Take a look at the following again from the reverse merger example sticky that Don’t posted above. The deals with the preferred shares aspect:
b) “Increase of Number of Authorized Common Shares Post-Closing
To avoid the timing problem set forth under (a), practitioners have developed a technique by which the transaction closes before the number of authorized common shares is increased or the reverse split is accomplished. This might appear puzzling because, after all, one closing condition is the payment of consideration in the form of the issuance of shares of common stock to the Private Company’s shareholders, which is in turn impossible without enough authorized common shares. The solution to the problem is referred to as the “Preferred Stock Solution”. A “good” Public Shell will generally have authorized but unissued preferred shares. In such a case, the Public Shell Board of Directors can file a Certificate of Designations with the Secretary of State (assuming that, as will generally be the case, the CoI vests corresponding powers in the board [4]) determining that each preferred share shall be convertible into a certain number of common shares so that after the conversion, the shareholders of the Private Company will hold the percentage of common shares in the Public Shell they are supposed to hold under the terms of the deal. “
