1. Brent Van Staden
Partner, CBP Lawyers
Back-Door Listings and
Equity Crowd Funding

2. Newsflash - ASX may not apply the 20
cent rule
 Recent amendment to Guidance Note 12 - 20 cent rule may not always apply for an
RTO
– ASX recognises consolidations can be negative (price tends to fall after
consolidation)
– Subject to shareholder approvals, ASX may approve share issues and options
exercisable at no less than 2 cents (previously, no less than 20 cents)
– Greater flexibility, liquidity and price transparency (may delay inevitable)

3. Recent Back-Door Listings
New entity Ticker Activity Proposed
raising $m
Shell Previous activity
LionHub Group LHB Chinese property $7-12 Arasor Electro-optical
Digital CC DCC Bitcoins $9 Macro Energy Oil exploration
Sandon Capital SDO Listed investment company $35 Global Mining Invests Resources investment
Reproductive Health
Sciences
AOM IVF $2.4 AO Energy Minerals exploration
Ziptel SKL SIM cards $3 Skywards Nickel exploration
Ecopropp CKK Fracking proppants $3 Coretrack Drilling
Roxy Casino CAQ Cambodian casinos $0 Cell aquaculture Barramundi farming
YPB AUV Anti-counterfeiting $3-6 AUV Enterprises Sapphire exploration
Dairy Farm Investments APA Dairy farming $6-10 APA Fin Services Portfolio administration
Future Generation
Investment Fund
AIX Charity listed investment
company
$100-200 Aust Infra Fund Airport ownership

4. Recent Back-Door Listings (cont.)
- Market Intelligence
Financial Review:
Big-ticket IPO's vs growing cohort of smaller enterprises using RTO's
Thought to be a faster and cheaper listing
Strong demand for shells
Growing number of resource companies are being used as shells
– ASX 2012-2013 - 21 back door listings
– ASX 2013-2014 - 20 back door listings
Trend expected to intensify
ASX - around 30 dormant companies available

5. How Much to Pay?
Dollars for shells
In past times, consideration between $1.25M and $2.5M
Financial Review - market average now about $300K-$400K
Measure of shell value?
No specific measure of shell value generally recognised
 Important starting points are cash and assets in shell and spread delivered

6. How Much to Pay (cont.)
It's all about negotiation
Magic of negotiation - in practice, questions are:
– What's the shell worth to the vendor; and
– what's the vend worth to the shell.
 Depends on how much parties need or want transaction
 Vendor will consider time value of wasting asset/incurring holding cost in evaluating
how long to pursue negotiations for a premium over cash, assets and spread
 Success should involve meeting somewhere in between

7. Key Commercial Issues to Consider
 Cost often cited, but really moot point
– Speed to market and spread more important (assuming no cash)
 Relative valuations
– Premium for shell over net assets - how much?
– Value of vend - how to value and upside?
– Shells discount to cash backing?
 Future control and governance - what representation do vendors, legacy shareholders
and new investors get?
 Liquidity of the stock after completion
 Post completion strategy -
– Understanding how legacy shareholders will behave
– Aftermarket support - profile building and buying support

8. Front or Back Door?
 Rules of thumb:
– In buoyant times when cash is easier to get, IPO's are preferred
– In tough times:
 money in shell commands significant premium, as it's hard to raise, so back-
door deals predominate
 Sentiment favours back-door deals
– Currently, divide is between micro-caps and bigger end of town
 Chinese investors
– There is a view they prefer putting money into a shell than a cleanskin IPOCo
 Cost vs benefit
– Paying the right premium for a quick back-door listing vs time cost of an IPO

9. Advantages of Back-Door Listings
 Easier to sell the story
– IPO's not suited for micro-caps - harder to sell the story from scratch
 Shell can deliver:
– Cash/Spread
– Shareholder base for new capital raisings
– Existing management structure eg CFO/Company Secretary/Existing board skills
– Existing analyst/broker following
 Pricing transparency
– If not off the boards for too long, pricing history and transparency can assist liquidity
and in pricing the reconstructed company
 Tax losses may be available
 Can be quicker - best case scenario, possible to complete in 6 weeks

