APRIL 7, 2011- ORANGE COUNTY         © 2010 SingerLewak. All rights reserved.
AGENDA                                                APRIL 7, 2011- ORANGE COUNTYOpening RemarksThe CFO Essentials Singer...
OUR PANELJim Pitrat, SingerLewak LLPJim Pitrat leads SingerLewak’s Assurance & Advisory practice where he oversees firm-wi...
OUR PANELJames A. Mercer III, Sheppard MullinMr. Mercer is a partner in the Corporate Securities practice group in the fir...
OUR PANEL
RISKS        JIM PITRAT, SINGERLEWAK
RISKS        JIM PITRAT, SINGERLEWAK
RISKS                                          JIM PITRAT, SINGERLEWAK               KEY SURVEY RESULTS  FORMULATING OUR “...
RISKS                                               JIM PITRAT, SINGERLEWAK   CFOs: OUTLOOK ROSIER -SOME SECTORS       HIR...
RISKS                                                  JIM PITRAT, SINGERLEWAK     CFOs: OUTLOOK ROSIER - SOME SECTORS    ...
RISKS                                   JIM PITRAT, SINGERLEWAK     CEOs 2011 TOP CHALLENGES FOR         FINANCIAL EXECUTI...
RISKS                                                                                 JIM PITRAT, SINGERLEWAK         SL’s...
RISKS                                                                                    JIM PITRAT, SINGERLEWAK         S...
CASH FLOW            JOHN AHN, B. RILEY
CASH FLOW                                                           JOHN AHN, B. RILEY                MIDDLE MARKET OVERVI...
CASH FLOW                                                                JOHN AHN, B. RILEY            MIDDLE MARKET EQUIT...
CASH FLOW                                                   JOHN AHN, B. RILEY                INITIAL PUBLIC OFFERING     ...
CASH FLOW                                                                JOHN AHN, B. RILEY                      INITIAL P...
CASH FLOW                                                             JOHN AHN, B. RILEY                   IPO CONSIDERATI...
CASH FLOW                                                           JOHN AHN, B. RILEY               IPO CONSIDERATIONS   ...
CASH FLOW                                                                                                                 ...
CASH FLOW                                                                      JOHN AHN, B. RILEY               REGISTERED...
CASH FLOW                                                               JOHN AHN, B. RILEY           REGISTERED DIRECT OFF...
CASH FLOW                                                                JOHN AHN, B. RILEY    REGISTERED DIRECT DESCRIPTI...
CASH FLOW                                                                         JOHN AHN, B. RILEY REGISTERED DIRECT DES...
CASH FLOW                                                            JOHN AHN, B. RILEY      REGISTERED DIRECT CONSIDERATI...
CASH FLOW                                                           JOHN AHN, B. RILEY  REGISTERED DIRECT CONSIDERATIONS  ...
CASH FLOW                                                                                                                 ...
CASH FLOW                                                                      JOHN AHN, B. RILEY             REGISTERED D...
CASH FLOW                                                                 JOHN AHN, B. RILEY            REGISTERED DIRECT ...
CASH FLOW                                                                JOHN AHN, B. RILEY              HOW TO POSITION Y...
CASH FLOW                                                                       JOHN AHN, B. RILEY             HOW TO POSI...
CASH FLOW                                                                    JOHN AHN, B. RILEY             HOW TO POSITIO...
CASH FLOW                                                                     JOHN AHN, B. RILEY             HOW TO POSITI...
M&A      JAMIE MERCER, SHEPPARD MULLIN
M&A               JAMIE MERCER, SHEPPARD MULLIN  TRENDS IN MERGERS AND       ACQUISITIONS
M&A                                        JAMIE MERCER, SHEPPARD MULLIN            RECENT ABA DEAL POINT STUDY STUDY  75...
M&A                                         JAMIE MERCER, SHEPPARD MULLIN             NO UNDISCLOSED LIABILITIES          ...
M&A                                                     JAMIE MERCER, SHEPPARD MULLIN                 10B-5 FULL DISCLOSUR...
M&A                                  JAMIE MERCER, SHEPPARD MULLIN                 AVAILABILITY OF FINANCING              ...
M&A                        JAMIE MERCER, SHEPPARD MULLIN      MATERIAL ADVERSE EFFECT (MAE)                               ...
M&A                              JAMIE MERCER, SHEPPARD MULLIN             MAE CARVEOUT - PROJECTIONS                     ...
