atm offerings: what issuers need to know

Monthly Webinar Series

presents

At-‐the-‐Market Offerings: What Issuers Need to Know

November 8, 2012

Panelists

Sara LaFever Account Manager Sagient Research

Greg Curhan Managing Director Investment Banking

MLV & Co.

Adam Epstein Founding Principal

Third Creek Advisors, LLC

Moderator

Brett Goetschius Publisher and CEO

Growth Capital Investor

Thank you for participating in “At-‐the-‐Market Offerings: What Issuers Need to Know.” This manual contains information you will need to prepare for this webinar.

CONFERENCE MANUAL

This manual contains:

•Dial-‐in/log-‐on instructions.

Speaker bio and contact information. •Tips for submitting questions. •Pertinent information from the pages of Growth Capital Investor.

CONFERENCE DETAILS

The webinar is scheduled for Thursday, November 8, 2012 at 2:00 p.m. EST, 1:00 p.m. CST, 12:00 p.m. MST, and 11:00 a.m. PST. It will last 110 minutes.

HOW TO JOIN THE WEBINAR

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If you have problems accessing the webinar, please call 877-‐297-‐2901. HOW TO SUBMIT QUESTIONS

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Conference Manual Page 1

SPEAKER BIOS AND CONTACT INFORMATION

Sara LaFever is an account manager at Sagient Research Systems. Sara began her career with Sagient as an analyst, and transitioned into a position in the sales/marketing team. She works with three of Sagient’s products: BioMedTracker, PlacementTracker, and CatalystTracker. She received her BA from New York University and is pursuing a master’s in library and information science from San Jose State University.

CONTACT Sara LaFever Account Manager Sagient Research Systems 858-‐200-‐2357 [email protected]


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102

264

89

21

86

157

29 55

76

ATM (At the Market) Offering

Common Stock

Common Stock -‐ CMPO/Overnight Offering

Common Stock -‐ Rights Offering/Reset

Common Stock -‐ Shelf Sale (Registered Direct)

Convertible -‐ Fixed

Convertible -‐ Floating/Reset/Company Installment

Non-‐Convertible Debt/Preferred Stock

Structured Equity Line


}  Only 1 ATM in 2006

}  Popularity rose 2009

}  Exploded in 2010 }  Continues to

expand 0

20

40

60

80

100

120

ATMs

2012 (YTD)201120102009

*Date range based on closing date


REITS Healthcare

Energy Financial

Industrial Other

  Healthcare includes Biotech & Pharma   Energy includes Oil & Gas, Pipelines   Financial includes Banks, Closed-end Funds, Diversified Financial Services,

Investment Companies   Industrial includes Electronics, Transportation, Engineering   Other includes Utilities, Technology, Mining, Communications

*Data from 2009-present


0102030405060708090

7183

3344 49

22 18

Market Cap

Market Cap

Ø Most ATMS issuers are in 100M-500M range


}  ATMs YTD:102 }  CMPOs YTD: 89 }  CMPOs tend to be

popular in the healthcare sector




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ATM 2.54% $46,741,445.65 $140,109,207

CMPO 5.65%

$48,575,205.68

N/A


Ranking Placement Agent Name Deal Count

11.. BBaannkk ooff AAmmeerriiccaa MMeerrrriillll LLyynncchh 50

22.. CCaannttoorr FFiittzzggeerraalldd && CCoommppaannyy 47

33.. MMLLVV && CCoo.. LLLLCC 38

44.. WWeellllss FFaarrggoo SSeeccuurriittiieess,, LLLLCC 34

55.. DDeeuuttsscchhee BBaannkk SSeeccuurriittiieess,, IInncc.. 25

66.. CCiittiiggrroouupp GGlloobbaall MMaarrkkeettss,, IInncc.. 24

77.. JJ..PP.. MMoorrggaann CChhaassee && CCoo.. 21

88.. MMoorrggaann SSttaannlleeyy 20

99.. KKeeyyBBaanncc CCaappiittaall MMaarrkkeettss 19

1100.. UUBBSS SSeeccuurriittiieess LLLLCC 17



Greg Curhan is Managing Director and Head of Technology Investment Banking at MLV & Co. Mr. Curhan joined MLV in 2011 to expand its focus to Technology sectors for ATM financings, as well as to broaden the firm’s offerings to other strategic advisory and investment banking services. Prior to MLV, Mr. Curhan was President of CleanTech Capital Consulting, Inc., where he advised companies and their boards, often serving as a director himself. Prior to this, Mr. Curhan was President, Chairman of the Commitment Committee and Head of the CleanTech investment banking team of Merriman Curhan Ford & Co., which he cofounded. Merriman Curhan Ford raised more than $5 billion for its corporate clients and provided advice on a number of M&A transactions during his tenure. Mr. Curhan brings more than 25 years of experience helping finance, manage, and advise fast-‐growing companies in rapidly changing technology industries typically backed by Silicon Valley venture capital.

