Ann: Corporate Restructure and Share Purchase Pla, page-98

re: Ann: Corporate Restructure and Share Purc... Hi asf,

A share purchase plan is the most democratic and least complex form of raising capital, imo. The large and the small holders are treated equally.

Sorry mate but you are wrong.

One of the main drawbacks of SPP is that it is not equitable.
The small holders do benefit while large holders get diluted.

It's quite apparent that most in here have no idea where the figure of $15,000 comes from so let me explain to you the mechanics of Share Purchase Plans.

SPP is an offer of securities up to a set dollar value to existing shareholders of a listed company.

Unlike a rights issue, a SPP is not a pro-rata offer, meaning that all shareholders are not offered shares based on the size of their holdings. It is essentially a rudimentary means to provide an opportunity for retail shareholders to participate in a non pro-rata capital raising in a way that seeks to broadly approximate pro-rata treatment, without actually providing equality of treatment.

Shareholders are able to subscribe up to the maximum amount offered in the SPP.

From the perspective of small shareholders, SPPs are advantageous because they may receive more than a pro-rata share of securities than they might receive under, for example, a rights issue. However, larger individual shareholders (ie those with a current shareholding above the amount being offered through the SPP) can still suffer dilution through a SPP.

Share purchase plans offer an expedient and cost effective method of raising up to $15,000 from each existing shareholder in a 12-month period without the need to issue detailed disclosure documentation (under the terms of an ASIC Class Order). Companies are required to issue a cleansing notice at the time of a SPP offer.

The upper limit of $15,000 per shareholder still remains a factor that limits the usefulness for companies seeking to use a SPP structure in isolation to raise capital.

Although not strictly a pro-rata issue, SPPs are exempt from the ‘15% in 12 months capital raising threshold’ without shareholder agreement in Listing Rule 7.1.

The funding that can be accessed using SPPs is also restricted by Listing Rule 7.2 exception 15, which prescribes that: SPPs can only be used once in any 12-month period, the funding raised must not exceed 30% of the company’s securities already on issue, and the issue price must be at least 80% of the market price for the securities. Now you can see why HAW is raising $5m and why it is at 1.0c.

SPPs also gained in popularity as the discount to the current market price at which they are offered made them a very attractive investment in a rising market. While SPPs were often targeted at ‘compensating’ existing retail investors, the ASX listing rules could be used to allow for a record date for eligibility to participate in a SPP to be set after the public announcement of the offer.

This timing enables new shareholders to purchase a very small parcel of shares to be eligible to participate in the SPP on the same terms as existing shareholders. This would effectively allow these new opportunistic shareholders to dilute existing shareholders.

I hope the above gives you a bit of an insight into SPP's and explains why HAW management used this approach to raise funds.
It should also make it clear that HAW's management did not set the limit at $15,000 to dilute LCY's holding in HAW as SPP is only a part of a more wider plan to raise the necessary capital.

HAW would require 334 shareholders to take up the offer of full $15,000 for HAW to raise $5M.

Possible but highly unlikely without getting Insto's on board.

Good luck to all.