Banks Seeking to Repurchase TARP Preferred

First Horizon National Corporation (NYSE: FHN) has filed concurrent, underwritten public offerings of securities for combined proceeds to the company of approximately $738 million, such proceeds to be used with other funds to repurchase in full the Fixed Rate Cumulative Perpetual Preferred Stock issued to the U.S. Treasury under the Troubled Asset Relief Program Capital Purchase Program (TARP CPP) in November 2008. 

Both offers are takedowns from the shelf registration on Form S-3ASR initially filed by FHN on 4/25/08 (SEC file no. 333-150448).  The equity offering of 23.8 million common shares at $10.50 per share was filed December 15 and the prospectus for $500 million of 5.375% senior notes was filed Dec. 17, both on Form 424B5.  Goldman Sachs, J.P. Morgan and Morgan Stanley are joint book-running managers for both deals. 

Huntington Bancshares Inc. (NasdaqGS: HBAN) issued $1.398 billion of Fixed Rate Cumulative Perpetual Preferred Stock to the Treasury Department in November 2008 as part of the TARP CPP (see Form 8-K filed 11/14/08, file no. 1-34073).  To fund the repurchase, HBAN has filed concurrent offers on Form 424B2 for common stock and $300 of 7% subordinated notes (December 15 and 16, respectively).  If the repurchase is completed, HBAN may seek to repurchase the common stock warrant it had issued to the U.S. Treasury.

Liberty Media Registers Shares to Split-Off Liberty Capital and Liberty Starz

Liberty Media Corp. currently has three sets of tracking stock outstanding, each tied to the economic performance of a particular business or "group" rather than the economic performance of the company as a whole.  The Liberty Interactive tracking stock, outstanding since May 2006, reflects assets and businesses engaged in video and on-line commerce, including subsidiary QVC Inc. and interests in Expedia Inc.  The holders of Liberty Interactive common stock are not being asked to vote on the split-off proposals at a special meeting of shareholders to be held in 2011.  

The proposed split-off will be effected by the redemption of all the outstanding shares of Liberty Capital tracking stock and Liberty Starz tracking stock in exchange for shares that are being registered on Form S-4 filed 12/16/10 by the newly-formed Liberty Splitco, Inc. (file no. 333-171201).  Splitco will hold substantially all the assets and be subject to substantially all the liabilities currently attributed to the Liberty Capital and Liberty Starz tracking stock groups of Liberty Media Corp.  If the split-off is completed, Liberty Media will have a pure play, asset-backed stock.

The assets and businesses attributed to the Liberty Capital group include controlling interests in Atlanta National League Baseball Club, Inc. and TruePosition, Inc., as well as minority investments in Sirius XM Radio Inc., Live Nation Entertainment, Inc., Time Warner Inc., Time Warner Cable Inc., and Sprint Nextel Corp.  Currently, the Starz Group includes Liberty Media's interests in Starz Entertainment, LLC, Starz Media, LLC and Liberty Sports Interactive, Inc. 

Liberty Capital tracking stock and Liberty Starz tracking stock (formerly Liberty Entertainment tracking stock) have been outstanding since March 2008 when each share of the previous Liberty Capital tracking stock was reclassified into one share of the same series of new Liberty Capital and four shares of the same series of Liberty Entertainment (see SEC file no. 333-145936).  On November 19, 2009, Liberty Media completed the split off of its Liberty Entertainment, Inc. ("LEI") subsidiary.  The split-off was accomplished by a redemption of 90% of the outstanding shares of Liberty Entertainment common stock in exchange for all of the outstanding shares of common stock of LEI.  LEI had been attributed to the Entertainment Group.  Subsequent to the split-off, the Entertainment Group was renamed the Starz Group (see file no. 333-158795).  

Argentina Offers Exchange to Holders of Brady Bonds for New Securities and Cash

In 1989, Treasury Secretary Nicholas F. Brady was associated with a new strategy for dealing with developing country debt.  The Brady Plan focused on debt and debt service reduction by commercial bank creditors for those debtors who agreed to implement substantial economic reform programs.  In April 1992, Argentina announced a refinancing agreement under the Brady Plan relating to medium- and long-term debt owed to commercial banks.  The Brady Plan applied to an estimated U.S.$28.5 billion in Argentine debt, including an estimated U.S.$9.3 billion in interest arrears, representing over 96% of the commercial bank debt then outstanding. 

Argentina serviced the Brady Bonds until its default in 2001.  In January 2005, Argentina launched an invitation to holders of 152 different series of securities on which it had defaulted in 2001, including certain Brady Bonds, to exchange their defaulted debt for new securities (see Form 424B5 filed by the Republic of Argentina on 1/12/05, file no. 333-117111).  In April 2010, Argentina launched an invitation to holders of the securities issued in the 2005 Debt Exchange and of 149 different series of securities on which it had defaulted in 2001 to exchange such debt for the new securities and, in certain cases, a cash payment (see Form 424B5 on 4/28/10, file no. 333-163784). 

Although many holders of Brady Bonds strongly expressed their desire to participate in the April 2010 exchange offer, Argentina could not include Brady Bonds in the April 2010 exchange offer on similar terms to its 2005 exchange offer, when holders of Brady Bonds received proceeds of the collateral securing those bonds as part of the offer, because of litigation.  Holders of certain Brady Bonds and Argentina have since obtained court relief that permits an extension of the April 2010 exchange offer to the holders of the Brady Bonds, subject to bondholder approval of proposed amendments to applicable collateral pledge and fiscal agency agreements.  The invitation to holders of eligible series of bonds is filed as a prospectus supplement on Form 424B5 filed 12/6/10, file no. 333-163784.

Wells Fargo Subsidiary Resumes CMO Offering Activity

Wells Fargo Asset Securities Corp., a steady issuer of pass-through certificates through 2007, has filed a shelf Registration Statement on Form S-3 to offer a new series of collateralized mortgage obligations.  When SEC file no. 333-170946 is declared effective, the subsequent prospectus supplement will be the first one filed by the subsidiary since a $216.8 million offering underwritten by Lehman Brothers dated 3/4/08. 

Acting as depositor, WFASC has registered CMO certificates for a proposed maximum aggregate offering of $33.2 billion.  Pursuant to 1933 Act Rule 415(a)(6), $22.1 billion of unsold securities from prior Registrations (333-150038 and 333-151061) are included in the new Registration. 

Seventeen classes of senior certificates and six classes of subordinated certificates are expected to be offered at varying prices to be determined at the time of sale.  The assets of the issuing entity will include a pool of fully amortizing, one- to four-family, fixed interest rate, non-relocation, residential first mortgage loans.

Reporting Requirements Regarding Coal or Other Mine Safety

Section 1503(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act contains new reporting requirements regarding mine safety in certain circumstances.  Issuers that are operators of a coal or other mine are required to file a current report on Form 8-K upon the receipt of an imminent danger order under section 107(a) of the Federal Mine Safety and Health Act of 1977 (the “Mine Act”) issued by the Mine Safety and Health Administration ("MSHA").  Recent 8-K filings with such disclosure include:

Massey Energy Co. on 11/26/10 (SEC file no. 1-7775)
Patriot Coal Corp. on 11/12/10 (file no. 1-33466)
Alpha Natural Resources, Inc. on 10/25/10 (file no. 1-32331)

Dodd-Frank Section 1503(b) also requires Form 8-K disclosure upon the receipt of written notice from MSHA that the coal or other mine has a pattern of violations of mandatory health or safety standards under Section 104(e) of the Mine Act, or the potential to have such a pattern.  Recent 8-K filings with such disclosure include:

FirstEnergy Corp. on 11/26/10 (SEC file no. 333-21011)
James River Coal Co. on 11/24/10 (file no. 0-51129)
Rhino Resource Partners LP on 11/24/10 (file no. 1-34892)

Section 1503(a) of Dodd-Frank requires reporting companies that operate mines to provide certain safety information in their periodic reports filed with the SEC.  Such information includes the total number of mining-related fatalities, the total number of violations or citations under various sections of the Mine Act, and the total dollar value of proposed assessments from the MSHA.  Recent Form 10-Q filings provide examples in Part II, Item 5:

Molycorp, Inc. on 11/15/10 (SEC file no. 1-34827)
Granite Construction Inc. on 11/9/10 (file no. 1-12911)
3M Co. on 11/5/10 (file no. 1-3285)

Reverse Stock Splits to Ensure Minimum Bid Price for Nasdaq Listing

XO Holdings, Inc. PRE 14C on 11/17/10 (SEC file no. 0-30900)
OXiGENE, Inc. DEF14A on 11/12/10 (SEC file no. 0-21990)
Atrinsic, Inc. DEF14A on 10/25/10 (SEC file no. 1-12555)

Telecom services provider XO Holdings, which trades on the OTC Bulletin Board at a price per share below $1 for the past two years, intends to apply for listing on the Nasdaq Global Market.  In order to increase the minimum bid price of the common stock to above the $4 minimum bid price required to apply for listing, the XO board of directors on November 16 unanimously authorized an amendment to its certificate of incorporation to effect a one-for-twenty reverse stock split. The preliminary information statement reports that stockholders affiliated with XO chairman Carl C. Icahn who collectively own more than 50% of the total voting power of the outstanding capital stock have consented to the amendment, which under Delaware law is sufficient for approval. 