CONTACT Greg Curhan Managing Director and Head of Technology Investment Banking MLV & Co. 415-‐840-‐2203 [email protected]


Proprietary and Confidential

October 2012

Raising capital more efficiently

At-the-Market Issuance (“ATM”)


Disclaimer

The information contained herein is confidential and is intended solely for the use of the addressee(s). It shall not be construed as a recommendation to buy or sell any security and/or participate in an At-the-Market-Issuance. Any external companies information provided herein is used as an example only and is not to be considered as indicative of the results achieved by your company. Any unauthorized access, use, reproduction, disclosure or dissemination is prohibited. The information provided shall not be disseminated to another party without the prior written consent of MLV & Co LLC. Neither MLV & Co LLC nor any of its subsidiaries, affiliates, officers, or employees shall assume any legal liability or responsibility for any incorrect, misleading or altered information contained herein.


What is At-the-Market Issuance? n  At-the-Market Issuance (“ATM”) enables an S3 eligible issuer, who’s share are listed on a

national exchange (NASDAQ, NYSE, etc), to opportunistically sell equity at its discretion, at the prevailing market price

q  The Company dictates the timing and price at which it raises capital q  Minimum threshold price is set solely by the issuer (e.g. “sell up to 200,000 shares at $7.00 or better”) q  No discounts and no warrants

n  Seamless implementation of ATM with S-3 Shelf Filing q  Up to a maximum dollar amount of stock sales; ATM agreement effective for the life of the shelf registration

q  However, ATM does not preclude any other capital raising alternatives (no impact on shelf capacity unless it is used)

q  This is a tool to be used at will, to expand your capital access alternatives q  ATM reported retroactively in 10-Qs

n  Having an ATM facility in place would enable you to: q  Capitalize on Catalysts: Leverage on equity appreciation in real time (volume and/or price spike due to news flow

or macro events) q  Service Working Capital Needs: ATM can be tailored to raise capital on an as needed basis to maintain treasury and

manage the balance sheet q  Temper financing risk /downside associated with punitive deal structures q  Increase liquidity and exposure, cross blocks with institutions seeking to build up a position


Benefits of ATM issuance include:

n  Cost effectiveness of selling shares at the market price

n  Access to equity capital without impact on pricing of a traditional offering

n  Can be done discretely, raising significant proceeds over time

n  At all times, issuer decides timing, minimum price, volume

n  Highly streamlined and cost effective execution

n  Once ATM is in place, the company can use it opportunistically at times of positive stock price movement

n  The issuer is never required to use it and is never precluded from doing anything else

Benefits of At-The-Market (ATM) ATM is a capital raising methodology which provides an issuer the ability to sell publicly traded shares – common and/or preferred - at the prevailing market price at the time and amount of its choosing


ATM History – Increasing Popularity

n  During the financial crisis ATM became a primary source of capital for financial institutions

n  In 2009, one-third of the major TARP recipients used ATM to recapitalize n  Bank of America raised approximately $12.5B for itself through ATM over a 2-week

period in May 2009 n  Other users included Fifth Third Bancorp, KeyCorp, Commerce Bancshares, E Trade,

PNC, SunTrust, and Hartford

n  Approximately 50 REITs have used ATM – a majority of the sector. Many have used ATM multiple times

n  Other capital intensive industries such as metals & mining and biotech are frequently using ATM

n  ATM is a highly efficient means of raising capital for a business within any industry


>$1B45%

$500M -‐$1B13%

$250M -‐$500M13%

<$250M29%

2012 Thru Q3

ATM History: Growing Market Share

Sources: Dealogic, Thompson Reuters, SEC Filings Data as of 10/1/2012

Year Number of ATM Deals

2005 10

2006 23

2007 14

2008 58

2009 119

2010 104

2011 123

2012 thru Q3 104

Total 555

Follow On, 601 Follow On,

534Follow On,

435

Follow On, 457

ATM, 119 ATM, 104 ATM, 123 ATM, 104

0

100

200

300

400

500

600

700

2009 2010 2011 2012 thru Q3

Num

ber of D

eals

ATM Offering Trends

ATM accounted for ~20% of all shelf take downs in the first three quarters of 2012

