Raising Capital in 2010 – What Israeli Companies Listed on Nasdaq Need to be Aware of

1. Raising Capital in 2010 – What Israeli Companies Listed on Nasdaq Need to be Aware of ACC Israel Annual Conference June 16, 2010 Presented by:Howard E. Berkenblit (Boston)Oded Har-Even (New York)

2. Raising Capital in 2010 • SEC’s 2008 regulatory changes affecting fund raising process • Short-form S-3/F-3 registration statement now available for Nasdaq companies without $75 million in public float • Can now do primary securities offerings on Form S-3 within limits • Can now do “shelf registrations” that greatly facilitate fund raising ZAG/S&W LLP, An International Joint Venture Law Firm

3. Raising Capital in 2010 • SEC’s 2008 regulatory changes affecting fund raising process (cont’d) • Shorter holding periods under Rule 144 for resales of restricted securitiesEffect: Adds liquidity Takes some pressure off re-sale registration statements ZAG/S&W LLP, An International Joint Venture Law Firm

4. Raising Capital in 2010 • Overview of Financing Techniques for Companies Public in the United States • “Firm commitment” underwritten public offering, non-shelf • “Registered direct” (best efforts) underwriting, non-shelf • PIPE transactions • Regulation S ZAG/S&W LLP, An International Joint Venture Law Firm

5. Raising Capital in 2010 • Overview of Financing Techniques for Companies Public in the United States (cont’d) • Rule 144A offerings to qualified institutional buyers (QIBs) • Rights offerings to existing shareholders • Shelf registrations • Direct company sale • Firm commitment or best efforts underwriting ZAG/S&W LLP, An International Joint Venture Law Firm

6. Raising Capital in 2010 • Recent Trends • IPO markets improved in 2009 compared to 2008 but is still slow and unpredictable • Significant decrease in traditional unregistered PIPE transactions in 2008 and 2009 • 2009 – Good year for Shelf Registrations • Registered Direct Offerings [25% of broader PIPE transactions in 2009] ZAG/S&W LLP, An International Joint Venture Law Firm

7. Raising Capital in 2010 • Firm Commitment Underwritten Public Offering (Non-shelf) • Advantages • Usually accompanied by significant marketing efforts, including “road show” by the investment bankers • Creates interest in the stock and therefore better pricing ZAG/S&W LLP, An International Joint Venture Law Firm

8. Raising Capital in 2010 • Firm Commitment Underwritten Public Offering (Non-shelf) (cont’d) • Advantages • Syndicate mechanics “condition the market” • Syndicate “books” orders substantially in excess of shares to be sold in the deal • Syndicate books sales substantially in excess of shares to be sold in the deal – i.e., syndicate short position • Sometimes syndicate stabilization of the after-market ZAG/S&W LLP, An International Joint Venture Law Firm

9. Raising Capital in 2010 • Firm Commitment Underwritten Public Offering (Non-shelf) (cont’d) • Disadvantages • Usually not available to smaller issuers – perceived risk to underwriters in the firm commitment process • Delay – wait for SEC review (unpredictable) ZAG/S&W LLP, An International Joint Venture Law Firm

10. Raising Capital in 2010 • Firm Commitment Underwritten Public Offering (Non-shelf) (cont’d) • Disadvantages • The offering is announced in advance to the markets by the filing of a registration statement • Often adverse market reaction because of prospective dilution • “Game playing” by traders in creating short positions and arbitrage ZAG/S&W LLP, An International Joint Venture Law Firm

11. Raising Capital in 2010 • Registered Direct Offering (Non-Shelf) • What is it? Fancy name for a registered best efforts underwriting • Advantages • Significant marketing efforts by the investment banker • Creates interest in the stock • As compared to PIPES, investors get registered/freely salable stock – no/lower liquidity discount • Broadens range of potential buyers ZAG/S&W LLP, An International Joint Venture Law Firm

12. Raising Capital in 2010 • Registered Direct Offering (Non-Shelf) (cont’d) • What is it? Fancy name for a registered best efforts underwriting • Advantages • Significant marketing efforts by the investment banker • Simplified/no documentation – the buyers get the benefit of issuer SEC liability on the registration statement • May be able to avoid Nasdaq “20% Rule” (for non-FPIs) if a “public offering” ZAG/S&W LLP, An International Joint Venture Law Firm