OXiGENE and Atrinsic already trade on the Nasdaq Global Market under the ticker symbols OXGN and ATRN, respectively.  Both issuers had received notice that for the last 30 consecutive business days, the bid price of the common shares closed below the minimum $1 per share requirement pursuant to Nasdaq Listing Rule 5450(a)(1) for continued inclusion on the Nasdaq Global Market.  In order to increase the market price per share and regain compliance with the minimum bid price requirement, OXiGENE and Atrinsic seek shareholder approval to amend their respective certificates of incorporation to effect a reverse stock split at the discretion of the board of directors at a ratio within a specified range.

Merger Parties Rely on IRS "Signing Date Rule" for Intended Tax Treatment

Robbins & Myers, Inc. has registered common stock valued at approximately $386 million in connection with a proposed merger with T-3 Energy Services, Inc. (Form S-4 on 11/10/10, SEC file no. 333-170502).  If the merger is completed, T-3 stockholders will receive 0.894 issuer common shares plus $7.95 in cash, without interest, for each T-3 common share.  This exchange ratio is fixed and will not be adjusted to reflect stock price changes prior to the closing of the merger. 

In order to qualify as a tax-free reorganization, the merger must comply with certain requirements under Section 368(a) of the Internal Revenue Code, including that at least 40% of the total consideration received by target stockholders in the merger must consist of Robbins common stock.  Because the terms of the merger agreement provide for a fixed number of common shares to be transferred to T-3 stockholders, it is unknown at the time of the special meetings whether the 40% continuity of interest test will be met if such calculation is based on the value of the Robbins stock on the closing date of the merger. 

The Treasury Department has provided guidance in the form of temporary and proposed treasury regulations, whereby if a binding contract that provides for fixed consideration is entered into, fluctuations in the value of the stock consideration subsequent to the entry into the contract will not affect the determination of whether the transaction qualifies as a Section 368(a) reorganization.  Robbins and T-3 will use this "signing date rule" for purposes of applying the continuity of interest test.  Even though the temporary treasury regulations expired on March 19, 2010, Notice 2010-25, 2010-14 I.R.B. provides that the proposed treasury regulations may be relied on by certain parties involved in the transactions if all such parties elect to apply the provisions under the regulations. 

Issuer Share Repurchases Through "Dutch Auction" Self-Tender Offers

iMergent, Inc. Schedule TO dated 11/3/10 (SEC file no. 005-59275)
Premiere Global Services, Inc. Schedule TO on 10/27/10 (005-47353)
Silgan Holdings Inc. Schedule TO dated 10/8/10 (file no. 005-53165)
Scholastic Corp. Schedule TO dated 9/28/10 (file no. 005-42284)

Each of the companies listed above filed Tender Offer Statements to purchase a specified number of its common shares for cash by means of a modified “Dutch auction.”  This procedure allows tendering shareholders to select a price within a price range specified by the company at which such shareholders are willing to sell shares.  After the tender offer expires, the company selects the lowest purchase price per share within the range that will allow it to purchase the desired number of shares.  All shares are purchased at the same price, even if tendered at a lower price. 

The Offer to Purchase is the first exhibit to each filing and includes the background and purpose of the offer.  The offers provide shareholders an opportunity to obtain liquidity with respect to all or a portion of their shares without potential disruption to the stock price and the usual transaction costs associated with open market sales, while at the same time increasing non-tendering shareholders’ proportionate interest in the company.  It is common for such offers to give priority to holders of fewer than 100 shares (odd lots) in order to reduce the administrative costs of mailing securities filings and notices to such shareholders.

Companies in the Wind Power Industry Going Public

Development stage company WildCap Energy Inc. filed a Form S-1 on November 5 for the resale of common stock by selling shareholders (SEC file no. 333-170377).  WildCap seeks to commercialize technology developed at the University of Arizona for vertical axis wind turbines using active flow control.  The option agreement signed on 1/10/10 by the company and The Arizona Board of Regents is filed as Exhibit 10.1.  The parties are presently negotiating a license agreement that will be subject to any rights of the U.S. Government to utilize the technology royalty free.

First Wind Holdings Inc. has been in registration for an initial public offering since July 2008.  The independent wind energy company focuses on development and operation of utility-scale wind energy projects in the United States.  First Wind set the price range for its underwritten $200 million IPO in the S-1 Amendment filed on 10/13/10 (file no. 333-152671).  The Registration Statement was declared effective and the shares approved for listing on the Nasdaq Global Select Market as of October 27. 

China Ming Yang Wind Power Group Limited completed its $350 million IPO on October 4 with American Depositary Shares trading on the NYSE under the symbol "MY" (file no. 333-169256).  The manufacturer of megawatt-class wind turbines is incorporated in the Cayman Islands and is the largest non-state owned or controlled wind turbine manufacturer in China.  China Ming Yang filed a Form 6-K on 10/13/10 to discuss the results of a national bidding process for four offshore wind farm concession projects in China.

Issuers Amending Bylaws to Reflect Possibility of Dual Record Dates

First Niagara Financial Group, Inc. Form 8-K on 9/23/10 (SEC file no. 0-23975)
News Corp. Form 10-K on 8/6/10 (file no. 1-32352)
Standard Parking Corp. Form 8-K on 1/27/10 (file no. 0-50796)

Companies set a date — known as the “record date” — on which persons who are shareholders on such date are entitled to receive notice of a meeting and to vote at the meeting. If a shareholder sells after the record date, that person (who no longer holds the shares) still has the right to vote. This can mean that holders without an economic stake in the matter can influence the outcome of a vote.  

Effective in August 2009, changes to the Delaware General Corporation Law allow boards to fix one record date for determining stockholders entitled to notice of a stockholder meeting and a separate record date for determining the stockholders entitled to vote at the meeting.  Each of the filings listed above report amendments to the company's bylaws approved by the board of directors, and each present the restated bylaws as an exhibit. 

Banks Review Foreclosure Affidavit Procedures in Wake of Investigation

On October 13, attorneys general in 50 states and the District of Columbia announced a joint investigation of the procedures followed by banks and mortgage companies in connection with completing affidavits relating to home foreclosures.  In addition, a number of major companies that service mortgages suspended home foreclosures in those states that handle foreclosures through the court system to address allegations of irregularities in foreclosure documents.

Wells Fargo & Co. outlined its process for the generation of foreclosure affidavits in a press release filed with the Form 8-K on 10/28/10 (SEC file no. 1-2979).  As part of its review of these procedures, the company identified instances where a final step in its processes relating to the execution of the foreclosure affidavits did not strictly adhere to the required procedures.  "Out of an abundance of caution and to provide an additional level of assurance regarding its processes," Wells Fargo has elected to submit supplemental affidavits for approximately 55,000 foreclosures which are pending before courts in 23 judicial foreclosure states.  The company does not believe that any of these instances led to foreclosures which should not have otherwise occurred, and it reaffirms that it does not plan to institute a moratorium on foreclosure sales.

Bank of America Corp. is also conducting a voluntary internal review of foreclosure process, with a particular focus on controls in place for competing affidavits and notarizations.  The company is amending and re-filing 102,000 foreclosure affidavits in the 23 judicial states and has suspended foreclosure sales until its assessment in complete, anticipating that less than 30,000 foreclosure sales will be delayed as a result.  This information was provided in select earnings related slides for use in connection with Q3 financial results, filed as an exhibit to the Bank of America Form 8-K on 10/19/10 (file no. 1-6523). 

JPMorgan Chase & Co. notes a risk that it "may incur additional costs and expenses in remediating deficient home foreclosure procedures."  That risk factor is included with a prospectus supplement for an underwritten notes offering (Form 424B2 dated 10/18/10, file no. 333-169900).  The company disclosed it has suspended the foreclosure process with respect to approximately 115,000 delinquent mortgage loans, is developing new processes to satisfy all procedural requirements, and is cooperating with information requests from several state attorneys general. 

DJSP Enterprises, Inc., the largest provider of processing services for the mortgage and real estate industries in Florida, announced on October 15 that the audit committee of its board of directors has commenced an internal investigation with respect to compliance with applicable legal requirements of the company’s mortgage foreclosure processing procedures.  The audit committee has retained Greenberg Traurig, P.A. as independent counsel to assist in the conduct of the investigation.  DJSP also announced that it has instituted 10% staff reductions as a result of reduced file volumes.  DJSP notes that file referrals from the company’s principal client, The Law Offices of David J. Stern, P.A. have declined dramatically, and that the law firm is the subject of an investigation announced by the Attorney General of the State of Florida in August 2010.  DJSP made these disclosures in Form 6-K (file no. 1-34149) Form 424B3 prospectus supplement (333-164907) each filed 10/18/10.