M&A                             JAMIE MERCER, SHEPPARD MULLIN           MAE CARVEOUT – CHANGE IN LAW                      ...
M&A                              JAMIE MERCER, SHEPPARD MULLIN              MAE CARVEOUT - ACCOUNTING                     ...
M&A                                                JAMIE MERCER, SHEPPARD MULLIN                            CHOICE OF LAWT...
M&A                                               JAMIE MERCER, SHEPPARD MULLIN                     SHAREHOLDER SUITS NUMB...
REGULATORY REPORTING                   JAMIE MERCER, SHEPPARD MULLIN
REGULATORY REPORTING                   JAMIE MERCER, SHEPPARD MULLIN       SEC REGULATORY    DEVELOPMENTS FOR 2011
REGULATORY REPORTING                                      JAMIE MERCER, SHEPPARD MULLIN                    2011 SEC FOCUS ...
FINANCIAL AUDIT                  GALE MOORE, SINGERLEWAK
FINANCIAL AUDIT                         GALE MOORE, SINGERLEWAK         FINANCIAL ACCOUNTING AND             REPORTING UPD...
FINANCIAL AUDIT                                       GALE MOORE, SINGERLEWAK                   EFFECTIVE IN 2011 GOODWILL...
FINANCIAL AUDIT                                 GALE MOORE, SINGERLEWAK                EFFECTIVE IN 2011 PUBLIC COMPANY BU...
FINANCIAL AUDIT                                      GALE MOORE, SINGERLEWAK                  EFFECTIVE IN 2011 FAIR VALUE...
FINANCIAL AUDIT                           GALE MOORE, SINGERLEWAK             EFFECTIVE IN 2011 CERTAIN REVENUE ARRANGEMEN...
FINANCIAL AUDIT                                     GALE MOORE, SINGERLEWAK                   STILL HOT IN 2011 REVENUE RE...
FINANCIAL AUDIT                                     GALE MOORE, SINGERLEWAK                   STILL HOT IN 2011 GOODWILL I...
FINANCIAL AUDIT                                    GALE MOORE, SINGERLEWAK                  STILL HOT IN 2011 FAIR VALUE M...
FINANCIAL AUDIT                                      GALE MOORE, SINGERLEWAK                   STILL HOT IN 2011 CONTINGEN...
FINANCIAL AUDIT                                    GALE MOORE, SINGERLEWAK                     STILL HOT IN 2011 BUSINESS ...
FINANCIAL AUDIT                               GALE MOORE, SINGERLEWAK                   PROMISED IN 2011 JOINT PROJECTS  ...
FINANCIAL AUDIT                                 GALE MOORE, SINGERLEWAK                PROMISED IN 2011  Leases  Fair Va...
FINANCIAL AUDIT                                  GALE MOORE, SINGERLEWAK                  PROMISED IN 2011    IASB – Insu...
FINANCIAL AUDIT                                     GALE MOORE, SINGERLEWAK                  PROMISED IN 2011    Consolid...
FINANCIAL AUDIT                             GALE MOORE, SINGERLEWAK                 PROMISED IN 2011  Discontinued operat...
CONTACT US                         www.SingerLewak.com   www.brileyco.comwww.SheppardMullin.com                           ...
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CFO Essentials OC

  1. 1. APRIL 7, 2011- ORANGE COUNTY © 2010 SingerLewak. All rights reserved.
