Patent Publication Number: US-2007106588-A1

Title: Method and system for funding a contingent event with convertible securities

Description:
The invention relates to the field of financing and more particularly to the field of contingent financing and convertible markets.  
     BACKGROUND  
      Companies frequently require bridge or longer-term funding to support a contingent event, such as an acquisition or merger. Systems and methods are needed to provide such funding using non-traditional sources.  
      The preceding description is not to be construed as an admission that any of the description is prior art relative to the present invention.  
     SUMMARY OF THE INVENTION  
      In various aspects, the invention provides a system and method for funding a contingent event with convertible securities. The system and method comprise obtaining a commitment from at least one investor to purchase shares of convertible securities, and enforcing the commitment within a first predetermined period by selling the shares of convertible securities to the investors. The shares of convertible securities comprise a provision to redeem the convertible securities from the investors if within the first predetermined period the contingent event has not occurred.  
      In one aspect, the shares of convertible securities further comprise a provision to redeem the convertible securities from the investors after a second predetermined period if the contingent event has occurred. In one aspect, the provision to redeem the convertible securities from the investors after a second predetermined period if the contingent event has occurred further provides a price substantially equal to a liquidation preference. In one aspect, the commitment further comprises a provision to cancel the commitment if trading price of common stock of a company issuing the convertible securities declines below a predetermined threshold. In one aspect, the predetermined threshold is approximately 10% below the trading price of the common stock at the time of the commitment. In one aspect, the provision to redeem the convertible securities from the investors if within the first predetermined period the contingent event has not occurred further comprises providing a price substantially equal to a liquidation preference plus a percentage of an increase in a conversion value. In one aspect, selling the shares of convertible securities to the investors is a private placement under Rule 144A. In one aspect, selling the shares of convertible securities to the investors is a public placement. In one aspect, the shares of convertible securities further comprise a provision for converting the convertible securities to common stock of a company issuing the convertible securities. In one aspect, the convertible securities are preferred. In one aspect, the convertible securities are perpetual. In one aspect, the contingent event is an acquisition. In one aspect, the contingent event is a merger. In one aspect, the first predetermined period of time is substantially equal to one year. In one aspect, the second predetermined period of time is substantially equal to seven years. In one aspect, the shares of convertible securities further comprise a conversion premium determined at the time of the commitment. In one aspect, the conversion premium is based on price of common stock of a company selling the convertible security, which price is determined at the time the commitment is enforced.  
      In other various aspects, the invention provides a financing commitment agreement. The agreement comprises a provision whereby an investor agrees to purchase shares of convertible securities within a first predetermined period, and a provision for an issuer to redeem the convertible securities from the investors if within the first predetermined period a contingent event has not occurred.  
      In one aspect, the shares of convertible securities further comprise a provision to redeem the convertible securities from the investors after a second predetermined time if the contingent event has occurred. In one aspect, the provision to redeem the convertible securities from the investors after a second predetermined time if the contingent event has occurred further provides a price substantially equal to a liquidation preference. In one aspect, the system and method further comprise a provision to cancel the commitment if trading price of common stock of a company issuing the convertible securities declines below a predetermined threshold. In one aspect, the predetermined threshold is approximately 10% below the trading price of the common stock at the time of the commitment. In one aspect, the provision to redeem the convertible securities from the investors if within the first predetermined period the contingent event has not occurred further comprises providing a price substantially equal to a liquidation preference plus a percentage of an increase in a conversion value. In one aspect, purchase of the shares of convertible securities by the investors is a private placement under Rule 144A. In one aspect, purchase of the shares of convertible securities by the investors is a public placement. In one aspect, the shares of convertible securities further comprise a provision for converting the convertible securities to common stock of a company issuing the convertible securities. In one aspect, the convertible securities are preferred. In one aspect, the convertible securities are perpetual. In one aspect, the contingent event is an acquisition. In one aspect, the contingent event is a merger. In one aspect, the first predetermined period of time is substantially equal to one year. In one aspect, the second predetermined period of time is substantially equal to seven years. In one aspect, the shares of convertible securities further comprise a conversion premium determined at the time of the commitment. In one aspect, the conversion premium is based on price of common stock of a company selling the convertible security, which price is determined at the time the commitment is enforced.  
      The foregoing specific aspects are illustrative of those which can be achieved and are not intended to be exhaustive or limiting of the possible advantages that can be realized. Thus, the objects and advantages will be apparent from the description herein or can be learned from practicing the invention, both as embodied herein or as modified in view of any variations which may be apparent to those skilled in the art. Accordingly the present invention resides in the novel parts, constructions, arrangements, combinations and improvements herein shown and described. 
    
    
     BRIEF DESCRIPTION OF THE DRAWINGS  
      The foregoing features and other aspects of the invention are explained in the following description taken in conjunction with the accompanying figures wherein:  
       FIG. 1  illustrates an example system according to one embodiment; and  
       FIG. 2  illustrates steps in an example method according to one embodiment. 
    
