Orthopedics Co. Offers $190 Million Upfront Merger Consideration Plus Contingent Payments of up to $190 Million

Wright Medical Group, Inc. (NASDAQ: WMGI) registered common stock and contingent value rights, or CVRs, on a Form S-4 dated December 21 (file no. 333-185601) in connection with an agreement and plan of merger whereby BioMimetic Therapeutics, Inc. (NASDAQ: BMTI) will become a wholly owned subsidiary of Wright.  Pursuant to the merger agreement, each BioMimetic common share will be converted into the right to receive an upfront payment of $1.50 in cash and 0.2482 shares of Wright common stock. The upfront payment values BioMimetic at approximately $190 million.

Each BioMimetic share will also receive one tradable CVR, which entitles its holder to receive additional cash payments of up to $6.50 per share, which are payable upon receipt of FDA approval of Augment Bone Graft and upon achieving certain revenue milestones.  Augment Bone Graft is currently being marketed as an alternative to autograft procedures in Canada for foot and ankle fusions, in Australia and New Zealand for hindfoot and ankle fusions and has a PMA application pending before the FDA for hindfoot and ankle fusion indications.

Any contingent milestone payments will be paid in cash.  The CVR payments to BioMimetic shareholders are structured as follows:

• $3.50 per share upon FDA approval of Augment Bone Graft;
• $1.50 per share upon the achievement of $40 million in trailing twelve month sales for all products contributed by BioMimetic;
• $1.50 per share upon the achievement of $70 million in trailing twelve month sales for all products contributed by BioMimetic.

The latter two sales milestone payments cannot be made sooner than 24 and 36 months post-closing of the transaction, respectively.

 

The mix of cash and stock consideration is subject to adjustment, if necessary, under the merger agreement in relation to certain provisions of the NASDAQ Marketplace Rules.  Wright has agreed to use its reasonable best efforts to cause the CVRs to be approved for listing on The NASDAQ Global Select Market or The NASDAQ Global Market.  The legality of the CVRs and the shares of common stock to be issued pursuant to the merger will be passed upon for Wright by Wilson Sonsini Goodrich & Rosati.  Ropes & Gray has served as BioMimetic’s legal advisors.

New Class of Preferred Stock to be Issued as Merger Consideration

Document Security Systems, Inc. (NYSE MKT: DSS) registered common shares and a new class of preferred stock on November 23 in connection with a proposed merger with Lexington Technology Group, Inc., a private intellectual property monetization company (Form S-4, SEC File No. 333-185134).  Lexington stockholders will hold the largest percentage of the voting shares on a fully dilutive basis after the merger at 56% of the combined entity.  Because DSS will be issuing equity interests in order to acquire Lexington that results in a change of control in the combined entity, the transaction will be accounted for as a reverse acquisition. 

In addition to approval of the agreement and plan of merger at the special meeting of shareholders, DSS seeks to amend its certificate of incorporation to authorize a class of preferred stock that would be issued to holders of Lexington preferred shares who would, after giving effect to the merger and receipt of the merger consideration, beneficially own more than 9.99% of DSS common stock.  Holders of Lexington preferred stock who do not exceed the Beneficial Ownership Condition and accordingly will not receive DSS preferred stock (or warrants if the proposal to create the new class of preferred is not approved) will receive DSS common shares and the other types of merger consideration in exchange for their Lexington preferred stock based on the Common Stock Exchange Ratio as defined in the merger agreement. 

Lexington was formed in May 2012 to maximize the economic benefits of intellectual property assets through acquiring or internally developing patents or other intellectual property assets and then monetize such assets.  Through its wholly-owned subsidiary Bascom Research, Lexington currently develops software applications based on the Bascom Portfolio that are focused on applying computational and data structures to complex data sets in the medical field.  On October 3, Bascom initiated patent infringement lawsuits in the United States District Court for the Eastern District of Virginia against five companies, including Facebook, Inc. and LinkedIn Corporation, for unlawfully using systems that incorporate features claimed in patents owned by Bascom. The patents-in-suit relate to the data structure used by social and business networking web sites and Web 2.0 corporate intranets.