>$1B 35%

$200M-‐$1B 31%

<$200M 34%

2010

>$1B 41%

$200M-‐$1B 22%

<$200M 37%

2011


Proceeds per dollar: Follow-On or Bought Deal

PIPE

ATM maximizes proceeds vs. Alternative Offerings

Follow On Fee,

5c Market Discount,

10c

Proceeds to Issuer,

85c

ATM Fee, 3c Market

Discount, 0c

Proceeds to Issuer,

97c

PIPE Fee, 5c Market

Discount, 12c

Cost of Warrants,

5c

Proceeds to Issuer,

78c

ATM


When can ATM be used: §  Anytime except around an 8K filing

§  Not subject to insider trading windows

Indicative volume parameters followed by MLV as % of daily volume of an issuer: n  No sales on flat to down trading day

n  Up to 33% on a day where stock is up less than 2%

n  Up to 50% on a days where stock is up less than 5%

n  As much as 75% of the volume on any given day

n  Typically most of the capital would be raised for an issuer over 5 trading days during the month

How Often Can ATM be Used? For an issuer of more than $75mm in free float there is no limitation on size of ATM filing; below $75mm free float a company is limited to 33% of the free float in any single ATM filing

When the share price is up, an issuer has the ability to expand volume by taking advantage of pent up demand.


n  ATM can also be use to issue Preferred Shares

n  Once issued and outstanding, a series of Preferred Stock can be used to raise additional proceeds at any time through ATM

n  The process for putting a new series of preferred stock in place can be completed within three weeks, is highly cost effective and requires very limited management time (including no road shows).

n  An ideal issuer candidate would have a Market cap > $200M and would have positive cash flow

Attributes of Perpetual Preferred n  Trades on a listed exchange such as the NYSE or AMEX (par is usually $25)

n  Non-convertible and perpetual

n  Callable at par after three years

n  Yield comparable to that of corresponding senior notes

n  No covenants

n  Essentially analogous to a “capped” common

n  No arbitrage/shorting of the common typically associated with a convertible preferred

n  Ongoing financing vehicle that can be accessed for future capital requirements

n  Attractive to retail investors looking for yield

Perpetual Preferred


Why Choose ATM? n  Flexibility. Ability to sell shares at the market price (no discount, no warrants, no upfront fees) at

anytime n  No Price Impact. Historically no/minimal price impact upon implementation of an ATM program,

unlike other shelf takedown products n  Quality of placement. Investors that buy through ATM are “natural buyers” actively seeking to acquire

the stock at the market price (even if at a premium to average daily price) n  Low all-in-cost of issuance. By being opportunistic shares can be sold at a significant premium to the

average trading price over time resulting in less dilution n  Opportunistic Capital Raising. Provides the ability to take advantage of the volatility in the stock or

market vectors n  Public Offering. Unlike certain equity line and registered direct products, as well as PIPEs, ATM is a

public offering, thus not subject to “20% limitation” n  Control. Significantly increases the ability to manage a company’s cash position and fine tune debt/

equity ratios n  Normal Course Reporting. Disclosure of ATM sales done in normal course of quarterly reporting n  Ease of Implementation. Easy to put in place, does not subject issuer to SEC review if effective shelf

registration in place

ATM is another arrow in a Company’s capital raising quiver.


Adam Epstein is a corporate director and a special advisor to small-‐cap boards and investment funds through his firm, Third Creek Advisors, LLC (“TCA”). He is the author of The Perfect Corporate Board: A Handbook for Mastering the Unique Challenges of Small-‐Cap Companies (New York: McGraw Hill, December 2012). Mr. Epstein is lead director of OCZ Technology Group, Inc. and a member of the National Association of Corporate Directors (“NACD”). He is an NACD Board Leadership Fellow, the highest level of credentialing for corporate directors and corporate governance professionals. Mr. Epstein is a regularly featured speaker at national corporate governance forums and investor conferences, and is a small-‐cap features contributor to Directorship magazine. Prior to founding TCA, Mr. Epstein co-‐founded and was a principal of Enable Capital Management, LLC (“ECM”). During his tenure, ECM’s special situation hedge funds invested in more than 500 small-‐cap financings in the United States, the European Union, and Australasia.

CONTACT Adam Epstein Corporate Director and Special Advisor Third Creek Advisors, LLC 415-‐730-‐1915 [email protected]


Growth Capital Investor’s Monthly Webinar SeriesAt‐the‐Market Offerings: What Issuers Need to Know

November 8, 2012Adam J. Epstein

© 2012 Third Creek Advisors, LLC


The Registered Offering Continuum

Clarifying the registered vs. unregistered divide

Differentiating ATMs from other registered offerings

Registered direct offering (“RD”) vs. ATM

Confidentially marketed public offering (“CMPO”) vs. ATM

Fully marketed follow‐on offering vs. ATM

Equity line vs. ATM



Prudent Board Analysis

Is an ATM right for your company

Amount of capital required vs. gating factors Timing of capital needs Volatility of stock Business visibility Shareholder base

Review of peer company ATM data is mandatory

Most common board mistake: functionally outsourcing this decision to third parties



Special Considerations for Selecting ATM Bankers

Process: ATMs have high degree of continuing interaction

Conflicts: unique conflicts of interest can arise in ATM settings

Availability: ATMs aren’t always available for use

Trading: not all ATMs are executed as artfully as others

References: nothing can replace speaking to former clients

Data: investor reaction to ATM announcements speaks volumes

Fee: last, but certainly not least, what will it cost



Negotiating, Announcing & Administering an ATM

Address potential conflicts of interest (e.g., proprietary trading, market making, etc.) in ATM agreement

Pay particular attention to placement procedures & availability provisions in ATM agreement

Communicating an ATM to the Street

3 C’s of ATM administration

Communication Cooperation amongst related parties Compliance




Investment ($B) Deals

0

$1

$2

$3

$4 billion

May June July Aug. Sept. Oct.

