least requirements, as well as activities taking place after a formerly listed company is no longer listed on Nasdaq or such an exchange. This review may include activities taking place while the Company is listed on Nasdaq or an exchange that imposes corporate governance

According to Nasdaq's proposed rules, a reverse-merger company's stock must trade on one of the over-the-counter markets (or another exchange) for at least six months after filing its first. Workforce Positive Post-Accident Marijuana Drug Test Rates Reach General Employment Litigation Practice Group Jackson Lewis. The most immediate effect of the Reverse Merger Rule is to require that a reverse merger company demonstrate that it is ready to operate as a public company before NASDAQ will accept its application. The revocations occurred due to a failure of the entities to make required filings with the SEC.Significant concerns have also arisen relating to accounting fraud allegations with respect to a number of companies following reverse mergers. IRS Issues Reminder that Claims Under Health and Dependent Care FSAS U.S. Executive Branch Update June 2, 2023. The companys stock must trade for at least six months after the completion of the reverse merger and filing with the SEC of audited financial statements for the post-merger combined entity. Although Nasdaq has broad discretion under Rule 5101 to impose additional or more stringent criteria, the Rule does not provide a basis for Nasdaq to grant exemptions or exceptions from the enumerated criteria for initial or continued listing, which may In the absence of the SEC scrutiny and underwriter due diligence present in underwritten public offerings, NASDAQ has proposed a rule that will require that the company operate and trade as a public company for a significant amount of time. NLR does not answer legal questions nor will we refer you to an attorney or other professional if you request such information from us. Tax Advice Disclosure: To ensure compliance with the Internal Revenue Service regulations governing the issuance of advice on Federal tax issues, we advise you that any tax advice in this communication (and any attachments) is not written with the intent that it be used, and cannot be used, to avoid penalties that may be imposed under the Internal Revenue Code. IP Industry Comment Opportunity At USPTO: Strategies to Address Court Declines to Halt Vineyard Wind Project, NLRB Issues Memo on Non-competes Violating NLRA. (35) "Reverse Merger" means any transaction whereby an operating company becomes an Exchange Act reporting company by combining, either directly or indirectly, with a shell company which is an Exchange Act reporting company, whether through a reverse merger, exchange offer, or otherwise. Regardless, the new listing requirements will have a substantial impact on these transactions and may discourage Reverse Merger activity, particularly during periods when the traditional IPO market window is closed. Nasdaq now believes it is appropriate to allow a former Reverse Merger Company to qualify for initial listing under any applicable listing standard, including the Alternative Price Requirement, after satisfying the seasoning period required by the Reverse Merger Rules. or Other Regulatory Authority. Under certain state laws the following statements may be required on this website and we have included them in order to be in full compliance with these rules. Listing Rules; Nasdaq Trader; Rules and Regulation; Rulebook Advanced Search; Market Regulation - US. Use of Discretionary Authority, IM-5101-2. Montana Passes 9th Comprehensive Consumer Privacy Law in the U.S. NLRB General Counsel Now Targeting Noncompetes for Nonmanagerial and Michigan Court of Appeals Broadens Potential Exposure to Securities NLRB General Counsel Issues Memo Targeting Noncompete Agreements for Ninth Circuit Declines To Aggregate Loans For Usury Exemption. The private operating company replaces the board of directors and management of the public shell company. Under the Nasdaq proposal, Nasdaq would treat as a reverse merger any transaction whereby an operating company becomes public by combining with a public shell, whether through a reverse merger, exchange offer or otherwise. to protect investors and the public interest. The SEC request combination is held, public Shareholders voting against a business combination must have the right to convert their shares of common stock into a pro rata share of the aggregate amount then in the deposit account (net of taxes payable and amounts distributed (e) Until the Company has satisfied the condition in paragraph (b) above, if a shareholder vote on the business combination is not held for which the Company must file and furnish a proxy or information statement subject to Regulation

an inactive trading market in the companys securities; the existence of a low number of publicly held shares that were not subject to transfer restrictions; if the reverse merger company had not had a registration statement or other filing subjected to a comprehensive review by the SEC; or. restrictions on or additional requirements for listing, or denying listing of a security, if Nasdaq determines that there have been violations or evasions of such corporate governance standards. All rights reserved. redx pharma plc - shareholders shall be entitled to receive 0.2105 jounce shares in exchange for each redx share. Library Quick Start Guide; . together with any affiliate of such Shareholder or any person with whom such shareholder is acting as a "group" (as such term is used in Sections 13(d) and 14(d) of the Act), may exercise such conversion rights. meets all applicable initial listing requirements, as well as the conditions described below. A reverse merger occurs when a privately-held business buys a publicly-held shell company. Library Quick Start Guide; . Copyright 2023. Eight Easy Ways to Enhance Your Social Media Presence. Subsequent to NASDAQ's proposal, on July 22, 2011, each of the New York Stock Exchange and the NYSE Amex LLC followed suit and filed a proposed rule change to adopt additional listing requirements for a company that has become public through a reverse merger. In all circumstances where the Listing Qualifications Department (as defined in Rule 5805) exercises its statements required to be audited, or when financial statements do not contain a required certification. Risks associated with such entities include their not being able to comply with the SECs filing and internal control requirements and a lack of history of complying with SEC regulations and public company accounting rules.In the last year, the SEC has suspended trading in a number of reverse merger entities and revoked the registration of a number of these companies. In addition, for existing shareholders of the pre-merger shell, a $4.00 bid price might well be an attractive inducement to sell, so maintaining that bid price could prove to be expensive for would-be manipulators. The SEC also indicated that being quoted for at least one year in the over-the-counter market could make it more likely that analysts have followed the company to provide an additional check on the validity of the companys financial and operating information. If the Company does not meet the requirements for initial listing following a business combination or does not comply with one of the requirements set forth above, Nasdaq will issue a Staff Some of the most promising growth companies have attracted underwriters to conduct public offerings, often in the range of $20 million to $30 million. To further Companies' understanding of Rule 5101, Nasdaq has adopted this Interpretive Material as a non-exclusive description of the circumstances in which the Rule is generally invoked. In the past two months, the securities of more than a dozen Chinese companies listed on US exchanges have been halted or delisted as a result of allegations of fraud, accounting irregularities or other regulatory concerns. Rick Werner is a partner, co-chair of the Capital Markets and Securities Practice Group, and a member of Haynes and Boones Board of Directors. 14A or 14C under the Act, the Company must provide all Shareholders with the opportunity to redeem all their shares for cash equal to their pro rata share of the aggregate amount then in the deposit account (net of taxes payable and amounts distributed to The post-merger surviving public companys assets and business operations are primarily, if not solely, those of the former private operating company.SECThe SEC has expressed concern about reverse mergers. Change of Control, Bankruptcy and Liquidation, and Reverse Mergers, Nasdaq's US Listing Center is powered by ExACT. stringent criteria for the initial or continued listing of particular securities, or suspend or delist particular securities based on any event, condition, or circumstance that exists or occurs that makes initial or continued listing of the securities on Nasdaq These reports would be considered timely if they are filed within the time required, including any extensions. The NLR does not wish, nor does it intend, to solicit the business of anyone or to refer anyone to an attorney or other professional. 2023 Greenberg Traurig, LLP. if the company had disclosed that it had material weaknesses in its internal controls which had been identified by management and/or the companys independent auditor and had not yet implemented an appropriate corrective action plan. The choice of a lawyer or other professional is an important decision and should not be based solely upon advertisements.

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