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									Raising Equity Capital           Michael Wager
in Today’s Turbulent Markets    +1.212.872.9818
                                 James J. Barresi
                                Joseph M. Crabb
December 9, 2008                JCrabb@ssd.com
                               Andrew O. Visintin
                               Yorkville Advisors
Today’s Capital … Today’s Markets
Michael Wager

Raising Equity Capital in Today’s Turbulent Markets
December 9, 2008

• Introduction & Overview: Michael Wager
• Debt Capital Markets – Prospects and Problems: James
• Equity Capital Markets – Shelf Registration, PIPEs: Joe
• Equity Capital Markets – Europe: Andrew Visintin
• Standby Equity Purchase Agreement (SEPAs) –
  Yorkville Advisors
Capital Markets Overview

Historic Changes and Volatility in Capital Markets
•   Public companies face increasing needs for capital in constrained
•   Debt capital markets – access issues
•   Broad spectrum of capital-raising alternatives – but are these
    windows open?
     – At-the-market offering – Rule 415
     – PIPEs
     – Rights offerings

•   New market realities – new approaches
Debt Capital Markets – Prospects and Problems
Jim Barresi

Raising Equity Capital in Today’s Turbulent Markets
December 9, 2008
Debt Capital Markets

• General Overview
  – Access to debt capital markets limited at best and, if available at
    all, very expensive by recent standards
      • Exception for financial institutions participating in government-
        sponsored programs (e.g., TARP, TLGP)
  – Illiquidity expected to continue through 2009
      • Continuing economic problems and lack of investor confidence
      • Institutional investors conserving capital and preparing for fund
      • Financial system de-leveraging
      • Additional regulation
Debt Capital Markets

• General Overview (Continued)
   – Issuers should maintain ability to quickly access multiple debt
     markets and be prepared to take advantage of windows of
       • Universal shelf registrations
       • Medium-term note programs
       • Commercial paper programs
       • Credit facilities, including ABL facilities
Debt Capital Markets

• Commercial Paper
  – Major liquidity problems prior to Fed’s Commercial Paper
    Funding Facility
  – Substantially less liquid for issuers rated A-2/P-2 or less
Debt Capital Markets

• Bond Market
  – Relatively small investor base and strained secondary market
  – Few, if any, high-yield issuances, although yield on investment-
    grade issuances high by recent standards
  – Our recent transactions have generally been large as investors
    consider liquidity in secondary markets
  – Financial institutions very active under FDIC’s Temporary
    Liquidity Guarantee Program (AAA rated due to guarantee)
Syndicated Loan Market

• Credit markets largely frozen – despite decrease in
   – Secondary market illiquid as participants conserve capital and
     prepare for fund redemptions
   – Facilities include tight covenants, more security and much higher
       • Size, credit quality and industry all affect price and structure
   – All deals have execution risk and broad market-flex language
   – Performance-related amendments very expensive
   – Demand for mezzanine
   – Tremendous need for DIP financing unmet
Equity Capital Markets –
Shelf Registration, PIPEs
Joe Crabb

Raising Equity Capital in Today’s Turbulent Markets
December 9, 2008
Shelf Registration Statements

• Companies must be prepared to move quickly when
  market windows open
• Effective shelf registration statement is an important tool
• Sunset provisions require immediate review and, in
  many situations, refiling of existing shelf registration
Expiration of Existing Shelf
Registration Statements

• Under Rule 415, shelf registration statements for primary
  offerings expire three years from effective date
• For any shelf registrations effective before December 1,
  2005, three-year period was deemed to begin on that
   – Accordingly, all shelf registrations effective before December 1,
     2005 must be refiled immediately

• For automatic shelf registration statements filed on or
  after December 1, 2005, three-year limitation applies
   – Subsequent post-effective amendments DO NOT extend the
     three-year sunset period
Applicability of Three-Year Sunset

• The sunset provisions of Rule 415 apply only to certain
  types of shelf registration statements
   – Automatically effective shelf registration statements
   – Registrations on Form S-3 / Form F-3 for sale by or on behalf of
     issuer on an immediate, continuous or delayed basis
   – Other specifically identified types of registration statements

• Do not apply to resale shelf registration statements for
  offerings by selling security holders or to registration
  statements on Form S-8
Special Transition Rules

•   If issuer files a new registration statement, if can continue to offer
    securities off the prior shelf (even if more than three years old) so
    long as:
     – The new registration statement is not filed as an automatic shelf; and
     – The issuer files the new shelf before the expiration of the prior shelf