  2. 2. AGENDA APRIL 7, 2011- ORANGE COUNTYOpening RemarksThe CFO Essentials SingerLewak’s POV TMToday’s Workshop FormatIntroducing our Distinguished Panelists: Jim Pitrat, CPA - SingerLewak LLP John Ahn – B. Riley James A. Mercer III, Esq. – Sheppard Mullin Gale Moore, CPA – SingerLewak LLP
  3. 3. OUR PANELJim Pitrat, SingerLewak LLPJim Pitrat leads SingerLewak’s Assurance & Advisory practice where he oversees firm-wide assurance & advisory initiatives. Jim has experience with bothprivate and publicly traded companies and has also advised on cost management, internal controls, corporate restructurings, and mergers and acquisitions.Jim has client service responsibilities in the business sectors of investor-backed private companies and public companies. Jim received his Bachelor of Sciencedegree in Business Administration from the University of Arizona in 1993 and his Master’s of Business Administration in 1997. Jim is a member of AICPA, theLos Angeles Venture Association, the Software Council of Southern California and the Association for Capital Growth. Jim has been a guest instructor atCalifornia Institute of Technology’s Entrepreneur Program, the University of Arizona Small Business Incubator Program, and USC’s EC2 Incubator Program. Hehas also spoken on panels for Technology Council of Southern California and the California Society of CPAs. Jim has written for Los Angeles Business Journal,American Venture Magazine, and Zone Magazine.John Ahn, B. RileyJohn Ahn is President of B. Riley and Head of Corporate Finance. Prior, he was a Managing Director in the Corporate Finance department. He is also aPrincipal at Riley Investment Management, the asset management affiliate of B. Riley. He joined the firm in 2004. Mr. Ahn has wide range of experience incapital raising, trading, and sales of distressed debt and equities. rior to joining B. Riley, Mr. Ahn was a loan trader at Security Pacific Bank in Los Angeles inthe Loan Syndications group. Mr. Ahn was also a Partner at Standard Capital Group in Los Angeles, an investment-banking firm that specialized in capitalraising for middle market companies. From 2003-2004, he was a Managing Director at Maxcor Financial Group in their high yield and distressed bond group.In January 2004, Mr. Ahn joined BRC as a registered representative. He has served on the board of directors of MAIR Holdings and Regent Communications.Mr. Ahn attended Williams College and earned his Bachelor of Arts degree in Economics.
  4. 4. OUR PANELJames A. Mercer III, Sheppard MullinMr. Mercer is a partner in the Corporate Securities practice group in the firms Del Mar Heights office. He chairs the firm’s Public Company practice andserves as the Corporate Practice Group’s “China Desk” coordinating corporate work in the firm’s Shanghai office. Mr. Mercer practices in the area ofcorporate law, with an emphasis in representing emerging growth companies in securities transactions and mergers and acquisitions.Mr. Mercer assists clients in financing their business through seed capital, venture capital, IPOs, reverse mergers, PIPES, and secondary public offerings. Heregularly counsels publicly traded companies in matters of SEC compliance including the preparation and review of quarterly and annual reports, proxystatements and solicitations, tender offers and going private transactions.Gale Moore, SingerLewak LLPGale Moore is a partner in SingerLewak’s Orange County Assurance & Advisory practice. Gale has more than 20 years of experience specializing in public andreal estate-based companies, including Real Estate Investment Trust reporting and compliance. Her background includes assisting companies with capitalmarket transactions, IPOs, and participating on SOX readiness teams in reviewing control documentation, remediation plans, and testing approaches. Shewas formerly a director with Deloitte & Touche LLP and has experience as a corporate controller, a position that gave her valuable insight into the internalcontrol process.
  5. 5. OUR PANEL
  6. 6. RISKS JIM PITRAT, SINGERLEWAK
  7. 7. RISKS JIM PITRAT, SINGERLEWAK