Supplemental Proxy Materials Noting Addition of Third Party Solicitor

SonicWALL, Inc. Form DEFA14A filed on 6/30/10 (SEC file no. 0-37723):
Security products manufacturer SonicWALL filed a special meeting proxy on June 22 pertaining to a negotiated cash merger transaction, naming The Proxy Advisory Group, LLC as proxy solicitor.  The supplemental proxy filing discloses that the company had engaged MacKenzie Partners, Inc. to assist as an additional proxy solicitor.

United Online, Inc. DEFA14A filed on 5/24/10 (file no. 0-33367):
Subsequent to filing and mailing the proxy statement for its 2010 annual meeting of shareholders, Nasdaq-listed United Online retained MacKenzie Partners, Inc. to act as proxy solicitor and advisor.  The one paragraph disclosure notes the fee amount (up to $12,500) and reports that United agreed to indemnify MacKenzie against certain liabilities.

USA Technologies, Inc. DEFA14A filed on 11/20/09 (file no. 1-33365):
After USA Technologies had filed and mailed its annual meeting proxy statement, two dissident shareholders launched a proxy contest seeking to elect three candidates to the board over the company's three independent director nominees.  The first supplemental proxy filing by the company is comprised of a press release which provides the complete text of an open letter to shareholders.  The letter concludes with news that the company had retained a third party as proxy solicitors for the annual meeting.

8-K Filings Reporting Intent to Restate Financial Statements

WikiLoan Inc. Form 8-K filed 10/22/10 (SEC file no. 033-26828):
In Item 4.02, WikiLoan reports that it has concluded that the financial statements included in its most recent Form 10-K and the two subsequent Form 10-Q filings should not be relied upon because those financial statements did not adequately account for beneficial conversion features in certain convertible debt agreements, as required by GAAP.  As the result of the error, the company will be restating the financial statements for the subject periods.  An agreement letter from WikiLoan's independent audit firm is included as an exhibit.

Doral Energy Corp. Form 8-K filed 10/21/10 (file no. 000-52738):
Doral has determined that the accounting treatment of the “assets held for sale” reported in the Company’s unaudited financial statements for the interim period ended April 30, 2010 to be the incorrect accounting treatment. Management has determined that under Full Cost accounting, the sale of the properties reported for the period ended April 30, 2010 does not meet the criteria for “assets held for sale” or “discontinued operations”.  In the press release exhibit, Doral states it will restate the financials for the reporting period as soon as practicable. 

Green Energy Live, Inc. Form 8-K filed 10/6/10 (file no. 000-53216):
Due to misstatements regarding the classification of convertible promissory notes as derivative liabilities, classification of cash/accrued expenses, and common stock subscriptions, Green Energy's auditor of record advised the management and board of directors that the financial statements filed the year ended 12/31/09 and the quarter ended 3/31/10 should no longer be relied upon as presented.  The errors resulted in an understatement of liabilities, an overstatement of additional paid in capital account, and an overstatement of the company’s net loss.  Green Energy intends to file amended periodic reports with the SEC by November 5.

Equity Resale by Former Shell Companies Following Change in Control

One way for issuers to attain SEC-reporting status is to engage in a share exchange agreement with an already registered "shell company" as defined in Rule 12b-2 under the Exchange Act of 1934.  In such reverse merger or reverse acquisition transactions, it is common for the shell to continue only as the legal entity and for the target to be treated as the accounting acquirer.  

China Electronics Holdings, Inc. Form S-1 dated 10/15/10 (SEC file no. 333-169968): 

The selling stockholders of this shelf offering acquired the issuer common stock pursuant to share exchange and subscription agreements dated July 9.  The share exchange agreement between the former shell Buyonate, Inc. and the Delaware corporation China Electronic Holdings, Inc. (now a subsidiary of the Nevada-incorporated Registrant), as well as the subscription agreement between Buyonate and certain of the selling stockholders are exhibits to the Form 8-K dated 7/22/10 (file no. 333-152535). 

Compass Acquisition Corp. Form S-1 dated 10/12/10 (SEC file no. 333-169877): 

This reoffer of ordinary shares is the first public offering of the former blank check company, which is organized in the Cayman Islands.  On May 24, Compass acquired Tsing Da Century Education Technology Co. Ltd., a provider of on-line and off-line educational services in China.  The transaction was treated for accounting purposes as a capital transaction and recapitalization by Tsingda, the accounting acquirer, and as a re-organization by Compass, the accounting acquiree. 

Linda Illumination, Inc. Form S-1 dated 9/16/10 (SEC file no. 333-169431): 

The former China Real Estate Acquisition Corp. registers common shares for resale that had been initially sold in a July private placement.  On April 28, the company acquired Linda International Lighting Co., Ltd by way of a share exchange agreement that is reported in Form 8-K filed on 4/30/10 (file no. 0-53842).  Pursuant to the requirements of Item 2.01(a)(f) of Form 8-K, the company sets forth therein the information that would be required if it were filing a general form for registration of securities on Form 10 under the Exchange Act giving effect to the transaction.

Successor Issuer Granted Accelerated Filer Status

At a November 4 special meeting, Sun Healthcare Group, Inc. ("Old Sun") will seek shareholder approval to restructure its business by splitting into two separate publicly-traded companies.  Sabra Health Care REIT, Inc. would control real property assets following a REIT conversion merger and SHG Services, Inc. ("New Sun") will control operating assets.  SHG Services, which would continue to conduct the historical operations and business of Old Sun, would be renamed Sun Healthcare Group, Inc. and begin trading under Old Sun's ticker symbol (SUNH).  The separation/spin-off of New Sun was detailed in a Form S-1 filed by SHG Services (SEC File No. 333-167041) and shares for the REIT conversion were registered on a Form S-4 filed by Sabra Health Care REIT (333-167044).  The definitive proxy statement was filed on 9/29/10 (File No. 001-12040). 

In connection with the restructuring, Old Sun sought a No Action letter from the SEC on September 28 (WSB No.: 1004201001).  The letter asked the SEC to not take enforcement actions on several key issues regarding the restructuring.  First, the company asked that New Sun, as a successor, be deemed an accelerated filer immediately.  Second, that filers of Schedules 13D and 13G will not be required to make any additional filings.  Third, that New Sun can use the reporting history of Old Sun to determine 1933 Act eligibility.  Fourth, exemption from Section 4(3) and Rule 174 regarding prospectus delivery requirements.  Fifth, to use Old Sun's periodic report history to determine New Sun's compliance with Rule 144(c)(1).  Sixth, to allow New Sun to file post-effective amendments as a successor issuer to registrations filed by Old Sun.  Seventh, that New Sun will continue to use the 1934 file number (001-12040) and EDGAR access codes of Old Sun. 

In making its case to the SEC, the company referenced several No-Action letters where SEC Staff has taken similar positions with respect to successors in similar restructurings.  Such examples include: GulfMark Offshore, Inc. (available 1/11/10), Tim Hortons Inc. (available 9/9/09), Willbros Group, Inc. (available 2/27/09), Hungarian Telephone and Cable Corp. (available 2/27/09), and Weatherford International Ltd. (available 1/14/09).  In a brief reply, the SEC staff agreed to all of the requests for non-enforcement that had been laid out by the company.  The S-1 and S-3 Registrations Statements were each declared effective on 9/28/10.

Market Makers Shifting Orders from OTCBB to OTCQB Electronic Platform

OTC Bulletin Board market markers are billed participation fees by The Financial Industry Regulatory Authority (FINRA) based on the number of positions during a given month.  Because such fees have made it challenging for market maker firms to maintain markets in stocks that are not active, such firms are increasingly moving market making in OTCBB stocks from the OTCBB, which is a telephonic only market, to a new electronic interdealer quotation system created by Pink OTC Markets, Inc. that lacks any participation fees. 

In Forms 8-K filed on 10/13/10 and 10/8/10, respectively, National Asset Recovery Corp. (SEC file no. 333-150135) and Infinity Capital Group, Inc. (000-30999) each report that its stock quotation symbol had been deleted from the OTCBB as a result of not having a sufficient number of market makers providing quotes on the company's common stock for four consecutive days, thereby being deemed to be deficient in maintaining a listing standard at the OTCBB pursuant to Rule 15c2-11.  Both issuers now trade on the OTCQB, a new market for OTC-traded companies that are registered and current in their reporting obligations to the SEC or a U.S. banking or insurance regulator. 