48

40 39

44 43

51

Growth Equity Private Placement Activity

Source: PlacementTracker, a service of Sagient Research. September data thru 10/31/12.

Vol. I Issue 8 The Journal of Emerging Growth Company Finance November 5, 2012

Equity Line and ATM Promoters Eye Same Niche

by Joe Gose

The growing appeal of at-the-market offerings among emerging growth companies has introduced more competition into the micro cap fi-nancing market, particularly for investors and banks that provide

structured equity lines – a segment of the market that already is highly com-bative.

But while emerging growth companies have pared the number of equity line agreements they’re inking, the structure continues to appeal to a substan-tial number of issuers that need cash and that often have few other options. In some cases, ATMs have failed to live up to their billing.

“It has been a little bit challenging – there certainly has been competi-tion created by the ATM structure,” said Jason Cohen, a representative with Westlake Village, Calif.-based Financial West Group, which has facilitated five equity line deals with commitments totaling $125 million this year. “But we have found that people have had variable results with that structure and are dissatisfied because they haven’t been able to piece together capital in any predictable pattern.”

To a large degree, ATMs and equity lines provide issuers with the same benefits: They generally allow companies to raise equity in the amount and at the time of their choosing without extensive pre-deal marketing or other sales

SunTrust under SEC Investigation by Teri Buhl

Atlanta-based SunTrust Banks (STI) is under investigation by regula-tors for alleged mortgage fraud against Fannie Mae. Whistleblowers who worked in SunTrust’s residential mortgage underwriting group

filed a whistleblower suit with the Securities and Exchange Commission this spring. After the Washington, D.C. office of the SEC received the complaint a director of the SEC’s Atlanta office and a forensic accountant were assigned to begin an immediate investigation in the bank. Three people involved in the case told Growth Capital Investor interviews with SunTrust employees who worked in the bank’s mortgage unit started in May, along with an inspection of the methods SunTrust used to qualify prime loans sold to Fannie Mae.

SunTrust saw its stock price fall off a cliff in the financial crisis, and subsequent-ly participated in the federal TARP program aimed at shoring up distressed banks. Investors who held the stock valued at $73 a share in October 2007 watched their investment wiped out when it fell to $7 by February 2009. Distressed investors

IN THIS ISSUE SEC’s Hunt for Abnormal Returns

Plows AheadYorkville Advisors case a reminder that hedge funds aren’t the only ones pursuing big alpha ............. 2

October Turns Ghoulish for Growth CompaniesMarket volatility played more tricks than treats on growth companies closing EPPs in October ......3

Modest IPOs, Secondaries Follow Facebook Face PlantLate month revival of emerging growth company initial and secondary public offering filings .......4

ALSO INSIDESEC Accuses Yorkville of Earning Millions from Inflated Fund Values; Spun Fund Keeps Equity Line Focus; Keating BDC Offers Capital to Pre-IPO Issuers; Online Markets Innovator Lupowitz Moves on from DirectMarkets; Rodman Team Moves on to Wall Street Access; Battery Makers Running Low; New Oriental Education Making a Comeback?; other stories and deals of note ..................................... 3

EPP, PIPE & APO MARKET DATAAggregate Year-to-Date Market Activity ............ 15PIPE and Growth EPP League Tables ................. 16International EPP Agents, SPACs and APOs....... 19

See ATMs on page 20

See SunTrust on page 22


November 5, 2012 Copyright © 2012 MarketNexus Media, Inc. 20


efforts. They also have been a capital-raising stopgap during volatile times marked by tight credit.

But data indicate that ATM issuers pocket proceeds more frequently. In fact, a high number of equity line issuers never tap their lines or draw only a small amount of proceeds over a typical 24 to 36-month term.

Over the last 12 months, just seven of the 20 most active equity line investors that have committed to 85 equity lines have actually financed issuers, according to PlacementTracker, a service of Sagient Research. (PlacementTracker at the be-ginning of 2011 started posting draw downs gleaned from company regulatory filings. Such information is frequently delayed between the draw down and disclosure.)

