presents At-the-Market Offerings: Legal Considerations for ...media.straffordpub.com/products/at-the-market... · 5/12/2010 · At-the-Market Offerings: Legal Considerations for

presents

At-the-Market Offerings: Legal Considerations for Issuers and Investors

presents

for Issuers and InvestorsEvaluating and Using ATMs to Raise Public Equity

A Live 60-Minute Teleconference/Webinar with Interactive Q&A

Today's panel features:

Dean M. Colucci, Partner, DLA Piper, New YorkJoshua Feldman, Director, Cantor Fitzgerald, New York

Q&

James T. Seery, Partner, DLA Piper, New York

Wednesday, May 12, 2010

The conference begins at:The conference begins at:1 pm Eastern12 pm Central

11 am Mountain10 am Pacific10 am Pacific

You can access the audio portion of the conference on the telephone or by using your computer's speakers.Please refer to the dial in/ log in instructions emailed to registrants.

For CLE purposes, please let us know how many people are listening at your location by y

• closing the notification box • and typing in the chat box your• and typing in the chat box your

company name and the number of attendeesattendees.

• Then click the blue icon beside the box to sendto send.

For live event onlyy

• If the sound quality is not satisfactory• If the sound quality is not satisfactory and you are listening via your computer speakers please dial 1-866-869-6667speakers, please dial 1 866 869 6667 and enter your PIN when prompted. Otherwise, please send us a chat or e-, pmail [email protected] so we can address the problem.

• If you dialed in and have any difficulties during the call, press *0 for assistance.

WELCOME TO OUR WEBINAR

At-the-Market Offerings:

WELCOME TO OUR WEBINAR

Legal Considerations for Issuers and Investors

Wednesday, May 12, 2010

Presented by:

ed esday, ay , 0 0

1:00 p.m. EDT

Presented by:

Introduction

Introduction of Panelists

Dean ColucciPartnerDLA Piper

James SeeryPartnerDLA Piper

Joshua FeldmanDirectorCantor Fitzgerald

Overview of At-the-Market Offerings

ATM Execution Mechanics

Legal Mechanics of Structuring a Deal

Questions and Answers

At-the-Market Offerings: Legal Considerations for Issuers and Investors 5

What Is An ATM Offering?

ATMs enable public companies listed on a U.S. Exchange (NYSE, AMEX, NASDAQ) to sell to the public periodically during the term of the offeringNASDAQ) to sell to the public periodically during the term of the offering, through a broker-dealer, registered common or preferred shares in amounts and at times of the issuer’s choosing

The shares are sold at the then prevailing “market price” to “natural interest” in the market – thus the name “At-the-Market” offering

Employed by public companies eligible to issue securities using either Form Employed by public companies eligible to issue securities using either Form S-3 under Rule 415 of the Securities Act of 1933 (“Securities Act”) or Form F-3 (as employed by Foreign Private Issuers)

6At-the-Market Offerings: Legal Considerations for Issuers and Investors

At-the-Market Offerings (ATMs)

ATM programs with a value in excess of $40 billion have been implemented since 2001 with programs put in place in 2009 exceeding $22 billion in value p g p p g(value calculated at time of filing)

Issuers from a wide variety of industries including: Airlines

Banking and financial services

Biotech and life sciences

Energy and utilitiesEnergy and utilities

Natural resources

Real estate and real estate investment trusts

Technology Technology

Transportation

Closed End Funds


Distinctions Between ATM and Other Shelf Takedown ProductsTakedown Products

Equity lines of credit, registered directs, and PIPEs are more dilutive, typically require warrant coverage and incur much higher all in transaction costs thanrequire warrant coverage, and incur much higher all-in transaction costs than ATMs

There is generally no lock-up period during the term of the agreement and the i i f t t diti l f ll if b i k t ditiissuer is free to pursue a traditional follow-on if business or market conditions merit