•   The grace period extends for 180 days after the third anniversary of
    effective date of the prior registration statement
•   Result: Issuer can utilize unused portion of the prior shelf for up to
    180 days, even if SEC reviews the new registration statement filing
     – For prior WKSI shelf, the entire amount of new registration is available
       during this period
Falling Share Prices Impact
WKSI Status
•   WKSI status requires at least US$700 million public float within 60
    days of later of filing of registration statement or time of most recent
    filing to update financial statements in a prospectus (typically at filing
    of Form 10-K)
•   If WKSI status is lost:
     – Automatic shelf is not available – new filing will be subject to SEC
     – Other WKSI benefits also lost including ability to offer additional
       securities of registered classes without filing new registration statement,
       ability to register additional classes via post-effective amendment, ability
       to omit certain information from prospectus and pay-as-you-go
       registration fees
•   Form S-3 eligibility generally requires at least US$7 million of public
PIPE Transactions

•   Public Investment in Private Equity
     – First step is private placement of securities with promise to register
       securities for resale
     – Second step is resale of securities by investors, typically pursuant to
       Form S-3

•   Often used by smaller issuers
     – New Form S-3 eligibility criteria may apply

•   SEC position in recent years limited use of PIPE transactions on the
    theory that the secondary resale registration was really a primary
    offering in disguise, thus requiring issuers to meet the more stringent
    primary offering eligibility criteria
Other Considerations

• DRIP Plan Filings
   – Nearly 60 DRIP offerings filed in November alone, about half of
     all 2008 DRIP filings and twice the number of 2007 DRIP filings

• Due Diligence
   – Consider having outside counsel update due diligence on
     ongoing basis
   – Important not only for disclosure purposes, but also for
     facilitating quick movement when market windows open

• Outside Auditors
   – Keep outside auditors involved in the process so they can
     quickly provide comfort letters and other necessary input
Equity Capital Markets – Europe
Andrew Visintin

Raising Equity Capital in Today’s Turbulent Markets
December 9, 2008
Recent Developments

• European Overview
  – Impact of Lehmann collapse, bank bailouts and rescue/merger
  – Contraction of liquidity and capital consignments
      • Markdowns
      • Overall tightening in the interbank lending market
      • Increase in general nervousness
      • Economic settlement
Market Sentiment & Outlook

•   We remain positive overall for LBO financing after current
    turbulences have calmed down, but aware that several things are
    needed to stabilize the situation:
    – Global recession/slowdown expectations and financial sector news
    – Shift from liquidity concerns to credit fundamentals
    – Working through the backlog
    – Defaults remain low, but increase in defaults expected going forward
•   In the medium term:
    – Improved risk/reward for financiers, improved terms
    – Economic fundamentals overall supportive, if some countries can avoid
      disruptions from macro-imbalances
    – Will the market revert back into the hands of established financiers?
    – How long will it take for international liquidity to return, expanding
      liquidity, facilitating large-scale transactions, increasing achievable
      leverage multiples and relaxing terms?
Market Trends
• Debt liquidity has dried up
• Lower deal volumes in 2008: 85 significant deals with targets in CE completed
  in 1-3Q 2008 compared to 99 deals same period 2007; expectation for further
  falloff in 4Q
• Lower availability combined with increasing cost of debt has reduced the
  scope for recapitalization and impacted pricing
• Private equity houses are increasingly focused on:
 – Driving improved returns by proactively managing their investments
 – Combining their business portfolios to reduce operating costs (buy-and-
   build strategy)
• P/E houses are showing increased interest in Central Europe buy-and-build
  opportunities to exploit intraregional consolidation, for example:
 – Beverage sector
 – Food processing sector

     Source: Mergermarket
Market Sentiment & Outlook
Comparison of WE/CEE
•   While there is a general slowdown of activity…
          … M&A deal pipeline is strong and assets are in the market
•   Still room to grow role of PE in CEE compared to European average
•   Re-cut deals in CEE get as little traction as their WE counterparts
•   Liquidity exists for the right CEE credit reflecting the current market sentiment in
    terms of structure, yield, size and credit quality, but:
     – Banks are very selective and sensitive to deal characteristics
     – Will support core sponsors only and focus on core regions
     – Deals will require strong credit fundamentals supported by thorough due
     – Recaps very difficult
     – New deals need to be structured and priced “best in market” to target and attract
       existing pools of liquidity (banks and mezz funds, local and international liquidity)
     – MLA group will need to provide large final takes given very limited syndication
Central & Eastern Europe