  8. 8. RISKS JIM PITRAT, SINGERLEWAK KEY SURVEY RESULTS FORMULATING OUR “ESSENTIAL RISKS” WE REVIEW 2 KEY SURVEYS ALONG WITH REVIEWING OUR CLIENT CONCERNS  March 2011-Duke University / CFO Magazine 2011-Business Outlook Survey  FEI CEO’s Top Challenges Survey
  9. 9. RISKS JIM PITRAT, SINGERLEWAK CFOs: OUTLOOK ROSIER -SOME SECTORS HIRING, BUT INFLATION A WORRY • OPTIMISM AMONG CFO’S IS - HIGHEST SINCE 2007 • CFOs EXPECT EARNINGS GROWTH IN 2011  Earnings growth expected to jump 18% --compared to 9% in Asia and 10% in Europe  Capital expenditures expected to jump 12% in 2011  R&D expenditures expected to grow by 4%  Over half the companies in the survey expect to build more cash on their balance sheets
  10. 10. RISKS JIM PITRAT, SINGERLEWAK CFOs: OUTLOOK ROSIER - SOME SECTORS HIRING, BUT INFLATION A WORRY (cont’d) • CFOs EXPECT ONLY MODEST EMPLOYMENT GROWTH (1.2%)  Some industries identify need for skilled workers (engineering, product development, finance and accounting and sales) • CFOs ARE CONCERNED ABOUT INFLATION • A 4% inflation would cut earnings growth in half • High concern about fuel and commodities • 39% OF CFOs FIND BORROWING CONDITIONS HAVE IMPROVED • However for companies <100MM, still say credit is tight • 39% OF COMPANIES EXPECT TO ACQUIRE ANOTHER COMPANY IN 2011
  11. 11. RISKS JIM PITRAT, SINGERLEWAK CEOs 2011 TOP CHALLENGES FOR FINANCIAL EXECUTIVES ECONOMIC RECOVERY AND THE US FISCAL OUTLOOK HEALTH CARE LAW FINANCIAL REGULATORY REFORM GLOBAL CONVERGENCE OF US GAAP AND IFRS PRIVATE COMPANY ACCOUNTING SYSTEM REFORM UNCERTAIN TAX POSITIONS BUSINESS TAXATION PENDING INTERNATIONAL BUSINESS ISSUES CLIMATE CHANGE
  12. 12. RISKS JIM PITRAT, SINGERLEWAK SL’s “CFO ESSENTIAL RISKS” FOR 2011 We have identified the following 5 ESSENTIAL RISKS FOR CFOs in the Mid-MarketRISK DESCRIPTION RISK EXAMPLE STRATEGIC IMPERATIVE “AT RISK” AND RISK DESCRIPTIONS CLASS#1 Maintaining Compliance Compliance • Being out of compliance with new SEC rules with Increased Regulation • Impact related to potential new EPA regs • Impact related to changing Health Care • Impact related to Dodd-Frank • Other Regulations#2 Access to Credit and Financial • Risk of being unable to Finance Growth under strategic imperatives Financing • Risk of being unable to Finance Acquisitions • Risk of being unable to meet needs if economy slips or business slips#3 Managing Growth and Operating • Engineering issues and quality problems Operating in a “Lean” • Over-hiring in a risky environment Environment • Inventory shortages or cost issues related to inflationary pressures • Over-purchasing of inventory or over-producing due to inflationary concerns and price volatility • Margin Pressures and impact on profitability • Suppliers taking on inventory risk for customers
  13. 13. RISKS JIM PITRAT, SINGERLEWAK SL’s CFO ESSENTIAL RISKS FOR 2011 (cont’d) We have identified the following 5 ESSENTIAL RISKS FOR CFOs in the Mid-MarketRISK DESCRIPTION RISK CLASS EXAMPLE STRATEGIC IMPERATIVE “AT RISK” AND RISK DESCRIPTIONS#4 Attracting and Managing Operating • Unable to meet strategic needs, take advantage of the marketplace or or Talent manage strategic plan • Unable to meet production requirements • Unable to meet sales requirements due to sales staff shortages • Unable to maintain top-quality talent in cost-sensitive environment#5 Keeping Up with Accounting Compliance • Complexity causing financial reporting miscues Standards and Adapting to and financial • Out of compliance with financial reporting requirements IFRS Convergence
  14. 14. CASH FLOW JOHN AHN, B. RILEY
  15. 15. CASH FLOW JOHN AHN, B. RILEY MIDDLE MARKET OVERVIEW After a period of severe financial market volatility and contracted liquidity in the global credit markets and U.S. banking system, credit and investment capital have started to flow back into the middle market for refinancings, acquisitions and growth capital Reasonably priced capital exists for properly positioned companies 2011 Middle Market Equity is expected to experience continuous growth due to:  Recent clarity on tax rates  The Federal Reserve’s second quarter effort to push investors back into the equity markets  The prospects of a more business friendly federal government
