Free Initial Consultation
Laura Anthony, Founding Partner
Toll Free: 800-341-2684
Phone: 561-514-0936
Fax: 561-514-0832
LauraAnthonyPA@aol.com |
West Palm Beach
Legal & Compliance, LLC
330 Clematis Street, Ste. 217
West Palm Beach, FL 33401 |
Miami Beach
Legal & Compliance, LLC
940 Lincoln Road, Ste. 319
Miami Beach, FL 33139 |
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Reverse
Mergers
When a publicly traded company meets its demise or spins off
to once again become privately held, the "shell" or
publicly traded framework still remains. This creates an opportunity
for privately-held companies seeking public status. They can
simply purchase this public shell and "reverse" their
company into it. This process is commonly known as a Reverse
Merger.
Reverse Mergers can take less time and can be less expensive
than an Initial Public Offering and the results can be more
advantageous. This statement, of course, also depends on the
value, growth potential and overall integrity of the operating
company.
Attaining a Public Shell
Shells vary greatly in quality and price. When attempting to
attain shell, the age of the corporation, the state of incorporation
as well as the number of shareholders and amount of liabilities
should be taken into consideration. Although not as significant,
trading history also plays a factor in the decision-making process.
It must be then ascertained on which exchange the shell qualifies
to be listed. For instance, Bulletin Board shells fetch a greater
price than those that trade on the Pink Sheets. A shell that
comes equipped with more than 300 shareholders is highly coveted
due to the fact that it may qualify for trading on the NASDAQ
Small Cap market.
more...
The Reverse Merger Process
Once the privately-held company selects a public shell and completes
their due diligence, they move to complete the transaction and
obtain most of the stock, approximately 85%. Name change documents
are filed to update the name of the shell so it matches the
name of the acquiring company. A new board of directors is then
elected.
Reverse Mergers are generally structured so that corporate officers
and insiders of the privately held company retain more than
80% of the outstanding stock. Once again, exchange requirements
vary in order for the shell to be listed and anywhere from 5%
to 20% of the outstanding stock needs to be publicly traded;
meaning not in the hands of insiders and affiliates.
Coupling a Capital Raise with a Reverse Merger
There are several avenues that can be taken if the private company
initiating the Reverse Merger needs investment equity.
Shareholder Rights Offerings, Secondary Offerings that consist
of private individuals and institutions (otherwise known as
PIPE's; Private Equity into Public Entity), conversion of debt
to equity and issuing warrants are all viable means for raising
investment equity.
In each of the above scenarios the SEC has numerous regulations
that must be complied with in addition to various Blue Sky issues
that vary from state to state. In the event that insiders of
the company decide to sell restricted stock that is not registered
or even sell fully registered stock, they are bound by restrictions
regarding how much stock they can sell and at what price. The
term "insider" refers to company officers and directors.
Legal Counsel Goes to Work
If a public shell is available for purchase it is usually delinquent
in its required SEC filings and corporate counsel or a securities
law firm must go to work in order to "clean up" the
shell, bringing these filings current. Also, shareholders must
be informed as to who has purchased the shell and for what purpose.
We perform due diligence on public shell companies and complete
all SEC filings to bring inactive shell companies and non-reporting
shells current in their reporting requirements. Our securities
attorneys counsel officers, directors, affiliates and insiders
in monitoring compliance with insider trading and reporting
rules and in maintaining compliance with the Sarbanes Oxley
Act.
Should company insiders desire to liquidate their stock we provide
advice to establish compliance with the SEC sale provisions
of Rule 144. Lastly, we coordinate EDGAR filings and assist
with post-merger support and overall corporate compliance.
Post-Merger Support
Although sometimes simpler from a legal standpoint than an Initial
Public Offering, a Reverse Merger is still a complex process.
Our securities attorneys provide corporate officers with comprehensive
post-merger consulting to maintain regulatory compliance. Since
corporate officers and insiders are assigned Rule 144 restricted
stock, additional compliance measures must be taken so that
certain sales provisions of the Securities Acts of 1933 and
'34 are not violated should these insiders desire to liquidate
their holdings.
In our own opinion, ongoing corporate compliance is the single
most important element for officers of publicly traded companies. |
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Reverse Mergers
Contracts 