10. Disadvantages
 Cost vs benefit
– Paying a premium for cash in the shell (value of "shell") vs spread obtained
 Time - to negotiate deal
 Fees - payable to introducers of shell
 Continuous disclosure obligations of shell can make negotiations harder
 Shareholder approvals - upfront costs and timing vs uncertainty of outcome
 Expert Reports needed - time and cost
 Increased regulatory scrutiny - ASX and Listing Rule 11.1.2/3/ASIC
 Quality of share register may be poor
– disenfranchised, stale shareholders that are only seeking to exit asap to crystallise
loss
– Legacy shareholders often not aligned with new management

11. Disadvantages (cont.)
 Legacy risk (legal)
– corporate, regulatory, taxation and other legacies eg tenement rehabilitation
 Due Diligence
– Two layers of due diligence required - shell and vendor
 Change of name
– can offset market profile of shell
 Stigma
– often concluded "front door" was not available
 Re-compliance
– If re-compliance is needed, rationale for back-door is less

12. Legal Issues - Broad Categories
Managing risk and selecting transaction mechanism:
Due Diligence on shell
Due Diligence on vendor entity
ASX Listing Rules - shareholder approvals/classified assets/escrow
Corporations Act - Disclosure and Control
Limitations of due diligence
DD is not panacea
Hard to get compensation for non-disclosure by shell, because you become the shell and
personal guarantees generally not given

13. Key Listing Rule Issues
 ASX view on Back Door Listings
 Requirement to notify ASX beforehand
 Listing Rule Shareholder approvals
– Change of scale and/or nature activities
– Issues of shares to vendors - shareholder approval
 Re-compliance with Chapters 1 and 2 of the Listing Rules
 Vendor (and other) escrow - classified assets, seed investors and promoters

14. When ASX will require re-compliance
Re-Compliance will be required:
Transaction which, in ASX’s opinion, is a back door listing of another undertaking (whether
or not involving change of nature of activities)

15. ASX Indicia of a Back-Door Listing
 ASX view of a back-door listing
– ASX entity acquiring a business or merging with a non-ASX listed entity; and
– primary objective of transaction is to inject unlisted business into listed entity,
resulting in significant change to nature or scale of target activities
 Typical target - taxonomy of a "shell"
– comparatively small scale operations relative to vendor entity
– not successful, has dissipated assets, downsized, sold assets, failed expansion plan
– is not trading or very limited trading
– has indicated to market it is seeking new projects

16. ASX Indicia of a Back-Door Listing
(cont.)
 Hallmarks of back door listing transaction
– Target is a "shell"
– Primary motive is a back-door listing
– Significant dilution of existing shareholders of target
– Changes to board
– Changes to nature and scale of activities
 Touchstones (ASX - "not definitive")
– Increase of 100% or more in any of the following measures for the listed entity:
o consolidated total assets; consolidated total equity interests; consolidated
annual expenditure; total securities on issue

17. Avoiding Re-Compliance?
Not a back-door listing
•Not a back-door listing, but a complimentary or bolt-on acquisition and intent to continue or
expand existing business
Staged deals
•Some transactions in stages/tranches escape classification as a back-door listing or can
delay shareholder approvals

18. Key Strategies for Success
 After the close - strategy to come out the other end
– Arrange on-market buying and post-completion strategy to counter legacy sales
 Harder if you struggle to the finish line
 Profile
– Develop a strategy to re-invent public profile of new entity after completion
– Ensure new entity has as much visibility within market as possible – as with IPO
 Avoid re-compliance if possible
– If your aim is to avoid re-compliance with Chapters 1 and 2, develop an acquisition
strategy and communications with ASX that implement ASX guidance to that end
 Time vs cost
– Analyse why you are proposing a back-door listing as opposed to an IPO, including
time value of wasting/holding asset, speed to market vs premium paid

19. Advantages and Disadvantages of
Back-Door Listings
Back Door IPO
Faster way to be listed Yes (maybe) No
Access to shareholder base Yes (maybe) No
Full control of destiny No Yes
Easier to price Yes No
Skeletons in the closet Yes No
Ready reference point for brokers to
price capital raising
Yes No
Opportunity for uplift Yes Yes
Selling pressure from legacy
shareholders
Yes No

