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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:
Control
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
Certainty
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
Speed
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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