  16. 16. CASH FLOW JOHN AHN, B. RILEY MIDDLE MARKET EQUITY - PUBLIC Overall U.S. IPO market continued its recovery in 2010, led by General Motors $16 billion deal  154 IPOs with total proceeds of $38.7 billion in 2010  Q1 2011 has shown a 30.4% increase in number of deals filed and a 253.5% increase in total proceeds compared to Q1 2010 Registered Direct Offerings are the fastest growing financing structure in the U.S. Capital Markets  Positioned as a genuine capital raising alternative from both public offerings and PIPEs  In 2010, RDOs raised over $10 billion in capital, an effective increase of over 58% from 2009 (C4 Captial)
  17. 17. CASH FLOW JOHN AHN, B. RILEY INITIAL PUBLIC OFFERING (INSTITUTIONAL QUALITY) An initial public offering (IPO) occurs when a company issues common stock to the public for the first time IPOs are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded
  18. 18. CASH FLOW JOHN AHN, B. RILEY INITIAL PUBLIC OFFERING (INSTITUTIONAL QUALITY) (cont’d) Factors influencing IPO valuations:  Interim and expected future financial performance (quarterly earnings and estimates)  Industry public market comparables  Disclosures that may impact future financial results  Strength of management  Use of proceeds  Public float and trading volume  Research coverage Investor profile:  Institutional funds and retail investors
  19. 19. CASH FLOW JOHN AHN, B. RILEY IPO CONSIDERATIONS• ADVANTAGES:  Source of capital to fund working capital and acquisition requirements  Path for liquidity for existing shareholders  Valuation comparable to or higher than an outright corporate sale  Creates additional credibility for business and future financing  Enables the acquisition of lower cost senior financing  Employees may participate in an employee stock option plan
  20. 20. CASH FLOW JOHN AHN, B. RILEY IPO CONSIDERATIONS (cont’d)• DISADVANTAGES:  Company operating under public scrutiny and accountability  Strategic, operating and financial information available to competitors  Significant demand on management’s time and resources  Reduced flexibility and decision making based on corporate governance requirements  High costs associated with filings and SOX requirements
  21. 21. CASH FLOW JOHN AHN, B. RILEY IPO STATISTICAL DATA ANNUAL U.S. IPO BREAKDOWN 240 $60.0 200 $50.0 Total Proceeds ($Billions) 160 $40.0 Number of deals 120 $30.0 80 $20.0 40 $10.0 0 $0.0 2004 2005 2006 2007 2008 2009 2010 Number of Deals Total Proceeds (Billions) United States Historical IPO Return Statistics 2004 2005 2006 2007 2008* 2009 2010* Q1 2011Total Return 35% 19% 26% 13% -33% 16% 25% 7%First Day Return 11% 11% 11% 13% 3% 7% 10% 3%Aftermarket Return 21% 6% 12% 1% -36% 8% 15% 12%% of IPOs with NEGATIVE First Day Returns 19% 21% 21% 25% 58% 32% 33% 22%% Priced Above Range 18% 20% 21% 23% 7% 17% 13% 29%% Priced Within Range 45% 52% 49% 55% 65% 56% 47% 39%% Priced Below Range 36% 29% 30% 22% 28% 27% 40% 32%Notes: Excluding SPACs* Excluding Visa, 2008 proceeds and average deal size would have been $10.1 billion and $241 million, respectively* *Excluding General Motors, 2010 proceeds and average deal size would have been $22.9 billion and $150 million, respectively
  22. 22. CASH FLOW JOHN AHN, B. RILEY REGISTERED DIRECT OFFERINGS• A registered direct offering is the sale of registered securities to a selected number of pre-identified accredited and institutional investors• Securities are marketed by a placement agent on a “best efforts” basis • No Underwriting = No firm commitment to buy the securities• RDOs were historically issued by smaller public companies and those without investment-grade credit where conventional public offerings (PIPEs) and similar private transaction weren’t viable options
