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Technology Stocks : Go Public via a merger with a public shell

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To: BKL who wrote ()	2/4/1997 5:25:00 PM
From: BKL	Read Replies (1) of 27

Reverse Merger FAQ: GOING PUBLIC VIA A REVERSE MERGER OR A PUBLIC SPINOFF 1. What are the benefits of public trading status? The long-term benefits of being publicly traded are many: improved liquidity, higher company value, the ability to make acquisitions or attract and retain employees with the newly public company's stock, greater access to capital at lower cost. In addition, having public trading status allows a company the ability to make acquisitions with their stock, since publicly traded stock is viewed as currency for mergers and acquisitions. Moreover, public trading status often leads to a higher price for a later offering of a company's securities. 2. How do these two methods differ from going public through an IPO? By going public in one of these two ways, a private company becomes publicly traded at a lower cost, in a shorter time frame, and with less stock dilution than through an initial public offering. In essence, these methods separate the process of going public from the process of raising capital. 3. What is a reverse merger? A "reverse merger" is a transaction by which a private company can merge with a publicly traded company with no assets or liabilities. The public company is sometimes called a "shell" since often all that exists of the company is the corporate shell structure. By merging into such entity, a private company becomes public. The merger of the privately held company with the public shell is achieved through the exchange of shares of the privately held company for the shares of the publicly owned company. 4. What is a public company spinoff? In a spinoff, a privately held company becomes a public company by issuing its shares of common stock to an existing company with which we are affiliated that has an established base of shareholders. That stock is then registered with the SEC and distributed to the shareholders of our affiliate company as a stock dividend distribution. The dividends of the stock of the once privately held company are considered a "spinoff" of the private company's shares. 5. Who can benefit from a public company spinoff? A public company spinoff considerably lightens the due diligence requirements inherent in a reverse merger transaction since the private company directly becomes a public company. Typically only a small percentage of the private company's shares are distributed as a spinoff. This serves to preserve the corporate ownership of the exisisting shareholders for future financial transactions.

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