Financing Alternatives in Today’s Capital Market Environment

Raising capital in today’s uncertain economic environment requires public companies to look beyond the methods used in the past. Private investment in public equity (PIPE) transactions or fully underwritten offerings can be expensive and time consuming in the best of times.

Because shares placed in a PIPE transaction are not registered, a resale registration statement must be filed with the SEC and declared effective for the shares to be freely tradable in open market transactions. Investors in PIPE transactions typically request a heavy discount to the issuer’s current share price and possibly warrant coverage to compensate for the risks related to this illiquidity. Additionally, the terms of the PIPE transaction may include penalties or liquidated damages provisions in the event the issuer fails to obtain an effective registration statement within a prescribed timeframe.

An underwritten or secondary offering of shares can be time consuming and expensive, given the need to file a registration statement and accompanying prospectus with the SEC and the associated legal and underwriting fees. The shares cannot be priced or placed until the SEC declares the registration statement effective which, depending on the SEC review process and any related follow on comments that need to be addressed, can take time, a commodity that many smaller public companies cannot afford.

A registered direct offering provides an alternative to public companies seeking capital and provides a number of benefits to the above alternatives; however, an RDO is not without its downsides.

What is a Registered Direct Offering?

A registered direct offering (RDO) is similar to a PIPE transaction, in that both are marketed and sold to a limited number of accredited and institutional investors; however, unlike a PIPE, shares sold in an RDO are registered and therefore, liquid, and can be sold to anyone. To complete an RDO, an issuer must be eligible to use Form S-3 and should have an effective shelf registration statement on file with the SEC. If an issuer is Form S-3 eligible, but doesn’t have an effective shelf registration statement on file, the issuer must file either a single purpose registration statement (i.e. “bullet”) covering the shares to be issued in the RDO, or a shelf registration statement.

RDO transactions are governed by a placement agency agreement, rather than an underwriting agreement. With a placement agency agreement, the offering is sold on a ‘best efforts’ basis, so there is no firm commitment for the placement of a specific number of shares, and the placement agent never takes possession of any securities. The placement agency agreement will typically include issuer representations and warranties concerning itself and its business, certain covenants applicable to the issuer, a promise to indemnify the placement agent for any Securities Act liabilities arising from the transaction, as well as closing conditions, such as legal opinions, comfort letter requirements, delivery of certificates, etc.

To complete the RDO pursuant to an effective registration statement, the issuer will ultimately prepare and file a preliminary or final prospectus supplement that describes the offering, depending upon how the shares are marketed and sold.

What are the advantages of an RDO?

An RDO has multiple advantages over a PIPE or traditional secondary offering.

1. Pricing – The shares sold in an RDO are freely tradable and therefore, there is no liquidity discount that would normally apply in a PIPE transaction. Additionally, the warrant coverage, if any, is typically lower in an RDO than would otherwise be the case in a PIPE.

2. Timeliness – With an effective shelf registration statement on file, an issuer can offer registered shares when market conditions permit, rather than be subject to the regulatory timeline that is typical in secondary offerings and that can cause an issuer to miss a market window. Investors in a PIPE transaction negotiate and execute individual purchase agreements, which can delay the closing of the transaction, whereas investors in an RDO are not required to sign or complete any such documentation.

3. Confidentiality – Because an RDO is marketed similarly to a PIPE, an issuer and the placement agent can market the transaction confidentially, enabling the parties to assess the market for the issuer’s securities without creating downward selling pressure on the stock that would typically accompany a public announcement of a proposed share offering. An RDO transaction is typically publicized just prior to or at pricing.

4. Lower legal and administrative expenses – Investors in an RDO are not required to negotiate and sign individual purchase agreements as they would otherwise be required to do in a PIPE transaction. Additionally, the shares in an RDO are typically offered under a shelf registration statement and therefore, are marketed based upon the issuer’s existing public disclosures, which eliminates the complexities of crafting a preliminary prospectus supplement as a selling document. RDO transactions also avoid the ‘give and take’ with the SEC typically associated with registration statements filed in connection with secondary offerings.

5. Exchange Rules – Certain securities exchanges require that any offering of securities that is determined not to be a ‘public offering,’ such as a PIPE, and which is greater than 20% of an issuer’s outstanding capital stock, must be presented to shareholders for approval. The determination of whether an RDO qualifies as a public offering is typically on a case by case basis; however, an RDO can be structured to allow the issuer to sidestep the 20% rule and avoid the need for shareholder approval of the proposed transaction.

What are the disadvantages of an RDO?

RDO’s are not a financing cure-all and there are some disadvantages to RDO’s over other methods of financing.

1. Distribution – Because an RDO is marketed to a select number of investors, shares are not as widely distributed as would typically be the case in a secondary offering. As a consequence, the issuer’s shareholder base is not necessarily broadened as a result of an RDO transaction.

2. Exchange Rules – If an RDO cannot be structured to meet an exchange’s definition of a public offering, and the proposed transaction is greater than 20% of the issuer’s outstanding capital stock, shareholder approval may be required, which would erode the advantages of timeliness and cost effectiveness of an RDO transaction.

3. Form S-3 – An issuer must be Form S-3 eligible to complete an RDO. While Form S-3 eligibility requirements have been relaxed, not all issuers will qualify.

4. Best efforts basis – A ‘best efforts’ basis means no firm commitment to the issuer regarding the number of shares to be sold. If the market fails to materialize for the issuer’s securities, the placement agent has no obligation to purchase any shares.

How do I start the process?

