Table of Contents:

Equity line of credit

A structured equity line is a commitment by the investor to purchase up to a predetermined dollar amount of shares of the public company's common stock over a certain period. It is very similar to a bank line of credit in that cash is available to the company on an "as needed" basis. The difference is the company repays the investor in stock. The company has the right but not an obligation to "draw down" on the equity line and sells shares to the investor when it is most favorable for the company. When the company draws down the line, the shares are sold to the investor at a discount.

Equity lines can be a highly effective and cost efficient capital raising tool.

Mechanics of an Equity Line of Credit

• Investor and seller sign an agreement which commits Investor to purchase up to $X million of sellers share capital at the request of seller, over a period of up to 2 years. However, seller has no obligation to issue shares but Investor is committed for the full period.

• At various times during the year seller may advise Investor that it wishes to exercise its option to ”draw down” under the Equity Line, and sell shares. Seller may exercise an unlimited number of “draw downs”.

• The agreement governs the number of shares or dollar amount which can be drawn down, based on the liquidity of the shares themselves and the length of the drawdown period (5 to 20 days).

• At the end of each draw down period, seller issues the new shares at a price representing the Bloomberg Volume-Weighted-Average Price over the drawdown period, less a discount.

• There are no fees paid except for the initial legal fees and sellers fees for SEC filings.

Benefits of an Equity Credit Line

Flexibility

• The Equity line of Credit does not require positive research, an investment case, or an active marketing effort by management and a sales force.

• It can be executed in virtually all market conditions.

Speed

• Once the line has registered, Seller can start raising new equity the day Seller asks us to do so.

• Proceeds would be received within four weeks.

Control

• Seller retains control over the timing and the price at which new equity is raised.

• Seller can ask Investor to buy shares at any time, regardless of market conditions. In other words, Seller has a put option on the Investor.

• Seller can set a minimum threshold.

Security

• Seller is not committed to sell any shares. Investor remains committed for the full period.

Market Timing

• Once the Equity Line is in place, Seller is in a position to take advantage of periods of price strength by immediately executing a draw down, instead of risking that the favourable market window has shut by the time a secondary offering has been organized.