Monthly	  Webinar	  Series	  	  presents	  	  At-­‐the-­‐Market	  Offerings:	  What	  Issuers	  Need	  to	  Know	  	  Nove...
Thank	  you	  for	  participating	  in	  “At-­‐the-­‐Market	  Offerings:	  What	  Issuers	  Need	  to	  Know.”	  This	  ma...
SPEAKER	  BIOS	  AND	  CONTACT	  INFORMATION	  	  	  	  Sara	  LaFever	  is	  an	  account	  manager	  at	  Sagient	  Rese...
SSaaggiieenntt RReesseeaarrcchh SSyysstteemmssSSaarraa LLaaFFeevveerrConference Manual Page 3
102264892186157295576ATM	  (At	  the	  Market)	  OfferingCommon	  StockCommon	  Stock	  -­‐	  CMPO/Overnight	  OfferingCom...
}  Only 1 ATM in2006}  Popularity rose2009}  Exploded in 2010}  Continues toexpand 020406080100120ATMs2012	  (YTD)2011...
REITS HealthcareEnergy FinancialIndustrial Other  Healthcare includes Biotech & Pharma  Energy includes Oil & Gas, Pipelin...
*Data from 2009-presentConference Manual Page 7
0102030405060708090718333444922 18Market	  CapMarket	  CapØ Most ATMSissuers are in100M-500MrangeConference Manual Page 8
}  ATMs YTD:102}  CMPOs YTD: 89}  CMPOs tend to bepopular in thehealthcare sector*Data from 2009-presentConference Manu...
*Data from 2009-presentAAvveerraaggee PPllaacceemmeennttAAggeenntt FFeeeessAAvveerraaggee SSuumm ooffGGrroossss PPrrooccee...
Ranking Placement Agent Name Deal Count11.. BBaannkk ooff AAmmeerriiccaa MMeerrrriillll LLyynncchh5022.. CCaannttoorr FFii...
 	  	  Greg	  Curhan	  is	  Managing	  Director	  and	  Head	  of	  Technology	  Investment	  Banking	  at	  MLV	  &	  Co....
Proprietary and ConfidentialOctober 2012Raising capital more efficientlyAt-the-Market Issuance (“ATM”)Conference Manual Pa...
DisclaimerThe information contained herein is confidential and is intended solely for the use of theaddressee(s). It shall...
What is At-the-Market Issuance?n  At-the-Market Issuance (“ATM”) enables an S3 eligible issuer, who’s share are listed on...
Benefits of ATM issuance include:n  Cost effectiveness of selling shares at the market pricen  Access to equity capital ...
ATM History – Increasing Popularityn  During the financial crisis ATM became a primary source of capital for financialins...
>$1B45%$500M	  -­‐$1B13%$250M	  -­‐$500M13%<$250M29%2012	  Thru	  Q3ATM History: Growing Market ShareSources: Dealogic, Th...
Proceeds per dollar:Follow-On orBought DealPIPEATM maximizes proceeds vs. Alternative OfferingsFollowOn Fee,5c MarketDisco...
When can ATM be used:§  Anytime except around an 8K filing§  Not subject to insider trading windowsIndicative volume par...
n  ATM can also be use to issue Preferred Sharesn  Once issued and outstanding, a series of Preferred Stock can be used ...
Why Choose ATM?n  Flexibility. Ability to sell shares at the market price (no discount, no warrants, no upfront fees) ata...
 	  Adam	  Epstein	  is	  a	  corporate	  director	  and	  a	  special	  advisor	  to	  small-­‐cap	  boards	  and	  inves...
Growth Capital Investor’s Monthly Webinar SeriesAt‐the‐Market Offerings: What Issuers Need to KnowNovember 8, 2012Adam J. ...
The Registered Offering Continuum Clarifying the registered vs. unregistered divide Differentiating ATMs from other regi...
Prudent Board Analysis  Is an ATM right for your company Amount of capital required vs. gating factors Timing of capita...
Special Considerations for Selecting ATM Bankers Process: ATMs have high degree of continuing interaction Conflicts:  un...
Negotiating, Announcing & Administering an ATM Address potential conflicts of interest (e.g., proprietary trading, market...
Growth Capital InvestorInvestment ($B) Deals0$1$2$3$4 billionMay June July Aug. Sept. Oct.4840 3944 4351Growth Equity Priv...
November 5, 2012	 Copyright © 2012 MarketNexus Media, Inc.	 20Growth Capital Investorefforts. They also have been a capita...
November 5, 2012	 Copyright © 2012 MarketNexus Media, Inc.	 21Growth Capital InvestorFor that reason, Aspire Capital focus...