Pink OTC Markets segments OTC securities into three tiers: the quality-controlled OTCQX platform that requires a minimum bid price and other listing standards, the mid-tier OTCQB, and the Pink Sheets speculative trading marketplace that has no financial standards or reporting requirements.  The firm quotes nearly 10,000 stocks, making it the largest marketplace in shares of companies that don't list on exchanges.

Other SEC filers that report they now trade on OTCQB due to failure to meet minimum bid requirements of an exchange or NASDAQ include Allied Defense Group (as of 9/21), Pinnacle Gas Resources, Inc. (9/16), MACC Private Equities Inc. (9/14), Nextwave Wireless Inc (7/22) and PC Group, Inc. (7/21).

Going Private Merger Transactions

Rubios Restaurant Inc. Schedule 14A dated 7/22/10 (SEC file no. 005-57387):
Rubios entered into an agreement with affiliates of private equity firm Mill Road Capital on May 9 which provides for the merger of a Mill Road subsidiary into the company for cash consideration of approximately $100 million. The source of funds for the transaction consisted of the issuance of preferred shares of a Mill Road subsidiary to Mill Road, Ralph Rubio and other co-investors; credit facilities arranged by GCI Capital Markets, LLC, and issuer cash on hand.
 
Life Quotes, Inc. Schedule 13E-3 dated 6/28/10 (SEC file no. 005-56673):
A company owned and controlled by the president and CEO launched a tender offer that expired on August 12 to acquire all outstanding common shares of Life Quotes at $4 per share, an aggregate of approximately $19 million. LQ Acquisition Corp. obtained the use of the issuer's cash on hand to fund the offer through the execution of the promissory note that is Exhibit (b)(1) of the Schedule TO filed on 6/10/10. Following the tender offer, a short-form merger was consummated under Delaware law whereby any remaining shares were cancelled for the same tender offer price.
 
Emmis Communications Corp. Schedule 13E-3 dated 6/2/2010 (File no. 005-43521):
Seeking the flexibility of being privately-held and to escape the burdens associated with being a public company, Emmis entered into an agreement and plan of merger on May 25 with two entities formed by the chairman and CEO. The merger agreement, which was filed as Appendix IV to the Proxy Statement on Schedule 14A dated 7/6/10, provides for a first-step cash tender offer for common shares and an exchange offer of notes for preferred shares held by Jersey-based private asset management company Alden Global Capital Limited.

Alden announced on September 9 that the proposed revised terms of the deal to take Emmis private were not acceptable. The revised terms were proposed by Emmis and a group of holders of Emmis preferred shares who had objected to the terms agreed between Alden and JS Acquisition, Inc. The tender offer and exchange offer each terminated on September 9 with no common shares purchased and no preferred shares exchanged. Alden filed the notice of termination of the securities purchase agreement as Exhibit 17 to the Schedule 13D dated 9/29/10. The notice of termination of the merger agreement is Exhibit 2.1 to the Emmis Form 8-K dated 9/29/10.

Treasury Department to Sell $2.2 Billion of Citigroup Trust Preferred

Citigroup filed a Form 424B2 Prospectus on 10/4/10 in connection with the underwritten offer of 7.875% Fixed Rate/Floating Rate Trust Preferred Securities (TruPS®) held by the government (SEC file no. 333-157459).  The United States Department of the Treasury acquired the capital securities from Citigroup in connection with Citigroup’s participation in the Troubled Asset Relief Program (TARP). 

On January 15, 2009, Citigroup entered into a loss-sharing arrangement with Treasury, the FDIC and the Federal Reserve related to a pool of $301 billion of assets (see Exhibit 10.1 of the Citigroup Form 8-K filed 1/16/09, file no. 1-9924).   Citigroup paid the Treasury and the FDIC a premium in the form of securities for their willingness to share potential losses over a five to ten year period.  The loss-sharing arrangement was terminated on December 23, 2009 at the request of Citigroup (see Exhibit 10.1 of the Form 8-K filed 12/24/09).  Treasury kept $2.2 billion of the premium, which was originally $4 billion in securities.

The underwriting agreement pertaining to the trust preferred shares was filed with the Citigroup Form 8-K filed October 5, 2010.  Each share represents an undivided beneficial interest in the assets of Citigroup Capital XIII, which consist of junior subordinated debt securities of Citigroup.  In the tax opinion filed with the 8-K, Skadden, Arps, Slate, Meagher & Flom LLP states that "while there is no authority directly on point and the issue is not free from doubt, the Junior Subordinated Debt Securities held by the Trust will be classified for United States federal income tax purposes as indebtedness of (Citigroup Inc.)".

SEC Commissioner Remarks on Diversity Policy Disclosure

By Final Rule that became effective on February 28, 2010, the SEC adopted amendments to Item 407(c) of Regulation S-K to require disclosure of whether, and if so how, a nominating committee considers diversity in identifying nominees for director.  In addition, if the nominating committee (or the board) has a policy with regard to the consideration of diversity in identifying director nominees, disclosure would be required of how this policy is implemented, as well as how the company assesses the effectiveness of its policy.

In a speech at the SAIS Center for Transatlantic Relations on September 16, Commissioner Luis A. Aguilar reported that some companies have done a good job with the new disclosure while others have a great deal of room for improvement.  Aguilar applauds disclosure that not only talks about the company's diversity policy and how it is implemented, but also gives investors actual facts that show the results of the company's efforts with a break down of board composition by race, sex and citizenship.  Though not identified in the speech, examples of Proxy Statements with such disclosure include the following:

Alcoa Inc. DEF14A filed on 3/2/10 (SEC file no. 001-03610)
Century Aluminum Co. DEF14A on 4/21/10 (file no. 001-34474)
Ingersoll-Rand plc DEF14A on 4/20/10 (file no. 001-34400)
Procter & Gamble Co. DEF14A on 8/27/10 (file no. 001-00434)

Issuers Proposing Non-Public Offerings under Nasdaq Marketplace Rule 5635

Companies with stock listed on the Nasdaq Global Select Market are subject to the Nasdaq Marketplace Rules. Rule 5635 sets forth the circumstances under which shareholder approval is required prior to the issuance of securities in connection with various matters, including non-public offerings. In the case of private placements, Rule 5635(d) requires shareholder approval for the issuance of shares equal to 20 percent or more of the common stock or 20 percent or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock.

In April of 2010, BNC Bancorp, Inc. (SEC file no. 0-50128) and Intervest Bancshares Corp. (0-23377) filed definitive Proxy Statements (Forms DEF14A) seeking approval to issue shares in one or more non-public offerings although neither company had any firm plans with respect to a specific deal.  The published interpretive guidance of Nasdaq indicates that, in those circumstances where a company has not obtained approval for a specific transaction, a general authorization will only be effective if it contains parameters specifying the maximum number of shares to be issued, the maximum dollar amount of any issuance, the maximum discount to market, and the duration of shareholder approval.  BNC and Intervest each note that the proposals would enable them to raise capital in a timely and cost effective manner.

Ruth’s Hospitality Group, Inc. on 1/21/10 (0-51485) and First PacTrust Bancorp, Inc. on 9/17/10 (0-49806) also seek shareholder approval to issue shares under Nasdaq Rule 5635, but in connection with a securities purchase agreement and subscription agreements, respectively.  Ruth's seeks to issue a new class of preferred shares to a private equity firm for $25 million in a transaction that would result in a change of control under applicable Rule 5635(b).  First PacTrust proposes to raise approximately $60 million through a private placement to selected institutional and other accredited investors of common stock priced at a 37.5% premium to the closing price of the stock as of July 26.  The primary purpose of the capital raise is to redeem preferred stock issued to the U.S. Treasury under the TARP Capital Purchase Program and to pursue growth opportunities. 

Exclusivity Agreements filed with Third Party Tender Offers

In addition to the merger agreement, most negotiated or friendly tender offer filings will include as exhibits any confidentiality agreement or exclusivity agreement that had been entered into between the parties.  Once the parties have commenced preliminary discussions regarding a possible strategic transaction, it is common for the issuer to grant a period of exclusivity to the bidder for detailed due diligence and the negotiation of definitive agreements. 

Hewlett-Packard Co. filed the initial Schedule TO in connection with its $1.52 billion all-cash tender offer for ArcSight, Inc. on September 22 (SEC file no. 005-83836).  The formal exclusivity agreement, which provided for an exclusive negotiation period of at least two weeks, was filed as Exhibit 99(d)(7).  Hewlett-Packard was represented by Gibson, Dunn & Crutcher during merger negotiations and ArcSight by Fenwick & West.

Master Limited Partnerships Eliminating IDRs to Lower Cost of Equity

Most master limited partnerships have a tiered structure for sharing available cash between the general and limited partners, with the general partner working from an initial two percent up to a potential 50% payout of available cash.  Incentive distribution rights (IDRs) give a LP's general partner the right to an increasing share of the incremental distributable cash flow generated by the partnership.  As the cash distribution per unit increases, the IDRs allow the general partner to receive an increasing percentage of the available cash flow.  IDRs are used to motivate the general partner to rapidly grow the distributions to the limited partners.