Submitting Confidential Draft Registration Statements Using EDGAR

As reported here on May 14, the SEC Division of Corporation Finance implemented a secure e-mail system to allow "emerging growth companies" as defined in the Jumpstart our Business Startups (JOBS) Act that have not previously sold securities under the 1933 Act to pre-file confidential registration statements.  On October 3, SEC staff posted a sample letter advising that as of October 1, 2012, such companies are able to submit draft registration statements using EDGAR.  

Issuers will need a CIK (Central Index Key) number to make the initial filing on EDGAR and must take a number of steps to prepare for that filing.  Filers with a CIK number can submit a request to convert their EDGAR status to an electronic filer.  When a filer makes its first EDGAR draft submission, it should submit it as a new draft registration statement, even if it is an amendment to a previously submitted version.  Each previously submitted draft registration statement, including exhibits, should be attached to the initial registration statement as a separate Exhibit 99 document.

Form S-20 is First Registration of Standardized Options in Ten Years

Canadian Derivatives Clearing Corp. ("CDCC"), the issuer of every put and call option that may be purchased or sold in transactions on Bourse de Montréal Inc. (the “Bourse”), filed a Form S-20 on October 3 to register 50 million contracts under the 1933 Act (SEC file no. 333-184288).  Each option relates to a particular underlying interest (a security listed on a recognized Canadian securities exchange, a Canadian government bond or a Canadian stock index or sub-index).  These options are not listed or traded on any securities exchanges in the United States, although certain of the underlying interests are traded on one or more U.S. exchanges.

Several U.S. exchanges are currently trading standardized options (“U.S. Options”) relating to foreign securities that are listed on U.S. exchanges, including certain securities of Canadian issuers who have securities listed on U.S. exchanges.  Certain U.S. Options relate to securities of Canadian issuers that are also underlying interests of the options to be offered by the issuer.  The options offered by CDCC and U.S. Options are not interchangeable and, although the terms and procedures applicable to the CDCC options and to U.S. Options are similar, they are not identical in all respects.

CDCC acts as the clearing facility through which the settlement of options transactions effected on the Bourse is made.  In addition to its role as a clearinghouse for exchange traded options on equities, bonds, stock indices and futures, CDCC acts as a clearinghouse for exchange-traded futures listed on the Bourse and for over the counter equity options.

Prior to the CDCC filing, the last pre-effective Form S-20 was filed by Options Clearing Corp. in March 2002.  At the time, Options Clearing was owned equally by the American Stock Exchange LLC, the Chicago Board Options Exchange, Inc., the International Securities Exchange LLC, the Pacific Exchange Inc. and the Philadelphia Stock Exchange, Inc.

SEC Adopts New Form SD for Specialized Dislosure Report

The SEC has approved new rules on August 22 to implement Sections 1502 and 1504 of the Dodd-Frank Act and govern disclosure about an issuer's use of conflict minerals that originate in the Democratic Republic of Congo or an adjoining country and disclosure of payments by resource extraction issuers made to the U.S. or foreign governments.  Companies are required to provide this disclosure on a new form to be filed with the SEC called Form SD.  The new rules become effective 60 days after publication in the Federal Register.

Dodd-Frank directed the SEC to issue rules requiring certain companies to disclose their use of conflict minerals that include tantalum, tin, gold, or tungsten if those minerals are “necessary to the functionality or production of a product” manufactured by those companies.  If a company that files annual reports under the 1934 Act knows or has reason to believe that the minerals may have originated in the covered countries, or knows or has reason to believe that the minerals may not be from scrap or recycled sources, it must conduct due diligence on the source and chain of custody of its conflict minerals and file a conflict minerals report as an exhibit to the Form SD. The conflict minerals report must be provided on company Web sites and the Internet address must be provided on Form SD.

