Question for the capital markets attorneys out there. Last night as we were crossing sig pages on a best efforts public shelf offering (common stock only), placement agent’s counsel provided one sig page to the SPA (for $330k) and said all other investors (for $1.4M) are purchasing pursuant to the prospectus and have elected not to sign the SPA. It was presented as totally normal, and how that banker’s investors typically invest in this kind of deal. Has anyone encountered this before?

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I’ve never heard of that. The prospectus is an offering document. Not a sales contract. Either the underwriter or investor should be signing to purchase the shares. What is the basis for issuers counsel to issue a legal opinion to issue the shares if there is no SPA?

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I tottally agree. And if the company doesn’t get the votes for the split, they will be delisted from Nasdaq. It’s a make or break the company deal because of the investor’s voting obligations (they tried to get shareholder approval of a split already and couldn’t get a majority if I&O common stock because almost all of their shareholders hold in street name and brokers refused to vote). Very very odd.

To add more context, our client is literally doing the deal in order to get sufficient votes to approve a reverse split, and there is a voting obligation in the SPA. Obviously those who did not sign the SPA wouldn’t be bound to hold their shares through the record date, much less vote them in favor of the split.

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I'd ask the corporate counsel dot net.

I’ve just been asked about this same process. Associate- how did the process work?

We got comfortable enough with it that our opinion committee was willing to sign off. In our 5.1 opinion, we make it clear that the shares, when issued, sold and delivered against payment therefore as described in the prospectus, will be validly issued, fully paid and non-assessable. We also tweaked the language a little bit in the pro supps and our opinion issuable under the PAA and SPA to provide that securities are being sold pursuant to the pro supp and the SPA, and that only certain investors are signing the SPA. Technically those investors that do not sign the SPA are not entitled to rely on that opinion, as they are not parties to the agreement.

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