Reserve Equity Financing (REF): Alternative Equity Financing to Fuel Growth for Small and Mid-Cap Companies

An Alternative Financing Solution to a Capital Raising Dilemma. End Quote

Dallas, TX (1888PressRelease) December 28, 2011 - A Capital Raising Dilemma

Easy, low cost access to capital is essential to drive growth for small and mid-cap companies. While the capital markets offer a range of options, public companies have generally been left with a tough choice because typical options that raise equity capital threaten to dilute shareholder equity and potentially saddle companies with restrictive and often expensive terms. The financial crisis has brought this challenge into sharper focus. According to an Ernst & Young survey of public and private companies at the end of 2009, almost one-third of respondents said that inadequate access to capital was impeding their companies' ability to grow. In addition, 42% of respondents felt that although capital is available, it's too expensive.

The Reserve Equity Financing Solution

The financial crisis highlights the value of a Reserve Equity Financing ("REF"), which is a niche alternative equity financing tool often used by small and mid-cap companies. Simply described, a REF allows a company the right, but not the obligation, to sell shares of equity in tranches over a defined commitment period. This allows the company to raise capital by selling shares as needed or when market conditions are favorable. Additionally, the company may negotiate a floor below which stock cannot be sold, providing a safety net during a downturn. The investor is obligated to buy shares under the agreement regardless of economic environment and companies can cancel the REF at any time without additional cost. The obvious benefits to the REF are the flexibility to raise funds in incremental amounts and to increase a company's shareholder base in a controlled and measured way. In addition, as discussed further below, both the fixed and variable costs associated with entering into a REF tend to be lower than those associated with other means of capital raising and tend to put fewer restrictions on the issuer; thus, simply having access to the REF offers companies a competitive edge. The REF can be used by companies located in numerous countries including but not limited to: Australia, Brazil, Canada, Germany, Israel, Poland, Scandinavia, Sweden, Singapore, South Korea, United Kingdom, United States, Vietnam, Western Europe and other countries.

The REF was created by Allen Silberstein, Founder and Chief Executive Officer of AGS Capital Group, LLC. AGS Capital Group, LLC spun out of Visium Asset Management, a three billion dollar private investment fund.

When negotiating a REF, the investor works with the issuer and legal counsel to structure the transaction to ensure flexibility and fast access to capital. The major factors that are considered when putting a REF in place include:

• The total amount of equity the investor commits to purchase;

• Parameters of REF usage including the maximum size of each advance or tranche;

• Purchase price determinations, including any floor price; and

• Costs.

Commitment Amount and Limitations: The total amount of equity the investor commits to purchase is called the "commitment amount." The commitment amount is generally expressed in U.S. dollars or local currency, but is sometimes expressed in shares. After the REF is signed and any conditions have been met, the issuer can sell shares to the investor according to the terms of the agreement. The issuer's sale is initiated by an "advance notice" indicating the portion of the commitment amount it wants to sell to the investor. During the REF negotiations, the issuer and investor agree to a maximum advance size which is often calculated based on the issuer's recent trading volume at the time of the advance.

Some REFs also contain a negotiated ability to include a floor price, or "safety net price" in an advance. Specific safety net price provisions vary, but generally they allow an issuer to indicate the price below which it does not wish to sell stock. If the issuer's stock falls below this price during the pricing period, the advance is adjusted according to the specific terms of the REF. The REF offers protection to issuers that are concerned with issuing shares in a down market.

Costs: The fixed costs of the REF include both the issuer's and investor's legal fees and the investor's due diligence fees. Generally the issuer is responsible for their own fees and a negotiated portion of the investor's legal and due diligence fees.

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.

About AGS Capital Group, LLC

About AGS Capital Group, LLC is a US-based alternative investment manager that provides specialty financing solutions for both growth-stage and mid-cap public companies.

AGS Capital Group invests in numerous sectors including Healthcare, Biotechnology, Medical Devices, Energy, Renewables, Natural Resources, Media, Entertainment, Telecommunications, Consumer Products and Technology.

With offices in New York, Hong Kong and India, AGS Capital Group invests in companies within the U.S. and those domiciled in foreign markets around the globe.
AGS Capital Group invests in public companies listed on most exchanges as well as private companies that will be shortly listed on a securities exchange. We perform fundamental analysis including credit risk, technical analysis of market trends and industry, evaluation of management team experience and corporate structure evaluation. Our investment guidelines require exceptional management and long-term sustainable growth opportunities with the potential to achieve significant milestones over a developmental period.

For Additional Information Please Contact

Investor Relations
212-537-5828
Email: InvestorRelations ( @ ) agscapitalgroup dot com

Important Disclosures: The information contained herein is for informational purposes only and is not intended to be, nor shall it be, construed as legal, tax or investment advice or as an offer, or the solicitation of any offer, to buy or sell any securities. Before making an investment in any security, you should thoroughly review with your legal, tax and investment advisors to determine whether an investment is suitable for you in light of your investment objectives and financial situation.

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