Of the top 10 investors, Lincoln Park Capital entered into 13 equity lines and has provided $6.9 million to issuers, Aspire Capital Fund agreed to five deals and has provided $4.2 million, and Acqua Wellington Asset Management penned 3 agreements and has provided $44.6 million.

Lower Tier PresenceThe proceeds disparity is apparent when comparing

emerging growth companies – those with a market capital-ization of $10 million to $1 billion and a minimum $1 share closing price – with issuers that fall below the $1 share price threshold.

So far this year, investors have committed to providing emerging growth companies with $219.5 million in 13 equi-ty line deals. The transactions feature an average discount of 11.4%, and four issuers have received $6.4 million. On the other hand, investors have committed $638 million to issuers with less than a $1 share price in 62 equity lines priced at an average discount of 12.3%. Of those, only four companies have executed draw downs to raise $1.5 million.

Expectedly, issuers of more seasoned equity lines have banked more cash. Emerging growth companies agreed to 24 equity line transactions totaling $494.5 million in committed funding in all of 2011. Pricing in 21 of the transactions for which information was available represented a 9% discount, and so far 13 issuers have drawn $125.6 million.

Meanwhile, companies with a share price of less than $1 at agreement signed up for $988.6 million in 77 equity lines in 2011. Pricing data available in 73 of the deals worked out to an average discount of 11.7%, and 23 issuers have tapped the lines for $162.2 million.

Emerging growth companies have set up 50 ATM offer-ings this year with a total commitment of $2.5 billion. So far issuers in 18 of the agreements have raised $230 million. Six companies with a share price of less than $1 have agreed to ATMs, and two have raised $61 million.

In 2011, emerging growth companies executed 43 ATM

offerings with an aggregate commitment of $2.2 billion. Issu-ers of all but eight of those offerings have so far raised $628 million. All four ATM issuers with prices of less than $1 a share in 2011 have raised 8.1 million so far, nearly a quarter of the $35 million committed.

What Difference?The migration of emerging growth companies toward

ATMs is partly due to regulations that have created more shelf registration opportunities for companies on national exchang-es, suggested Steven G. Martin, managing member of Aspire Capital, a Chicago-based fund that makes direct investments in publicly traded companies.

Martin sees little difference between the vast majority of equity line structures and ATMs. Most equity lines feature investors that sell an issuer’s shares into the market using for-ward pricing – the price per share is generally based on a for-mula that takes into account a discount to a volume-weighted average price (VWAP) over a number of days after a draw down notice. Investors typically have no investment risk and may decline a draw down if trading volume parameters aren’t met.

Similarly, ATMs feature an agent selling shares into the market on a best-efforts basis for a commission. There’s no obligation for the ATM agent to buy the shares, and the agents have no investment risk.

“I don’t make that big of a distinction between ATMs and traditional equity lines,” Martin said. “Allowing listed companies to file a baby shelf registration statement has giv-en ATMs even more applicability, but in either case you have someone who is selling your stock into the market on your behalf and giving you most of the proceeds without any in-vestment risk.”

While Aspire Capital concentrates primarily on making investments through open market purchases, registered offer-ings and private placements, it also provides principal-based, “firm committed ATM offerings” for what it considers to be higher quality companies, he said.

Instead of forward pricing and volume requirements typical in ATMs and equity lines, Aspire has no volume requirements and employs a pricing mechanism based on the stock’s performance over a number of days prior to the purchase notice. The look-back approach involves more risk, Martin said, as the fund is obligated to buy shares for its account as principal. Aspire Capital typically becomes a large shareholder rather than just a conduit to sell stock into the market, he added. Besides taking real investment risk with each purchase, Aspire Capital generally makes an upfront investment, which other ATM providers won’t do, he said.

ATMs continued from front page


November 5, 2012 Copyright © 2012 MarketNexus Media, Inc. 21


For that reason, Aspire Capital focuses on fundamentals and avoids the issuers that frequently gravitate toward tradi-tional equity lines: very small and thinly traded companies that are desperate for cash. Often such companies want to be able to show the market that they have access to financing, Martin said, but in reality they lack meaningful access to cash from the transaction.

“We don’t believe in the traditional equity line business,” he said. “We don’t believe that equity lines – or ATMs – work for companies that are desperate for money or do not have good business prospects.”

In August, Aspire committed to provide San Diego-based MediciNova (MNOV) up to $20 million over 24 months. Typical of its deals, the purchase price is the lesser of the low-est price of the company’s stock on the date of the draw down notice or the average of the stock’s three lowest closing prices over 12 consecutive trading days ending on the trading day immediately preceding the purchase date.

Aspire initially bought more than 606,000 shares for $1.65 each – the stock’s closing price on Aug. 2 when the

parties agreed to terms – for a total investment of $1 million. MediciNova also paid Aspire an investor fee of more than 363,630 shares. The company’s shares were recently trading around $1.90.