• Whilst all share a common prospect of slower economic
  growth after 2007 peek and lower inflation, meaningful
  differences persist:
   – Sentiment
   – Extent of exposure to the showdown of EU growth
   – In underlying domestic demand
   – In monetary auditions
   – Reliance on foreign funding
   – Retain status
Documentary Consequences of
Market Correction
New deals will benefit from improve risk/return profile
•     Lower quantums in general                           •   Leverage

        –    Smaller deals                                •   Underwriting percentage
                                                          •   Amortizing tranches
        –    Fewer deals
                                                          •   Equity contributions
        –    No refinancings (recaps)
                                                          •   Baskets
•     Size-dependent repricing across capital structure
                                                          •   Carve-outs
        –    Senior up some 50-100bps*)                   •   Equity cure
        –    Mezzanine up some 100-300bps*)               •   Dividends/distributions
•     Covenants                                           •   Sweeps

        –    CovLite has disappeared                      •   Acquisitions lines and regime
                                                          •   Availability of undrawn lines
        –    Headrooms back to 20%-25%
                                                          •   Releveraging possibilities
•     Toggle features gone
                                                          •   Flex protection
•     PIK for special situations rare and expensive
                                                          •   General sponsor precedents
•     Prepayment protection and equity co-invest or
      warrants back for mezzanine

*) before Sept 2008 developments
CE Portfolio Management Trends
Historical and Future Possibilities

• Historical Trends:                       • Current/Future:
  – Strengthening management                – Operational/portfolio partners
    teams: finance, marketing and the
    second tier of management               – Systematic/active approach to
                                              driving value and cash
  – Replacing entrepreneurs with
    professional managers                   – More robust information, earlier
                                              diagnosis of issues, no surprises
  – Supporting management with
    industry experts to facilitate know-    – Cost reduction focus given sharp
    how transfer                              downturn

  – Competition for talent and              – Increased number of forced or
    handling the shortage in the local        hostile acquisitions
Private Equity Response

 • Increased focus on operational improvements
 • Many P/E houses have recruited in-house operational teams:
  – Assess key operational issues pre-deal
  – Manage the asset post-deal
  – Hands-on support
  – Detailed performance management and benefit tracking
 • New models being developed by PE in reaction to downturn
   (non-exec influence, active owners to interventionist)
 • Operational expertise is becoming integral to pre-deal work:
  • Operational improvements, carve-out/integration
  • Preparation of 100-day plan during diligence to deliver quick wins, keep
    up the momentum and deliver the plan
                                                          Richard A. Brand
Standby Equity Purchase                                   Managing Director
                                                         Yorkville Advisors
Agreements (SEPAs)                                            David J. Fine
                                                       Senior Legal Counsel
Yorkville Advisors                                      Yorkville Advisors

                                                               Troy J. Rillo
                                                    Senior Managing Director
                                                         Yorkville Advisors
Raising Equity Capital in Today’s Turbulent Times
                                                         Charles F. Auster
December 9, 2008                                          Managing Partner
                                                    Auster Capital Partners
                                                             Senior Advisor
                                                        Yorkville Advisors
Yorkville Advisors Overview
             •   Founded in January 2001
             •   Yorkville is the investment advisor to YA Global, a private equity
             •   Over US$1 billion in total assets under management, allowing for
                 suitable follow-on investment opportunities
             •   Offices in Jersey City, New Jersey; San Diego, California; Jupiter,
                 Florida; Hong Kong; London, UK
             •   JV Offices in Milan, Italy; Tokyo, Japan; Athens, Greece
             •   Experienced team of investment professionals with dedicated
                 sector expertise and vast structuring knowledge
             •   Implements creative and innovative financing structures tailored
                 to meet the needs of small cap public and late-stage private
             •   Develops long-term relationships with issuers based on the
                 highest levels of ethics and trust
             •   Provides value post-investment through strategic dialogue

                   All data as of September 2008

Suite of Innovative Financing
                   Convertible Preferred &           Convertible and           Standby Equity Purchase
                      Common Equity                Nonconvertible Debt               Agreement

