Equity Lines

Similar to PIPE Transactions

Most equity line financing arrangements are similar to a PIPE (private investment into public entity) transaction such that the Issuer relies on the private placement exemption from registration to sell the securities under the equity line and then files a registration statement for the re-sale of such securities by the investor. However, where in a PIPE transaction the investor bears the risk, in an equity line transaction, the investor often bears little risk due to the delayed nature of the puts coupled with the price of the securities being a formula tied to market price. Accordingly, the SEC views equity line financing registrations as indirect primary offerings.

Although the SEC views the equity line as an indirect primary offering, it allows the filing of re-sale type registrations if the following conditions are met:

The Issuer must have completed the private transaction prior to filing the registration statement (i.e. both parties must be fully contractually bound with all material points agreed upon)

The “resale” registration statement must be on the form that the Issuer is eligible to use for a primary offering; and

In the prospectus the investors must be identified as both underwriter(s) and selling shareholder(s).

via Securities Law | Going Public | Reverse Mergers | Registration Statements | SEC Law.