Active equity line investors employing a forward pricing model include Terrapin Opportunity, a Mill Valley, Ca-lif.-based fund that includes former officials from Acqua Wel-lington and equity line placement agent Reedland Capital Partners. The fund has committed $70 million to two issuers over the last three months and generally used a forward pric-ing mechanism similar to Acqua Wellington’s.

In October, Terrapin committed $20 million to St. Paul, Minn.-based EnteroMedics (ETRM) and based the share purchase price on a discount of 4% to 6.8% of the stock’s volume weighted average price over ten trading days following the drawdown notice, contingent upon a threshold price. The shares were trading for $3.90 at announcement and were re-cently trading around $2.85. Reedland Capital affiliate Finan-cial West Group facilitated the deal and is receiving $2,000 per draw down.

Greg CurhanManaging DirectorMLV & Co.

Sara LaFever, Sagient Research

Adam EpsteinPrincipalThird Creek Advisors

This live-streamed 90-minute webcast includes live Q & A, presentation materials and archive access. Complimentary for Growth Capital Investor subscribers • Only $199 for non-subscribers

TO REGISTER: http://growthcapitalist.com/events

Growth Capital Investor Monthly Webinar Series

Panelists:

At-the-Market Offerings: What Issuers Need to KnowNov. 8, 2012 • 2:00 – 3:30 pm EST

Join our expert panel of investment bankers, investors and capital markets advisors as they discuss the benefits and pitfalls of “At-the-Market” or ATM offerings, one of the most effective methods of raising capital available to emerging growth companies today.

Learn from our panel of experts:

• Maximize the flexibility to control the timing and amount of sales, and minimum acceptable price.

• Raise equity opportunistically to precisely match the sources and uses of funds.

• Mitigate volatility by selling during periods of stock price strength and slowing/halting sales during periods of stock price weakness.

• Use the incremental nature of ATM sales to benefit from a rising stock price.

• And much more.



Investment ($B) Deals

0

$1

$2

$3

$4 billion

Apr. May June July Aug. Sept.

49 48

40 39

4441

Growth Capital EPPs 2012


Vol. I Issue 6 The Journal of Emerging Growth Company Finance October 1, 2012

ATMs On the Riseby Joe Gose

Prior to 2008, at-the-market (ATM) offerings were virtually non-existent. But thanks to expanded shelf offering rules and a rough financing market, ATMs are becoming more prevalent as growth companies pursue capital-formation

strategies. The offerings, which are conducted at the company’s request with newly issued shares at market prices, in a short time have become more widely used than equity lines.

This year more than $190 million has been raised of a total potential of over $2 billion in 43 ATM offerings through the end of September by emerging growth companies with market caps from $10 million to $1 billion, according to Placement-Tracker. This year’s ATM deal pace has already matched that of all of 2011, when $628 million was raised by issuers in 43 deals. And while early on real estate invest-ment trusts (REITs) were the predominant ATM issuers, issuers in a broad range of sectors are now employing the offerings, especially life science companies.

Traditionally life science issuers have raised capital around milestones, expect-ing a positive market take on pending news that will lead to higher stock prices and the ability to raise more money at higher valuations, said Todd Wyche, CEO of New York-based Brinson Patrick Securities Corp., a boutique investment bank that specializes in ATMs.

“But we know that milestones get delayed and/or news isn’t received as posi-tively as issuers expected,” Wyche said. “When that happens, the issuers find them-selves with very little capital and over a barrel in having to raise capital … in deal structures that can be onerous and especially dilutive to existing shareholders.”

Oil Exploration Company Weighs Debt Offering Over IPO,

Battles Hedge Fund by Teri Buhl

While Congress and stock market executives wring their hands over the meek pace of IPOs on U.S. exchanges, emerging growth companies with bankable assets are turning to the huge supply of low-cost cap-

ital available from the convertible bond market. One such company, Starboard Resources, an oil and natural gas exploration company, has held off a planned IPO this year in favor for raising additional capital through the debt markets at rock-bottom rates. But a battle among shareholders of a hedge fund that controls the company may derail its growth prospects regardless of its capital access.