Equity issuances are disclosed at the end of each quarter in the issuer’s i di t d th S iti E h A t f 1934periodic reports under the Securities Exchange Act of 1934

For NASDAQ Issuers, ATM programs (unlike PIPES, equity lines and certain registered direct offerings) are considered “Public Offerings” under NASDAQ Rule 5635 – shareholder approval is NOT required under US laws if the issuer desires to issue more than 20% of its common stock or voting securities through an ATM offering


Overview of the Controlled Equity OfferingSMq y g

Cantor’s ATM product, the Controlled Equity OfferingSM (CEOSM) Program, is aflexible equity offering vehicle that gives its clients the ability to sell shares fromq y g g ytime-to-time by discreetly feeding demand in market neutral transactions

Cost efficient, low-profile financing option for companies to raise capital over time

Enables issuers to raise equity when needed and to match the sources and uses of funds

Minimizes underwriting costs – transaction costs range from 2 to 5% depending on market cap of issuer and size of transaction, but if underwriter exceeds the volume weighted average price (VWAP) of the security being issued over the execution period authorized by client the all-in-cost of issuance is significantlyexecution period authorized by client, the all in cost of issuance is significantly reduced and dilution minimized

Leverages Cantor’s position and trading expertise as the dominant third market trading firm


trading firm

Cantor Fitzgerald and ATMs

Cantor Fitzgerald created one of the first ATM programs available to publiccompanies and Cantor remains the leader in ATM offerings

g

companies and Cantor remains the leader in ATM offerings

Cantor has executed far more ATM offerings than any other broker-dealersince 2001 (including 29 programs since the beginning of 2009 and 9programs YTD)programs YTD)

Senior-level “dedicated” execution team has been active in ATM transactionssince 2001 – skilled in accessing all liquidity pools and executing both

l d ffi i tlanonymously and efficiently


Benefits of ATM OfferingsBenefits of ATM Offerings

Event Driven

Continuous Capital Need

Balance Sheet Strength

Increased Liq iditIncreased Liquidity

Cost of Capital

Flexibility & Control


Anonymity

Benefits of ATMsBenefits of ATMs

Flexibility & Control: Ability to execute on natural demand when there is a need, number of shares and minimum price. Can change instruction as often as desired.

Sales are only made per the company’s specific instructions

Client parameters include size, price, and type of execution

Sales can be initiated, halted, or changed at any time

Efficiency: Able to match uses and sources better than traditional offerings

Lower Cost of Capital: No market discount, no warrant coverage, lower underwriter compensation

Ability to Monitor Progress: Sales price versus VWAP over time period in which broker-dealer is authorized to execute

Anonymity: Sales may be made completely anonymously and execution anonymity ensures that the market will not be aware when or if sales are made through the ATM


structure

Cantor’s Approach to ATM ExecutionCantor s Approach to ATM Execution

At Cantor Fitzgerald, orders are executed by dedicated ATM capital market traders who are entirely focused on issuersmarket traders who are entirely focused on issuers

Information flows only one way from Cantor’s 15 trading floors to the ATM capital markets traders. Even internally at Cantor, the ATM capital market trader’s execution remains anonymous.

While a majority of all sales are made anonymously at-the-market, the ATM structure provides the flexibility to execute negotiated blockATM structure provides the flexibility to execute negotiated block transactions


Lower “All-in-Cost”

ATMs and Cantor’s CEOSM product allows companies to raise money without sacrificing price-stability, and at less of a cost than follow-on offerings, registered directs or PIPEs

For PIPEs/registered directs announced YTD, the all‐in cost of capital is near 20% when taking 25% 20%+into account the underwriter fee, market discount and warrant coverage

Non‐ATM deals traditionally observe a

15%

20%

25%

Cost of Warrants

15%15%+

20%+

ynegative impact on their stock price going into the transaction as well as post‐announcement

ATM underwriting fees are typically 2‐5%. ATM

5%

10%

2-5% 5% 5% 5%

10% 9%12% Market Discount

Underwriter Fee

yp ydeals traditionally do not experience any significant price impact. Historically Cantor has beaten the VWAP when placing shares resulting in less dil i

0%Cantor CEO Follow On Registered

DirectPIPE


dilution.

