PRIVATE PLACEMENTS

A company will raise money by selling shares, in what is called a "private placement" [PP]. They typically involve "units" that consist of a share and a warrant, or half warrant. A warrant is like a option, which gives the holder the right, but not the obligation, to buy a share at a set price until a certain date in the future. The warrants are what attract the institutional buyers to participate in the PP. The price of the PP is usually lower than the share price. By law, it can be no lower than 80% of the share price the previous day, at the time the private placement is announced.

The one concern is the lack of liquidity. The purchase price is usually less to compensate the investor for the lack of liquidity. You cannot sell right away as you normally would if you bought stock on the open market.

PP are also risky for the large investor, because a large investor usually cannot sell a large portion of stock at once without damaging the share price, and hurting their own position. They may not be able to sell until the company has profits, which may be years down the road. To protect existing shareholders from a large investor dumping the stock, there is a hold time where the shares acquired cannot be sold for 4 months or even up to a year for warrants. And that creates even less liquidity for the large investor.

A junior exploration company typically requires private placement money to survive. If PP money dries up, administrative expenses have to be cut back and exploration halted. Companies may require continual PP money to remain viable as an ongoing concern. The constant issuing of new shares can create enormous dilution that can drive a share price into the ground.

A curious rule about private placements is that a company cannot advertise them or engage in any general solicitation. They can announce them, but not advertise. A private placement is supposed to be private. After an announcement, it may be too late to get in, as an investor may be expected to have a pre-existing relationship with the company. People find out about private placement opportunities usually from brokers, by word of mouth, or by contacting the company directly.

Who is qualified to buy a Private Placement?

A director or executive of a company.

An individual whose net income before taxes exceeded $200,000 in each of the two most recent years or whose net income before taxes combined with that of a spouse exceeded $300,000 in each of the two most recent years and who, in either case, reasonably expects to exceed that net income level in the current year.

An entity in which all of the equity owners are accredited investors or have a net worth exceeding $1 million.

This is not a recommendation to participate in private placements instead of buying stock on the open market. Investing in the open market versus private placements has it's own risks and rewards.

I'm not selling any securities, and I'm not a licensed securities broker, nor am I advertising for any particular company. This is not a general solicitation to general investors. The opportunities I may have knowledge of, are only suitable for qualified investors. Potential investors are also expected to have a specialized knowledge of the stock market.

If you qualify to participate in a PP as a "sophisticated" or "accredited" investor, and if you would like to be notified about private placement opportunities, then email me at bmurray@sunwave.net .