The Standby Equity Distribution Agreement is a compelling alternative to the traditional equity private placement or secondary offering. Under the structure, your firm will receive 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 Equity Distribution 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 Distribuion
- Under a Standby Equity
Distribution Agemment, your
Company retains at all times
complete control over the amount
and the timing of each draw down
(mini-secondary) on the Standby
- Company can ask buyer to buy
shares at any time, regardless
of market conditions.
- Company has the right to sell shares and buyer has the obligation to buy shares
- tailored made structure to match a company's unique financial needs
- Standby Equity Distribution Agreement can be executed in virtually all market conditions
- Company can set a minimum acceptable price
- A company can raise more capital for less shares over a period of price strength
- shares are issued as the company determines, no uncertainty regarding dilution
- Company is not committed to sell any shares.
- Buyer remains commited for
the full 2 year period of the
- eliminates financing uncertainty so management can focus on its business
- 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
- Once the Standby Equity Distribution 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 Buyer
- Buyer 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. Buyer and its affiliates shall represent and warrant to the partner company that at no time in the past has Buyer 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.