13. Raising Capital in 2010 • Registered Direct Offering (Non-Shelf) (cont’d) • Disadvantages • No syndicate marketing conditioning • The offering is announced in advance to the markets by the filing of a registration statement • Possible adverse market reaction from dilution ZAG/S&W LLP, An International Joint Venture Law Firm

14. Raising Capital in 2010 • PIPE Transactions • Advantages • Speed – no pre-deal SEC filing/review as in a registered direct or firm commitment offering • Privacy – usually no announcement of deal prior to pricing ZAG/S&W LLP, An International Joint Venture Law Firm

15. Raising Capital in 2010 • PIPE Transactions (cont’d) • Disadvantages • KEY – LIMITED UNIVERSE OF POTENTIAL BUYERS • Limited group of institutions that will buy • Hedge funds limited because of organizational restrictions • Liquidity discount • Penalties if late subsequent SEC registration • Ugly documentation • Limitations of Nasdaq “20% Rule” for non-FPIs because not a “public offering” ZAG/S&W LLP, An International Joint Venture Law Firm

16. Raising Capital in 2010 • Changes in PIPEs • SEC guidance on percentage limits • SEC’s focus on quasi-primary offerings • Demise of “death spiral” securities • Limits are not entirely clear and may again be easing • 144 changes may impact PIPEs because of enhanced ability to resell • Less pressure on registration rights • Smaller discounts ZAG/S&W LLP, An International Joint Venture Law Firm

17. Raising Capital in 2010 • Reg. S Offering • Advantages • For foreign private issuers selling in home country, securities are effectively unrestricted • Disadvantages • For U.S issuers, shares are “restricted securities” (but now can be resold after only 6 months) • Restriction of “no direct selling efforts” in the U.S. may restrict publication of research in the U.S. • No sales in the U.S. or to “U.S. Persons” ZAG/S&W LLP, An International Joint Venture Law Firm

18. Raising Capital in 2010 • Shelf Registration • How does it work? • Filing a shelf registration statement on formS-3 or F-3 • Incorporation by reference – past and future • Universal shelf vs shelf with more limited securities • $ Amount vs Number of shares • Often limited or no review by the SEC on form S-3/F-3 • Key - No SEC review at time of actual offering ZAG/S&W LLP, An International Joint Venture Law Firm

19. Raising Capital in 2010 • Base Shelf Requirements • Available to smaller companies without $75 million in public float if • Meets eligibility requirements for S-3/F-3 • Class of securities registered under the Exchange Act • Subject to section 12 or 15(d) and timely filed all required reports for at least 12 months • No recent defaults on debt or material leases or failure to pay preferred dividends • Not a shell company for at least 12 months ZAG/S&W LLP, An International Joint Venture Law Firm

20. Raising Capital in 2010 • Base Shelf Requirements (cont’d) • Available to smaller companies without $75 million in public float if • Shares traded on national exchange [NASDAQ/NYSE] • Does not sell in a 12-month period more than 1/3 of its non affiliate public float • Price per share for purpose of calculating the float is equal to the price at which stock was last sold or the average of bid and ask price in the market as of a date within 60 days prior to date of sale • Derivative securities [e.g., warrants] are also included in the calculation of aggregate market value of securities sold ZAG/S&W LLP, An International Joint Venture Law Firm

21. Raising Capital in 2010 • Shelf • Big Advantages • Speed – no SEC review once shelf effective • Significantly broadens range of potential investors • Low cost – no investor purchase documentation to prepare • Privacy – possibly no announcement of deal prior to pricing – no downward pressure on stock price (but not for traditional firm commitment) • No or lower liquidity discount since the shares are liquid ZAG/S&W LLP, An International Joint Venture Law Firm

22. Raising Capital in 2010 • Shelf (cont’d) • Disadvantages – None, but • 20% rule may be applicable if no “public offering” under Nasdaq definition and price is below market • Not a “public offering” unless distribution process resembles a traditional public offering • Smaller companies limited to 1/3 of their public float in any 12-month period ZAG/S&W LLP, An International Joint Venture Law Firm

