1. HOW TO USE REVERSE MERGER TO RAISE CPAITAL By Deepak Tandon By Deepak Tandon IILM Gurgaon

2. AGENDA OVERVIEW ON REVERSE MERGERS OVERVIEW ON REVERSE MERGERS KEY FACTORS FOR A SUCCESSFUL REVERSE MERGER KEY FACTORS FOR A SUCCESSFUL REVERSE MERGER ALTERNATIVE FUNDING SOURCES FOR REVERSE MERGER (PIPE, 144A,REG S) ALTERNATIVE FUNDING SOURCES FOR REVERSE MERGER (PIPE, 144A,REG S) Examples Examples

3. What is Reverse Merger? Reverse merger is an alternative method for small and medium size private companies to become public without going through the long and complicated process of traditional Initial Public Offering (IPO) Reverse merger is an alternative method for small and medium size private companies to become public without going through the long and complicated process of traditional Initial Public Offering (IPO) In a reverse merger, a private company acquires a public entity by owning the majority shares of the public entity (usually 90% or more) In a reverse merger, a private company acquires a public entity by owning the majority shares of the public entity (usually 90% or more) At the close of merger, the private company takes on corporate structure of the public entity with its own company name, assets, officers, directors, management team and becomes public At the close of merger, the private company takes on corporate structure of the public entity with its own company name, assets, officers, directors, management team and becomes public

4. Benefits 1. Guaranteed outcome that the financing and going public transaction will be completed and are not subject to market risk, as with an IPO 2.Higher valuations than raising money privately 3.Becoming a public company and raise money in one transaction 4.Institutional financing validation, in time for the start of trading 5.Flexibility in amount of capital that is raised, with a long term process and strategy (including post closing) to minimize issuer dilution 1. Guaranteed outcome that the financing and going public transaction will be completed and are not subject to market risk, as with an IPO 2.Higher valuations than raising money privately 3.Becoming a public company and raise money in one transaction 4.Institutional financing validation, in time for the start of trading 5.Flexibility in amount of capital that is raised, with a long term process and strategy (including post closing) to minimize issuer dilution

5. The Process Step One: Step One: –Finding a suitable shell and making sure it is “clean” –A public shell could be either a public traded reporting company or a non-trading public reporting company (A Blank Check Company) –A public shell usually has no operation or business activities and has no remaining employees and management team –Shells that have no significant assets can be purchased for prices generally ranging from $200,000 to over $400,000 USD

6. The Process Step Two: Step Two: –Seeking experienced law firm –Seeking reputable auditing firm –The investors of private company buy an overwhelming majority of the shell shares for a nominal amount and/or the shell shareholders vote to authorize the issuance of a new large and highly diluted block of shares

7. The Process Step Three: Step Three: –The large block of shell company shares that is now controlled by the private company investors are swapped for the private company, thereby acquiring it. –The shell company now owns the assets and ongoing business of the private company, including its name, officers, directors and management team.

8. The Process Public Shell XYZ Post- Merge (Public) ABC Private Company ABC

9. Advantages Of Being Public Traded Company Increase liquidity of the ownership shares of the company Increase liquidity of the ownership shares of the company Higher share price and thus higher company valuation Higher share price and thus higher company valuation Greater access to the capital markets through future stock offering Greater access to the capital markets through future stock offering The ability to make acquisitions using the company’s public stocks The ability to make acquisitions using the company’s public stocks The ability to use stock incentive plans to attract talents and to retain key employees The ability to use stock incentive plans to attract talents and to retain key employees Going public can be part of a retirement strategy for owners Going public can be part of a retirement strategy for owners

10. Advantages Of Going Public By Means Of Reverse Merger The costs are significantly less than the costs required for traditional IPO (Average $500,000 VS Over 1 million)The costs are significantly less than the costs required for traditional IPO (Average $500,000 VS Over 1 million) The time required is considerably less than for an IPO (Average 4-6 months VS Average 12-18 months)The time required is considerably less than for an IPO (Average 4-6 months VS Average 12-18 months) An IPO may be withdrawn due to an unstable market condition even after most of the up-front costs have been expendedAn IPO may be withdrawn due to an unstable market condition even after most of the up-front costs have been expended The lack of an earning history does not normally keep a privately held company from completing a reverse mergerThe lack of an earning history does not normally keep a privately held company from completing a reverse merger The company does not require an underwriterThe company does not require an underwriter

11. Disadvantages Of Being A Public Company Higher visibility: A public company is essentially under a microscope. There is little confidentiality. All material transactions and contracts become public information. The ongoing public reporting requirements, need for audited financial statements, compliance with the SEC rules and regulations and investor relations activities substantially increase the cost of doing business. Public companies have long been accused of having a short term business focus. Management often is consumed with the daily price of the companies and manage the business in response. The public reporting process and the need to maintain interest in the company takes a tremendous amount of management's time and energy.