    
      It is understood that the drawings are for illustration only and are not limiting.  
     DETAILED DESCRIPTION OF THE DRAWINGS  
      The embodiments described below allow a company to secure a commitment agreement from investors to purchase convertible securities. Funds from sale of the convertible securities are used to fund a contingent event, such as an acquisition or merger. At any time during the commitment period, which is typically about one year, the issuer may put the convertible securities to the investors. If the issuer puts the securities to the investors and the contingent event does not occur, the issuer may redeem the securities. If the contingent event occurs and the issuer does not put the securities, the investors may enforce the commitment and purchase or call the convertible securities from the issuer. The issuer also has the option to cancel the commitment if the company common stock trading price declines below a threshold, or other contingencies occur.  
      An Example System  
      Referring to  FIG. 1 , an example system  100  according to an embodiment includes issuer  102  and investors/holders  104 , interconnected by network  106 . Although not illustrated, issuer  102  and investor/holder  104  include computers with central processor units, memory (RAM, ROM, etc.), fixed and removable code storage devices (hard drives, floppy drives, CD, DVD, memory stick, etc.), input/output devices (keyboards, display monitors, printers, pointing devices, etc.), and network interconnect devices (Ethernet cards, WiFi cards, modems, etc.). Network  106  (LAN, WAN, extranet, the Internet, PSTN, etc.) is used to exchange electronic communications between issuer  102  and investor/holder  104  using information signals. Software code to accomplish the methods described may be stored on a computer-readable medium and may also be transmitted as an information signal, such as for download.  
      An Example Method  
      Referring to  FIG. 2 , an example embodiment begins at step  202  with issuer  102  and investors/holders  104  entering into a commitment. Under the terms of the commitment, issuer  102  agrees to sell and investors/holders agree to purchase shares of convertible securities for a specific period of time, such as one year, if the issuer puts or enforces the commitment. Proceeds from the sale of the securities are intended for use in financing a contingent event, such as an acquisition or merger. The commitment fixes the coupon (e.g., 5.75%) and the conversion premium based on common stock price (e.g., 20% above closing stock price on date of issuance). The conversion price can be calculated using the common stock price at the time of issuance, which helps to reduce hedging activity, or the conversion price can be calculated at some future date. Issuer  102  has the right under the commitment to put the securities at any time within the year whether the contingent event has occurred. Investors/holders have the right under the commitment to call the securities within the year only if the contingent event occurs. Issuer  102  has the right to cancel the commitment if the common stock price of the issuer declines below a predetermined threshold, such as a 10% decline, or approximately that amount. Issuer  102  may also have the right to cancel the commitment if other contingent events occur. Issuer  102  also has a traditional call right whereby after a predetermined time (e.g., 7 years), and up to but excluding the redemption date, issuer  102  may redeem the securities at a redemption price equal to the liquidation preference. Issuer  102 &#39;s call right may be subject to certain contingent events, such as the last reported sale price of the common stock exceeding a certain percentage of the conversion price (e.g., 140%), for at least 20 trading days of the 30 consecutive trading days ending on the trading day prior to the date upon which the issuer delivers the notice of redemption.  
      At step  204 , a one year closing clock starts, along with a seven year maturity clock, for example.  
      At step  206 , system  100  determines whether issuer  102  has put the securities, and if so, then at step  208  investors/holders  104  purchase the securities.  
      If at step  206 , system  100  determines that issuer  102  has not put the security, then at step  210 , system  100  determines whether the one year closing clock has expired, and if so, the commitment expires at step  212  without being exercised. At step  210 , system  100  also determines whether the stock price has fallen below the predetermined threshold, such as a 10% decline or other contingencies, and if the price has declined, issuer  102  has the option to cancel the commitment at step  212 . System  100  also determines at step  212  whether any other contingencies have occurred that would allow cancellation of the commitment.  
      If at step  210  system  100  determines that the one year closing clock has not expired and issuer  102  has not cancelled the commitment, then at step  214 , system  100  determines whether the contingent event has occurred, and whether investor/holder  104  has called the security. If so, then at step  208  investors/holders  104  purchase the security. If not, system  100  loops to step  206 .  
      If investors/holders  104  have purchased the securities at step  208 , because the issuer put the securities or the investors called the securities, then at step  216  system  100  determines whether the one year closing clock has expired. If it has not expired, then at step  218 , system  100  determines whether holders/investors  104  have converted, and if so, at step  220  holders/investors  104  tender the convertible security and receive common stock.  
      If at step  218  system  100  determines that holders/investors  104  have not converted, then at step  222  system  100  determines whether the contingent event (e.g., the acquisition or merger) has terminated (failed to close) and whether the issuer has redeemed the security. If not, system  100  loops to step  216 . If so, then at step  224  issuer  102  pays investors/holders  104  cash equal to 101% of the liquidation preference plus 75% of any increase in the conversion value (for example).  
      If at step  216 , system  100  determines that the one year closing clock has expired, then at step  226  system  100  determines whether holders/investors  104  have converted, and if so, at step  220  holders/investors  104  tender the convertible security and receive common stock.  
      If at step  226  system  100  determines that holders/investors  104  have not converted, then at step  228  system  100  determines whether the seven year maturity clock has expired, and if not loops to step  226 .  
      If at step  228 , system  100  determines that the seven year maturity clock has expired, then at step  230 , system  100  determines whether the convertible redemption date has passed. If so, the method ends. If not, then at step  232  system  100  determines whether holders/investors  104  have converted, and if so, at step  220  holders/investors  104  tender the convertible security and receive common stock.  
      If at step  232  system  100  determines that holders/investors  104  have not converted, then at step  234  system  100  determines whether issuer  102  has redeemed the security and whether the redemption conditions are satisfied. If not, system  100  loops to step  230 . If so, then at step  236 , issuer  102  pays investors/holders  104  cash equal to the liquidation preference.  
      In one embodiment, the convertible securities are perpetual. In one embodiment, the convertible securities are preferred. In one embodiment, selling the shares of convertible securities to the investors is a private placement under Rule 144A. In one embodiment, selling the shares of convertible securities to the investors is a public placement.  
      Although illustrative embodiments have been described herein in detail, it should be noted and will be appreciated by those skilled in the art that numerous variations may be made within the scope of this invention without departing from the principle of this invention and without sacrificing its chief advantages.  
      Unless otherwise specifically stated, the terms and expressions have been used herein as terms of description and not terms of limitation. There is no intention to use the terms or expressions to exclude any equivalents of features shown and described or portions thereof and this invention should be defined in accordance with the claims that follow.