Natural Resource Partners L.P. has eliminated all of the IDRs held by its general partner and affiliates of the general partner, issuing 32 million common units to the contributing IDR-holders as consideration.  The contribution agreement was filed as Exhibit 10.1 to the Form 8-K filed on 9/21/10 (SEC file no. 001-31465).  Prior to the transaction, the IDRs received approximately 24% of the quarterly distribution and 48% of any increase in the distribution.  NRP states that elimination of the IDRs will improve its cost of capital through enhanced competitive position in the acquisition markets and increased returns to limited partner unitholders from acquisitions and growth projects.

SEC Amends Auditor Attestation Requirements of Non-Accelerated Filers

By Final Rule adopted September 15 and to be effective upon publication in the Federal Register, the SEC has amended its forms and rules to provide that Section 404(b) of the Sarbanes-Oxley Act will not apply to the audit reports prepared for issuers that are neither accelerated nor large accelerated filers as defined under Exchange Act Rule 12b-2.  Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act added Section 404(c) to Sarbanes-Oxley to exempt smaller public companies from the auditor attestation requirement of the Act. 

An accelerated filer is an issuer that had an aggregate worldwide market value of the voting and non-voting common equity held by non-affiliates of $75 million or more, but less than $700 million, as of the last business day of the most recently completed second fiscal quarter.  A large accelerated filer is an issuer that had an aggregate worldwide market value of the voting and non-voting common equity held by non-affiliates of $700 million or more as of the last business day of the most recently completed second fiscal quarter.  SEC rules do not define non-accelerated filers, but the term refers to a reporting company that does not meet the definitions of accelerated or large accelerated filers. 

Prior to the adoption of the Dodd-Frank Act, non-accelerated filers would have been required to include an attestation report by their registered public accounting firms on internal control over financial reporting in their annual reports filed with the SEC on or after June 15, 2010.  All issuers continue to be subject to Sarbanes-Oxley Act Section 404(a), which requires that the annual report include a report by management on the issuer’s internal control over financial reporting.

Recent filers have made note of the new rules in Item 9A Controls and Procedures of Form 10-K: USA Technologies, Inc. on September 21 (SEC file no. 0-50054) and Bio-Matrix Scientific Group, Inc. on September 22 (0-32201).  Drinks Americas Holdings, Ltd. referenced the changes in the notes to consolidated financial statements of its Form 10-Q filed September 20 (0-19086).

The Energy Smart Grid: Opportunities and Risks

There is no uniform definition of "smart grid" but the term generally conveys the notion of integrating information technologies with current energy infrastructure.  The need to decrease fossil fuel consumption has led to strong public and private initiatives to develop energy-efficient technologies and to extend the useful life of aging infrastructure.  The smart grid initiative got a boost with the passage of the American Recovery and Reinvestment Act of 2009 (ARRA), which includes over $4.3 billion of funding for smart grid technology investment, including energy storage systems.  SEC filers that have reported grants under ARRA in support of smart grid initiatives include Black Hills Power, Inc. (SEC file no. 1-7978), FirstEnergy Corp. (333-21011), Progress Energy, Inc. (1-15929), and Southern Co. (1-3526).  

Elster Group SE, which offers integrated metering products and solutions to the gas, electricity and water industries, is seeking to list on the NYSE.  The European public limited liability company headquartered in Germany filed the Form F-1 Registration Statement for its initial public offering on September 13 (333-169347).  In 2009, smart grid-related products, components and services accounted for approximately 26% of Elster Group revenues, compared to 19% in 2008.

Tax Benefits Preservation Plan Seeks to Preserve Net Operating Losses

As of June 30, 2010, Leap Wireless International Inc. had net operating loss carryforwards (NOLs) of approximately $1.7 billion.  Leap's ability to use these NOLs to offset future taxable income obligations could be substantially limited if it were to experience an “ownership change” as defined under Section 382 of the Internal Revenue Code.  In short, an ownership change occurs if the percentage of stock owned by a "five percent stockholder" increases by more than 50% over the lowest percentage owned by that stockholder during the previous three years. 

To protect its ability to carry forward net operating losses, the Leap board of directors adopted a Tax Benefit Preservation Plan on Sept. 13 which is included as Exhibit 4.1 to the Form 8-K filed by the company on 9/14/10 (SEC file no. 000-29752).   Similar to the mechanics of a "poison pill" shareholder rights plan that seeks to deter takeover bids, the Board has declared a dividend of one preferred stock purchase right on each outstanding Leap common share.  If any person or group acquires 4.99% or more of Leap common stock, or if any 4.99% holder acquires additional shares, the rights become exercisable for common stock having a market value equal to twice the exercise price, resulting in significant dilution to the ownership interests.

Several companies have enacted similar tax benefit preservation plans in the past year, including the Form 8-K filers listed below.  Like Leap, each also filed a Form 8-A on the same day to register the preferred stock purchase rights under the Securities Exchange Act of 1934.

PMI Group Inc. on 8/13/10 (SEC file number 001-13664)
Autobytel Inc. on 6/2/10 (SEC file number 001-34761)
Radian Group Inc. on 5/4/10 (SEC file number 001-11356)

Issuers Entering Into Forward Sales Agreements for Shelf Offerings

NiSource Inc. Form 424B2 on 9/9/10 (SEC file no. 333-148239)
Xcel Energy Inc. Form 424B2 on 8/4/10 (file no. 333-161521)
Regency Centers Corp. Form 424B5 on 12/7/09 (file no. 333-158635)

In connection with equity shelf takedown offerings of common stock, each filer of the prospectus supplements listed above entered into forward sales agreements with affiliates of the underwriters (the "forward purchaser").  At the request of the issuer, the underwriter, acting as agent for the forward purchaser (the "forward seller" in such agency capacity), borrows a fixed number of common shares from third parties which are sold to underwriters.  If the forward sellers are unable to borrow all of these shares of common stock, the company will issue and sell a number of shares equal to the number of shares that the forward sellers do not borrow and sell.

Peer-To-Peer Social Lending Platform Seeks to Offer Notes to Lender Members

Seeking to become the third P2P Internet-based platform to complete registration of notes with the SEC, United Power and Media, Inc. (UPM) filed Form S-1 on Sept. 3 (SEC file no. 333-169240).

UPM lender members would be eligible to buy Borrower Member Payment Dependent Notes issued by the company.  By making an offer on a borrower member loan request posted on the UPM platform, a lender member is committing to purchase a Note equal in principal amount to the dollar value of that offer at the stated interest rate and term, if the loan is funded and subsequently originated by UPM, or by an alternate institution to be selected in the future.  The proceeds of the Notes will be designated by the lender members to fund corresponding borrower loans and subsequently allocated to a trust account for the benefit of the borrower.

Community Development Banks Exchange TARP Preferred With U.S. Treasury

Carver Bancorp, Inc. Form 8-K on 9/2/10 (SEC file no. 001-13007)
M&F Bancorp, Inc /NC/ Form 8-K on 8/23/10 (file no. 000-27307)
Citizens Bancshares Corp /GA/ Form 8-K on 8/18/10 (001-14913)

Each of the bank holding companies has exchanged preferred stock previously issued under the Troubled Asset Relief Program Capital Purchase Program (TARP CPP) for an equivalent amount under the Community Development Capital Initiative (CDCI).  The CPP program carried a preferred dividend rate of 5% for 5 years, after which the dividend rate increased to 9%. Under the CDCI program, the preferred dividend rate is 2% for 8 years.

The Treasury Department established the CDCI program in February 2010 to invest lower cost capital in Community Development Financial Institutions (CDFI), supporting their lending activities to small businesses or disadvantaged communities.  Participation in TARP CDCI is limited to financial institutions certified by the Community Development Financial Institution Fund as a CDFI.  The Letter Agreement and Exchange Agreement with the United States Department of the Treasury is included as Exhibit 10.1 of each Form 8-K listed above.

IPO Auditing Fees In the Third Year of Market Uncertainty

Average auditor fees paid by issuers that have completed initial public offerings on U.S. exchanges or the OTC Bulletin Board have been on a steady rise since 2005.  Despite economic turmoil, the average amount paid to accounting firms by issuers that completed IPOs in 2008 and 2009 exceeded $1 million.  Through August, however, 2010 is shaping up to look more like 2007 when the average cost of getting the IPO books in order was $892,000.

Among underwritten IPOs launched this year, the $5.55 million auditor fee paid to Ernst & Young Hua Ming by China Hydroelectric Corp. in connection with its $96 million offer is the largest (SEC file no. 333-163558).  However, it is the only deal so far this year where the auditor fee has exceed $3 million.  In 2009, eight of the 63 companies that completed IPOs in U.S. markets paid auditor fees above $3 million. 