San Antonio-based Starboard was created out of the distressed assets of bank-rupt Southern Texas Oil Company (STXX) by hedge fund manager Greg Imbruce

IN THIS ISSUE Regulation A’s Destiny a Big

UnknownSEC silent on promise of expanded size and broad-ened investor eligibility.....................................2

With Rodman & Renshaw Scattered, EPP Banking Biz Up for GrabsSunset of prolific placement agent leaves the PIPE market with a void .................................................3

JP Morgan Snafu Shows Ribotsky Still Acting as NIR Fund ManagerDueling fund valuation reports show former manager still trying to influence LPs ......................................3

ALSO INSIDELifeLock IPO Highlights Keating Shift from Reverse Mergers; Real Estate Capital Redefined; SEC, FINRA Bust Algo Busters; SpongeTech Inquiry Leads to Another Sanction; Hedge Fund Complication at Heart of Western Pacific Action; B. Riley & Co. Places EMCORE CMPO; $25.7M Registered Direct from Insmed; Spectrum Group Offers $25.5M in Rights, Stock; other stories and deals of note ....................4

EPP, PIPE & APO MARKET DATAAggregate Year-to-Date Market Activity ...............11PIPE and Growth EPP League Tables ...................12International EPP Agents, SPACs and APOs .........15

See ATMs on page 16

See Oil on page 17Conference Manual Page 32

http://www.sec.gov/divisions/marketreg/tmjobsact-researchanalystsfaq.htm

October 1, 2012 Copyright © 2012 MarketNexus Media, Inc. 16


Indeed, traditional PIPE costs can total 30% when factoring in placement agent fees, a steep price discount to attract inves-tors, and warrants, he said. Thus, it’s understandable why life science companies as well as growth companies in general are putting ATM programs in place, he added. ATM agents that sell a growth company’s shares into the market generally charge com-missions of 2% to 3%.

Boards of directors, however, frequently don’t know how to comparison shop between ATM programs and other financing options once an issuer has an effective shelf, said Adam Epstein, founding principal of Danville, Calif.-based Third Creek Advi-sors, a provider of corporate finance and capital markets guid-ance to small cap companies.

In particular, Epstein said, boards may not appreciate how much money a company really needs or whether trading volume is sufficient to raise capital in a timely manner. Boards also need to consider what kind of deal is going to cause the least amount of dilution: Because ATM issuers sell shares off a shelf, they’re also eligible for registered direct offerings and confidentially mar-keted public offerings (CMPO), he added.

Lastly, he said, boards need to perform due diligence on stock price performance during prior ATM financings handled by banks to see if there are any conflicts of interest.

“I don’t think there’s anything wrong with ATMs in the-ory – I think it’s a great idea,” Epstein acknowledged. “There are just a few issues that boards need to appropriately take into account.”

Expanding Slice of EPP MarketThe rapid growth of ATM issuance is clear evidence that

EGC management teams consider ATMs a great idea, too. The rising number of growth company ATMs continues a decidedly upward trend from 2008, when such companies put just four programs in place.

“One of the factors that has been driving the adoption of at-the-market offerings is that CFOs and management teams want to have more tools in their financing toolkit; they don’t want to be overly reliant on any one way to raise capital,” said Wy-che, whose firm, among other engagements, is acting as exclusive agent for Opexa Therapeutics’ (OPXA) $2.6 million ATM. “As time goes on, more companies are hearing about ATMs and about the success that peers are having in raising capital, and so they’re putting programs into place.”

It appears that ATMs are putting a dent in equity line deals, too. While equity line activity has generally been volatile from year to year, issuers in 2012 have so far put 10 equity lines in place totaling $157 million. In all of 2011, companies agreed to 24 equity lines valued at $495 million.

“A number of issuers we’re talking to have either replaced their equity lines with ATMs or are talking about doing it,” Wy-che said.

Broadening AppealWhat’s more, growth companies from a variety of sectors are

taking up ATM programs. In 2009 more than half of the issuers were real estate investment trusts (REITs). But in 2011, biotech and pharmaceutical companies were behind 15 of the 43 ATMs, while REITs launched seven deals.

So far this year, biotech and pharmaceutical issuers have ac-counted for 14 of the 43 agreements and REITs have announced 12. Issuers in the oil and gas, healthcare products and financial sectors are also well represented among ATM users. On the other hand, REITs continue to use the vehicle with the most frequency in deals involving issuers with market caps exceeding $1 billion. So far this year, they’ve accounted for 29 of the 42 large cap ATMs.

Another difference between small and large companies using ATMs is showing up in the cost of capital. On average this year, growth companies are paying commissions of 2.7% while issuers with market caps exceeding $1 billion are paying 1.8%.

Also this year, share prices of ATM issuers have declined an average of nearly 2% three days following the announcement of an agreement. Biotech and pharmaceutical companies saw their share prices slide about 3% three days following an announce-ment, while REIT shares were higher by 1.1%.

By comparison, stock prices at issuers that have completed CMPO and registered direct deals this year have dipped 2.5% three days following the deals. Biotech and pharmaceutical com-pany shares have ticked down an average 1.3% three days after

ATMs continued from front page

ATM Growth

Investment ($M) Deals

0

$10

$20

$30

$40

$50

$60

$70 million

2008 2009 2010 2011 2012*

4

14

32

43 43



October 1, 2012 Copyright © 2012 MarketNexus Media, Inc. 17


such transactions. (The CMPO/registered direct three-day per-formance calculation excluded a deal issued by Rosetta Genom-ics (ROSG), which saw its shares skyrocket a dataset-skewing 240%.) CMPO and registered direct issuers paid placements agents about 5.8%, on average.