Dodd-Frank also directed the SEC to issue rules requiring the disclosure of certain payments made to the federal government or foreign governments by companies engaged in the development of oil, natural gas, or minerals.  Under new 1934 Act Section 13(q), the types of payments related to commercial development activities that need to be disclosed include: 

• Taxes
• Royalties
• Fees (including license fees)
• Production Entitlements
• Bonuses
• Dividends
• Infrastructure Improvements

The new disclosure requirements apply to domestic and foreign issuers and to smaller reporting companies that meet the definition of resource extraction issuer.  In all, approximately 1,100 issuers will be affected.  A resource extraction issuer would be required to file Form SD no later than 150 days after the end of its fiscal year beginning with fiscal years ending after September 30, 2013.  For the first report, issuers may provide a partial report which includes only those payments made after 9/30/13. 

The SEC intends new Form SD to be used equally for the two separate disclosure requirements (relating to conflict minerals and resource extraction payments) and potentially others that would benefit from placement in a specialized disclosure form.  The final rules will require resource extraction issuers to include a brief statement in the body of Form SD and to present the detailed payment information in an exhibit to the form using the XBRL interactive data standard.  Because the XBRL exhibit will be automatically rendered into a readable form available on EDGAR, the SEC is not requiring a separate HTML or ASCII exhibit in addition to the XBRL exhibit.

Initial Drafts Included as Exhibits to IPO Registration Statements

Summit Midstream Partners, LP, an "emerging growth company" as defined in the Jumpstart our Business Startups (JOBS) Act enacted on April 5, 2012, filed a public Form S-1 on August 21 for an underwritten initial public offering.  Included as Exhibits 99.1 and 99.2 are the two draft registration statements that Summit submitted confidentially to the SEC on May 11 and July 17 pursuant to Section 106(a) of the JOBS Act.

Emerging growth companies can pre-file confidential registration statements to begin the SEC review process without publicly revealing sensitive commercial and financial information to their competitors, provided that the draft and all amendments thereto shall be publicly filed with the SEC not later than 21 days before the date on which the company conducts a road show, as such term is defined in Rule 433(h)(4) under the Securities Act. 

Summit is the 14th IPO registrant to provide such drafts as exhibits to the public filing.  Other emerging growth company filers to do so include:

FleetMatics Group plc Form F-1 on 8/20/2012
Santander Mexico Financial Group F-1 on 8/17/2012
Regulus Therapeutics Inc. S-1 on 8/17/2012
Trulia, Inc. S-1 on 8/17/2012
Manchester United plc F-1 on 7/3/2012

Exhibit 99.1 to the Regulus S-1 includes the cover letter from the company's legal counsel at Cooley LLP, and the Manchester United F-1 exhibit includes the cover letter from Latham & Watkins.

Issuers Using Social Media Platform to Sell Stock Directly to Customers

Concurrently with a contemplated $17 million underwritten initial public offering (Form S-1, SEC file no. 333-181594), Professional Diversity Network, Inc. has registered $1 million common shares for a directed share offering under a newly established Customer Stock Ownership Plan, or “CSOP™” that is primarily designed for its members and other individual investors using the proprietary web and social media platform of LOYAL3 Labs, Inc. and brokerage and other services of LOYAL3 Securities, Inc. 

Professional Diversity Network develops and operates online networks that seek to connect talent with opportunity within the context of a common culture or affinity.  Investors can purchase shares online in the IPO CSOP through the issuer's website or on Facebook using a patent-pending platform and proprietary algorithms developed and administered by LOYAL3 Securities.  To participate in the IPO CSOP, investors are required to agree to receive fully electronic communications relating to the IPO CSOP and the shares acquired in the IPO CSOP and held with LOYAL3 Securities after the consummation of the IPO.  

