Medical Care Technologies Inc (MDCE)

[Bretwalda]

http://www.prlog.org/11758781-reserve-equity-financing-ref-alternative-financing-to-fuel-growth-for-small-and-mid-cap-companies.html



The REF: Advantages

The success of the REF as a capital alternative equity financing tool can be attributed to the benefits it offers over other means of capital raising. Some advantageous features of the REF are described below:

• Flexible size and timing of cash advances;

• Access to capital throughout the duration of the REF

• Low implementation costs; and

• Flexibility

Flexibility: In other forms of equity capital raising, an issuer must often introduce the full amount of the offering to the market at one time and regardless of market conditions. This increases the likelihood of dilution. Alternatively, an underwriter may be merely obligated to use its “best efforts” to resell the stock thereby increasing the likelihood that the issuer will not receive the full amount of capital it has requested. Furthermore, there is often a delay between the time the stock is sold and the time it is introduced to the market, this delay can further hinder the issuer’s capital raising efforts if the price is no longer reflective of current market conditions. Compared to other forms of equity capital raising, the REF gives the issuer the right, but not the obligation to sell its stock to the investor in tranches at the current market price. This feature allows the issuer the flexibility to tailor the size and timing of its advances to current market conditions and capital needs. This guaranteed access to limited amounts of capital, makes the REF a useful instrument to issuers who wish to avoid dilution and either do not need large capital infusions or can anticipate their future capital needs.

Access: Once the REF is in place, all conditions precedent to an advance have been met and relevant covenants have been maintained, the investor is bound to purchase shares pursuant to the REF. This allows the issuer access to funds over the life of the REF without identifying and negotiating with an underwriter each time capital is needed. Particularly in a difficult economic environment, this guaranteed access to capital can be used as leverage when dealing with lenders and third parties and can also provide comfort to the issuer’s shareholders, creditors and counterparties that the issuer will have the means to enhance their business and meet financial obligations.

Low Cost: For several reasons, REFs are often less costly to implement compared to other alternative capital raising structures. First, the presence of a single investor significantly decreases any costs associated with printing and mailing a prospectus or offering memorandum. Second, a single investor eliminates the need (and associated costs) of a marketing road show. Finally, the streamlined REF structure simplifies negotiations, which reduces due diligence costs and legal fees, and saves time. Once the fixed costs associated with implementing the REF are incurred, the variable costs are generally structured into the purchase price determination and tend to be lower than those associated with alternative capital raising structures.

Fewer Restraints: Generally the REF imposes fewer restrictions on an issuer because the investor is subject to less risk then an underwriter in alternative capital raising structures. Among other things, the REF does not generally restrict how the issuer uses proceeds, impose leverage ratios or require the issuer to maintain certain cash levels and will not require an issuer to reach revenue or similar targets. In addition, although it is common for the REF to restrict an issuer’s ability to issue equity during a pricing period, it will usually not limit the issuer’s ability to raise additional capital or incur debt.

The REF: A Conclusion:

The REF is a simple, flexible, innovative and effective alternative equity financing tool that serves as a method for public companies to opportunistically raise capital from the equity markets. If properly structured and used with regard to current market conditions, the REF is an inexpensive, non-restrictive way to raise capital without incurring excessive dilution. As such, the REF is well suited to enhance and manage liquidity while ensuring a guaranteed source of funding regardless of market conditions.