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Private Placement Transaction Advisory Agreement document sample

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The Reverse Merger Process

The Fastest
Lowest Cost
Highest Valuation
and Most Liquid ...
...Process for going public

Prepared April, 2004
Presentation Liability Statement

Liability Statement: This proposal has been assembled based upon information provided by
the MacLellan Group, Inc., TriPoint Capital Advisors, LLC and Amaroq Capital, LLC. Significant
work product and intellectual property held by these three firms is disclosed in this
presentation and any of their advisors, affiliates, subsidiaries, subcontractors and or its
contents are subject to an acknowledged confidentiality, nondisclosure and non-circumvention
agreement. Any use of the information enclosed without the written permission of and
compensation to the MacLellan Group, Inc., TriPoint Capital Advisors, LLC and Amaroq
Capital, LLC. will be considered a significant breach of this acknowledged confidentiality,
nondisclosure and non-circumvention agreement. In the event of a breach, the firms named
above may together or separately seek fines, penalties, damages remedies and relief in U.S.
Federal or state courts where they are organized.

2 Confidential. Not for Public Distribution
Why Complete an RTO?
 Increase your Company’s ability to raise capital

 Expands the scope of your Investor base;

 Provides a liquidity path for your shareholders and creates the opportunity for greater
diversification of shareholder wealth;

 Private equity investors are difficult to attract to the your Company as long as it is private;

 A typical IPO is extremely difficult for smaller companies (under 100M in revenues);

 Typical small-cap IPO cost averages up to US$1-3 million in expenses and professional fees,
plus commissions on the capital that is raised;

 The RTO process for a small-cap company typically runs approximately US$350,000 in fees
and expenses, plus approximately 12-15 percent of the shares issued; and

3 Confidential. Not for Public Distribution
Market Comparisons

US HK Singapore China

Liquidity $$$$$ $$ $$ $

Valuation 20x - 25x 10x 10x - 12x 25x - 40x

Capital $$$$$ $$ $$ $

Regulatory $$$$ $ $ $

Fees $350-500,000 $1.1m - $1.5m $1.4m $2.2m

Partners $$$$ $$$ $$ $

Transparency $$$$$ $ $$ $

Acquisitions $$$$$ $$ $$ $

Timing $$$$ $$ $$ $

4 Confidential. Not for Public Distribution
Our Reverse Merger Approach

 Members of our team have advised and been actively involved in numerous reverse
mergers over the past 11 years

 Our RTO process relies on a team of professionals possessing the required talents in
critical areas of the transaction. These specialized area’s include:

– Transaction management
– Contract & SEC legal work,
– Target shell company sourcing,
– Investor relations,
– Business planning, research
– Investment banking / capital raising

 We assumes an role on the Board of Directors and actively promotes the strategic vision of
the Company.

 We typically focuses on 2-3 transactions per year. One such success in 2003 was AXM
Pharma currently operating with a +100M Market Capitalization.

5 Confidential. Not for Public Distribution
Professional Advisory Process - A Two-Stage Approach

A more detailed description of our process is outlined in our Professional
Advisory Agreement.
– Our aim is to position your Company to raise significant capital at a high valuation with
maximum liquidity.
– The costs associated related to our advisory work are spread out over a 6-months and
is approximately $250,000.

 Stage 1 - Commences immediately following the execution of our Professional Advisory Agreement. During this stage
we will work with the Company and its international auditors, construct the deal structure, begin drafting all relevant
documents, conduct due diligence, write the business plan, undertake a preliminary valuation, speak with potential
investors.

 Stage 2 - We execute the transaction including the share swap agreement and all US SEC filings, the completion of
private equity or debt financings, the writing of a Research report and the beginning of the Investor relations program
and the eventual listing on a major stock exchange.

6 Confidential. Not for Public Distribution
Our Reverse Merger Team
 Mr. Douglas MacLellan: Team Leader, CEO, of the MacLellan Group,Inc. (Los Angeles)

 Mr. Joe Cunningham: Financial Advisor, Origination and Execution Specialist, Business Plan & Research Coordinator,
President, Amaroq Capital,LLP (Minneapolis)

 Mr. Curtis Hollister: Adviser and Origination specialist - based in Canada.