Professional Diversity would be the second public company to offer shares on the new platform.  On May 22, 2012, Fifth & Pacific Companies, Inc., formerly  Liz Claiborne, Inc., filed a Form S-3ASR (333-181590) to offer approximately $6 million worth of common shares pursuant to a  CSOP™  or direct stock purchase and dividend reinvestment plan.  LOYAL3 Securities, Inc., a broker-dealer, acts as the shareholder's broker and agent in all CSOP transactions and investors open a brokerage account with LOYAL3 Securities to participate in the plan.  The CSOP may also include various customer reward and recognition programs to be offered at the full discretion of the issuer.

2012 Mid-Year IPO Review

The 2012 U.S. IPO market has had some tough knocks. Having gained slight momentum early on, picking up steam on the heels of a tough second half in 2011, things were looking somewhat brighter.  That was until fears of Eurozone defaults and a bad showing on the part of Facebook’s IPO weighed into the going public equation.  Seventy-nine IPOs priced in this year’s first half compared to 93 in the same period last year.  Interestingly, thanks to the $16 billion IPO windfall brought in by Facebook’s troubled deal , first half 2012 aggregate IPO proceeds exceeded those garnered in the same period last year by roughly $2.4 billion.

With ten IPOs in the first half of 2012, SIC 7372 (Services-Prepackaged Software) saw a four deal-improvement over its 2011 performance. SIC Codes 1311 (Crude Petroleum & Natural Gas) and 2834 (Pharmaceutical Preparations) were in step with their first half 2011 pace.  Having tougher times of it were SIC 3674 (Semiconductors & Related Devices), which priced three deals in the first half 2012 compared to five in that of 2011, and 6770 (Blank Checks), which saw a substantial first half drop from 12 completed deals in 2011 to just three this year.

The contrast between first half 2011 and 2012 is more starkly seen in the number of initial IPO filings. 165 companies filed to go public in first half 2011; only 86 did so this year. 2012’s most prolific contributors to the IPO pipeline were the Energy/Natural Resources and Biotech Pharmaceuticals sectors. The former contributed 12 IPO-hopefuls to the line-up and the latter contributed eight. With six new deals proposed in first half 2012, SIC 7372 (Services-Prepackaged Software) topped its 2011 same period total by one. Mirroring its performance in completed deals, Blanks Checks were down significantly with a decline from 20 initial filings in first half 2011 to just six in 2012.

Given how rough the IPO market waters have become, the total number of withdrawals in the first half of 2012 could have looked much worse when stacked up against the RW tally for the same period 2011. Withdrawals saw a period over period increase from 39 last year to 44 this year. No one industry contributed disproportionately to first half 2011’s withdrawal total, and the same can pretty much be said about this year’s IPO drop-outs. The highest number of RWs filed by any one segment was the seven deals abandoned by REIT filers.

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.

SEC Directs Exchanges to Adopt Listing Standards for Compensation Committees

By Final Rule adopted June 20 and to be effective 30 days after publication in the Federal Register, the SEC has adopted new rules to implement Section 952 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which added Section 10C to the Securities Exchange Act of 1934.  Section 10C requires the SEC to direct national securities exchanges and national securities associations to prohibit the listing of any equity security of an issuer that is not in compliance with certain compensation committee and compensation adviser requirements.

Under new Rule 10C-1, the exchanges are required to adopt listing standards that require each member of a company’s compensation committee to be a member of the board of directors and to be independent.  In developing a definition of independence, the exchanges will be required to consider relevant factors, including the source of compensation of the board member and whether the board member is affiliated with the company or any of its subsidiaries. 

Rule 10C-1 requires the exchanges to adopt listing standards providing that the compensation committee of a listed company:

• May, in its sole discretion, retain or obtain the advice of a compensation adviser;
• Is directly responsible for the appointment, compensation and oversight of compensation advisers, and
• Must be appropriately funded by the listed company.