West Plains, N.Y.-based Acadia Realty Trust (AKR) has had one of the most successful capital-raising campaigns of any issuer that has commenced an ATM program in 2012. The com-pany announced a $75 million offering in late January when its shares were trading for $21.12, and its shares were 20.5% higher on Sept. 24. The shopping center REIT raised $65.7 million by the end of the second quarter in drawdowns that had an esti-mated average price of $22.18 a share. In August, Acadia Realty announced a $125 million ATM offering.

The REIT agreed to a 2% fee in both transactions, which feature Bank of America Merrill Lynch, Barclays Capi-tal, Deutsche Bank Securities and Wells Fargo Securities as

co-agents. Goldman Sachs & Co. has been added to the agent roster for the second deal.

Cambridge, Mass.-based Zalicus (ZLCS), meanwhile, has fulfilled two ATM offerings of $15 million each this year. But the stock price of the developer of pain and inflammation drugs plummeted in mid-September when it decided to scrap its rheu-matoid arthritis therapy following poor clinical results.

Zalicus announced its first program in early January when its stock was trading for $1.27 a share, and it sold stock through late March for an average price of $1.07 a share. The issuer launched its second ATM offering in June, when its stock was trading for $1.44 a share, and received an estimated average price of $1.15 a share for its stock. Its shares were recently trading around 82 cents.

Exclusive selling agent Wedbush PacGrow Life Sciences earned a fee of 2.5% in the first transaction and a fee of 2% in the second.

of Stamford-based AYSM Energy Investments. Starboard hired Aegis Capital to underwrite its IPO this year but later terminated the engagement after management decided it needed to explore more drilling from its existing wells and acquire more oil and gas contracts to build up the value of the company before it attempted an initial offering. CFO Eric Alfuth, who worked on debt offer-ings with AIG Investments, tapped Knight Capital to do a 144-A high yield senior secured bond offering at 12% interest with a three-to-five year maturity. Warrants would include a 35% equity call-back if the company went public before the bond matured.

The company, which is owned by investors in Imbruce’s hedge fund, currently has only $2 million of debt. Starboard’s board is weighing the risk of taking on secured debt to build out the company’s balance sheet over selling the firm to another oil and gas company at a smaller valuation. The controlling investor group could recover about 5 times their $13 million investment if they sold Starboard on the private markets for around its current value of $60 million. But the goal is to get a higher return by building up the firm for a $300 million IPO in a year and using proceeds to pay off the $100 million high yield debt. To IPO now the firm would need to overcome investor sentiment in a market worried about regulatory uncertainty in oil and gas in an election year.

Last year another exploration and production firm, coin-cidentally headquartered across the street from Starboard, used the debt markets to raise $250 million in capital – an unusually large offering for an E&P company. (PlacementTracker indicates only two 144-A convertible debt offerings from E&P companies in the past 12 months larger than $200M.) In December 2011 Global Hunter Securities issued a Strong Buy on Woodbine Acquisition Corp., which offered a five-year bond with a 12% coupon and warrants that converted to 70% of the equity if the

company sold before the bond matured. The bond and warrants were trading for $98.75 on December 5, 2011 when Global Hunter issued a price target of $182.

The market ate up Woodbine’s bonds, which are currently trading at $107 for the bond and $47.50 for the warrants, for a total of $154.50. Global Hunter is telling investors Woodbine is expected sell in 2013 because it’s meeting its production and EB-ITA targets. Starboard’s management has been watching Wood-bine’s success with hopes to now use the debt markets to achieve similar results by borrowing to build and then cashing out with a sale or IPO.

Starboard’s entry into the public markets has been stalled by a battle within the board when they learned the hedge fund man-ager, Imbruce, who had helped revive the company, was accused of fraud and breach of fiduciary duties by his largest investor – an Irish family fund called SOS Ventures. Imbruce originally acquired the shell of STXX by slipping in front of another hedge fund, Summerline, via a $1.5 million Debtor-in-Possession or “DIP” loan during Southern Texas Oil Company’s bankruptcy proceeding in December 2009. He then used his investors’ mon-ey to buy more distressed oil and gas leases along with royalty rights and founded Impetro Resources in January 2010. Impetro was sold into Starboard.

What Imbruce didn’t tell investors was he had moved some of the oil and gas leases into another entity he solely owned out-side of the fund, basically cutting his investors out of profits from the assets if they struck oil. The scheme was uncovered when the investors’ lawyer found legal documents showing Imbruce was trying to sell their equity interest on the cheap for $18.5 million to Summerline, who would then get a large put option that could bankrupt Starboard if it didn’t IPO.

Oil continued from front page


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