To enhance the likelihood that early registration will be available, PIPE funds and other investors require the issuer to provide registration rights. Registration rights agreements typically require the issuer to file a registration statement within 30 days of the PIPE.
After the registration statement is filed, the registration rights agreement typically allows 90 to 120 days for SEC review and for addressing any comments from SEC staff.
Liquidated Damages
If registration is not available to investors after the period allowed in the agreements, investors will need recourse. Liquidated damages clauses typically require the issuer to pay up to a certain amount – often around 10 percent of the total PIPE amount – in damages, pro-rated over the period where investors are without registration.
Disputes
When shares remain illiquid beyond the period where an investor could reasonably have expected liquidity, damages can quickly arise. During the period of illiquidity, even if a relatively short period, the market price can decline rapidly resulting in losses for the shareholder. Under Duncan v. TheraTX, damages in such cases may be calculated based on an analysis of price and volume dynamics during the periods when shares should have been, and were, liquid, and the movements between one period and the other.
Valuation Impact
Registration rights agreements – especially if accompanied with very significant penalties for no registration or late registration – increase the value of most restricted securities by reducing the illiquidity discount. Pluris carefully takes such rights into account in each PIPE security valuation.
For more information on our PIPE security valuations, contact Pluris today.