The exchanges themselves may impose additional factors.  These listing standards, with limited exceptions, will also apply to members of a listed company’s board of directors who, in the absence of a board committee, oversee executive compensation matters on behalf of the board of directors.  Rule 10C-1 requires the exchanges to exempt four categories of companies from the compensation committee independence requirements:

• Limited partnerships;
• Companies in bankruptcy proceedings;
• Open-end management investment companies registered under the Investment Company Act of 1940, and
• Any foreign private issuer that discloses in its annual report the reasons that the foreign private issuer does not have an independent compensation committee.  

Each national exchange that lists equity securities must propose listing standards that comply with the new rule no later than 90 days after effectiveness.  The new listing standards must be approved by the Commission within one year of the new rule becoming effective.  Amendments to Item 407 of Regulation S-K will require issuers to provide certain disclosures regarding their use of compensation consultants and how they address compensation consultant conflicts of interest.

Treasury Department Prices Offerings of TARP Preferred

The United States Department of the Treasury today priced secondary public offerings of cumulative perpetual preferred stock in seven financial institutions, with aggregate net proceeds to Treasury expected to be approximately $275 million.  The preferred shares will be offered through modified Dutch auctions conducted by Merrill Lynch and Sandler O'Neill as representatives of the several underwriters, pursuant to effective shelf registration statements filed by the seven issuer companies. 

Treasury acquired the preferred shares as part of the Troubled Assets Relief Program (TARP) established pursuant to the Emergency Economic Stabilization Act of 2008 (ESSA).  EESA was enacted into law on October 3, 2008 to restore confidence and stabilize the volatility in the U.S. banking system and to encourage financial institutions to increase their lending to customers and to each other.  Five of the prospectus pricing supplements were filed today by the following banks:

Ameris Bancorp, Form 424B4 (SEC file no. 333-180820)
First Defiance Financial Corp. Form 424B2 (file no. 333-180902)
LNB Bancorp, Inc. Form 424B1 (file no. 333-180906)
Taylor Capital Group, Inc. Form 424B2 (file no. 333-180892)
United Bancorp, Inc. Form 424B4 (SEC file no. 333-180883)

Proxy Proposals to Comply With NASDAQ Listing Rule 5635

Dialogic Inc. PRE14A on 6/11/12 (SEC file no. 1-33391)
Stereotaxis, Inc. DEF14A on 6/8/12 (SEC file no. 0-50884)
Authentidate Holding Corp. DEF14A on 5/21/12 (SEC file no. 0-20190)

Rule 5635(b) of the NASDAQ listing standards requires stockholder approval when any issuance or potential issuance will result in a change of control of the issuer.  NASDAQ has not adopted any rule on what constitutes a “change of control” for purposes of Rule 5635(b).  However, NASDAQ has previously indicated that the acquisition of, or right to acquire, by a single investor or affiliated investor group, as little as 20% of the common stock (or securities convertible into or exercisable for common stock) or voting power of an issuer could constitute a change of control.

Dialogic seeks approval to issue common shares upon the exercise of warrants issued pursuant to a subscription agreement, and to issue common shares upon the conversion of notes issued under a securities purchase agreement.  The full exercise of the warrants or the full conversion of the notes may result in the issuance of equity in an amount that may be deemed to exceed the share threshold constituting a change of control for purposes of Rule 5635(b).  As a result of certain anti-dilution provisions in the warrants, the exercise price is deemed to be below the market value of the common shares on the date the warrants were issued. 

Rule 5635(d) of the NASDAQ listing standards requires stockholder approval of any sale, issuance or potential issuance of common stock (or securities convertible into or exercisable for common stock) equal to 20% or more of the common stock outstanding or 20% or more of the voting power outstanding before such issuance for a price less than the greater of book or market value of the common stock at the time of such issuance.

