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By: buckeyes466
13 Dec 2003, 05:31 PM EST
Msg. 130849 of 130870
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Standby Equity Distribution Agreement
The Standby Equity Distribution Agreement ("Standby Agreement") is a recently developed financing mechanism for publicly traded companies. The Standby Agreement is a compelling alternative to the traditional equity private placement or secondary offering. Under the structure, Cornell will provide a firm commitment to purchase an agreed dollar amount of the Company’s shares. The facility would be available up to 2 years, renewable thereafter. The program is entirely controlled by the Company (as opposed to the investor). The Standby Agreement provides the Company with the right but not the obligation to draw down on the facility. In contrast to a traditional secondary, the Company would be able to raise capital at various "snap shots" or tranches (mini-secondaries) in the future, at prices the Company deems appropriate. This is a significant improvement in flexibility compared to a debt or convertible structure in which price/conversion is controlled by the investor.

Benefits of a Standby Equity Distribution Agreement:
Company retains at all times complete control over the amount and the timing of each draw down (mini-secondary) on the Standby Agreement
Company can ask Cornell to buy shares at any time, regardless of market conditions.
Company has the right to sell shares and Cornell has the obligation to buy share
Total Flexibility
tailored made structure to match a company's unique financial needs
Standby Agreement can be executed in virtually all market conditions
Company can set a minimum acceptable price
Less Dilution
A company can raise more capital for less shares over a period of price strength
No Overhang
shares are issued as the company determines, no uncertainty regarding dilution
Company is not committed to sell any shares.
Cornell remains commited for the full 2 year period of the Standby Agreement
Firm Commitment
eliminates financing uncertainty so management can focus on its business
Lower cost
Significantly lower cost funding mechanism than other traditional financing structures.
No non-usage fees
Company can take instant advantage of a favorable stock price / chart
Less implementation risk
Significantly reduces time to market compared with other forms of financing
Market Timing
Once the Standby Agreement has been registered with the SEC, the company is in a position to take advantage of periods of price strength by immediately executing a draw down on the Standby Agreement, instead of incurring the risk of losing a favourable market window to raise capital given the much longer time it takes to organize a secondary offering.
No Short Selling or Hedging by Cornell Capital
CORNELL Capital and its affiliates shall covenant not to cause or engage in, in any manner whatsoever, any direct or indirect short selling or hedging of the securities of a partner company. Cornell Capital and its affiliates shall represent and warrant to the partner company that at no time in the past has Cornell Capital or any of its affiliates caused or engaged in, in any manner whatsoever, any direct or indirect short selling or hedging of the securities of a partner company.
Standby Equity Distribution Agreement Process and Structure
After the Standby Agreement transaction is closed the Company has to file a registration statement with the SEC. Upon effectiveness of the registration the committed funds become available to the Company. Each seven trading days the Company has the right to put up to a predetermined maximum dollar amount of shares to Cornell. On the sixth trading day following the put request Cornell transfers funds and the Company transfers shares to a predetermined escrow account and exchanged. The facility can be accessed at the discretion of the company until the committed amount is utilized in full.

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