Growth Capital InvestorInvestment ($B) Deals0$1$2$3$4 billionApr. May June July Aug. Sept.49 4840 394441Growth Capital EPP...
October 1, 2012	 Copyright © 2012 MarketNexus Media, Inc.	 16Growth Capital InvestorIndeed, traditional PIPE costs can tot...
October 1, 2012	 Copyright © 2012 MarketNexus Media, Inc.	 17Growth Capital Investorsuch transactions. (The CMPO/registere...
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ATM Offerings: What Issuers Need to Know

  1. 1. 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
  2. 2. 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    Online  With  Streaming  Audio  •Go  to  •On  the  “Join  a  Meeting”  side  of  the  login  page,  enter  meeting  room:  mnm2  •Enter  your  unique  PIN  (same  as  the  audio  PIN  you  received).  •Click  on  “Join  Meeting”  to  access  the  presentation.    Optional  Telephone  Access  If  you  have  trouble  streaming  the  sound  through  your  computer,  please  follow  these  instructions  to  listen  by  phone:    •Dial  1-­‐  866-­‐953-­‐3919  about  5-­‐10  minutes  before  the  start  of  the  conference.    •Enter  your  unique  PIN  (sent  in  your  e-­‐mail  confirmation).  •You  will  hear  music  on  hold  until  the  conference  has  started  or  be  connected  directly  if  it  has  already  begun.  •If  you  have  trouble  with  your  PIN  stay  on  the  line  and  an  operator  will  assist  you.  •If  you  are  using  a  speakerphone,  put  the  phone  on  MUTE  for  the  best  sound  quality.  •If  you  are  disconnected  at  any  point,  just  repeat  the  processes  above.      PLEASE  NOTE:  Only  one  dial  in  and  one  log  on  per  PIN  are  allowed.      If  you  have  problems  accessing  the  webinar,  please  call  877-­‐297-­‐2901.    HOW  TO  SUBMIT  QUESTIONS    Questions  may  be  submitted  at  any  time  during  the  call  using  the  chat  function  on    the  web  interface  in  the  lower  left  corner  of  your  screen.  Just  type  in  your  question  and  send  it  to  “Q&A  session”  in  the  drop-­‐down  menu.    Conference Manual Page 1
  3. 3. 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                          Conference Manual Page 2
  4. 4. SSaaggiieenntt RReesseeaarrcchh SSyysstteemmssSSaarraa LLaaFFeevveerrConference Manual Page 3
  5. 5. 102264892186157295576ATM  (At  the  Market)  OfferingCommon  StockCommon  Stock  -­‐  CMPO/Overnight  OfferingCommon  Stock  -­‐  Rights  Offering/ResetCommon  Stock  -­‐  Shelf  Sale  (Registered  Direct)Convertible  -­‐  FixedConvertible  -­‐  Floating/Reset/Company  InstallmentNon-­‐Convertible  Debt/Preferred  StockStructured  Equity  LineConference Manual Page 4
  6. 6. }  Only 1 ATM in2006}  Popularity rose2009}  Exploded in 2010}  Continues toexpand 020406080100120ATMs2012  (YTD)201120102009*Date range based on closing dateConference Manual Page 5
  7. 7. REITS HealthcareEnergy FinancialIndustrial 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-presentConference Manual Page 6
  8. 8. *Data from 2009-presentConference Manual Page 7
  9. 9. 0102030405060708090718333444922 18Market  CapMarket  CapØ Most ATMSissuers are in100M-500MrangeConference Manual Page 8
  10. 10. }  ATMs YTD:102}  CMPOs YTD: 89}  CMPOs tend to bepopular in thehealthcare sector*Data from 2009-presentConference Manual Page 9
  11. 11. *Data from 2009-presentAAvveerraaggee PPllaacceemmeennttAAggeenntt FFeeeessAAvveerraaggee SSuumm ooffGGrroossss PPrroocceeeeddssAAvveerraaggeeCCoommmmiittmmeennttAAmmoouunnttATM 2.54% $46,741,445.65 $140,109,207CMPO 5.65% $48,575,205.68 N/AConference Manual Page 10
  12. 12. Ranking Placement Agent Name Deal Count11.. BBaannkk ooff AAmmeerriiccaa MMeerrrriillll LLyynncchh5022.. CCaannttoorr FFiittzzggeerraalldd && CCoommppaannyy4733.. MMLLVV && CCoo.. LLLLCC 3844.. WWeellllss FFaarrggoo SSeeccuurriittiieess,, LLLLCC3455.. DDeeuuttsscchhee BBaannkk SSeeccuurriittiieess,, IInncc..2566.. CCiittiiggrroouupp GGlloobbaall MMaarrkkeettss,, IInncc..2477.. JJ..PP.. MMoorrggaann CChhaassee && CCoo.. 2188.. MMoorrggaann SSttaannlleeyy 2099.. KKeeyyBBaanncc CCaappiittaall MMaarrkkeettss191100.. UUBBSS SSeeccuurriittiieess LLLLCC17*Data from 2009-presentConference Manual Page 11
  13. 13.      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        Conference Manual Page 12
  14. 14. Proprietary and ConfidentialOctober 2012Raising capital more efficientlyAt-the-Market Issuance (“ATM”)Conference Manual Page 13
  15. 15. DisclaimerThe information contained herein is confidential and is intended solely for the use of theaddressee(s). It shall not be construed as a  recommendation to buy or sell any security and/orparticipate in an At-the-Market-Issuance.  Any external companies information provided herein isused as an example only and is not to be considered as indicative of the results achieved by yourcompany. Any unauthorized access, use, reproduction, disclosure or dissemination is prohibited.  The information provided shall not be disseminated to another party without the prior writtenconsent 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, misleadingor altered information contained herein.  Conference Manual Page 14
