There are many ways for a public company to raise money, but one of the more increasingly popular choices is through an “at-the-market” or ATM offering, whereby a company can sell its securities into an existing trading market in a series of transactions over an extended period of time and at prices based on prevailing market prices.
- How does it work? Well, it’s simple…said no one ever about securities laws. A company enters into a distribution agreement with an agent in which the agent agrees to periodically sell the company’s securities, as instructed by the company, subject to an agreed upon maximum number or dollar amount of shares and other conditions. The company is not obligated to sell any of its securities, and the agent generally makes no commitment to accept any instructions to sell any such securities. When a company’s instructions are given and accepted, offering arrangements are oftentimes on a “best efforts” basis.
- What are the benefits? The primary benefits to a company of an ATM program include the flexibility to control the timing and amount of sales of a company’s securities, lower commissions and other fees than single underwritten offerings, the ability to raise capital when needed and on a low-key basis and the lack of lock-up agreements (which, in single underwritten offerings, are required to contractually prevent insiders from trading their shares in the period surrounding such an offering).
- Do I need to file anything with the SEC? Funny. Of course you do. Generally, your company must be eligible to file a shelf registration statement, and if your company has filed a shelf registration statement that contemplates its use for ATM offerings, you’re ahead of the game. If not, you have a registration statement filing in your future. In any event, a company will need to prepare a prospectus supplement (but not a preliminary prospectus supplement, which is otherwise required in single underwritten offerings) specifically for the ATM program, which updates the base prospectus in the shelf registration statement. The prospectus supplement must, among other things, describe the securities to be issued under the ATM program, specify the size of the program (typically by aggregate maximum dollar amount), describe the commissions and fees to be paid by the company and identify the agent. Usually, a company only needs to file a prospectus supplement when the program is initiated; however, if the company makes any sales under the program that it considers to be material, it may need to file an additional prospectus supplement with further information. A Form 8-K and press release are also required to announce the ATM program and file a copy of the distribution agreement. Otherwise, sales under an ATM program are typically reported in MD&A in Form 10-Qs and Form 10-Ks.
- What other documents are required? Unlike the never-ending list of documents required by an underwriting agreement in a single underwritten offering, a distribution agreement governing an ATM offering usually only requires the delivery of legal opinions, an officer’s certificate and a comfort letter from the company’s independent auditors before the ATM program is initiated. At the time of each issuance of securities under the program, and usually quarterly, as well, the distribution agreement will likely require the bring-down of the company’s representations and warranties made in the distribution agreement, along with an updated legal opinion from outside counsel and comfort letter from the company’s independent auditors.
- What are the limitations? As with any other sale of securities, a company with an ATM program may not sell its securities while it is in possession of material non-public information or if the disclosures contained in or incorporated into its prospectus and prospectus supplement for the ATM offering have become untrue or misleading in any material respect.
Despite the nuances, ATM offerings can be a significantly cheaper and quicker way for companies to raise funds at their discretion.