This presentation enumerates the practical aspects of merger, demerger and reduction of capital and the strategies involved therein. It also highlights certain key issues involved in corporate restructuring.

1. CORPORATE RESTRUCTURING Regulatory framework for Listed Companies & Strategies Pavan Kumar Vijay

2. GOVERNING PROVISION SECTION 391-394 of Companies Act, 1956 Most liberal sections in the entire Companies Act, 1956. By way of SCHEME you can propose & achieve whatever you want

3. TYPES OF RESTRUCTURING REDUCTION OF CAPITAL MERGER DEMERGER

4. RESTRUCTURING BIFR High Court Approving Authorities

5. MERGER “ Combining of two or more commercial organizations into one in order to increase efficiency and sometimes to avoid competition ”. MERGER REVERSE MERGER “ As a commercial term, it means when a Healthy Company (in terms of size, capital or listing status)is merging in a Weak Company (in terms of size, or unlisted)”. SECTION 391-394 of Companies Act, 1956

6. DEMERGER “ Division of a Company with two or more identifiable business units into two or more separate companies ” SECTION – 2(19AA) of Income Tax Act, 1961.

7. “ Extinguishing or Reducing the paid-up capital, Securities Premium Account or liability of members with respect to their unpaid calls” -AN EFFECTIVE WAY OF INTERNAL RESTRUCTURING REDUCTION OF CAPITAL SECTION – 100 – 105 of Companies Act, 1956 SECTION 100 to 105 of Companies Act, 1956

9. STOCK EXCHANGE’S ROLE REQUIREMENTS PERSPECTIVE Listing Agreement Compliances Stock Exchange Internal Norms Observations Compliance of Securities laws Compliance of Companies Act

10. Listing Agreement Compliances “ The Company agrees that it shall file any scheme/petition proposed to be filed before any Court or Tribunal under Sections 391, 394 and 101 of the Companies Act, 1956, with the stock exchange, for approval , at least a month before it is presented to the Court or Tribunal.” Clause 24(f)

11. Clause 24(a) “ Company to obtain ‘in-principle’ approval for listing from the exchanges having nationwide trading terminals where it is listed, before issuing shares or other securities to the shareholders of Transferor Company .” Listing Agreement Compliances.. contd

12. Clause 40A Listing Agreement Compliances..contd “ Company to comply with Continuous Listing requirements while framing a scheme of merger/demerger.”

13. Stock Exchange’s Norms Presently, Stock Exchange(s) are laying various other norms before giving approval to the Companies for ‘ Merger ’, ‘ Demerger ’ ‘ Reduction of Capital ’

14. Stock Exchange Norms..contd MINIMUM CAPITAL REQUIREMENTS 1. Issued & paid up Equity Capital – Rs 10 crores (if there is a change in management/control) OR Issued & paid up Equity Capital – Rs 3 crores (If there is no change in management/control) AND 2. Minimum Net Worth – 20 crores (Post amalgamation) *BSE Stipulations

16. Stock Exchange Norms..contd LOCK IN REQUIRMENTS “ 25% of the newly issued capital pursuant to the scheme of amalgamation should be kept under lock in for 3 yrs from the date of listing” “ The lock in period are varied by the stock exchange on case to case basis” *BSE Stipulations

17. Compliance of Other Laws “ The Stock Exchange(s) alongside considers the compliance of Securities laws, regulations, rules etc. applicable on the Company and Companies Act also”

18. Compliance of Other laws..contd SEBI (SAST)REGULATIONS ,1997 Regulation 3(1)(j)(ii) provides an exemption for acquisition of shares: “ Nothing contained in regulations 10, 11 and 12 of these regulations shall apply to shares acquired Pursuant to a scheme : (ii) of arrangement or reconstruction including amalgamation or merger or demerger under any law or regulation, Indian or foreign;”

20. I SSUES

25. MERGER THROUGH BIFR AN EFFECTIVE WAY TO REVIVE YOUR SICK COMPANY

26. MERGER THROUGH BIFR EXEMPTION FROM TAKEOVER CODE Regulation 3(1)(j) of SAST Regulations, 1997 provides that: Nothing contained in Regulation 10, 11 & 12 shall applies to acquisition: j) Pursuant to a scheme : (i) framed under section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986); ja) Exemption to restructuring under Securitization law (Change in mgt by the secured creditors)

27. MERGER THROUGH BIFR EXEMPTION FROM CL40A OF LISTING AGREEMENT Clause 40A as amended on 13 th April, 2006 gives exemption to BIFR referred companies: The Non-Promoters’ shareholding can be below 25% of the total capital of the company pursuant to BIFR Order in any rehabilitation scheme.

28. DEMERGER Reliance Natural Resources Ltd Reliance Capital Ventures Ltd

35. ISSUES

37. Case Studies

41. Financial Benefits to Shareholder Particulars Amount (Rs.) as on 24th March 2005 Amount (Rs.) as on 26th May 2006 Value of the shares held by a shareholder as on record date (5 th Jan,2004) (A) 100 shares @55 5500 Shares in MRL 100 shares @125 12500 @694 69400 Shares in MTL 51.5 shares @80 4,120 @100 5,150 Total (B) 16,620 74550 Net benefit (B-A) 11,120 69,050

45. Benefits achieved…….. Particulars Amount (Rs.) 24th March 2006 Amount (Rs.) 26th May 2006 Value of the shares held by a shareholder as on record date (25 th Jan,2006) (A) 100 shares @928 92800 Shares in RIL 100 (@708) 70800 (@950) 95000 Shares in REVL 100 (@38) 3800 (@37) 3700 Shares in RCOVL 100 (@290) 29000 (@270) 27000 Shares in RCVL 100 (@24) 2400 (@23) 2300 Shares in RNRL 100 (@23) 2300 (@27) 2700 Total 108300 130700 Net benefit 15500 37900

46. REDUCTION OF CAPITAL

47. Types of Reduction of Capital Writing off Losses & Fictitious Assets Correction of Over- Capitalization Distinguishment of the Liability in respect of unpaid portion of face value. Distribution of accumulated profits by Payment to shareholders a part of share capital.

48. Reduction of Capital- A Strategic Step To Clean-up the Balance Sheet To rationalize the capital base Revival of Sick Company

49. RESTRUCTURING STRATEGIES What's Your Move??

50. FEW STRATEGIC MOVES Strategy I LISTING (Without offer to Public) Strategy II RAISING PROMOTERS’ HOLDING (Beyond 55%)

51. FEW STRATEGIC MOVES..contd Strategy III ACQUISITION OF LISTED CO. ( Exemption from Takeover Code) Strategy IV INCREASEING THE RESOURCES (Without raising Capital)

54. Strategy IB LISTING THROUGH MERGER Acquisition of Regional Listed Company(RSE) Merger of financially sound unlisted co with listed co Now your Company is ready for Listing INDONEXT LISTING DIRECT LISTING

60. Thanks a lot… Pavan Kumar Vijay