Standby Equity Purchase Agreement Template for the United States

A Standby Equity Purchase Agreement (SEPA) is a sophisticated financing mechanism that provides your company with on-demand access to equity capital. Under this arrangement, an investor commits to purchasing your company's shares at predetermined terms when you choose to draw down funds, offering flexibility without the immediate dilution that comes with traditional equity raises.

When do you need this document?

You need a SEPA when your public company requires flexible access to capital for growth opportunities, working capital needs, or strategic initiatives. This agreement is particularly valuable when you want to avoid the market timing risks of traditional equity offerings or need to maintain financial flexibility for unpredictable capital requirements. Companies often use SEPAs as a backup financing source, ensuring capital availability while pursuing other funding options. The arrangement is also beneficial when you want to minimize dilution by accessing capital only when needed, rather than raising large amounts upfront that may sit unused.

Key legal considerations

Your SEPA must carefully define the purchase commitment terms, including the maximum amount available, draw-down mechanics, and pricing formulas typically based on market prices with agreed discounts. Critical clauses include conditions precedent that must be satisfied before each draw-down, such as minimum stock prices, trading volume requirements, and the absence of material adverse changes. You must address representations and warranties covering your company's financial condition, legal standing, and securities law compliance. Transfer restrictions and resale provisions are essential, particularly regarding Rule 144 compliance and any required legends on share certificates. The agreement should specify termination events, including circumstances that would end the investor's purchase commitment, and include appropriate indemnification provisions to protect both parties.

Legal requirements in United States

Your SEPA must comply with federal securities laws, particularly the Securities Act of 1933 and Securities Exchange Act of 1934. You need to ensure proper registration of the shares or qualification for exemptions under Regulation D, especially Rule 506 for private placements. The agreement must address ongoing reporting obligations and disclosure requirements under Exchange Act regulations. Rule 144 compliance is crucial for establishing proper resale restrictions and transfer procedures. Your company must maintain current SEC filings and satisfy any blue sky law requirements in relevant states. The agreement should include appropriate disclosure of the arrangement in your SEC filings and ensure compliance with stock exchange listing requirements if applicable. Anti-fraud provisions under Section 10(b) and Rule 10b-5 must be considered in all representations and disclosure obligations.