  16. 16. What is At-the-Market Issuance?n  At-the-Market Issuance (“ATM”) enables an S3 eligible issuer, who’s share are listed on anational exchange (NASDAQ, NYSE, etc), to opportunistically sell equity at its discretion, atthe prevailing market priceq  The Company dictates the timing and price at which it raises capitalq  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 warrantsn  Seamless implementation of ATM with S-3 Shelf Filingq  Up to a maximum dollar amount of stock sales; ATM agreement effective for the life of the shelf registrationq  However, ATM does not preclude any other capital raising alternatives (no impact on shelf capacity unless it isused)q  This is a tool to be used at will, to expand your capital access alternativesq  ATM reported retroactively in 10-Qsn  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 flowor macro events)q  Service Working Capital Needs: ATM can be tailored to raise capital on an as needed basis to maintain treasury andmanage the balance sheetq  Temper financing risk /downside associated with punitive deal structuresq  Increase liquidity and exposure, cross blocks with institutions seeking to build up a positionConference Manual Page 15
  17. 17. Benefits of ATM issuance include:n  Cost effectiveness of selling shares at the market pricen  Access to equity capital without impact on pricing of a traditional offeringn  Can be done discretely, raising significant proceeds over timen  At all times, issuer decides timing, minimum price, volumen  Highly streamlined and cost effective executionn  Once ATM is in place, the company can use it opportunistically at times of positivestock price movementn  The issuer is never required to use it and is never precluded from doing anything elseBenefits of At-The-Market (ATM)ATM is a capital raising methodology which provides an issuer the ability to sell publiclytraded shares – common and/or preferred - at the prevailing market price at the time andamount of its choosingConference Manual Page 16
  18. 18. ATM History – Increasing Popularityn  During the financial crisis ATM became a primary source of capital for financialinstitutionsn  In 2009, one-third of the major TARP recipients used ATM to recapitalizen  Bank of America raised approximately $12.5B for itself through ATM over a 2-weekperiod in May 2009n  Other users included Fifth Third Bancorp, KeyCorp, Commerce Bancshares, E Trade,PNC, SunTrust, and Hartfordn  Approximately 50 REITs have used ATM – a majority of the sector. Many have usedATM multiple timesn  Other capital intensive industries such as metals & mining and biotech are frequentlyusing ATMn  ATM is a highly efficient means of raising capital for a business within any industryConference Manual Page 17
  19. 19. >$1B45%$500M  -­‐$1B13%$250M  -­‐$500M13%<$250M29%2012  Thru  Q3ATM History: Growing Market ShareSources: Dealogic, Thompson Reuters, SEC FilingsData as of 10/1/2012Year Number of ATM Deals2005 102006 232007 142008 582009 1192010 1042011 1232012 thru Q3 104Total 555Follow  On,  601 Follow  On,  534Follow  On,  435Follow  On,  457ATM,  119 ATM,  104 ATM,  123 ATM,  10401002003004005006007002009 2010 2011 2012  thru  Q3Number  of  DealsATM  Offering  TrendsATM 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  Conference Manual Page 18
  20. 20. Proceeds per dollar:Follow-On orBought DealPIPEATM maximizes proceeds vs. Alternative OfferingsFollowOn Fee,5c MarketDiscount,10cProceedsto Issuer,85cATM Fee,3c MarketDiscount,0cProceedsto Issuer,97cPIPEFee, 5c MarketDiscount,12cCost ofWarrants,5cProceedsto Issuer,78cATMConference Manual Page 19
  21. 21. When can ATM be used:§  Anytime except around an 8K filing§  Not subject to insider trading windowsIndicative volume parameters followed by MLV as % of daily volume of anissuer:n  No sales on flat to down trading dayn  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 dayn  Typically most of the capital would be raised for an issuer over 5 trading days during the monthHow 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 filingWhen the share price is up, an issuer has the ability to expandvolume by taking advantage of pent up demand.Conference Manual Page 20
  22. 22. n  ATM can also be use to issue Preferred Sharesn  Once issued and outstanding, a series of Preferred Stock can be used to raise additional proceeds at any timethrough ATMn  The process for putting a new series of preferred stock in place can be completed within three weeks, is highlycost 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 flowAttributes of Perpetual Preferredn  Trades on a listed exchange such as the NYSE or AMEX (par is usually $25)n  Non-convertible and perpetualn  Callable at par after three yearsn  Yield comparable to that of corresponding senior notesn  No covenantsn  Essentially analogous to a “capped” commonn  No arbitrage/shorting of the common typically associated with a convertible preferredn  Ongoing financing vehicle that can be accessed for future capital requirementsn  Attractive to retail investors looking for yieldPerpetual PreferredConference Manual Page 21