23. Raising Capital in 2010 • Wall Crossed Deals • Confidential marketing to a group of selected investors – sharing of non public info – investors commit to refrain from trading • Once indication of interest is obtained, filings are made [PR, preliminary prospectus supplement, 8-K] and underwriters engage in widespread marketing ZAG/S&W LLP, An International Joint Venture Law Firm

24. Raising Capital in 2010 • Wall Crossed Deals (cont’d) • Second stage is typically completed between market closing time and market open the day after • Starts with small group, but prices and closes like firm commitment offering for a larger group ZAG/S&W LLP, An International Joint Venture Law Firm

25. Raising Capital in 2010 Types of Shelf Offerings – Comparison of Pros ZAG/S&W LLP, An International Joint Venture Law Firm

26. Raising Capital in 2010 Types of Shelf Offerings – Comparison of Cons ZAG/S&W LLP, An International Joint Venture Law Firm

27. Raising Capital in 2010 • Shelf-FINRA and NASDAQ Issues • Base shelf clearance requirements by FINRA if less than $150 million public float ($300 million for FPI) or public less than 3 years • 20% Nasdaq shareholders approval – Exemption for FPIs under certain conditions ZAG/S&W LLP, An International Joint Venture Law Firm

28. Raising Capital in 2010 • Shelf-FINRA and NASDAQ Issues (cont’d) • Nasdaq notices • Listing of additional shares - 10% of shares or more or change of control – 15 calendar day advance notice • Warrants are accounted as a discount of $0.0125 per share • Change in number of shares outstanding - 5% or more – 10 calendar days after occurrence ZAG/S&W LLP, An International Joint Venture Law Firm

29. Raising Capital in 2010 • SEC Review • Though shelf takedowns are not reviewed, SEC continuously reviews periodic filings that are incorporated by reference (e.g., 20-F) • SEC also now looking at other sources as part of its review (e.g., websites, analyst calls, press releases) • Remember: all SEC comment letters and issuer responses now publicly disclosed (though confidentially can be sought on a limited basis) ZAG/S&W LLP, An International Joint Venture Law Firm

30. Raising Capital in 2010 • Frequent areas for comment • Non-GAAP financial measures • MD&A • Risk factors • Accounting disclosures: impairments, fair values, revenue recognition, contingencies, income taxes • Internal controls and disclosure controls and procedures • Climate change • Executive compensation (for non-FPIs) • Exhibits • Undertakings ZAG/S&W LLP, An International Joint Venture Law Firm

31. Raising Capital in 2010 • Other Shelf-Specific Concerns • Communications before and during offering • What securities to offer • Restatements before offerings • Citing to expert reports • Safe harbor language • Upfront costs – SEC fees, legal and accounting, trustee (if debt is registered) ZAG/S&W LLP, An International Joint Venture Law Firm

32. Thank You • For further information, please contact: • Oded Har-Evenohareven@zag-sw.com212 660 5002 • Oded Har-Even serves as Managing Director of ZAG/S&W LLP. His practice focuses on mergers and acquisitions, debt and equity financing, and securities matters in both domestic and transborder transactions. He specializes in counseling Israeli companies traded in the U.S. on financings and ongoing corporate governance, disclosure and compliance matters. He also guides and assists Israeli start up companies in their various legal needs while establishing presence in the U.S. • Howard Berkenblithberkenblit@zag-sw.com617 338 2979 • Partner Howard E. Berkenblit is a co-leader of ZAG/S&W’s securities and corporate finance group. He focuses on counseling both public and private companies involved in equity and debt financings, and ongoing corporate governance and disclosure matters, stock exchange listing standards and Sarbanes-Oxley Act compliance. He also advises Israeli and other international companies that seek to have their securities traded in the United States, as well as real estate investment trusts that engage in securities offerings and governance initiatives. ZAG/S&W LLP, An International Joint Venture Law Firm

33. Office Locations: Boston One Post Office Square Boston, MA 02109 Tel: +617 338 2800 Fax: +617 338 2880 New York 1290 Avenue of the Americas New York, NY 10104 Tel: +212 660 3000 Fax: +212 660 3001 Tel Aviv 41-45 Rothschild Blvd., Beit Zion Tel Aviv, Israel 65784 Tel: +972 3 7955555 Fax: +972 3 7955550 Washington, D.C. 1666 K Street, NW Washington, D.C. 20006 Tel: +202 775 1200 Fax: +202 293 2275