 Mr. Mark Elenowitz: Financial Advisor & Equity Structure, Managing Director, TriPoint Capital Advisors, LLC (NYC)

 Mr. Louis Taubman, Esq.: Securities and Exchange Commission (“SEC”) Lawyer, General Counsel of TriPoint Capital
Advisors, LLC(New York)

 Tom Madden: Key Investor Relations Specialist, President, Madden Consulting, LLP (Seattle)

 John Steinmetz: Investment Banking, TerraNova Capital Inc., New York

 Andre Schwegler: Sales, TerraNova Capital, New York

 Charles li: China Attorney, T&C Law Offices, Beijing

 Lifeng Zhang: China based transaction specialist

7 Confidential. Not for Public Distribution
The Five Pillars of a Successful RTO

Our aim is to provide the company with the money it needs to execute it’s
strategy.
1). Develop a growth focused Business Plan.
- We will assist in the development of the business plan and financial model

2). Ensure profitability is reached in the year preceding the RTO.
- It needs to be US GAPP based accounting profit

3). Follow the process outlined of the advisory team.
- We have executed this process many several times before
- You are paying us, please listen to our advice
- We have worked with many company’s in their first overseas venture

4). The Board of Directors and most importantly the CEO must be 100% behind the transaction
- Assign a dedicated “Transaction manager” with a team he / she can rely upon
- The demands on management’s time can be intensive
- Document and process control are critical

5). Plan to become one of the leading businesses in your industry
- The RTO will transform your business, be prepared for the changes that will take place

8 Confidential. Not for Public Distribution
Your Company’s Reverse Merger Process

Follow our Proven Reverse Merger
Process and together we will create
and enhanced path to new equity
investment. Our unique process
provides a channel for your Company
to receive a premium valuation on
raising capital, through a tiered
multi-round financing strategy.

9 Confidential. Not for Public Distribution
RTO Timetable (Sample Transaction)

 April 2004: Sign Advisory Agreement. Shell Company
review & negotiations. New Business Plan drafting is
commenced. Auditors are retained & they commence
audit process.

 June 2004: Definitive Agreement between Xian Film
Group & Shell Company is executed. Audit is
completed. Business Plan is Completed. Initial Research
Report is drafted.

 July, 2004: The Merger is completed. Drafting of the
Private Placement Memorandum. Initial Research
Report is published. The Stock starts trading & your
Company is a publicly listed company!

 August, 2004: PPM is completed & the Offering
commences.

 September, 2004: PPM is closed US$15 million is raised.

 October, 2004: SB-2 Registration Statement is drafted
and filed with the SEC and Xian Film Group files for
AMEX or NASDAQ listing.

 December 2004: SB-2 is approved by the SEC and XFG
gains listing on AMEX or NASDAQ .

10 Confidential. Not for Public Distribution
Potential RTO Structure

USA China

AMEX
Shell Effective ownership Chinese
OTC Company Company

Share Swap

US New Share Swap JV
Company WOFE

Variations of this structure are possible where circumstances permit
11 Confidential. Not for Public Distribution
Reverse Merger Process: The Shell

 Step One: Locating suitable Shell merger candidate
– We have many sources for shell companies and can have a transaction ready in a matter of
weeks.
– Undertake due diligence on the Shell (i.e. SEC filings, audit, legal records)

 Step Two: Due Diligence Deal Structuring with your Company
– Due Diligence: legal records, accounts, articles of incorporation and legal records.
– Negotiations: Structuring transaction, defining terms and conditions
– Complete US GAAP Audit of your Company.

 Step Three: The Merger
– The “official” merger: Share Exchange, Share Purchase and/or Asset Purchase Agreements,
issuance of new shares, etc.

 Step Four: Public Company
– SEC Filings: Form 8K, Form 14C, Form 14F, Form 3 and others as required
– Maintain SEC Filings: Quarterly and Annual Reports, other filings as required.

12 Confidential. Not for Public Distribution
“Typical” Transaction Overview
 Employ our methodology to create a publicly traded company that will facilitate raising
capital and will drive higher valuation multiples.

 Create new business plan based upon public merger and possible acquisition strategy.

 Merge your Company with existing Public Company.

 Assist with initial SEC filings and corporate compliance requirements.

 Deploy comprehensive Investor Relations & Public Relations campaigns in order to
stimulate active trading of the your Company Company’s stock.

 Raise additional capital through a private placement (typically convertible preferred
shares) to facilitate the growth and expansion of the business.

 Provide initial research coverage & assist with investor relations and support services

 Apply for a senior listing on the American Stock Exchange (“AMEX”) or the NASDAQ SC.