  23. 23. Why Choose ATM?n  Flexibility. Ability to sell shares at the market price (no discount, no warrants, no upfront fees) atanytimen  No Price Impact. Historically no/minimal price impact upon implementation of an ATM program,unlike other shelf takedown productsn  Quality of placement. Investors that buy through ATM are “natural buyers” actively seeking to acquirethe 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 theaverage trading price over time resulting in less dilution      n  Opportunistic Capital Raising. Provides the ability to take advantage of the volatility in the stock ormarket vectorsn  Public Offering. Unlike certain equity line and registered direct products, as well as PIPEs, ATM is apublic 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 ratiosn  Normal Course Reporting. Disclosure of ATM sales done in normal course of quarterly reportingn  Ease of Implementation. Easy to put in place, does not subject issuer to SEC review if effective shelfregistration in placeATM is another arrow in a Company’s capital raising quiver.Conference Manual Page 22
  24. 24.    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      Conference Manual Page 23
  25. 25. Growth Capital Investor’s Monthly Webinar SeriesAt‐the‐Market Offerings: What Issuers Need to KnowNovember 8, 2012Adam J. Epstein© 2012 Third Creek Advisors, LLCConference Manual Page 24
  26. 26. 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© 2012 Third Creek Advisors, LLCConference Manual Page 25
  27. 27. 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© 2012 Third Creek Advisors, LLCConference Manual Page 26
  28. 28. 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© 2012 Third Creek Advisors, LLCConference Manual Page 27
  29. 29. 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© 2012 Third Creek Advisors, LLCConference Manual Page 28
  30. 30. Growth Capital InvestorInvestment ($B) Deals0$1$2$3$4 billionMay June July Aug. Sept. Oct.4840 3944 4351Growth Equity Private Placement ActivitySource: 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, 2012Equity Line andATMPromoters Eye Same Nicheby Joe GoseThe growing appeal of at-the-market offerings among emerging growthcompanies has introduced more competition into the micro cap fi-nancing market, particularly for investors and banks that providestructured equity lines – a segment of the market that already is highly com-bative.But while emerging growth companies have pared the number of equityline 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. Insome 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 withWestlake Village, Calif.-based Financial West Group, which has facilitatedfive equity line deals with commitments totaling $125 million this year. “Butwe have found that people have had variable results with that structure andare dissatisfied because they haven’t been able to piece together capital in anypredictable pattern.”To a large degree, ATMs and equity lines provide issuers with the samebenefits: They generally allow companies to raise equity in the amount and atthe time of their choosing without extensive pre-deal marketing or other salesSunTrust under SEC Investigationby Teri BuhlAtlanta-based SunTrust Banks (STI) is under investigation by regula-tors for alleged mortgage fraud against Fannie Mae. Whistleblowerswho worked in SunTrust’s residential mortgage underwriting groupfiled a whistleblower suit with the Securities and Exchange Commission thisspring. After the Washington, D.C. office of the SEC received the complainta director of the SEC’s Atlanta office and a forensic accountant were assignedto begin an immediate investigation in the bank. Three people involved inthe case told Growth Capital Investor interviews with SunTrust employees whoworked in the bank’s mortgage unit started in May, along with an inspection ofthe 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 theirinvestment wiped out when it fell to $7 by February 2009. Distressed investorsIN THIS ISSUESEC’s Hunt for Abnormal ReturnsPlows AheadYorkvilleAdvisorscaseareminderthathedgefundsaren’t the only ones pursuing big alpha..............2October Turns Ghoulish for GrowthCompaniesMarket volatility played more tricks than treats ongrowth companies closing EPPs in October.......3Modest IPOs, Secondaries FollowFacebook Face PlantLate month revival of emerging growth companyinitial and secondary public offering filings........4ALSO INSIDESEC Accuses Yorkville of Earning Millions fromInflated FundValues;Spun Fund Keeps Equity LineFocus;KeatingBDCOffersCapitaltoPre-IPOIssuers;OnlineMarketsInnovatorLupowitzMovesonfromDirectMarkets; Rodman Team Moves on to WallStreet Access; Battery Makers Running Low; NewOriental Education Making a Comeback?; otherstories and deals of note......................................3EPP, PIPE & APO MARKET DATAAggregateYear-to-Date MarketActivity.............15PIPE and Growth EPP LeagueTables..................16International EPPAgents,SPACs andAPOs.......19See ATMs on page 20See SunTrust on page 22Conference Manual Page 29