Prior to China Hyro, the last IPO with a larger auditor fee was Visa Inc.'s $17.86 billion deal in 2008, for which KPMG earned $13 million (file no. 333-147296).   2008 saw an unusual concentration of IPO auditor fees below the $200,000 threshold, encompassing approximately 45% of the companies that went public.  By contrast approximately 24% of the 2009 and 21% of 2010 deals have auditor fees that fall below the $200K level, which is more in line with recent historical experience.

The information reported herein was gathered using IPO Vital Signs, a Web-based system that includes all SEC registered IPOs, including REITs and those non-U.S. IPO filers seeking to list in the U.S. markets. IPO Vital Signs does not track closed-end funds, best efforts or non-underwritten deals, or IPO offerings for amounts less than $5 million.

AbitibiBowater Inc. to Withdraw NAFTA Notice of Arbitration

Following AbitibiBowater's December 2008 announcement of the permanent closure of its Grand Falls newsprint mill, the Government of Newfoundland and Labrador, Canada passed legislation to expropriate all of the company's timber rights, water rights, leases and hydroelectric assets in the province, whether partially or wholly owned through subsidiaries and affiliated entities.  As a result of the expropriation, in the fourth quarter of 2008, the company recorded, as an extraordinary loss, a non-cash write-off of the carrying value of the expropriated assets of $256 million.

AbitibiBowater filed a Form 8-K on August 30, 2010 (SEC file no. 001-33776) to announce a formal settlement agreement with the government of Canada whereby the government has agreed to pay the company’s post-emergence Canadian operating entity CAD$130 million (approximately USD$123 million) following the emergence from the creditor protection proceedings under Chapter 11 of the U.S. Bankruptcy Code and the Companies’ Creditors Arrangement Act (Canada), as applicable.  The settlement agreement is subject to approval by each of the U.S. Bankruptcy Court for the District of Delaware and the Superior Court of Quebec in Canada, and the Courts’ approval of the company’s plans of reorganization. 

SEC Adopts New Rules to Facilitate Director Nominations by Shareholders

By Final Rule adopted August 25 and to be effective 60 days after publication in the Federal Register, companies will be required to include a shareholder nominee for director in company proxy materials if the nominating shareholder or shareholders acting together own at least 3% of the voting power of securities that are entitled to vote and the shares have been continuously held for at least three years.  Shareholders may not use the rule for the purpose of changing control of the company or in an attempt to obtain a number of seats on the board that exceeds that number allowable under new Exchange Act Rule 14a-11.

The rule applies to all Exchange Act reporting companies, including investment companies, other than companies whose only public securities are debt securities.  "Smaller reporting companies" are subject to the rule, but it does not apply to them until after a three-year phase-in period.  Foreign companies that come within the definition of "foreign private issuer" are not currently subject to the SEC's proxy rules and would not be subject to these new rules. Foreign companies that do not qualify as foreign private issuers would be subject to the rules.

Companies Prepare for Dodd-Frank Clawback Provisions

Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Sections 201 et seq.) establishes a mechanism for the orderly liquidation of large, failing financial institutions that threaten U.S. financial stability.  Section 210(s) of the Dodd-Frank Act authorizes the FDIC to recoup compensation from senior executives and directors who were responsible for the failure of the covered financial company.  The FDIC has yet to promulgate regulations to implement the requirements of this subsection.

Argo Group International Holdings, Ltd. executed an employment agreement with its president and CEO on August 10 which includes a clawback provision that explicitly references the requirements of the Dodd-Frank Act.  Section 23 of the agreement provides that the payments and benefits provided under the agreement shall be subject to a clawback to the extent necessary to comply with the requirements of Dodd-Frank or any Securities and Exchange Commission rule. The executive employment agreement is filed as Exhibit 10.1 to the Form 8-K filed on August 13 (file no. 001-15259).

In Item 11 Executive Compensation disclosure of the Form 10-K Amendment filed by ADPT Corp. on July 28 (SEC file no. 000-15071), ADPT notes that the compensation committee of the board of directors will be re-evaluating its compensation policies going forward and plans to consider the potential merits of early implementation of a clawback policy, consistent with Dodd-Frank provisions.

Employment Offer Letters filed with Dell's Cash Tender Offer for 3Par Inc.

Pursuant to an Agreement and Plan of Merger dated August 15, Dell Inc. is offering to purchase for cash all outstanding common shares of 3Par at $18 per share, or an aggregate of approximately $1.14 billion.  On the same day that Dell filed its formal tender offer, Hewlett-Packard Co. (HP) announced an unsolicited proposal to acquire 3PAR for $24 per share in cash pursuant to a tender offer followed by a merger.  The Dell and HP Schedule TO filings on August 23 bear SEC file no. 005-83579. 

Dell and each of twelve executive or other officers of 3PAR have entered into offer letters describing the terms and conditions of their employment following the completion of Dell’s prospective acquisition of 3PAR. The offer letters state the job title to be held by each individual upon completion of the merger, as well as the annual base salary, annual target bonus (expressed as a percentage of base salary), and value of projected Dell long-term incentive grants expected to be granted in March 2012 (as applicable).  In addition, Dell has promised to grant seven executives new Dell restricted stock units upon the closing of the merger, and to grant five executives cash awards upon closing.

Each of the offer letters is included as an exhibit to Dell's Schedule TO, as well as a form of employment agreement that all employees of Dell sign regardless of position.  The form employment agreement includes a number of acknowledgments by the transferred employee regarding (among other things) (i) at-will employment status, (ii) obligations regarding the use and development of intellectual property, inventions and copyrightable materials and (iii) responsibilities relating to the non-disclosure of confidential information, proprietary information and controlled technology and software.

BHP Billiton Launches $40 Billion Hostile Takeover Bid for Potash Corp.

BHP, the world’s largest diversified natural resources company, has offered to purchase all outstanding common shares of fertilizer producer Potash Corporation of Saskatchewan Inc. at $130 in cash per share.  The tender offer and circular is the first exhibit to the Schedule TO filed on August 20 (SEC file no. 005-44283).

The offer is conditioned on certain regulatory approvals, waiver or invalidation of the Potash poison pill (shareholders rights plan), and a sufficient number of shares being tendered by the expiration date that enables BHP to obtain control of the issuer.  The offer is not subject to any financing condition.

On August 18, BHP entered into a new multicurrency term and revolving facility and subscription agreement with the original lenders to, among other things, meet the potential funding requirements in relation to the tender offer.  The facility and subscription agreement is included as Exhibit (b)(i) to the Schedule TO. 

The facility agreement is in a form commonly used for loans arranged in the international loan market. It contains representations and warranties, covenants and events of default, each with applicable qualifications or carve-outs. The covenants include requirements relating to the financial indebtedness of Potash Corp. and, among other matters, place certain restrictions on the ability of the BHP Billiton Group to dispose of its assets or incur financial indebtedness in BHP subsidiaries.

Coal Companies Note Increased Exposure to Black Lung Benefit Liabilities

The Patient Protection and Affordable Care Act enacted in March 2010 contained an amendment to the Black Lung Benefits Act (BLBA) which reinstates provisions that had been removed in 1981.  The amendment provides that an eligible miner can be awarded total disability benefits if he can prove he worked 15 or more years in or around coal mines and has a totally disabling respiratory impairment.  In addition, the amendment provides for an automatic survivor benefit to be paid upon the death of a miner with an awarded federal black lung claim without the requirement to prove that the miner’s death was due to black lung disease.

Form 10-Qs filed by mining companies in August to report the fiscal quarter ended June 30 discuss the new legislation in the Risk Factors section, including Patriot Coal Corp. (SEC file no. 001-33466), Westmoreland Coal Co. (001-11155) and James River Coal. Co. (000-51129). 

Patriot Coal states it has evaluated the changes to the BLBA that provide for automatic extension of awarded lifetime benefits to surviving spouses and the changes to the legal criteria used to assess and award claims.  Patriot Coal estimates the impact to its current population of beneficiaries and claimants results in an estimated $11.5 million increase to its benefit obligation.

Westmoreland indicates that through the first three months of the amendment’s effectiveness, it has experienced an increase in black lung claims over similar periods, including the automatic award of certain widow claims that fall under the new provisions. Westmoreland states it has incomplete information to determine whether this increase in claims constitutes a one-time spike or represents a future trend in black lung claims and eventual awards.

James River accrues amounts for benefit obligations based on the present value of expected future costs.  At June 30, an independent actuary estimates James River obligations of $43.9 million for coal workers’ black lung benefits and $60.8 million for workers’ compensation benefits.  These obligations are unfunded and the company notes it could be required to expend greater amounts than anticipated if its assumptions are incorrect.

