SEC Requires Private Fund Advisers to Register by March 30, 2012

By a split 3-2 vote with two Republican commissioners opposing, the SEC adopted a Final Rule on June 22 that that requires advisers to hedge funds and other private funds to register with the SEC, and require reporting by certain investment advisers that are exempt from registration.  Under amended Form ADV, advisers to private funds will have to provide basic organizational and operational information about each fund they manage, general information about the size and ownership of the fund and the adviser's services to the fund.  They also will have to identify five categories of "gatekeepers" - auditors, prime brokers, custodians, administrators and marketers - that perform critical roles for advisers and the funds they manage.

For many years, private fund advisers generally have avoided registering with the SEC based on an exemption for advisers with fewer than 15 clients - an exemption that counted each fund as a client, as opposed to each investor in a fund.  The exemption, which was eliminated by Title IV of the Dodd-Frank Act, enabled advisers handling large sums of money to avoid SEC oversight.

By unanimous vote, the SEC also adopted a Final Rule which becomes effective July 21, 2011, that establishes new exemptions from SEC registration and reporting requirements for certain advisers, and reallocates regulatory responsibility for advisers between the SEC and states.  Advisers will not have to register if they qualify for one of three new exemptions specified in the Dodd-Frank Act: 

• Advisers solely to venture capital funds.
• Advisers solely to private funds with less than $150 million in assets under management in the U.S.
• Certain foreign advisers without a place of business in the U.S.

The rules define "venture capital fund" as a private fund that invests primarily in "qualifying investments" (generally, private, operating companies that do not distribute proceeds from debt financing in exchange for the fund's investment in the company), but may hold certain short-term investments.  It also states that a venture capital fund is one that is not leveraged except for a minimal amount on a short-term basis, does not offer redemption rights to investors and represents itself to investors as pursuing a venture capital strategy.  

Procter & Gamble Uses Reverse Morris Trust Structure to Sell Pringles Line

Similar to a 2008 deal where Procter & Gamble Co. sold its Folgers Coffee business to J. M. Smucker Co. (see SEC Registration Statement file nos. 333-152451 & 333-152453), a P&G wholly-owned subsidiary and Diamond Foods, Inc. have registered common shares in connection with transactions whereby P&G will sell its Pringles snack business in a reverse Morris Trust transaction valued at approximately $2.35 billion, including the assumption of approximately $850 million of Pringles debt.  

A reverse Morris Trust transaction is an M&A strategy for a company to essentially sell assets without incurring any corporate tax, whereas typical deal structures would be taxable to the seller.  As a first step, P&G transferred all assets that comprise the target snack business to a stand-alone subsidiary named The Wimble Co. (see the Separation Agreement filed as Exhibit 2.2 to the Diamond Foods Form 8-K on 4/5/11).  P&G was represented by Jones Day of New York in the separation agreement, and Diamond by the San Francisco office of Fenwick & West LLP.  

On June 20, Wimble Co. registered common shares for the purpose of its split-off from P&G (333-175029).  The combination Form S-4/Form S-1 is comprised of an offer by P&G to exchange all Wimble common shares that are owned by P&G and will be converted into Diamond Foods common shares for P&G common shares that are validly tendered.  Prior to the distribution, and in partial consideration for the assets of the Pringles snack business transferred from P&G, Wimble will be recapitalized and will borrow funds to distribute to P&G or its affiliates.

Immediately following consummation of the exchange offer, Wimble Co. ("the Pringles Co.") will merge with and into a direct wholly owned subsidiary of Diamond Foods.  Each Wimble common share will be automatically converted into the right to receive one fully paid and nonassessable share of Diamond common stock.  Diamond registered common shares for the merger on Form S-4 also filed on June 20 (333-175025).  The shares of Diamond common stock issued in connection with the conversion of shares of Pringles Co. common stock in the merger will represent approximately 57% of the shares of Diamond common stock that will be outstanding immediately after the merger.

Blank Check Issuers Returning to IPO Market

Special purpose acquisition companies (SPACs, also known as blank check companies) were the leading industry group within the underwritten IPO market in the United States prior to the global financial crisis of 2008.  Sixty five SPACs went public in calendar year 2007, representing 23 percent of the deals completed.  In sharp contrast, from August 1, 2008, through the end of 2009 only one blank check launched an underwritten IPO in the U.S. among the 64 new offerings during this period. 

Beginning in late 2010 and continuing this year, SPACs have seen a resurgence in IPO activity.  Through June 16, there have been ten SPAC IPOs in 2011, already surpassing the 2010 and 2009 full-year totals.  Twenty of the year’s 151 new registrations have been filed by blank checks, compared to 12 in all of 2010.  The return of SPACs has been good for the business of EarlyBirdCapital and other smaller or boutique underwriters, but a few of this year’s SPAC IPOs were led by Citi. 