  31. 31. November 5, 2012 Copyright © 2012 MarketNexus Media, Inc. 20Growth Capital Investorefforts. They also have been a capital-raising stopgap duringvolatile times marked by tight credit.But data indicate that ATM issuers pocket proceeds morefrequently. In fact, a high number of equity line issuers nevertap their lines or draw only a small amount of proceeds over atypical 24 to 36-month term.Over the last 12 months, just seven of the 20 most activeequity line investors that have committed to 85 equity lineshave actually financed issuers, according to PlacementTracker,a service of Sagient Research. (PlacementTracker at the be-ginning of 2011 started posting draw downs gleaned fromcompany regulatory filings. Such information is frequentlydelayed between the draw down and disclosure.)Of the top 10 investors, Lincoln Park Capital enteredinto 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 Managementpenned 3 agreements and has provided $44.6 million.Lower Tier PresenceThe proceeds disparity is apparent when comparingemerging growth companies – those with a market capital-ization of $10 million to $1 billion and a minimum $1 shareclosing price – with issuers that fall below the $1 share pricethreshold.So far this year, investors have committed to providingemerging growth companies with $219.5 million in 13 equi-ty line deals. The transactions feature an average discount of11.4%, and four issuers have received $6.4 million. On theother hand, investors have committed $638 million to issuerswith less than a $1 share price in 62 equity lines priced at anaverage discount of 12.3%. Of those, only four companieshave executed draw downs to raise $1.5 million.Expectedly, issuers of more seasoned equity lines havebanked more cash. Emerging growth companies agreed to 24equity line transactions totaling $494.5 million in committedfunding in all of 2011. Pricing in 21 of the transactions forwhich 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 $1at agreement signed up for $988.6 million in 77 equity linesin 2011. Pricing data available in 73 of the deals worked outto an average discount of 11.7%, and 23 issuers have tappedthe 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 farissuers in 18 of the agreements have raised $230 million. Sixcompanies with a share price of less than $1 have agreed toATMs, and two have raised $61 million.In 2011, emerging growth companies executed 43 ATMofferings with an aggregate commitment of $2.2 billion. Issu-ers of all but eight of those offerings have so far raised $628million. All four ATM issuers with prices of less than $1 ashare in 2011 have raised 8.1 million so far, nearly a quarterof the $35 million committed.What Difference?The migration of emerging growth companies towardATMs is partly due to regulations that have created more shelfregistration opportunities for companies on national exchang-es, suggested Steven G. Martin, managing member of AspireCapital, a Chicago-based fund that makes direct investmentsin publicly traded companies.Martin sees little difference between the vast majority ofequity line structures and ATMs. Most equity lines featureinvestors 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-weightedaverage price (VWAP) over a number of days after a drawdown notice. Investors typically have no investment risk andmay decline a draw down if trading volume parameters aren’tmet.Similarly, ATMs feature an agent selling shares into themarket on a best-efforts basis for a commission. There’s noobligation for the ATM agent to buy the shares, and theagents have no investment risk.“I don’t make that big of a distinction between ATMsand traditional equity lines,” Martin said. “Allowing listedcompanies to file a baby shelf registration statement has giv-en ATMs even more applicability, but in either case you havesomeone who is selling your stock into the market on yourbehalf and giving you most of the proceeds without any in-vestment risk.”While Aspire Capital concentrates primarily on makinginvestments through open market purchases, registered offer-ings and private placements, it also provides principal-based,“firm committed ATM offerings” for what it considers to behigher quality companies, he said.Instead of forward pricing and volume requirementstypical in ATMs and equity lines, Aspire has no volumerequirements and employs a pricing mechanism based onthe stock’s performance over a number of days prior to thepurchase notice. The look-back approach involves morerisk, Martin said, as the fund is obligated to buy shares forits account as principal. Aspire Capital typically becomesa large shareholder rather than just a conduit to sell stockinto the market, he added. Besides taking real investmentrisk with each purchase, Aspire Capital generally makes anupfront investment, which other ATM providers won’t do,he said.ATMs continued from front pageConference Manual Page 30