Source: Capital IQNote: Financings include deals with transactions over $10m and under $150m. Market discount based on the closing price one day prior to announcement.

ATMs: Step by StepATMs: Step by Step

1. File a shelf registration statement on Form S-3 or F-3

2. Conduct due diligence

3. Negotiate a Sales Agreement or Equity Distribution Agreement (name varies from underwriter to underwriter) and prepare the prospectus supplement There is no “firm commitment” by the investment bank to purchase or sell any fixed number of securities and There is no firm commitment by the investment bank to purchase or sell any fixed number of securities, and

either the Issuer or the investment bank can terminate the agreement at any time, regardless of whether the program has been completed

4. File prospectus supplement and Sales Agreement (as an 8-K or as an exhibit to a 10-Q or 10-K). Provide comfort letter and necessary opinions to underwriter.Q ) y p

5. Issuer places sell orders directly with underwriter when funds are needed or market opportunities arise. Issuer may provide specific instructions for the sales (price, size, timing, etc.) and can alter the instructions at any time. Each day’s sales will be settled on the usual T+3 business days cycle

Continue due diligence and bring down the comfort letters and legal opinions on a quarterly basis

An ATM program may be temporarily halted to allow time for an issuer to update its public disclosures with regard to a material corporate transactions


6. At quarter end, issuer discloses cumulative sales in their 10-Q/K

Who Is Eligible for ATMs?Who Is Eligible for ATMs?

Companies listed on a US Exchange (NASDAQ, AMEX, NYSE) that are eligible to file either Form F 3 or Form S 3 Shelf Registration Statementseligible to file either Form F-3 or Form S-3 Shelf Registration Statements under Rule 415 of the Securities Act

Canadian issuers listed on the TSX and a US exchange are eligible to use F F 10 d th M lti J i di ti l Di l S t (MJDS)Form F-10 under the Multi-Jurisdictional Disclosure System (MJDS)

Form F-3/S-3 eligibility requirements for issuers with a public float of greaterthan $75 million:

Securities registered under Section 12 of Securities Exchange Act of 1934 (“Exchange Act”) are required to file reports under Section 15(d) of Exchange Act

Timely file all Exchange Act reports during the 12 months preceding the later of theTimely file all Exchange Act reports during the 12 months preceding the later of the filing of the F-3/S-3 or the 10-K/20-F


Who Is Eligible for ATMs?Who Is Eligible for ATMs?

Form F-3/S-3 eligibility requirements for issuers with a public float of lessthan $75 million:than $75 million:

The same requirement for issuers with a public float of greater than $75 million and

1. The issuer must have a class of common equity securities listed and registered on a US national securities exchange

2. The issuer must not have been a shell company for a minimum of 12 months prior to the filing of the F-3/S-3

Issuers with a public float of less than $75 million may not sell more than 1/3 of its public float under an F-3/S-3 over a period of 12 months including the ATM and any other shelf takedowns


Legal Documentation for ATMsLegal Documentation for ATMs

Effective form F-3/S-3

Prospectus supplement – filed pursuant to Rule 424(b)(2) or 424(b)(5) of the Securities Act

Sales agreement or equity distribution agreement – similar in form and substance to typical underwriting agreement

Filed with SEC on Form 6-K or Form 8-K at execution

Stays in place for as long as there is unsold stocky p g

The issuer has ongoing obligations throughout the term of the agreement including:

Quarterly negative assurance letters from the issuer’s counselQuarterly negative assurance letters from the issuer s counsel

Quarterly comfort letters from the issuer’s auditors


Other Legal Considerations

Regulation M Issues Research

Market-Making

NASDAQ Public Offering Rule (Rule 5635) NASDAQ Public Offering Rule (Rule 5635)

FINRA

Integration Issuesg

Closed End Fund Requirements


ATMs Going Global

Canada MJDS Issuers

Israel

Europe Europe

Beyond?