13 Confidential. Not for Public Distribution
Reverse Merger Highlights

 Merger of your Company and the Shell Company will take
Original Public Shell
approximately 90 days.
Company

 New Financing within 180 days.
Your Company shares are purchased or “swapped”
by the public shell company
 China Shareholders would own approximately up to 80%
or more of the Company post merger & pre-financing. Convertible
Public Shell Securities issued
 Example
for US$15 million
– The total share pool would likely be kept at approximately
15 million shares (post merger & financing) in order to try
and maintain a per share price US$3.50 or higher. The ultimate amount of capital raised and the value
of the offering could adjust down the total amount of
 Based upon existing cash assets and expected private dilution, wherein the china shareholders maintain a
placement the Company would immediate moved to an higher percentage ownership in the business.
Amex or NASDAQ. (ie:4th Qtr03).
Capitalization:
Industry Valuation18 X 2004P/E.
Stock issued to Investors @ a minimum of a $36M pre-
investment valuation for 30% of the Company.
US$250,000 in fees & expenses and 15% of the stock will go to pay
for Public Shell, Merchant Banking, Investor Relations, Legal and
Accounting services.

14 Confidential. Not for Public Distribution
Shareholder Structure Post Merger
The following is an example of a capital structure

 Based upon a total of 10 million shares outstanding immediately after the merger between your Company
& the Shell Company. The initial target trading price is anticipated to be approximately US$3.50 per share.

– Shell Company Shareholders: 0.45 million shares
– Your Company: 8.5 million shares
– Advisory Interests: 1.05 million shares

 It’s anticipated that an additional 5 million shares would be issued in the private placement for raising
US$15 million less fees and expenses associated with the underwriting. These fees are typically 7 - 10
percent plus underwriters warrants of the amount raised.

15 Confidential. Not for Public Distribution
Raising Capital with Direct Investors

 Raising capital through a PIPE (Private Investment in a Public Equity) based on
the following issues:
– Market Capitalization
– Share Price
– Liquidity
– Float

 Our Investor Relations program will stimulate demand and drive the market
capitalization and liquidity of your Company

 We can expect to raise approximately 10% - 15% of the market capitalization of
the company during the first round of financing

16 Confidential. Not for Public Distribution
US Exchanges and Markets

17 Confidential. Not for Public Distribution
AMEX Listing Requirements for US Companies

Note: Companies must also comply with other listing requirements
such as having a majority (50% for SB filers) of independent directors,
independent audit committee, and others.

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AMEX Listing Requirements for International Companies

19 Confidential. Not for Public Distribution
AMEX Listing Process

Notes:
1) Company must comply with all listing guidelines.

2) Company’s application is approved by AMEX
Listing Department

20 Confidential. Not for Public Distribution
Nasdaq National Market Listing Requirements

21 Confidential. Not for Public Distribution
Nasdaq SMALLCAP Market Listing Requirements

 Companies must meet minimum initial and continued financial requirements

22 Confidential. Not for Public Distribution
AXM – A Recent RTO Experience

23 Confidential. Not for Public Distribution
Can You Picture Yourself ?

AXM Pharma’s Inc., Chairperson,
Madam Wang Wei Shi, rings the opening bell
At the American Stock Exchange (AMEX)
27 April 2004.

24 Confidential. Not for Public Distribution
AXM Pharma Experience

 Pharmaceutical company based in the Shenyang, PRC

 Wholly-owned subsidiary Shenyang Tianwei Werke Pharmaceuticals, Co. Ltd.
– OTC and prescription pharmaceutical products

 Currently trading on American Stock Exchange under symbol “AXJ”
– Recent traded as high as $7.50 per share
– Average daily volume of 110,000

25 Confidential. Not for Public Distribution
2003- 2004 Highlights

 Record sales of US$10.4 million
– Operating income of US$2.25 million

 Initial listing on Company’s Stock

 Raised US$8.0 million

 Groundbreaking of new US cGMP manufacturing plant

 In-licensing of Sunkist brand of vitamin & supplement products

 Expanding sales into three new markets

 Gained senior listing on Amex

 Attracted experience senior management

26 Confidential. Not for Public Distribution
AXM Pharma – Trading History

27 Confidential. Not for Public Distribution
Contact Information
Mr. Douglas C. MacLellan Mr. Joseph T. Cunningham
CEO President
The MacLellan Group, Inc. Amaroq Capital, LLC
8324 Delgany Avenue 18 Pheasant Lane
Playa del Rey, California 90293 North Oaks, Minnesota 55127 ÙSA
e-mail: joe.cunningham@amaroqcapital.com
e-mail: maclellangroup@cs.com tel: 651-204-2048
tel: 310-301-7728 tel 2: 651-490-0038
fax: 310-301-7748 cel: 612-306-0527
US cel: 310-283-4201
China cel: 011-861-369-121-3337

28 Confidential. Not for Public Distribution