Arkansas Utility Offers Bonds Secured by Storm Recovery Property

In January 2009, Arkansas was struck by an ice storm which caused widespread damage to infrastructure and power outages throughout Entergy Arkansas Inc.'s service territory.  In response to the damage to the utility infrastructure the Arkansas legislature passed the Arkansas Electric Utility Storm Recovery Securitization Act authorizing the Arkansas Public Service Commission to issue financing orders allowing for the securitization of storm recovery costs. 

Entergy Arkansas Restoration Funding, LLC is issuing $124 million of senior secured storm recovery bonds, with Entergy Arkansas as the seller, initial servicer and sponsor.  The bonds are secured by storm recovery property, which includes the right to a special, irrevocable nonbypassable charge, known as a storm recovery charge, paid by all retail electric customers in the certificated service territory.  Credit enhancement for the bonds will be provided by such statutory true-up mechanism as well as by general, excess funds and capital subaccounts held under the indenture.

Morgan Stanley & Co. has agreed to purchase all of the bonds as underwriter.  The prospectus supplement was filed on Form 424B5 filed 8/13/10 (file no. 333-168010).  The underlying registration on Form S-3 includes as exhibits the forms of indenture, storm recovery property servicing agreement, storm recovery property purchase and sale agreement, and the Financing Order issued by the Arkansas PSC. 

IPOs in U.S. Markets Spending Less Time in Registration

The average number of days in registration by companies that have completed initial public offerings on U.S. exchanges or the OTC Bulletin Board through July 2010 has fallen to 125, a sharp drop from the 2009 average of 216 days in registration. The 2009 average was no doubt exaggerated by dire market conditions, but the average over the prior 3-year period ranged from 134 to 140 days in registration.

Fifty-seven of the 81 underwritten deals that made it to market in the first seven months of this year spent over 90 days in the registration mill, roughly in line with the five-year average since 2005 whereby two-thirds of IPO issuers take at least 90 days.

Nine IPO issuers so far this year and ten last year managed to take 30 days or less to move from the initial registration filing to the final Form 424. Sixteen of these 19 companies are headquartered in China. Of the 100 issuers since January 2006 that spent 30 days or less in registration prior to the IPO, only STR Holdings, Inc. is a U.S.-based company.

The information reported herein was gathered using IPO Vital Signs, a Web-based system that includes all SEC registered IPOs, including REITs and those non-U.S. IPO filers seeking to list in the U.S. markets. IPO Vital Signs does not track closed-end funds, best efforts or non-underwritten deals, or IPO offerings for amounts less than $5 million.

Merger Consideration Includes New Class of Non-Voting Shares

Grifols S.A., a foreign private issuer and Spain-based company engaged in the healthcare sector, will issue cash and newly-created, non-voting (Class B) ordinary shares in connection with the proposed merger of a wholly-owned subsidiary with Talecris Biotherapeutics Holdings Corp.  Grifols registered a proposed maximum of $444.59 million of the Cl. B shares on the Form F-4 filed on August 10 (SEC file no. 333-168701). 

It is a condition of the merger agreement that the non-voting shares are admitted to listing on the Spanish Stock Exchanges and are approved for listing on the NASDAQ Stock Market in the form of new American Depositary Shares (ADSs), evidenced by American Depositary Receipts.  Section 8.05 of the merger agreement authorizes the parties to waive compliance with any of the conditions contained therein. 

The joint proxy statement/prospectus warns there is no assurance that a market for the Cl. B shares or for the new ADSs will develop, nor that the trading value or liquidity of those securities will be equivalent or similar to the trading value or liquidity of existing (Class A) ordinary shares or the existing ADSs of Grifols.

Private equity firms Cerberus Capital Management and Ampersand Ventures formed Talecris in 2005 upon the acquisition of the Bayer Plasma Products Business Group, an indirect subsidiary of Bayer AG.  The firms, which took Talecris public in an October 2009 IPO (file no. 333-144941), own 49.7% of the merger target.

ABS Issuers Discuss Impact of Dodd-Frank Financial Reform Act

Prior to July 22, Rule 436(g) under the Securities Act of 1933 provided nationally recognized statistical rating organizations (NRSROs) with an exemption from expert liability under the Securities Act for ratings information included in registration statements.  When the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law on July 21, Section 939G of Dodd-Frank repealed Rule 436(g) of the 1933 Act. 

In the MD&A section of its Form 10-Q filed on August 6, American Express Co. notes this circumstance is of particular significance in offerings of asset-backed securities (ABS), which require ratings disclosure that, subsequent to Dodd-Frank, can be made only with rating agency consent.  Following enactment of Dodd-Frank, the three principal NRSROs announced that they would not consent to the inclusion of their ratings in registered public offerings of securities. 

In order to facilitate a transition for asset-backed issuers, the SEC Division of Corporation Finance issued a no-action letter on July 22 to temporarily allow ABS issuers to omit the credit rating disclosure required under Regulation AB (see Ford Motor Credit Co., WSB File No. 0726201001).  Items 1103(a)(9) and 1120 of  Reg AB require disclosure of whether an issuance or sale of any class of offered ABS is conditioned on the assignment of a rating by one or more rating agencies.  The disclosure of a rating in a registration statement now requires the consent of a rating agency to be named as an expert.  The no-action position will expire with respect to any registered offerings of ABSs commencing with an initial bona fide offer on or after January 24, 2011.

Ally Financial Inc. (formerly GMAC Inc.) notes in the Risk Factors section of its Form 10-Q filed on August 5 that NRSROs have refused to permit their ratings to be used pending more clarity related to potential legal exposure. Ally also notes it is unclear whether the SEC will extend the six-month period to omit credit ratings from ABS registration statements.  Ally states that if the repeal of Rule 436(g) stands without further action, it would likely be limited to only private securitizations, which could have an adverse impact on its liquidity and cost of funds. American Express also indicates it may have to rely on private offerings to raise funding through its ABS program.

Carlyle Private Equity Firm Sponsors Prospective IPOs

UCI International, Inc. Form S-1 filed on 7/27/10 (SEC file no. 333-168336):
UCI was formed at the direction of The Carlyle Group ("TCG") in 2006 as the holding company of United Components, Inc., a supplier to the vehicle replacement parts market.  United had acquired all of its then-existing operating units in June 2003 for a purchase price of $808 million.  The acquisition was financed through a combination of debt and $260 million in cash contributed through Carlyle limited partnerships.  UCI proposes a $200 million IPO in an underwritten deal led by Merrill Lynch and Deutsche Securities. 

Booz Allen Hamilton Holding Corp. S-1 filed on 6/21/10 (SEC file no. 333-167645):
Booz Allen Hamilton Inc. completed the separation of its U.S. government consulting business from its commercial and international consulting business, the spin off of the commercial and international business, and the sale of 100% of its outstanding common stock to Booz Allen Holding, which was majority owned by Carlyle, in July 2008.  The Registrant is the successor to the government business of Booz Allen Hamilton following the separation.  Following the spin off, Booz Allen Hamilton was indirectly acquired by TCG by merger for total consideration of $1,828 million. The merger and spin-off agreements are Exhibits 2.1 and 2.2, respectively.

Biopharm Co. Offers Tradable CVRs as Part of Merger Package

In connection with a reverse triangular merger whereby Abraxis BioScience, Inc. will become a wholly-owned subsidiary, Celgene Corp. registered common stock and contingent value rights, or CVRs, on a Form S-4 dated July 29 (file no. 333-168369).  Pursuant to the merger agreement, each Abraxis common share will be converted into the right to receive an upfront payment of $58.00 in cash and 0.2617 shares of Celgene common stock. The upfront payment values Abraxis BioScience at approximately $2.9 billion, net of cash. 

Each Abraxis share will also receive one CVR that will entitle its holder to receive additional cash payments if certain U.S. regulatory approval milestones are achieved and/or annual net sales figures are met by certain Abraxis products.  Celgene has agreed to attempt to list the CVRs on The NASDAQ Global Select Market.

The July 2008 merger (333-152690) between Fresenius Kabi Pharmaceuticals and APP Pharmaceuticals, Inc. also included CVRs with merger consideration that was otherwise all cash.  The Fresenius CVRs, which are tied to the “Adjusted EBITDA” of APP, trade on NASDAQ under the symbol “APCVZ”.  The September 2009 merger (333-162238) between Ligand Pharmaceuticals Inc. and Neurogen Corp offered Neurogen shareholders both equity and CVRs as consideration, but the CVRs are not listed on any exchange and are subject to general transfer restrictions.

SEC Adopts Amendments to Part 2 of Form ADV

By Final Rule dated July 28 and to be effective 60 days after publication in the Federal Register, registered investment advisers will be required to provide new and prospective clients with a brochure and brochure supplements written in plain English.  Advisers must file their brochures electronically, and the SEC will make them available to the public through the Investment Adviser Public Disclosure website.

