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To: D LEE who wrote (4464)	5/2/1998 11:03:00 PM
From: Matt Brown	Respond to of 6654

Late Night Facts------ A "reverse merger" is a method by which a private company goes public. In a reverse merger, a private company merges with a publicly listed company with no assets or liabilities. The public company is also called a "shell" corporation). The publicly traded corporation is called a "shell" since all that exists of the original company is its corporate shell structure. By merging into such an entity, a private company becomes public. The private company merges into a public company and obtains the majority of its stock (usually 90%). The private company normally will change the name of the public corporation (often to its own name) and will appoint and elect its management and Board of Directors. The new public corporation will have a base of shareholders sufficient to meet the 300 shareholder requirement for admission to quotation on the Nasdaq SmallCap Market. The advantages of public trading status, which are outlined in greater detail below, notably include the possibility of commanding a higher price for a later offering of the company's securities. Going public through either a reverse merger or a public spinoff (described below) allows a private company to go public typically at a lesser cost and with less stock dilution than through an initial public offering (IPO). While the process of going public and raising capital is combined in an IPO, in a public spinoff or reverse merger (also known as a "blind pool" merger) these two functions are unbundled; a company can go public without requesting additional capital. Through this unbundling operation, the process of going public is simplified greatly. The private company which has gone public can obtain the benefits of public trading of its securities, namely: ú Increased liquidity of the ownership shares of the company ú Higher share price and thus higher company valuation ú Greater access to the capital markets through the possibility of a future stock offering ú The ability of the company to make acquisitions of other companies using the company's stock ú The ability to use stock incentive plans to attract and retain key employees ú Small amounts of capital can be raised through the sale of treasury stock ú Going public can be part of a retirement strategy for business owners The benefits of going public through a reverse merger, as opposed to an IPO, are the following: ú The costs of the reverse merger are significantly less than the costs required for an initial public offering ú The time required for a shell merger is considerably less than that for an IPO ú Additional risk is involved in an IPO in that the IPO may be withdrawn due to an unstable market condition even after most of the up-front costs have been expended ú IPOs generally require greater attention from top management ú While an IPO requires a relatively long and stable earnings history, the lack of an earnings history does not normally keep a privately-held company from completing a reverse merger ú Less dilution of ownership control ú Higher Valuation for your company Requirements prior to entering into a reverse merger are the following: ú A private company will require approval of its shareholders for a merger with a public corporation. Once a company is taken public through a reverse merger, or registered spinoff, the financial markets hold the following future prospects in the capital markets for the newly public corporation: ú The market value of a public company is often substantially higher than a private company with the same structure in the same industry ú Capital is easier to raise for public companies because the stock has market value and can be traded Regards, Fatt Matt

To: D LEE who wrote (4464)	5/2/1998 11:06:00 PM
From: Matt Brown	Read Replies (3) \| Respond to of 6654

Reverse Merger FAQ: GOING PUBLIC VIA A REVERSE MERGER 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. Regards, Fatty