THE “ALT UNDERWRITE” Equity Financing Alternatives for Public Companies in the United States

Adam M. Klein Partner, International Corporate Department Goldfarb Seligman & Co. December 12, 2016

Topics

Underwritten Public Offering

Shelf Prospectus

At-the-market (ATM) Offering

Equity Line of Credit

Private Investment in Public Equity (PIPE)

Registered Direct Offering

Rights Offering

Factors

Length of process

Market risk

Management attention

Transaction costs

Pricing

Other terms

Market impact

Underwritten Public Offering

Prospectus

Due diligence

SEC review

Road show

Price and sign underwriting agreement

Closing, with legal opinions and comfort letter

Could take up to six months

Optimal price and terms

Low market impact

Shelf Prospectus – Set-up

Approved by SEC with no particular terms

Could include shares, warrants, debt, units

Incorporates other SEC filings by reference

Conditions for Form F-3:

Public for at least one year

Timely SEC filings in last 12 months

No material debt defaults in current fiscal year

Public float of at least $75 million

Subject to certain exceptions

Eliminates market risk

Shelf Prospectus – Take-down

File prospectus supplement with offering terms

Not subject to SEC review

Multiple uses:

Pro supp could be 1 page or 100+ pages

Traditional public offering

Overnight “bought” deal

ATM offering

Equity line of credit

Registered direct

Rights offering

WKSI ($700m public float) can go effective immediately

At-the-market Offering – Set-up

Sign distribution agreement with sales agent

File prospectus supplement with parameters

Company has right to sell shares on the market, via the sales agent, from time to time

Ordinary brokerage transactions

Pricing depends on prevailing market price

Sales agent has underwriter liability

ATM – Take-downs

Company delivers notice to the sales agent:

Number of shares or total proceeds

Selling period

Minimum price

Each sale small and doesn’t depress market

No sales if company has material inside info

Company reports aggregate sales quarterly

No road show or negotiation with investors

Minimal market risk

Optimal pricing

Equity Line of Credit

Company signs Standby Equity Purchase Agreement (SEPA) with investor

Entitles company to put shares to investor from time to time upon 5 trading days’ notice

Issue price is at discount to lowest average daily price during notice period

Shares issued pursuant to shelf prospectus

Investors immediately sells short and covers short with the newly issued shares

Could help alleviate liquidity crunch

Negative market perception

PIPE – Private Investment in Public Equity

Private placement to select investors

Investors often receive shares and warrants

Could use placement agent/memo

Shares are “restricted” from resale

Company agrees to register resale with SEC on secondary shelf prospectus

Issuing more than 20% of outstanding shares could require shareholder approval

PIPE – Pros and Cons

No market risk

Confidential until/unless signed

Low transaction costs

Large discount

Negotiation with investors could result in burdensome terms

Investors might short stock

Negative market perception

Could bring in serious investor

Registered Direct Offering

Placement to select investors via prospectus

Investors often receive shares and warrants

Could use placement agent/memo

Shares are unrestricted so smaller discount

Issuing more than 20% of outstanding shares could require shareholder approval

Negotiation with investors could result in burdensome terms

Investors might short stock

Negative market perception

Rights Offering Company distributes rights to all shareholders

Right to purchase shares, warrants, etc.

Requires prospectus

Exercise period of 2-4 weeks

Exercise price is at discount to market

Rights may be transferable

Shareholders may have over-allotment option

Offering could be back-stopped by bank or s/h

No shareholder approval required

No negotiation with investors

Favorable in depressed market

Adam M. Klein Partner, International Corporate and Securities Department

03-6089839 adam.klein@goldfarb.com ** This review was prepared only for informational purposes and as a summary. The information contained herein does not constitute legal opinions or advice.