  23. 23. CASH FLOW JOHN AHN, B. RILEY REGISTERED DIRECT OFFERINGS (cont’d)• Other public companies have begun to prefer an RDO over other capital-raising methods because of the following advantages: • Confidential, targeted marketing process • Better pricing • Overall reduced risk • Combines many of the best features of underwritten follow-ons and PIPEs• Provides issuers with the truncated marketing process of a PIPE, but with the ability to hit a narrow market window • Unlike a PIPE, the securities sold in an RDO become immediately registered and tradable
  24. 24. CASH FLOW JOHN AHN, B. RILEY REGISTERED DIRECT DESCRIPTIVE SUMMARY• Most common type of security sold in an RDO is common stock • Issuers may sell other types of securities, convertible notes, warrants or debt• Buyers typically range from an issuer’s existing investors to institutional investors that have a relationship with the placement agent• The majority of RDO’s are made on an effective Form S-3 or Shelf Registration Statement • Permits the registration of securities prior to the planning of any specific offering
  25. 25. CASH FLOW JOHN AHN, B. RILEY REGISTERED DIRECT DESCRIPTIVE SUMMARY (cont’d)• Form S-3 eligibility and technical considerations: • Sufficient capacity under the shelf to conduct the offering • The shelf must cover the type of security the issuer plans to issue through the RDO • Issuers with less than $150MM in market capitalization are subject to FINRA approval • Issuers with a market cap under $75MM must limit its offerings to less than one-third of its public float over any 12-month period
  26. 26. CASH FLOW JOHN AHN, B. RILEY REGISTERED DIRECT CONSIDERATIONS• ADVANTAGES: • Marketed to a targeted group of investors like a private placement or PIPE • Issuers that want to test the market can do so without attracting unwanted publicity • Not subject to “liquidity discounts” that coincide with a PIPE offering • Avoids the risk of market fluctuation due to speculative trading • The securities are immediately transferable because they are already registered
  27. 27. CASH FLOW JOHN AHN, B. RILEY REGISTERED DIRECT CONSIDERATIONS (cont’d)• DISADVANTAGES: • Marketing process is significantly shorter than a secondary option • Not as widely distributed as any other public offering • Increased scrutiny under the rules of the company’s securities exchange • Offering does not include an over-allotment option
  28. 28. CASH FLOW JOHN AHN, B. RILEY REGISTERED DIRECT – CAPITAL RAISE COMPARISON IMMEDIATE USE OF LOW LOW HIGHER EXTENDED TYPE OF ROAD LIQUIDITY CONFIDENTIAL EXISTING DISCOUNT REGISTERED TRANSACTION DILUTIVE PROCEEDS OFFERING SHOW FOR MARKETING PUBLIC TO TRADING COSTS EFFECT PERIOD INVESTOR DOCS PRICETRADITIONALUNDERWRITT X X X POSSIBLY XEN OFFERINGATM X X X X X XOFFERINGS (S-3 ELIGIBLE) NOT 2PIPEs 1 X X X POSSIBLY X INITIALLY X 3RDOs X X X X X X (S-3 ELIGIBLE)RIGHTS X X X XOFFERINGEQUITY LINE 4 X X X X X XFACILITIES (1) Some PIPE offerings require registration shortly after the private placement (2) Typically liquid within 3-12 months after the private placement (3) Discounts are typically 4-8% below market (4) The ability to raise capital at higher prices in the future can reduce the amount of dilation
  29. 29. CASH FLOW JOHN AHN, B. RILEY REGISTERED DIRECT CASE STUDY – “KRATOS DEFENSE & SECURITIES SOLUTIONS” Kratos provides mission critical engineering, IT services and war fighter solutions for the U.S. Federal Government, Defense Department and state and local agencies  Principal services include C4ISR, weapon systems sustainment, military weapon range operations and technical services  Market Capitalization of $103 million at time of RDO August 3rd - Kratos and B. Riley held discussions about capital raising initiatives  B. Riley explained the benefits of RDOs  Kratos confirmed use of proceeds to repay acquisition related debt August 10th - Kratos hired B. Riley as Placement Agent  All hands due diligence kick off meeting was held
  30. 30. CASH FLOW JOHN AHN, B. RILEY REGISTERED DIRECT CASE STUDY “KRATOS DEFENSE & SECURITIES SOLUTIONS” August 13th – Kratos filed an S-3  B. Riley continued its due diligence August 19th - SEC advised that it would not review the S-3 August 21st - The S-3 was declared effective  B. Riley began contacting select investors, obtained NDAs and disclosed intention to issue shares  Management presentations arranged via conference calls and in person meetings August 27th - After the financial markets closed, B. Riley continued to contact investors and during the next few hours subscribed the offering
