ugg smart gloves Accessing Capital Through Customised PIPE Offerings

usc ugg boots Accessing Capital Through Customised PIPE Offerings

Private investments in public equity, also known as PIPEs, enable both smaller and larger companies to raise capital on a shorter timeline, and more confidentially, often with fewer transaction costs than with a traditional underwritten public offering. PIPEs, in turn, offer investors such as hedge funds and private equity investors the opportunity to tailor an investment in a public company that has both downside protections and upside rewards.

In a PIPE transaction, a public company issues securities to one or more accredited investors in a private placement exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the ‘Securities Act, or the safe harbour thereunder provided by Regulation D under the Securities Act. Because the securities in a PIPE offering are initially estricted securitieswithin the meaning of the Securities Act, investors cannot freely resell their securities until a holding period under Rule 144 under the Securities Act has lapsed or a registration statement filed with the Securities and Exchange Commission (the EC for the securities becomes effective. PIPE transactions often include a registration rights agreement whereby the issuer agrees to file a registration statement with the SEC within an agreed upon period after the offering has closed.

The type of security varies, but typically includes common stock, warrants, preferred stock, convertible notes or a combination. PIPE offerings are highly negotiated, so depending on the circumstances, the terms of any PIPE offering can vary widely. Set forth below is a brief overview of some key considerations for PIPE offerings.

Potential advantages of PIPE offerings

The key potential advantages of PIPE offerings include:

Shorter deal time line Issuers without an effective shelf registration statement can get to market faster with a PIPE offering than a registered offering since they do not have to wait for a registration statement to be filed and become effective before launch;

Lower transaction costs Since the investor pool is more limited, marketing costs are lower and issuers can market their securities using streamlined offering materials; and

Confidentiality Unlike an SEC registered transaction, PIPE offerings can generally be entered into and completed more discreetly.

Potential disadvantages of PIPE offerings

Some noteworthy disadvantages of PIPE offerings include:

Stock exchange limitations Under Nasdaq and NYSE rules, issuers generally cannot sell more than 20% of their outstanding stock in a PIPE offering at a discount without shareholder approval;

Illiquidity premium Investors cannot freely resell their securities until (i) the 6 12 month Rule 144 holding period lapses or (ii) a registration statement is declared effective by the SEC; and

Pricing uncertainty Unlike an underwritten public offering, PIPE offerings do not generally benefit from a broader book building process to discover a market price for the securities.

Investors typically negotiate for a discount to market price due to the short term illiquidity resulting from the securities being initially restricted. Investors may also seek the right to participate on an as converted basis in any rights issues or other fundamental transactions where new shares are issued to holders of the issuer common stock;

Participation rights Investors may seek the right to purchase all or a portion of any subsequent securities offering;

Change of control or undamental changeprovisions In the event of certain fundamental transactions, holders of warrants or other convertible instruments may be entitled to receive the same consideration provided in the transaction or have the right to require the cash repurchase of their securities based on a Black Scholes or other valuation;

Cashless warrant exercise Cashless exercise allows warrant holders to receive the n the moneyportion of the common stock issuable upon exercise without a cash payment by the investor. Because the total number of shares the investor receives is proportionately reduced according to the difference between the market price of the shares at the time of exercise and the exercise price, there is less equity dilution, but the issuer does not receive additional cash consideration;

Prepaid warrant Investors pay the exercise price in cash up front (thereby providing immediate liquidity to the issuer) and can exercise for a specified time in the future for no additional consideration;

Board representation and voting rights In certain PIPE transactions, investors may negotiate for board representation and/or voting rights for as long as they hold a designated amount or percentage of securities;

Liquidation preferences Upon certain liquidation or eemedliquidation events, the investor may be entitled to a multiple of its investment prior to distributions to other equity holders stock;

Restrictive covenants Issuers may be required to comply with financial covenants during a specified term or as long as the investors hold preferred stock, including limitations on indebtedness, payments, disposals and mergers, as well as maintenance covenants covering working capital and EBITDA or be subject to an event of default;

Liquidated damages If the issuer fails to effectuate a registration statement with the SEC within an agreed time frame, investors may require the issuer to make a cash payment to compensate the investors for the loss of their expected liquidity; and

When access to capital is otherwise difficult, PIPE transactions may offer companies the chance to tailor transactions that provide them with much needed working capital in a package that addresses investor requirements.
ugg smart gloves Accessing Capital Through Customised PIPE Offerings