12. Skepticism About Reverse Merger No capital infusion after completion of reverse merger No capital infusion after completion of reverse merger Capital markets closed, no institutional following to raise stock price Capital markets closed, no institutional following to raise stock price Private placements difficult due to low public valuation Private placements difficult due to low public valuation Low liquidity – stock ends up trading OTC or on the pink sheets Low liquidity – stock ends up trading OTC or on the pink sheets

13. PART II KEY FACTORS FOR A SUCCEFFUFL REVERSE MERGER

14. Assemble A High Quality Team Highly Qualified Financial Advisors Highly Qualified Financial Advisors Registered And Experienced Auditing Firm Registered And Experienced Auditing Firm Experienced And Reputable Law Firm Experienced And Reputable Law Firm

15. Pre-Merger Planning Private Company Preparation Private Company Preparation –Cleaning up corporate structure –Setting up corporate governance –Prepare financial statement –Independent Board of Director –Independent Auditing Committee –Good management team which includes English speaking CFOs and CEOs –Attractive business plan with ability to execute it

16. Post-Merger Planning Develop and implement a strategy that creates liquidity for the shares, raises capital, and provides long term value and market support for the firm Develop and implement a strategy that creates liquidity for the shares, raises capital, and provides long term value and market support for the firm Elements of the strategy includes identifying market makers and brokers that trade small/micro cap market Elements of the strategy includes identifying market makers and brokers that trade small/micro cap market Develop relationships with managers and institutional investors of small cap investment fund that creates infusion of capital Develop relationships with managers and institutional investors of small cap investment fund that creates infusion of capital A financial communication program that develops awareness and attention of the company and thus creates long term value and market support A financial communication program that develops awareness and attention of the company and thus creates long term value and market support –Road shows –Independent Research –Public Relationship

17. EXAMPLES The corporate shell of REO Motor Car company, in what amounted to a reverse "hostile" takeover, was forced by dissident shareholders to acquire a small publicly traded company, Nuclear Consultants. Eventually this company became the modern-day Nucor. The corporate shell of REO Motor Car company, in what amounted to a reverse "hostile" takeover, was forced by dissident shareholders to acquire a small publicly traded company, Nuclear Consultants. Eventually this company became the modern-day Nucor.Nucor ValuJet Airlines was acquired by AirWays Corp. to form AirTran Holdings, with the goal of shedding the tarnished reputation of the former. ValuJet Airlines was acquired by AirWays Corp. to form AirTran Holdings, with the goal of shedding the tarnished reputation of the former. ValuJet AirlinesAirWays Corp.AirTran Holdings ValuJet AirlinesAirWays Corp.AirTran Holdings Aérospatiale was acquired by Matra to form Aérospatiale-Matra, with the goal of taking the former, a state-owned company, public. Aérospatiale was acquired by Matra to form Aérospatiale-Matra, with the goal of taking the former, a state-owned company, public. AérospatialeMatraAérospatiale-Matra AérospatialeMatraAérospatiale-Matra US Airways was acquired by America West Airlines, with the goal of removing the former from Chapter 11 bankruptcy. US Airways was acquired by America West Airlines, with the goal of removing the former from Chapter 11 bankruptcy. US AirwaysAmerica West Airlines US AirwaysAmerica West Airlines The New York Stock Exchange was acquired by Archipelago Holdings to form NYSE Group, with the goal of taking the former, a mutual company, public. The New York Stock Exchange was acquired by Archipelago Holdings to form NYSE Group, with the goal of taking the former, a mutual company, public.New York Stock ExchangeNYSE GroupmutualNew York Stock ExchangeNYSE Groupmutual ABC Radio is to be acquired by Citadel Broadcasting Corporation, with the goal of spinning the former off from its parent, Disney. ABC Radio is to be acquired by Citadel Broadcasting Corporation, with the goal of spinning the former off from its parent, Disney. ABC RadioCitadel Broadcasting CorporationDisney ABC RadioCitadel Broadcasting CorporationDisney Frederick's of Hollywood parent FOH Holdings was acquired by apparel maker Movie Star in order to take the larger lingerie maker public.[1] Frederick's of Hollywood parent FOH Holdings was acquired by apparel maker Movie Star in order to take the larger lingerie maker public.[1] Frederick's of HollywoodMovie Star[1] Frederick's of HollywoodMovie Star[1] Eddie Stobart in a reverse takeover with Westbury Property Fund allowing transport by ship, road, rail or boat to and within the UK, using only one company. Eddie Stobart in a reverse takeover with Westbury Property Fund allowing transport by ship, road, rail or boat to and within the UK, using only one company. Eddie Stobart Eddie Stobart