What Research Analysts Are Saying About ATMs...

[ATMs] allow companies to raise very low cost capital, while also having control over the timing and size of the offering, as well as selectively expand their institutional ownership We believe this is a very intelligent source of capital withas well as selectively expand their institutional ownership. We believe this is a very intelligent source of capital with minimum disruption.

Major National Bank

From an issuer’s perspective, [ATMs] have several advantages in our view. First, management of the issuer does not need to conduct time consuming road shows Second the issuer does not face the risk of seeing its stock price drop inneed to conduct time consuming road shows. Second, the issuer does not face the risk of seeing its stock price drop in the market between the time of announcement and pricing. Thus, the cost of issuing equity in this manner is meaningfully more affordable than the traditional bulk sale method.

Money Center Bank

The company entered into [an ATM] agreement to sell up to two million shares of beneficial interest We believe thatThe company entered into [an ATM] agreement to sell up to two million shares of beneficial interest...We believe that this is an efficient way to raise capital and fits the company’s matching funds strategy. We do not expect the company to utilize this capital until later in the year.

Regional Investment Bank

W i d i t th t th t ll d it ff i (CEO) ll i t i it i llWe remind investors that the controlled equity offering (CEO) program allows companies to issue equity in small, periodic increments. CEOs are usually done to manage capital needs and raise capital in an optimal fashion, with periodic increments that may not cause as much pressure on a stock as a single large equity offering might. Further, CEOs have lower underwriting fees. The prospectus indicates that [The Company] will be paying a 2% gross fee -materially lower than the 4.5% underwriter’s fee paid by [other companies] in recent secondary offerings.


International Investment Bank

Select ATM TransactionsSelect ATM Transactions$20,000,000 $10,772,500 $30,000,000 $25,000,000 $105,000,000 $72,000,000 $15,000,000

In total, CF&Co. has put more than 90 CEO programs in place.These programs, more generically known as "at-the-market"offerings, have exceeded over $10bn in value.

At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering April 2010 April 2010 April 2010 April 2010 February 2010 February 2010 January 2010

$175,000,000 $125,000,000 $175,000,000 $20,000,000 $75,000,000 $142,500,000 $155,000,000 $35,000,000 $30,000,000 $75,000,000

Nationwide FAMCO/Claymore NationwideHealth Props. Opportunity Fund Health Props. Tortoise Energy

At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market OfferingJanuary 2010 November 2009 November 2009 October 2009 October 2009 October 2009 August 2009 July 2009 July 2009 July 2009

$45,000,000 $30,000,000 $54,600,000 $31,800,000 $475,000,000 $37,400,000 $23,500,000 $21,000,000 $24,000,000 $130,000,000

Ramco NationwideRamco NationwideDynex Capital Gershenson Health Props.

At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market OfferingJune 2009 June 2009 June 2009 May 2009 May 2009 April 2009 April 2009 March 2009 January 2009 January 2009

$60,000,000 $20,000,000 $226,000,000 $24,000,000 $500,000,000 $80,000,000 $13,000,000 $100,000,000 $170,000,000 $425,000,000

DryShips Ocean Freight Anworth DryShipsAt-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering

January 2009 December 2008 December 2008 November 2008 November 2008 July 2008 July 2008 June 2008 May 2008 March 2008

$114,000,000 $20,000,000 $155,000,000 $720,000,000 $150,000,000 $21,000,000 $42,000,000 $160,000,000 $24,000,000 $260,000,000

Nationwide NationwideHealth Props. DryShips Anworth Education Realty Health Props.