  31. 31. CASH FLOW JOHN AHN, B. RILEY HOW TO POSITION YOUR COMPANY FOR A CAPITAL RAISE: DEMONSTRATE SOLID FINANCIAL PERFORMANCE• Historical and Projected Financials  Consistent financial results  Top-line revenue growth  Recurring revenue  Strong operating margins  Increasing profitability  Low seasonality  Upward trend in historical performance  Importance of trailing/last twelve months (TTM/LTM)• Operating Cash Flow  Focus on hitting projected revenue and earnings numbers  Review customer profitability  Understand differences between EBITDA and cash flow
  32. 32. CASH FLOW JOHN AHN, B. RILEY HOW TO POSITION YOUR COMPANY FOR A CAPITAL RAISE: (cont’d) “HAVE A CLEAN STORY”• Audited Financial Statements  Have your financial statements audited with a reputable firm to add credibility• Income Statement Adjustments  Includes one-time/non-recurring charges, private company expenses and other “addbacks”• Customer and Supplier Diversification  Investors will pay less for companies dominated by one or two customers• Legal Documentation  Make sure licenses and regulatory filings are current & identify any required consent
  33. 33. CASH FLOW JOHN AHN, B. RILEY HOW TO POSITION YOUR COMPANY FOR A CAPITAL RAISE: (cont’d) “HAVE A CLEAN STORY”• Form of Incorporation  Consult with professionals to understand company or transaction specific tax implications• Operational Processes and Systems  Are the company’s processes well documented, efficient and transferable?• Potential Liabilities  Consider settling any outstanding disputes with customers, suppliers and employees
  34. 34. CASH FLOW JOHN AHN, B. RILEY HOW TO POSITION YOUR COMPANY FOR A CAPITAL RAISE: (cont’d) BECOME EDUCATED ON THE CAPITAL MARKETS• Understand traditional & non-traditional valuation methodologies & metrics• Analyze the company’s strategic alternatives, such as organic growth, growth through merger or acquisition, minority or majority recapitalization, strategic sale, IPO or status quo• Shareholder Value  Seek shareholder liquidity events while the Company is still growing  Maximize profitability levels  Avoid excessive revenue at the expense of profitability  Focus on cost controls  Avoid entry into unrelated business lines  Create a competitive sales process  Don’t shop your deal multiple times  Minimize any perceived risks• Select the right transaction advisors (attorney/investment bankers)
  35. 35. M&A JAMIE MERCER, SHEPPARD MULLIN
  36. 36. M&A JAMIE MERCER, SHEPPARD MULLIN TRENDS IN MERGERS AND ACQUISITIONS
  37. 37. M&A JAMIE MERCER, SHEPPARD MULLIN RECENT ABA DEAL POINT STUDY STUDY  75 transactions completed in 2009  All transactions over $100 million  All U.S. Public company targets DEAL TERMS  51% all cash  24% all stock  25% mixed consideration
  38. 38. M&A JAMIE MERCER, SHEPPARD MULLIN NO UNDISCLOSED LIABILITIES Includes Rep 99% (94% of deals in 2008) (Subset: includes rep) “GAAP Liabilities” (Target Favorable) 35% (43% of deals in 2008) “All Liabilities” (Buyer Favorable 65%) (57% of deals in 2008)
  39. 39. M&A JAMIE MERCER, SHEPPARD MULLIN 10B-5 FULL DISCLOSURE No Rep 95% (98% of deals in 2008) “No Knowledge” (Subset: includes rep) Qualifier Includes 75% Rep (100% in deals in 2008) 5% (2% of deals in 2008) Includes “Knowledge Qualifier” 25%
  40. 40. M&A JAMIE MERCER, SHEPPARD MULLIN AVAILABILITY OF FINANCING No Condition 67% (88% of deals in 2008) Includes Condition 33% (12% of deals in 2008)
  41. 41. M&A JAMIE MERCER, SHEPPARD MULLIN MATERIAL ADVERSE EFFECT (MAE) Includes “Walk Right” 100%* (97% of deals in 2008)
  42. 42. M&A JAMIE MERCER, SHEPPARD MULLIN MAE CARVEOUT - PROJECTIONS Includes Carveout 93% (75% of deals in 2008) No Carveout 7% (25% of deals in 2008)
  43. 43. M&A JAMIE MERCER, SHEPPARD MULLIN MAE CARVEOUT – CHANGE IN LAW Includes Carveout 91% (86% of deals in 2008) No Carveout 9% (14% of deals in 2008)
