Reverse Merger

Overview | Preparation | Pro's and Con's | Rules Regarding Shell Companies | SEC Information

PREPARATION FOR A REVERSE MERGER OR PUBLIC SHELL MERGER

  • Financial Audits: Before commencing a search for a public shell your company must have audited financial statements already prepared that include the last two years (or since your company’s inception). The audit must be completed using “US GAAP” standards by an auditor that is qualified to file SEC audits.
  • Locate a Suitable Public Shell: There are many shells available for “reverse merger” at times but generally there are only a few shells available at any given time that can deliver the majority of the issued and outstanding shares without any liabilities or contractual obligations. If the shell does not report to the SEC you are taking an enormous risk with respect to hidden liabilities or litigation.
  • It is important to start with a clean shell: Due diligence on the public shell cannot be over emphasized, advice from your securities attorney, auditors, and a financial consultant should be utilized.  As was mentioned, many shells are created for the express purpose of merging with a private company.  These shells have no predecessor entities, and, as a result, little baggage in the way of a business failure or other skeletons in the closets.
  • Comprehensive Business Plan: Potential investors, public shareholders, auditors, securities counsel, brokers and market makers will want to see a well documented business plan. Your business plan should be very detailed and have information included that the SEC expects. Call us to discuss the level of information that should be included as we can show you filing’s of other companies that we have taken public to use as examples.
  • Strong Management Team: Public investors demand strong management teams. Management should have experience that is relative to the industry that you are in.
  • Convincing Marketing Plan: Public companies need the ability to show that they have a straight forward plan to generate revenue that will result in the company being profitable.
  • Product or Service: Public companies should be able to develop strong or dominant position in their business segment.
  • Experienced Securities Counsel: The securities attorney that you choose should specialize in reverse merger’s Your attorney must be qualified to deal with regulatory compliance, and the ongoing reporting requirements of all public companies also.
  • Should I Have Public Company Experience: It is not necessary to have previous public company experience in order to complete a reverse merger as long as you get the right advice from your securities attorney, accountant and Bridge Capital Inc. Everyone needs to start somewhere. Going public does not require you to be an expert at the start.
  • Devise your financing strategy: A reverse merger is an indirect route to raising capital. Entrepreneurs must first consider how additional capital will be raised after the deal is done.  An experienced financial consultant, like Bridge Capital Inc., can be very beneficial in this area.

REQUIREMENTS NECESSARY TO CLOSE A REVERSE MERGER OR PUBLIC SHELL MERGER

  • 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.
  • 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 made to the attorney handling the closing. (This must happen for the public company to cease negotiations with other merger prospects.)
  • 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.
  • Number of shares to be outstanding “post merger”, and a complete breakdown of share ownership post merger.  Note: 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.
  • Agreement on state the company will be domiciled in post merger.
  • Satisfaction of warranties and representations between public shell and merger partner.
  • Designation of securities attorneys and SEC qualified auditors that will represent the private merger partner.
  • Preparation 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.
"Increase your financing prospects today by going public"