               •     Typically most dilutive   •    Premium pricing offers     •   Lower cost of capital
                     financing alternative          less dilution than             and less dilutive than
                     due to investor                traditional PIPEs              other financing
                     requirement for           •    Providers issue with           structures
                     significant discount           immediate access to
                                                                               •   Controlled by
               •     Provides issuer with                                          management through
                     immediate access to       •    Offers management              the “right but not
                     capital                        flexibility to repay in        obligation” to raise
                                                    cash or stock                  capital
               •     Provides certainty in
                     capital structure         •    Coupon may provide         •   Issuer controls market
                                                    tax benefit based on
                                                                                   timing and valuation
               •     No risk of principal           issuer’s jurisdiction
                     default                   •    Opportunity for lager      •   Ability to attach to
                                                    funding commitment             existing shelf
                                                                                   registration statement
                                               •    Few, if any, restrictive

                                                                               Access to capital requires

                   Appropriate for smaller        Typically requires
                                                                                   effectiveness of
                     funding amounts           security interest in assets
                                                                                registration statement

Why SEPAs, Why Now?

• Access to capital is limited                     Yorkville’s SEPAs
                                                   enable companies
• With SEPAs, publicly traded companies can        to take advantage
  use stock to access cash                          of opportunistic,
• Faster, less risky and far less expensive than   transactions while
  alternatives                                       valuations are
                                                     depressed and
• Management can access that cash in an              there is limited
  orderly, flexible fashion                          debt financing
• SEPAs can be less dilutive than traditional
  equity raises
• SEPAs send a positive signal to shareholders
  that the company can fund operations without
  taking on an inordinate amount of debt

How a SEPA Works

•    Gives the issuer the right, but not the obligation, to do what is
     essentially a “mini-secondary” offering on a weekly basis
•    Provides continual ability to strategically monitor and time market
•    Allows the issuer to put shares to Yorkville each week to raise
     capital out of that week’s equity market by selling to Yorkville
•    Yorkville is irrevocably bound to purchase shares
•    Can be less dilutive and more efficient than a traditional secondary
•    Yorkville’s significant asset base allows it to provide loans against
     the SEPA
•    Issuer needs capital but the current market price does not reflect
     fundamental valuation

The SEPA Process

•      There are two types of equity line structures that are allowed by the SEC depending
       on the eligibility of the issuer to register securities on Form S-3
•      Yorkville works with the issuer and counsel to ensure the transaction is structured for
       flexibility and fast access to capital
•      “SEPA Public Equity Line”
        –   For Form S-3 eligible issuers that have existing shelf registrations
        –   Preferred structure would generally be the SEPA Public Equity Line
              • Company issues and sells new shares to Yorkville under the SEPA from time to time in
                takedowns off its shelf

    The pre-closing steps         After the term sheet is                 Post-closing, the issuer will have
    from signing of a term        finalized, Yorkville’s analysts         access to the SEPA after filing the
    sheet to definitive           will conduct due diligence              appropriate disclosure documents,
    documents can be              while at the same time                  which will be done within four days of
    accomplished in as            Yorkville’s in-house legal team         signing; the issuer may then begin
    fast as one to two            will prepare definitive                 using the SEPA facility and sell
    weeks                         documents                               shares to Yorkville on a weekly basis

Pre- and Post-Closing

                                Due Diligence/Definitive
 Pre-Closing/Documentation                                     Post-Closing/Activation

       •    Step 1
                                                           •      Step 4
              –   Term Sheet is signed
                                                                   − Issuer files 8-K and prospectus
       •    Step 2                                                     supplement describing the terms
                                                                       of the SEPA
              –   Due Diligence is performed
                                                           •      Step 5
       •    Step 3                                                 − Issuer then has option to put
                                                                       shares to Yorkville at the time of
              –   Closing Documents are executed
                                                           •      Step 6
                                                                   − After the completion of each
                                                                       Advance Issuer immediately
                                                                       receives the capital requested
                                                           •      Step 7
                                                                   − Issuer files prospectus
                                                                       supplement indicating the
                                                                       number of shares sold and the
                                                                       purchase price
Some of the SEPAs We’ve
     Select Case Study:
     Queensland Gas

          • QGC appraises, explores and develops coal-bed methane in the
            Surat Basin

          • In July 2003, Yorkville signed a SEPA with Queensland Gas
            Company Ltd. (ASX: QGC)

          • Under the SEPA, QGC had the right but not the obligation to sell
            ordinary shares of up to A$8,000,000 to YA Global over the next
            36 months

          • Subsequently, QGC and Yorkville agreed to expand the SEPA to
            A$15,000,000 and A$25,000,000, thus increasing the existing
            capital capacity

          • Under the terms of the SEPA, Yorkville could then purchase up to
            A$500,000 of ordinary shares in any five-day period