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.

Benihana Inc. to Eliminate Dual-Class Common Stock Structure

The restaurant operator has registered $109.8 million of common shares on Form S-4 filed June 9 in connection with a special meeting proposal to holders of common, Class A common and Series B convertible preferred stock of the company.  Benihana proposes to amend and restate the company's certificate of incorporation by reclassifying one of the two existing classes of common stock into the other class, which would remain as the only class outstanding.  

In reaching its decision to recommend the reclassification proposal, the board of directors considered the following material factors:

• Improved liquidity and trading efficiencies (greater liquidity of the common stock following the reclassification may allow investors to buy and sell larger positions in that class with less impact on the stock price than would otherwise be the case).
• Alignment of voting rights with economic ownership (the reclassification would eliminate the disparity between voting interests and economic interests by establishing a simplified common stock capital structure whereby each share of common stock is entitled to one vote).
• Increased attractiveness to institutional investors (the company believes that simplifying our capital structure could address complexity and liquidity concerns that institutional investors typically express and will allow common shares to be held by certain institutional investors whose investment policies do not permit them to invest in companies that have disparate voting rights). 
• Elimination of investor confusion and improved transparency. (the company believes that some investors may not understand the differences between our two classes of common stock, including confusion as to the calculation of our total market capitalization, shares outstanding and earnings per share).
• Increased strategic flexibility (the company believes that the simplified common stock capital structure could provide increased flexibility to structure acquisitions and equity financings by using equity as acquisition currency and for possible future offerings of our capital stock to potential investors).
• Dilution to the common stock (the board recognized that, pursuant to the reclassification proposal, the reclassification will be dilutive to holders of common stock with respect to voting power).

Benihana will account for the reclassification by adjusting its capital stock account based on the aggregate par value of the shares outstanding immediately following the reclassification.  The change in capital stock will be offset by a decrease in paid-in capital.  The Company expects that all of the shares following the reclassification will be listed on The Nasdaq Global Select Market under the symbol “BNHN”.  The Benihana board has amended the company’s shareholder rights plan to expire automatically when and if the reclassification of the Class A common Stock becomes effective.  

Conversions to REIT Status by Merger

In connection with a plan to reorganize the business operations of American Tower Corp.(NYSE: AMT) to allow the Delaware corporation to be taxed as a real estate investment trust, American Tower REIT, Inc. registered common shares valued at $21.89 billion on June 3 (Form S-4, SEC file no. 333-174684).  The REIT conversion will be implemented through a series of steps including, among other things, the merger of AMT into American Tower REIT, a recently-formed wholly-owned subsidiary.  For accounting purposes, the merger will be treated as a transfer of assets and exchange of shares between entities under common control. 

A REIT is not permitted to retain earnings and profits accumulated during years when the company or its predecessor was taxed as a C corporation.  To elect REIT status for the taxable year beginning January 1, 2012, AMT must distribute to its stockholders on or before December 31, 2012 previously undistributed earnings and profits attributable to the taxable period ending prior to January 1, 2012.  AMT plans to distribute these pre-REIT accumulated earnings and profits by paying a one-time special cash distribution to stockholders, estimated to be be no more than $200 million.  

Summit Hotel Properties, Inc. (NYSE: INN) converted to REIT status concurrently with its IPO on February 9, 2011 (Form S-11, 333-168686).  The issuer's predecessor, Summit Hotel Properties, LLC, formed Summit Hotel OP, LP to serve as the operating partnership of the REIT ("OP").  In connection with the merger of the LLC into the OP, the OP registered units of limited partnership interest valued at $149.9 million to be issued as merger consideration for the membership interests in the LLC (Form S-4, 333-168685). 

Prior to the merger of the LLC into the OP, the OP was treated as an entity disregarded for federal income tax purposes as separate from the REIT.  Although for state law purposes the OP was the surviving entity in the merger, the OP is treated as a continuation of the LLC for federal income tax purposes.  In the reorganization transactions, the REIT will be treated as contributing the cash proceeds of the IPO to the OP in exchange for OP units, except to the extent the payment of accrued and unpaid priority returns on the LLC membership interests as part of the reorganization transactions is recharacterized by the IRS as a “disguised sale” for federal income tax purposes.  The opinion of Hunton & Williams LLP that the payment of the accrued and unpaid priority returns should not be treated as a disguised sale for federal income tax purposes in included as Exhibit 8.1 to the Form S-4.