  32. 32. November 5, 2012 Copyright © 2012 MarketNexus Media, Inc. 21Growth Capital InvestorFor that reason, Aspire Capital focuses on fundamentalsand avoids the issuers that frequently gravitate toward tradi-tional equity lines: very small and thinly traded companiesthat are desperate for cash. Often such companies want to beable to show the market that they have access to financing,Martin said, but in reality they lack meaningful access to cashfrom the transaction.“We don’t believe in the traditional equity line business,”he said. “We don’t believe that equity lines – or ATMs – workfor companies that are desperate for money or do not havegood business prospects.”In August, Aspire committed to provide San Diego-basedMediciNova (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 downnotice or the average of the stock’s three lowest closing pricesover 12 consecutive trading days ending on the trading dayimmediately 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 theparties agreed to terms – for a total investment of $1 million.MediciNova also paid Aspire an investor fee of more than363,630 shares. The company’s shares were recently tradingaround $1.90.Active equity line investors employing a forward pricingmodel include Terrapin Opportunity, a Mill Valley, Ca-lif.-based fund that includes former officials from Acqua Wel-lington and equity line placement agent Reedland CapitalPartners. The fund has committed $70 million to two issuersover 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 sharepurchase price on a discount of 4% to 6.8% of the stock’svolume weighted average price over ten trading days followingthe drawdown notice, contingent upon a threshold price. Theshares 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 $2,000per draw down. Greg CurhanManaging DirectorMLV & Co.Sara LaFever,Sagient ResearchAdam EpsteinPrincipalThird Creek AdvisorsThis live-streamed 90-minute webcast includes live Q & A, presentation materials and archive access.Complimentary for Growth Capital Investor subscribers • Only $199 for non-subscribersTO REGISTER: Capital Investor Monthly Webinar SeriesPanelists:At-the-Market Offerings: What Issuers Need to KnowNov. 8, 2012 • 2:00 – 3:30 pm ESTJoin our expert panel of investment bankers, investors and capital markets advisors as they discuss the benefitsand pitfalls of “At-the-Market” or ATM offerings, one of the most effective methods of raising capital availableto emerging growth companies today.Learn from our panel of experts:• Maximize the flexibility to control the timing andamount of sales, and minimum acceptable price.• Raise equity opportunistically to precisely matchthe sources and uses of funds.• Mitigate volatility by selling during periods of stockprice strength and slowing/halting sales duringperiods of stock price weakness.• Use the incremental nature of ATM sales to benefitfrom a rising stock price.• And much more.Conference Manual Page 31
  33. 33. Growth Capital InvestorInvestment ($B) Deals0$1$2$3$4 billionApr. May June July Aug. Sept.49 4840 394441Growth Capital EPPs 2012Source: PlacementTracker, a service of Sagient Research.September data thru 9/28/12.Vol. I Issue 6 The Journal of Emerging Growth Company Finance October 1, 2012ATMs On the Riseby Joe GosePrior to 2008, at-the-market (ATM) offerings were virtually non-existent. Butthanks to expanded shelf offering rules and a rough financing market, ATMsare becoming more prevalent as growth companies pursue capital-formationstrategies. The offerings, which are conducted at the company’s request with newlyissued shares at market prices, in a short time have become more widely used thanequity 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 growthcompanies 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 ofsectors 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 andthe ability to raise more money at higher valuations, said Todd Wyche, CEO ofNew York-based Brinson Patrick Securities Corp., a boutique investment bankthat 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 dealstructures that can be onerous and especially dilutive to existing shareholders.”Oil Exploration CompanyWeighs Debt Offering Over IPO,Battles Hedge Fundby Teri BuhlWhile Congress and stock market executives wring their hands over themeek pace of IPOs on U.S. exchanges, emerging growth companieswith bankable assets are turning to the huge supply of low-cost cap-ital available from the convertible bond market. One such company, StarboardResources, an oil and natural gas exploration company, has held off a plannedIPO this year in favor for raising additional capital through the debt markets atrock-bottom rates. But a battle among shareholders of a hedge fund that controlsthe 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 ImbruceINTHIS ISSUERegulation A’s Destiny a BigUnknownSECsilentonpromiseofexpandedsizeandbroad-ened investor eligibility.....................................2With