          • In January 2006, Yorkville loaned U$7,500,000 to QGC

Queensland Gas Results

•    Since the
     provision of the
     first equity facility
     to QGC by YA
     Global, the share
     price has
     increased by
     greater than 25
•    On October 28,
     2008 QGC
     received an
     acquisition bid
     from BP Group
     plc (BG) to
     acquire QGC for
     US$4.9 billion

                             1         SEPA equity line for A$8mm
                             2         SEPA expanded to A$15mm
                             3         SEPA further expanded to A$25mm
                             4         Equity‐backed loan facility for US$7.50mm
Benefits to Queensland Gas

• Enabled Queensland to fund an accretive transaction
• Provided growth capital leveraging their own stock
• Allowed time for valuation to improve
• Helped company pave the way to a successful exit

Summary: Multiple Benefits of
                     COMPLETE CONTROL              DILUTION                 SIGNIFICANT LY
                       & FLEXIBILITY             MANAGEMENT                 LOWER COSTS

• MORE           •     Issuer retains        •   Issuer can raise       •   Lower legal and
  capital              control of the            more capital with          filing fees for one
  goes to the
                       amount and timing         fewer shares by            SEPA transaction
                       of each capital           taking advantage           compared to
• LESS                 advance                   of share price             multiple capital
  capital        •     Issuer can put            strength                   raises
  goes to
                       shares to Yorkville   •   Results in less        •   Smaller discounts
  participants         at any time,              dilution                   (typically 5% or
  (e.g., short         regardless of         •   This also results in       less) versus PIPEs
  sellers)             market conditions         less overhang              (7% - 35%)
                 •     No price or volume                               •   Can be layered
                       restrictions on                                      onto an existing
                       access to capital                                    shelf registration
                       subject to certain

Why Yorkville for SEPAs?

• Experience, Track Record & Commitment to Service
   – Market leader as the innovator of SEPAs in 2001
   – 200+ SEPAs executed since inception
   – Unmatched trading expertise
   – Market-tested with consistent results
   – Innovative ability to support lending paid back through the
     SEPA, providing an additional option for the issuer
   – Contractual process and due diligence refined, efficient
     and proven
   – Able to help companies determine why and when to draw
   – Highest and most responsive service levels throughout the

Important Disclosures

 The information contained herein is for informational and discussion 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. The information contained herein is as of the date indicated, is not
 complete and is subject to, and qualified in its entirety by, the more complete disclosures, risk factors, and other terms and conditions contained in the respective
 transaction documents of Yorkville. Before entering into any investment you should thoroughly review the respective transaction documents with your legal, tax
 and investment advisors.

 References to Yorkville’s deal pipeline consist of opportunities to finance companies in the future. These transactions may or may not be consummated. There is
 no assurance that any securities discussed herein will remain in the portfolio at the time you receive this report or that securities sold have not been repurchased.
 The securities listed may represent only a small percentage of the portfolio’s holdings. It should not be assumed that any of the holdings were or will prove to be

 You should be aware that past performance is not necessarily indicative of future results and an investment involves the risk of loss.

 *Yorkville Advisors UK, LLP
 The information contained herein has been approved for issue in the United Kingdom by Yorkville Advisors UK, LLP (“Yorkville UK”), a firm authorized and
 regulated by the Financial Services Authority (FSA). Its registered office is at Stanmore House 30 St James’ Street London, UK SW1A IHB, FSA Registration
 No. 458203. Yorkville UK is registered in England and Wales as a Limited Liability Partnership (Partnership No. OC320899) and its VAT registration number
 is 911/2133 80.

 Yorkville UK is subject to the FSA rules and guidance, details of which can be found on the FSA’s website at www.fsa.gov.uk. The FSA regulates the financial
 services industry in the UK and is located at 25 The North Colonnade, Canary Wharf, London E14 5HS.

 This material is subject to modification and updating. This material is confidential, is intended only for the person to whom it has been delivered and under no
 circumstance may a copy be shown, copied, transmitted, or otherwise given to any person other than the authorized recipient.

Questions & Answers

Raising Equity Capital in Today’s Turbulent Markets
December 9, 2008
Raising Equity Capital           Michael Wager
in Today’s Turbulent Markets    +1.212.872.9818
                                 James J. Barresi
                                Joseph M. Crabb
December 9, 2008                JCrabb@ssd.com
                               Andrew O. Visintin
                               Yorkville Advisors

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