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Preparation for Reverse Merger [2010-10-12]

 

Preparation for a Reverse Merger :

 

•    Locate a Suitable Public Shell.

 

•    It is important to start with a clean shell -  Due diligence on the public shell cannot be over emphasized. 

 

•    Comprehensive Business Plan – Potential investors, public shareholders, auditors, securities counsel, brokers and market makers will want to see a well documented business plan.

 

•    Strong Management Team – Public investors demand strong management teams.

 

•    Convincing Marketing Plan – Public companies need the ability to show good sales and earning growth.

 

•    Product or Service – Public companies should be able to develop strong or dominant position in their business segment.

 

•    Financial Audits – SEC qualified audited financial statements for your last two fiscal years.

 

•    Experienced Securities Counsel – Your attorney must be qualified to deal with regulatory compliance, and the ongoing reporting requirements of all public companies.

 

•    Have Public Company Experience -  Your company should have at least one person in senior management that has significant public company experience. 

 

•    Minority Stockholders -- In almost any reverse merger transaction, the principals of    the shell company keep a small equity position in the company going forward.  Therefore, this surrender of equity is simply a cost of doing business.

 

•    Devise your financing strategy -  A reverse merger is an indirect route to raising capital.

 

•    Subsequent Funding -- Entrepreneurs must first consider how additional capital will    be raised after the deal is done. 

 

Requirements Necessary to Close a Reverse Merger

 

•    Business plan of merger partner. Sufficient information to complete and file the required 8-K with the SEC.

 

•    Management information, including completion of the "Officer and Director Questionnaire," for all Officers and Directors designated by the private company merger partner.

 

•    Agreement on structure and terms of merger.

 

•    Letter of intent with escrow payment made to public company or its principal shareholders. (This must happen for the public company to cease negotiations with other merger prospects.)

 

•    Audited Financial Statement, conformed to US, GAAP for the private merger partner. The audit statements of the private company have to be consolidated with the public company's financial statements.

 

•    Agreed merger fee in escrow with the securities attorney representing the merger partner.

 

•    Consent from the majority, preferably 100%, of existing shareholders of the private company to merge or exchange their shares for shares of the public company.

 

•    Agreement for the Officers and Directors of the public shell to be replaced with the officers and directors designated by the private company merger partner.

 

•    List of all shareholders in the private company that will make the share exchange.

 

•    Post Merger Structure. Number of shares to be outstanding “post merger”, and a complete breakdown of share ownership post merger. 

 

•    It is often necessary for the public shell to do a reverse split and/or cancel shares owned by the affiliates of the public share prior to completing the merger.

 

•    Domicile Agreement. Agreement on state the company will be domiciled in post merger.

 

•    Satisfaction of warranties and representations between public shell and merger partner. SEC counsel and auditors.

 

•    Designation of securities attorneys and SEC qualified auditors that will represent the private merger partner.

 

•    Agreement Preparations of the share exchange agreement, stock purchase agreement, definitive merger agreement, and all other documents necessary to complete the merger.

 

•    Final preparation of the 8K that is required to be filed with the SEC within 4 days of closing the merger. 

 

•    The 8-K must disclose the same type of information that it would be required to provide in registering a class of securities under the Securities Exchange Act of 1934.

 

 

Filing a Form 211 to Receive a Trading Symbol

 

Rule 15c211 was designed to allow non-reporting public company’s securities to be quoted on the National Association of Securities Dealers’ (“NASD”) Over-the-Counter Bulletin Board (“OTCBB”) by filing some simple disclosures.

 

Now, companies seeking to obtain a quote on the NASD OTC/BB are required to file reports with the Securities and Exchange Commission (“SEC”), under Section 15D of the Securities Exchange Act of 1933 (the “Act”), as amended, or section 12G of the 1934 SEC Act. 

 

A company who has filed a registration statement with the SEC using an SB-1, SB-2, or Form 10, will become a reporting company when the SEC declares the registration statement effective.

Once the company is reporting, it is eligible to have a market maker file a Form 211 with the NASD. The 211 must be approved by the NASD, which normally takes 3 to 6 months, before the company can trade its stock on the OTC/BB. 

 

The NASD will require 40 to 50 shareholders and sufficient public float to approve the 211 application.

 

G. Michael Bennett, CEO

AGBA-global, May, 2009

 
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