Rodman & Renshaw Scattered,EPP Banking Biz Up for GrabsSunset of prolific placement agent leaves the PIPEmarket with a void..................................................3JP Morgan Snafu Shows RibotskyStill Acting as NIR Fund ManagerDuelingfundvaluationreportsshowformermanagerstill trying to influence LPs.......................................3ALSO INSIDELifeLock IPO Highlights Keating Shift from ReverseMergers;Real Estate Capital Redefined;SEC,FINRABust Algo Busters; SpongeTech Inquiry Leads toAnother Sanction; Hedge Fund Complication atHeartofWesternPacificAction; B.Riley&Co.PlacesEMCORE CMPO; $25.7M Registered Direct fromInsmed; Spectrum Group Offers $25.5M in Rights,Stock;other stories and deals of note.....................4EPP, PIPE &APO MARKET DATAAggregateYear-to-Date MarketActivity................11PIPE and Growth EPP LeagueTables....................12International EPPAgents,SPACs andAPOs..........15See ATMs on page 16See Oil on page 17Conference Manual Page 32
  34. 34. October 1, 2012 Copyright © 2012 MarketNexus Media, Inc. 16Growth Capital InvestorIndeed, traditional PIPE costs can total 30% when factoringin placement agent fees, a steep price discount to attract inves-tors, and warrants, he said. Thus, it’s understandable why lifescience companies as well as growth companies in general areputting ATM programs in place, he added. ATM agents that sella growth company’s shares into the market generally charge com-missions of 2% to 3%.Boards of directors, however, frequently don’t know how tocomparison shop between ATM programs and other financingoptions 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 howmuch money a company really needs or whether trading volumeis sufficient to raise capital in a timely manner. Boards also needto consider what kind of deal is going to cause the least amountof dilution: Because ATM issuers sell shares off a shelf, they’realso eligible for registered direct offerings and confidentially mar-keted public offerings (CMPO), he added.Lastly, he said, boards need to perform due diligence onstock price performance during prior ATM financings handledby 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. “Thereare just a few issues that boards need to appropriately take intoaccount.”Expanding Slice of EPP MarketThe rapid growth of ATM issuance is clear evidence thatEGC management teams consider ATMs a great idea, too. Therising number of growth company ATMs continues a decidedlyupward trend from 2008, when such companies put just fourprograms in place.“One of the factors that has been driving the adoption of at-the-market offerings is that CFOs and management teams wantto have more tools in their financing toolkit; they don’t wantto be overly reliant on any one way to raise capital,” said Wy-che, whose firm, among other engagements, is acting as exclusiveagent for Opexa Therapeutics’ (OPXA) $2.6 million ATM.“As time goes on, more companies are hearing about ATMs andabout the success that peers are having in raising capital, and sothey’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 fromyear to year, issuers in 2012 have so far put 10 equity lines inplace totaling $157 million. In all of 2011, companies agreed to24 equity lines valued at $495 million.“A number of issuers we’re talking to have either replacedtheir equity lines with ATMs or are talking about doing it,” Wy-che said.Broadening AppealWhat’s more, growth companies from a variety of sectors aretaking up ATM programs. In 2009 more than half of the issuerswere real estate investment trusts (REITs). But in 2011, biotechand 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 announced12. Issuers in the oil and gas, healthcare products and financialsectors are also well represented among ATM users. On the otherhand, REITs continue to use the vehicle with the most frequencyin deals involving issuers with market caps exceeding $1 billion.So far this year, they’ve accounted for 29 of the 42 large capATMs.Another difference between small and large companiesusing ATMs is showing up in the cost of capital. On averagethis year, growth companies are paying commissions of 2.7%while issuers with market caps exceeding $1 billion are paying1.8%.Also this year, share prices of ATM issuers have declined anaverage of nearly 2% three days following the announcement ofan agreement. Biotech and pharmaceutical companies saw theirshare prices slide about 3% three days following an announce-ment, while REIT shares were higher by 1.1%.By comparison, stock prices at issuers that have completedCMPO and registered direct deals this year have dipped 2.5%three days following the deals. Biotech and pharmaceutical com-pany shares have ticked down an average 1.3% three days afterATMs continued from front pageATM GrowthInvestment ($M) Deals0$10$20$30$40$50$60$70 million2008 2009 2010 2011 2012*4143243 43Source: PlacementTracker, a service of Sagient Research.September data thru 9/28/12.Conference Manual Page 33