At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market OfferingJanuary 2008 January 2008 December 2007 October 2007 July 2007 May 2007 May 2007 May 2007 April 2007 March 2007

$975,000,000 $250,000,000 $25,000,000 $125,000,000 $25,000,000 $80,000,000 $140,000,000 $95,000,000 $30,000,000 $200,000,000

Cedar Shopping NationwideHRPT Props. Centers Health Props.

At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market OfferingMarch 2007 December 2006 December 2006 November 2006 October 2006 September 2006 September 2006 July 2006 June 2006 May 2006

$50,000,000 $305,000,000 $26,500,000 $110,000,000 $425,000,000 $87,500,000 $25,000,000 $230,000,000 $95,000,000 $70,000,000

NationwideDryShips Valence Health Props. United Dominion

At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market OfferingMay 2006 April 2006 April 2006 January 2006 July 2005 June 2005 May 2005 November 2004 October 2004 August 2004


$146,000,000 $260,000,000 $50,000,000 $210,000,000 $40,000,000 $60,000,000 $80,000,000 $75,000,000 $50,000,000 $80,000,000

Anworth Magnum Hunter AnworthAt-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering At-the-Market Offering

August 2004 July 2004 May 2004 April 2004 September 2003 November 2003 July 2003 April 2003 January 2003 August 2002

Contact UsContact Us

Dean ColucciPartner DLA Piper

Joshua FeldmanDirector Cantor Fitzgerald

James SeeryPartner DLA PiperPartner, DLA Piper

+1 212 335 [email protected]

Director, Cantor Fitzgerald+1 212 829 [email protected]

Partner, DLA Piper+1 212 335 [email protected]


CANTOR FITZGERALD IS THE LARGEST FULL SERVICE, INDEPENDENT INVESTMENT BANK

INVESTMENT BANKING MERCHANT BANKING

Bulge bracket capabilities Confidentiality and relationship depth of a boutique Focused on middle market clients Deep industry coverage

i l d &

INVESTMENT BANKING

280+ salespeople and traders

EQUITY DIVISION 225+ fixed income salespeople, traders and research analysts

FIXED INCOME DIVISION

Mergers and Acquisitions Expertise

REAL ESTATE CAPITAL MARKETS

Partner with best of class management teams Focus on growth sectors that leverage off of strong management team Investments of $50 million to $1 billion

MERCHANT BANKING

Capital structure and M&A advisory Equity and debt new issuance Leveraged finance & financial sponsors Public and private capital Real Estate Capital Markets and Advisory Services

280+ salespeople and traders 5,000+ institutional accountsGlobal distribution with offices around the globe Aggressive, commission‐based sales forceGrowing equity research platform

research analysts Broad credit trading platform – HY, loans, IG, Eurobonds Trade over $200 bn in credit securities daily Strong leveraged finance team in NY & LondonMortgage securities, agencies, municipals repos

Expertise Seasoned team with 20+ years of experience Leaders in loan originations, Private Equity Capital raising and Advisory services Expansive sector footprint

$1 billion

municipals, repos

CANTOR FITZGERALD’S GLOBAL FOOTPRINT

Over 3,800 employees in 39 cities including 20 major financial hubs worldwide

One of the largest sales forces in the industry: 280+ institutional sales and trading professionals provide global access to investors


About DLA Piper

THE FIRM

More than 3,500 lawyers in 67offices and 29 countries The US practice includes

approximately 1,300 lawyers

In Europe and Asia the firmIn Europe and Asia, the firm has approximately 2,200 lawyers

The largest law firm in the world by number of lawyersworld by number of lawyers and the only firm in the world with more than 1,000 lawyers on each side of the Atlantic

OUR CLIENTSOUR CLIENTS

We represent half of the FTSE 250 or their subsidiaries and more than 140 of the top


250 companies in the Fortune 500

Documents

presents At-the-Market Offerings: Legal Considerations for ...media.straffordpub.com/products/at-the-market... · 5/12/2010 · At-the-Market Offerings: Legal Considerations for