Smith & Wesson leads PIPEs with $24.42 million deal; dropping oil may help private placement volume

By Sheri Kasprzak

New York, Sept. 7 - Handgun manufacturer Smith & Wesson Holding Corp. headed up private placement news on Wednesday, announcing the imminent closing of a $24.42 million stock offering with institutional investors.

The Springfield, Mass.-based firearms company said it has received definitive agreements from a group of institutions for 6 million shares at $4.07 each. On July 31, the company reportedly had 32,128,917 outstanding common shares.

The investors will also receive warrants for 1.2 million shares, exercisable for seven months after a registration statement is declared effective. The strike price of the warrants could not be determined by press time Wednesday.

After the offering was announced Wednesday afternoon, Smith & Wesson's stock dipped $0.36, or 6.78%, to close at $4.95.

SG Cowen & Co., LLC was the placement agent.

The majority of the proceeds will be used to repurchase 9 million outstanding warrants.

"We view the completion of this accretive private placement as very positive for several reasons," said the company's chief financial officer, John Kelly, in a statement. "First, the transaction reduces a significant warrant overhang that existed. Second, we view the investment in our company by a group of new institutional investors as a vote of confidence that we are well-positioned to achieve our strategic goals. Finally, the investment allows us to purchase warrants at a substantial discount to their intrinsic value that, if left outstanding, would have consequently diluted our future earnings per share by adding an additional 3 million shares to the number of shares outstanding."

Financially, Smith & Wesson's net income has seen substantial gains over the course of the fiscal year. For the fiscal year ended April 30, 2005, the company realized net income of $5,248,956, compared to $832,285 for the same period in 2004.

Moving to the broader PIPE market, some market sources said a reduction in oil prices over the past two sessions may boost private placement issuance this week and maybe even into next week.

Oil dropped significantly Wednesday, losing $1.59 to close at $64.37 per barrel and pushing stocks back up.

"It's a good sign," said one market source based in San Francisco. "With worries over oil abating, stocks are going to go up and things will be better for us [the PIPE market]."

Still, although he agrees somewhat, another source noted that oil certainly hasn't been the only thing affecting stocks.

"It's true that it [volume] will likely pick up here and there," he said. "I don't see it happening overnight with a big load of deals, but it will gradually get better."

That source said with the actual economic damage from Hurricane Katrina still relatively unknown, a lot of uncertainty hangs over the private placement sector. Stocks and the economy in general may be negatively impacted, he noted, and that may give some potential issuers pause.

Stonepath raises $10 million

Elsewhere in PIPEs Wednesday, Stonepath Group, Inc. announced the closing of the private placement of a $10 million convertible minimum borrowing note.

The three-year note bears interest at Prime rate plus 100 basis points and is convertible into common shares at $1.08 each.

The investors received warrants for 2.5 million shares, exercisable at $1.13 each for the first 900,000 shares; $1.41 for the next 700,000 shares; $4.70 each for the next 450,000 shares and $7.52 each for the remaining 450,000 shares. The warrants expire in five years.

Based in Philadelphia, Stonepath is a freight services company.

On Wednesday, the company's stock gained $0.05 to end at $0.94.

Telular PIPE provided 'flexibility'

Commenting on Telular Corp.'s $9,275,000 private placement closed Tuesday, the company's director of marketing, Michael Unterborn, said Wednesday that the facility provided flexibility to the company in "this uncertain market."

"We chose [a] PIPE because it minimizes management's time commitment while still preserving flexibility for later financing, as well as it builds a cash balance without the risks associated with full-blown follow-on filing, and it will fulfill our short-term capital need in this uncertain market," Unterborn said in an interview Wednesday morning.

As previously reported in the Prospect News PIPE Daily, Telular sold 2.65 million shares at $3.50 each to SRB Greenway Capital, LP; SRB Greenway Capital Q.P., LP; SRB Greenway Offshore Operating Fund, LP; Walker Smith International Fund, Ltd.; Walker Smith Capital Q.P., LP; Walker Smith Capital LP; WS Opportunity Fund International Ltd.; WS Opportunity Fund, LP; WS Opportunity Fund Q.P., LP and Bonanza Master Fund Ltd.

Those investors, Unterborn said, are new to Telular.

The company conducted a similar private placement in March of 2000, raising $10 million from the sale of 444,444 shares at $22.50 each.

Based in Vernon Hills, Ill., Telular makes wireless products for the telecommunications industry.

On Wednesday, Telular's stock remained unchanged at $4.40.

Weda Bay heads up Canadian PIPEs

Leading a slate of mineral offerings north of the border Wednesday, Weda Bay Minerals Inc. priced a C$12 million unit offering.

The Toronto-based mineral explorer intends to sell 16 million units at C$0.75 each.

The units are comprised of one share and one half-share warrant. The whole warrants are exercisable at C$1.25 each for two years.

Regent Mercantile Bancorp Inc. will place the offering, which is expected to close Sept. 15.

Proceeds will be used to retire a US$2.5 million debt to OM Group Inc. The remainder will be used for work at the Halmahera nickel cobalt project and for general corporate purposes.

"It is extremely gratifying that these investors have recognized the value of our extraordinary asset, which has been independently assessed at a net present value of more than $300 million," said Michael Garvey, Weda Bay's chairman, in a statement. "Through the retirement of the OMG debt, Weda Bay will have met the final condition for the elimination of the product supply agreement. This opens the way for the company to explore strategic relationships with industry majors."

The product supply agreement, terminated in May, gave OM Group exclusive rights to nickel and cobalt obtained from Weda Bay's Indonesian project.

On Wednesday, Weda Bay's stock gained 11.94%, or C$0.08, to end at C$0.75.

Transmeridian stock gains 5.3%

A day after announcing that it had wrapped a $22.5 million private placement, Transmeridian Exploration Inc.'s stock closed higher.

The company's stock finished up $0.14, or 5.26%, to close at $2.80 Wednesday.

On Tuesday, when the closing was first announced, the company's stock gained a penny to end at $2.66.

The Houston-based oil exploration company sold convertible notes with a conversion price equal to 110% of the principal being converted, plus interest, at a subsequent equity financing price.

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