  44. 44. M&A JAMIE MERCER, SHEPPARD MULLIN MAE CARVEOUT - ACCOUNTING Includes Carveout 92% (83% of deals in 2008) No Carveout 8% (17% of deals in 2008)
  45. 45. M&A JAMIE MERCER, SHEPPARD MULLIN CHOICE OF LAWTarget incorporated in Target not incorporated in Delaware Delaware Delaware 71% (36% of deals in 2008) Other Delaware 5% State of Incorporation 100% (25% of deals 24% (95% of deals in 2008) in 2008) (39% of deals in 2008)
  46. 46. M&A JAMIE MERCER, SHEPPARD MULLIN SHAREHOLDER SUITS NUMBER OF STRIKE SUITS INCREASING  Allege breach of fiduciary duty by target board  Number of suits tripled since 2007 (105 to 337) FORUM SELECTION IN BYLAWS  Vice Chancellor Laster’s comment In re Revlon (2010)  Consolidates cases in one jurisdiction  Takes advantage of Delaware case law and judges GALAVIZ V. BERG (JAN. 2011)  Oracle’s forum selection clause struck down  Adopted by directors only  Adopted after the events that gave rise to claim
  47. 47. REGULATORY REPORTING JAMIE MERCER, SHEPPARD MULLIN
  48. 48. REGULATORY REPORTING JAMIE MERCER, SHEPPARD MULLIN SEC REGULATORY DEVELOPMENTS FOR 2011
  49. 49. REGULATORY REPORTING JAMIE MERCER, SHEPPARD MULLIN 2011 SEC FOCUS AREAS MANAGEMENT’S DISCUSSION AND ANALYSIS  Overview  Financial Metrics  Liquidity and Capital Resources EXECUTIVE COMPENSATION  Compensation Clawbacks  Say on Pay PROXY STATEMENT  Proxy Access Rules
  50. 50. FINANCIAL AUDIT GALE MOORE, SINGERLEWAK
  51. 51. FINANCIAL AUDIT GALE MOORE, SINGERLEWAK FINANCIAL ACCOUNTING AND REPORTING UPDATE EFFECTIVE IN 2011 STILL HOT IN 2011 PROMISED IN 2011
  52. 52. FINANCIAL AUDIT GALE MOORE, SINGERLEWAK EFFECTIVE IN 2011 GOODWILL IMPAIRMENT TEST  Guidance related to step 2 analysis  Public years beginning after 12/15/10  Private years beginning after 12/15/11
  53. 53. FINANCIAL AUDIT GALE MOORE, SINGERLEWAK EFFECTIVE IN 2011 PUBLIC COMPANY BUSINESS COMBINATIONS  Supplementary Pro Forma Information
  54. 54. FINANCIAL AUDIT GALE MOORE, SINGERLEWAK EFFECTIVE IN 2011 FAIR VALUE MEASUREMENTS  Clarification on level 3 disclosures
  55. 55. FINANCIAL AUDIT GALE MOORE, SINGERLEWAK EFFECTIVE IN 2011 CERTAIN REVENUE ARRANGEMENTS THAT INCLUDE SOFTWARE ELEMENTS MULTIPLE-DELIVERABLE REVENUE ARRANGEMENTS
  56. 56. FINANCIAL AUDIT GALE MOORE, SINGERLEWAK STILL HOT IN 2011 REVENUE RECOGNITION  Multiple element arrangements (VSOE, TPE, ESP)  Disclosure related to judgments  Compliance with ASU 2009-13
  57. 57. FINANCIAL AUDIT GALE MOORE, SINGERLEWAK STILL HOT IN 2011 GOODWILL IMPAIRMENT  Disclosures (key assumptions)  Skepticism directed at impairment analysis  MD & A Discussion
  58. 58. FINANCIAL AUDIT GALE MOORE, SINGERLEWAK STILL HOT IN 2011 FAIR VALUE MEASUREMENTS  Method and assumptions questioned  Disclosures
  59. 59. FINANCIAL AUDIT GALE MOORE, SINGERLEWAK STILL HOT IN 2011 CONTINGENCY DISCLOSURES  Discussion not robust (reasonably possible range)  Same disclosure for multiple years  Settlement in same period of initial disclosure
  60. 60. FINANCIAL AUDIT GALE MOORE, SINGERLEWAK STILL HOT IN 2011 BUSINESS COMBINATIONS  Contingencies  Minority interest  Acquired business audited financial statements  Pro-forma Disclosures
  61. 61. FINANCIAL AUDIT GALE MOORE, SINGERLEWAK PROMISED IN 2011 JOINT PROJECTS  Financial instruments  Balance sheet offsetting  Revenue Recognition
  62. 62. FINANCIAL AUDIT GALE MOORE, SINGERLEWAK PROMISED IN 2011  Leases  Fair Value Measurement  Statement of Comprehensive Income
  63. 63. FINANCIAL AUDIT GALE MOORE, SINGERLEWAK PROMISED IN 2011  IASB – Insurance contracts  FASB Consolidation  IASB Consolidation
  64. 64. FINANCIAL AUDIT GALE MOORE, SINGERLEWAK PROMISED IN 2011  Consolidation – Investment companies  Investment Properties  IASB – Postemployment benefits
  65. 65. FINANCIAL AUDIT GALE MOORE, SINGERLEWAK PROMISED IN 2011  Discontinued operations  ***Loss Contingencies
  66. 66. CONTACT US www.SingerLewak.com www.brileyco.comwww.SheppardMullin.com 877.754.4557 310.966.1444 858.720.7469 JAMIE MERCER JIM PITRAT JOHN AHN GALE MOORE

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