If an issuer does not already have an effective shelf registration statement on file, the first step in the process is to determine, together with legal counsel, the issuer’s Form S-3 eligibility. The next step is to assess any exchange rules that might apply regarding the determination of whether a proposed RDO is a ‘public offering.’ If the issuer is eligible for an RDO transaction, identification of the appropriate placement agent is the next critical hurdle. For a successful RDO, the placement agent should have longstanding relationships with a number of institutional investors who prefer to invest in the issuer’s industry or niche.

The Bottom Line

RDO’s are quicker to close than either a PIPE transaction or a secondary offering, which allows the issuer to quickly take advantage of favorable capital market conditions. The securities offered in an RDO are priced similar to a secondary offering, but without the related hurdles, and an RDO transaction can be marketed confidentially, which will reduce selling pressure on the issuer’s stock prior to completion of the transaction. Additionally, RDO transactions are typically cheaper to complete, in terms of discount, fees and related warrant coverage.

Your Reference Guide To A Better Understanding of What Network Marketing Is All About

If you are looking for a part-time business opportunity that doesn’t require big startup cost, network marketing is the answer. Also known as direct sales or multilevel marketing (MLM), this type of business opportunity requires very low upfront investment and big opportunity to directly sell products to your friends and relatives. In most MLM businesses, you just need a few dollars to purchase a kit which contains product samples. You will also be asked to recruit other sales representatives who’ll be your downline. And the benefit you’ll get for every recruit? As the recruiter, you will get commissions from the sales of your downlines.

MLM isn’t just for part-timers. Even those who are searching for a good home business will find it perfect. It is in fact one of the popular choices of stay-at-home moms and dads who wish to earn extra income. So if you are good enough in sales and in recruiting downlines, you can be one of the successful network marketers who earn more than what they’re expecting and are now enjoying freedom to live the life they’ve long been dreaming of.

But despite its advantages, there are people who prefer not to be involved in any network marketing business. And these people may have their own negative experiences that made them stay away from such business. Here are some of the downsides of MLM recruiting:

• larger-than-life income claims
• a disgusting recruitment approach
• exaggerated claims for the effectiveness of the product
• pressure to get a product right away or miss out the opportunity

In spite of these disadvantages, it’s still good to know that not all network marketing businesses are scams. So better leave those nasty recruitment practices behind and start hunting for a reliable and income-generating MLM opportunity. Do not allow yourself to be fooled by the bad apples that happen to be under the direct sales umbrella. Here are some tips to help you find the MLM business that’s perfect for you.

Research
If you want to find the best, you have to do a lot of research about the company. You can ask your friends and relatives or you can simply visit the Internet to look for some reactions and comments regarding the direct sales businesses on your list. You can also browse some business magazines. While researching, make it a point to jot down the opportunities you may be interested in.

List down the best MLM opportunities and select
This is now the time to get your list and from there, choose the opportunity that best fit your capabilities. You should also consider the company’s track record and industry reputation. Make sure the products you will be selling are of high-quality and that the MLM’s upline team is willing enough to work directly with you.

Evaluate
Assess if the direct sales business you’ve chosen truly fits your needs, lifestyle, and capabilities. Don’t just sign up in a network marketing opportunity that sounds and looks good. Better skip the company’s advertisement and see the big picture with a critical eye. Think about your decision over and over again so won’t regret it later.

How to Navigate the World of Internet Marketing

How to navigate the world of Internet marketing.

You’ve all heard about the people making thousands of dollars on-line and most of you would ask; how can I make that kind of money? The Internet is a powerful tool and can help you stuck at home, fed up of the nine to five drudge to escape and become your own boss. Some people buy and sell their own products on-line, a good source is e-bay but what if you do not have the goods to sell or the space to store them or even the time to get them delivered? Internet marketing can be an ideal way for people to make money without having to store thousands of products in a warehouse (or in their living rooms).

You can sell information and e-products (and the list of products is endless!)The question is what do people want and how do I find the best products? Affiliate marketing is one way to go by simply directing sales to companies already in business you can take a commission from every sale you direct. There are problems though, what products do you promote? How do you direct people to them? How do you rank your Google ratings so people know you are there promoting the products?

I have spent time exploring the affiliate market and although it does offer the opportunity to be your own boss for some there are so many products out there and so many people trying to sell them I just got lost in a cyber sea of products. Finally I came across the product that changed my life, gave me the financial freedom and let me live my life the way I wanted to live it and not the way my boss decided it was to be lived. No more working late nights and weekends if I decided not to, no more brief conversations with my wife and kids as we barely crossed paths. Finally I had my life back, time with my family and the money to be able to enjoy our lives.

With the help and support of my personal mentor I was able to set up my own business promoting the product that will change your life too. I had all the training I needed and help and support was available whenever I needed it. I had no previous experience setting up web pages, directing traffic to sites and was a general new comer to the whole Internet marketing business but with this product I am now a successful entrepreneur making substantial amounts of money every month and you could be too! I have also recently hooked up with Jeff Mills, one of the most successful outsourcing guru’s of recent times. He has also helped my business to thrive tenfold. I will share the benefits of my experiences as a training entrepreneur leading on to become a business success, developing my little empire into a thriving independent business. Now is the time to act -Give up the day job and start to live your own life.

Follow the link below and I will personally send you a free seven part e-course on how I changed my life forever. Learn how I found financial independence and freedom from the nine to five. I had no previous experience so if I can do it so can you, the key is to take action now, click on the link and find your way to a new and better life. Talk to me Ian Malone on my website to find out more.