  35. 35. October 1, 2012 Copyright © 2012 MarketNexus Media, Inc. 17Growth Capital Investorsuch 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-skewing240%.) CMPO and registered direct issuers paid placementsagents about 5.8%, on average.West Plains, N.Y.-based Acadia Realty Trust (AKR) hashad one of the most successful capital-raising campaigns of anyissuer that has commenced an ATM program in 2012. The com-pany announced a $75 million offering in late January when itsshares were trading for $21.12, and its shares were 20.5% higheron Sept. 24. The shopping center REIT raised $65.7 million bythe end of the second quarter in drawdowns that had an esti-mated average price of $22.18 a share. In August, Acadia Realtyannounced a $125 million ATM offering.The REIT agreed to a 2% fee in both transactions, whichfeature Bank of America Merrill Lynch, Barclays Capi-tal, Deutsche Bank Securities and Wells Fargo Securities asco-agents. Goldman Sachs & Co. has been added to the agentroster for the second deal.Cambridge, Mass.-based Zalicus (ZLCS), meanwhile, hasfulfilled two ATM offerings of $15 million each this year. Butthe stock price of the developer of pain and inflammation drugsplummeted 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 whenits stock was trading for $1.27 a share, and it sold stock throughlate March for an average price of $1.07 a share. The issuerlaunched its second ATM offering in June, when its stock wastrading for $1.44 a share, and received an estimated average priceof $1.15 a share for its stock. Its shares were recently tradingaround 82 cents.Exclusive selling agent Wedbush PacGrow Life Sciencesearned a fee of 2.5% in the first transaction and a fee of 2% in thesecond. of Stamford-based AYSM Energy Investments. Starboard hiredAegis Capital to underwrite its IPO this year but later terminatedthe engagement after management decided it needed to exploremore drilling from its existing wells and acquire more oil and gascontracts to build up the value of the company before it attemptedan 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 athree-to-five year maturity. Warrants would include a 35% equitycall-back if the company went public before the bond matured.The company, which is owned by investors in Imbruce’shedge fund, currently has only $2 million of debt. Starboard’sboard is weighing the risk of taking on secured debt to build outthe company’s balance sheet over selling the firm to another oil andgas company at a smaller valuation.The controlling investor groupcould recover about 5 times their $13 million investment if theysold Starboard on the private markets for around its current valueof $60 million. But the goal is to get a higher return by buildingup the firm for a $300 million IPO in a year and using proceedsto pay off the $100 million high yield debt. To IPO now the firmwould need to overcome investor sentiment in a market worriedabout 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, usedthe debt markets to raise $250 million in capital – an unusuallylarge offering for an E&P company. (PlacementTracker indicatesonly two 144-A convertible debt offerings from E&P companiesin the past 12 months larger than $200M.) In December 2011Global Hunter Securities issued a Strong Buy on WoodbineAcquisition Corp., which offered a five-year bond with a 12%coupon and warrants that converted to 70% of the equity if thecompany sold before the bond matured. The bond and warrantswere trading for $98.75 on December 5, 2011 when GlobalHunter issued a price target of $182.The market ate up Woodbine’s bonds, which are currentlytrading at $107 for the bond and $47.50 for the warrants, for atotal of $154.50. Global Hunter is telling investors Woodbine isexpected 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 achievesimilar results by borrowing to build and then cashing out witha sale or IPO.Starboard’s entry into the public markets has been stalled bya battle within the board when they learned the hedge fund man-ager, Imbruce, who had helped revive the company, was accusedof fraud and breach of fiduciary duties by his largest investor– an Irish family fund called SOS Ventures. Imbruce originallyacquired the shell of STXX by slipping in front of another hedgefund, Summerline, via a $1.5 million Debtor-in-Possession or“DIP” loan during Southern Texas Oil Company’s bankruptcyproceeding in December 2009. He then used his investors’ mon-ey to buy more distressed oil and gas leases along with royaltyrights and founded Impetro Resources in January 2010. Impetrowas sold into Starboard.What Imbruce didn’t tell investors was he had moved someof the oil and gas leases into another entity he solely owned out-side of the fund, basically cutting his investors out of profits fromthe assets if they struck oil. The scheme was uncovered when theinvestors’ lawyer found legal documents showing Imbruce wastrying to sell their equity interest on the cheap for $18.5 millionto Summerline, who would then get a large put option that couldbankrupt Starboard if it didn’t IPO.Oil continued from front pageConference Manual Page 34