Since 1979, the SEC has required IAs to deliver a written disclosure statement to clients pursuant to rule 204-3 under The Investment Advisers Act of 1940.  Part 2 of Form ADV sets out minimum requirements for this disclosure statement, which is commonly referred to as the "brochure."  In the past, Part 2 has required IAs to respond to a series of multiple-choice and fill-in-the-blank questions organized in a “check-the-box” format, supplemented in some cases with brief narrative responses. IAs have had the option of providing information required by Part 2 in an entirely narrative format, but few have done so. 

The revised Part 2 requirements include two sub-parts, Part 2A and Part 2B.  Part 2A contains 18 disclosure items about the advisory firm that must be included in the brochure, including disclosure of the adviser’s business, fees and compensation, conflicts of interest, disciplinary history, brokerage practices and other information that help clients make an informed decision about whether to hire or retain that adviser.  The Part 2B "brochure supplement" includes information about certain advisory personnel on whom clients rely for investment advice.

Reorganized Auto Parts Manufacturer Registers Securities for Reoffer

Michigan-based Cooper-Standard Holdings Inc. emerged from Chapter 11 bankruptcy on May 27 through a series of transactions contemplated by the Plan of Reorganization, including a private placement to certain creditors.  The Form S-1 filed by Cooper-Standard on July 26 (file no. 333-168316) was filed in connection with a registration rights agreement that was filed as an exhibit to the Form 8-K filed on June 3. 

Under the reorganization, prepetition noteholders were permitted to participate in a common stock rights offering conducted during the solicitation of votes to accept or reject the Plan.  Additional common shares as well as 7% cumulative participating convertible preferred shares were issued to certain creditors pursuant to a commitment agreement that provided for the backstop of the rights offering.

The Chapter 11 Plan of reorganization was filed as an exhibit to the Form 8-K filed by Cooper-Standard on May 24, and the Commitment Agreement with the backstop creditors was filed as Exhibit 10.49 to the Form 10-K for FY09 filed on 3/31/10 (file no. 333-123708).

Commodity Pools Designed as Short-Term Trading Vehicles Emerge

Direxion Shares ETF Trust II intends to offer a series of exchange traded funds that seek daily leveraged investment results that correlate positively (or negatively) to 300% the daily return (or inverse return) of a target benchmark, generally a commodity-based or currency-based instrument.  The Delaware statutory trust is organized into separate series that are subject to regulations as commodity pools under the Commodity Exchange Act, and their sponsor is subject to regulation as a commodity pool operator.  None of the ETFs are a mutual fund or any other type of investment company under the Investment Company Act of 1940. 

Direxion II filed its Form S-1 on July 20 (file no. 333-168227), registering common units of beneficial interest that will be separately offered for each fund.  ETFS Collateralized Commodities Trust filed a Form S-1 on May 27 (333-167167) in connection with 18 initial ETFs that are intended to be used as short-term trading vehicles.  The ETFS funds seek daily investment results which correspond to 100% or 200% of the daily performance of the specified commodity index. 

The emergence of ETFs organized as a trust of commodity pools is a fairly recent experience.  More commonly, an ETF trust has tended to be an open-end management investment company registered under the 1940 Act.  Direxion Shares ETF Trust, a non-diversified series of mutual funds that seek to provide daily investment results much like Direxion II, filed a Registration Statement on Form N-1A on 9/16/08, file no. 811-22201.

J.P. Morgan Chase Subsidiary Resumes CMO Offering Activity

J.P. Morgan Chase Commercial Mortgage Securities Corp., a steady issuer of pass-through certificates through 2007, has filed a shelf Registration Statement on Form S-3 to offer a new series of collateralized mortgage obligations.  When SEC file no. 333-165147 is declared effective, the subsequent prospectus supplement will be the first one filed by the subsidiary since a $993.9 million offering dated 4/30/08. 

JPMCCMSC has registered CMO certificates for a proposed maximum aggregate offering of $58.3 billion.  Pursuant to 1933 Act Rule 415(a)(6), $39.6 billion of unsold securities from its prior Registration (333-140804) are included in the new Registration. 

The new Registration also relates to the Form S-3 filed by Bear Stearns Commercial Mortgage Securities Inc. (file no. 333-146993).  The former Bear Stearns Companies' subsidiary was merged into the J.P. Morgan subsidiary on 12/22/09.  Pursuant to 1933 Act Rule 429, the $18.6 billion of registered and unsold mortgage pass-through certificates under the BSCMI Registration will be offered under the same prospectus.

Former IPO Candidates Return with New Registrations

After a robust IPO market in 2007 (the most since 2000), initial public offerings fell off the cliff in 2008 and only in 2010 have resumed sustained activity.  A total of 113 IPO Registration Statements were withdrawn in 2008 as were another 58 in 2009, with most would-be issuers citing adverse market conditions as the reason for not proceeding with the offering. 

With 70 completed deals in the first half of 2010, the IPO market is clearly in recovery mode.  Among recent IPO registrants, several are making a second attempt after a previous withdrawal, including:

Epocrates, Inc. Form S-1 filed on 7/16/10 (file no. 333-168176)
AMC Entertainment Holdings, Inc. filed on 7/15/2010 (333-168105)
Affinion Group Holdings, Inc. Form S-1 filed on 5-21-10 (333-166993)
KKR & Co. L.P. Form S-1 filed on 5-10-10 (file no. 333-166687)

Weyerhaeuser Co. Plans REIT Conversion, Declares Special Dividend

Weyerhaeuser's board of directors has declared a special dividend of $5.6 billion payable on Sept. 1 to shareholders of record as of July 22 in connection with a planned conversion to a real estate investment trust.  To be eligible to elect REIT status for fiscal 2010 for federal income tax purposes, the company must distribute to its shareholders, on or before December 31, previously undistributed earnings and profits attributable to taxable periods ending prior to January 1, 2010. The special dividend is intended to satisfy this requirement.

Shareholders can elect stock or cash for the special dividend, with the total cash payment limited to 10 percent, or $560 million, of the total distribution.  In addition, the number of common shares a shareholder may receive in the special dividend may be limited by the ownership limitations in the company's Articles of Incorporation.  The board has granted an exemption from the ownership limitations to one existing shareholder which currently owns common shares in excess of the ownership limit.

Weyerhaeuser filed a prospectus supplement on Form 424B4 dated 7/13/10 to cover the securities that will be issued in the special dividend, and announced the special dividend in a Form 8-K filing on 7/12/10.

IPOs by Companies Converting from “S” Corporation to "C" Corp. Status

Vera Bradley, Inc. Form S-1 filed on 7/1/10 (file no. 333-167934)
LINC Logistics Co. Form S-1 filed on 6/29/10 (file no. 333-167934)

Prior to the offerings, both issuers have been treated as an S-corporation under Subchapter S of Chapter 1 of the Internal Revenue Code and thus generally have not been subject to income taxes.  The Summary and the Selected Consolidation Financial Data tables presented in both Registration Statements reflect pro forma income tax data as if the companies had been treated as C-corporations, which will be their tax status once they are public.
 
Both filings discuss the risk relating to C-corporation conversion, noting that claims of taxing authorities related to the prior status as an S-corporation could be harmful.  Vera Bradley intends to use a portion of its IPO proceeds to fund its final S-Corporation distribution.  Historically, Vera Bradley has distributed annually to its shareholders an amount no less than 40.5% of the prior year’s taxable income.

Carve-Out Financial Statements

Oxford Resource Partners LP Form S-1 filed on 7/2/10 (SEC file no. 333-165662):
Oxford acquired all of the active western Kentucky surface mining operations of Phoenix Coal Inc. on September 30, 2009.  The Carved-Out Surface Mining Operations of Phoenix Coal Inc. are included with the combined financial statements filed in Oxford's IPO Registration Statement. 

Internet Media Services, Inc. Form S-1 filed on 6/30/10 (SEC file no. 333-165972):
On October 8, 2009, Internet Media completed the asset purchase of the Web property LegalStore.com from Document Security Systems, Inc. in exchange for 7,500,000 common shares which IMS agreed to issue pro rata to the shareholders of DSS.  The carve-out financial statements for Legalstore.com are presented on a carve-out basis from the consolidated financial statements of DSS.

International CCE Inc. Form S-4 filed on 5/25/10 (SEC file no. 333-167067):
In connection with the separation of North American businesses from Coca-Cola Enterprises (CCE), International CCE, Inc. (New CCE) registered $8.4 billion of common stock for the merger of a wholly-owned subsidiary of Coca-Cola Co. into CCE.  New CCE’s financial statements have been prepared in accordance with U.S. GAAP on a “carve-out” basis from CCE’s consolidated financial statements using the historical results of operations, assets, and liabilities attributable to the legal entities that comprise New CCE.