At-the-Market & Shelf Programs

A shelf registration is a single registration statement, most often on Form S-3, that lets an eligible issuer register a pool of securities and then sell them in one or more later takedowns. The shelf sits on file, and when conditions are right the issuer brings a portion to market through a prospectus supplement. The registration work is done once, and financing becomes something a company can time to the market.

An at-the-market, or ATM, program sells newly issued shares into the existing trading market gradually, at prevailing prices, through a sales agent under a distribution agreement, with no single block sold at a fixed price. A traditional follow-on prices a defined number of shares in one underwritten transaction. The ATM trades flexibility and lower market impact for the discipline of selling into ordinary trading volume, and it draws on the same shelf the issuer already has on file.

A company that has been subject to Exchange Act reporting for at least twelve calendar months and has filed every required report on time over that period. With a public float of $75 million or more, measured within 60 days of filing, it may register primary offerings of any size. Below $75 million it may still use the form if a class of its common equity is listed on a national exchange and it has not been a shell company in the past twelve months, but its primary sales in any twelve months are capped at one third of its float. At $700 million of float the issuer is a well-known seasoned issuer and may file an automatic shelf that is effective on filing, with pay-as-you-go registration fees and the freedom to add classes of securities by post-effective amendment. A late filing of almost any report costs twelve months of eligibility, which is the most common way a shelf is lost.

Three sets. First, the shelf itself lives on incorporation by reference, so every 10-K, 10-Q and 8-K filed after it becomes part of the prospectus automatically, and an error in any of them is an error in the offering document. Second, the program has its own filings: the equity distribution agreement is a material agreement reported on Form 8-K and filed as an exhibit, the prospectus supplement that launches the program goes in under Rule 424(b) within two business days of first use, and each quarter's 10-Q or 10-K discloses the shares sold, the gross proceeds and the commissions paid. Third, the issuer may not instruct a sale while it holds material non-public information, which in practice means placement notices stop at quarter-end and resume after earnings, and a 10b5-1-style sales plan is drafted if the company wants the agent selling through a blackout.

We have represented clients in matters before the SEC, and in the shelf context the contact is more procedural than adversarial. Most Form S-3 shelves are not selected for review, and the staff says so within days of filing; when one is reviewed, first comments usually turn on eligibility, the plan of distribution or the description of securities. A non-automatic shelf is declared effective only on request under Rule 461, which the staff wants at least two business days before the date requested and, where an underwriter is named, joined by it. We handle the comment responses, the acceleration request and any question about whether a particular takedown fits the base prospectus, and we bring in locally admitted counsel where a non-U.S. listing or investor base requires it.

Twelve months after the IPO, when Form S-3 first becomes available, and in the weeks after the 10-K is filed, so the base prospectus incorporates fresh audited financial statements and any staff review runs while nothing is at stake. A universal shelf registering common stock, preferred stock and debt costs little to file and nothing to hold, since registration fees under a non-automatic shelf are paid once and roll forward if unused. The ATM can be added later by a prospectus supplement, and the equity distribution agreement signed when the board wants the capacity. The calendar entry that matters is the third anniversary of effectiveness, because the shelf expires on it and the 180-day grace period only helps if a replacement is already on file.