20. Schematic - Typical Back-Door Listing

21. Equity Crowd Funding - ingogo raising
 Financial Review, 30 September 2014 -
– "Crowdsourcing adds $1.2m to start-up ingogo's $9.1m raising"
– "New funding mechanisms are starting to take off"
– 50 investors invested $1.2M via VentureCrowd
 Platform allows sophisticated investors to invest $25,000 in each company on
platform
– Was over-subscribed and closed in 3 days
– VentureCrowd part of fundraising package
 "democratisation" of investment process
 Area of significant interest globally – high grass roots involvement
 Confluence of booming social network and internet economy boom, with post-GFC
financial markets reforms

22. Equity Crowd Funding - State of Play
Country Current scope for crowd funding
• No tailored crowd funding exemption
• May 2014 CAMAC report proposal: aggregate $2 million over 12 month
period, max. $2,500 investment per issue and max.
$10,000 aggregate investment over 12 months
• Longstanding small scale personal offers exemption ($2m, 12 month
period, 20 Australian resident investors)
• Equity offers through online intermediaries to be exempt from registration
and prospectus delivery requirements under Title III of the Jumpstart our
Business Startups (JOBS) Act
• Aggregate $1 million over 12 month period, maximum individual
investment limit $100,000 over 12 month period
• SEC delays in bringing Title III into force – fear of excessive regulation
and compliance risk – watch this space

23. Equity Crowd Funding - State of Play
Country Current scope for crowd funding
• Specific crowd funding exemption in Saskatchewan since December 6,
2013, six other provinces considering similar measures
• Investor cannot invest more than $1,500 per offering
• $150,000 per offering, maximum 2 offers in 12 months, no offers longer
than 6 months, aggregate total up to $300,000
• Tightened equity crowd funding rules applicable from April '14
• Individuals without specialist knowledge cannot invest more than 10% of
their available assets
• 2012 crowd funding exemption limited to ‘innovative’ start-ups, a
sophisticated investor must take up at least 5% of capital offered,
maximum raise of €5m
• First EU country to enact regulations for equity crowd funding

24. Equity Crowd Funding - The New
Zealand Position
 Much heralded new category of ‘licensed intermediary’
 Simplified disclosure
– Offers through licensed intermediary platforms exempt from normal
disclosure/governance requirements
– Limited provision of issuer information via licensed intermediary platform
– Simple rules for issuers e.g. being honest about the information they provide about
how they will use the money
 Individual investor unlimited
– No limit on how much an investor may invest
 Entity annual limit
– The most an issuer can raise in aggregate from equity crowd funding $2M in a 12
month period

25. Regulatory Arbitrage - Australian
Issuers raising capital in New Zealand
 Complex legal jurisdiction issues, but…
 The Opportunity -
– There is view that Australian issuers can make offers in NZ lawfully
– Accessed by a global investor base
 Licenced platform interested in exploration offer
– One of the platforms in NZ is keen to do an exploration offer
– They can target investors interested in sector
– They can syndicate with foreign platforms
– Cost: $NZ10K to get deal onto platform

26. Brent Van Staden
Partner
bvs@cbp.com.au
+61 7 3002 8767
Brent Van Staden is a partner in the corporate team at CBP in Brisbane.
Brent has considerable experience in all aspects of equity capital markets,
corporate and mining law, both in professional practice in Australia, the
United Kingdom and in South Africa and as in-house counsel for one of
South Africa's large companies. He has recently advised clients on initial
public offerings, takeovers, placements, mergers and acquisitions, bond
issues and other corporate transactions.
Brent holds a Masters of Law in Taxation, a Master of Commercial Law and
a Diploma of Legal Practice. He is admitted to practice in Australia, England
and Wales and South Africa.
Areas of expertise
•Corporate advisory
•Capital markets
•Mergers and acquisitions
•Joint ventures
•Mining services
•Procurement
•Due diligence
•Energy and resources
•Private equity