Stereotaxis sold approximately $8.5 million in aggregate principal amount of unsecured, subordinated, convertible debentures to certain institutional investors under a Securities Purchase Agreement dated May 7, 2012.  For no additional consideration, purchasers of the debentures also received six-year warrants to purchase 25.2 million issuer common shares at an exercise price of $0.3361 per share.   As a condition to closing, Stereotaxis agreed to seek stockholder approval of being able to convert all of the convertible debentures and honor the exercise of all convertible debt warrants, even in excess of 20% of its pre-transaction capitalization, for purposes of Rule 5635(d).  The Board believes it is in the best interests of the company to have the flexibility to settle these obligations with common stock rather than repaying or settling them in cash.

Authentidate also seeks stockholder approval in compliance with NASDAQ Listing Rules 5635(b) and 5635(d) to issue securities in connection with a $5 million private placement of convertible redeemable preferred stock in October 2010 and a March 2012 financing of $4.05 million aggregate principal amount of senior secured promissory notes and warrants to purchase common stock for gross proceeds of $4.05 million.

Emerging Growth Company Pulls Form S-1 to Submit a New Draft Registration Confidentially

Cantor Entertainment Technology, Inc. registered $100 million of Class A common shares on December 22, 2011, for an initial public offering on the Nasdaq Global Market (SEC file no. 333-178721, and Form S-1 Amendment No. 1 filed on 2/14/12).  On May 25, Cantor filed an application on Form RW seeking withdrawal of the Registration Statement because it expects to submit a new draft registration statement pursuant to the confidential submission process available to “emerging growth companies” under Section 106(a) of the JOBS Act, which added new Section 6(e) of the Securities Act.

Cantor Entertainment, an affiliate of Cantor Fitzgerald & Co., which had been designated as the lead underwriter for the withdrawn offering, notes that it may rely on Rule 155(c) under the Securities Act in connection with any private offering undertaken by it following the withdrawal of the Registration Statement. Rule 155(c) provides a non-exclusive safe harbor from integration of private and registered offerings whereby an offering for which the issuer filed a registration statement will not be considered part of a later commenced private offering if, among other things, no securities were sold in the registered offering and the issuer withdraws the registration under Rule 477.

Confidential Submission of Draft Registration Statements

The Jumpstart Our Business Startups (JOBS) Act permits emerging growth companies (EGCs) that have not previously sold securities under the 1933 Act to pre-file confidential registration statements, thereby allowing them to begin the SEC review process without publicly revealing sensitive commercial and financial information to their competitors.  Beginning today, the SEC Division of Corporation Finance has implemented a secure e-mail system that allows confidential submissions under the JOBS Act as well as non-public draft registration statements from foreign private issuers under the pre-existing Division policy.

All eligible issuers submitting draft registration statements confidentially are required to open a secure e-mail account per Division instructions.  Submissions must be text searchable PDF files. Additional information to be shared with the Division must be included in a transmittal letter rather than the e-mail text box. An EGC should confirm its EGC status in the transmittal letter. There should be one file for the transmittal letter, one file for the body of the draft registration statement, and one file for each exhibit to the draft registration. Exhibit numbers should match those used in the draft registration exhibit index. Upon receipt of a draft registration, the secure e-mail system will send the EGC or foreign private issuer a return receipt.

The e-mail system also will be used to send staff comment letters, to receive issuer replies to comments, and to submit amendments to a draft registration statement.  The e-mail address used to register on the secure e-mail system will be the only e-mail address that the Division will use to send comment letters and any other correspondence prior to the public filing of the draft registration statement.

Mining Company Offers Tangible Equity Units

Thompson Creek Metals Co. Inc. (NYSE: TC) has priced an offering of 8.8 million of its 6.5% tangible equity units ("tMEDS", a service mark of J.P. Morgan Securities), each with a stated amount of $25 (Form 424B2 on 5/8/2012, SEC file no. 333-170232).  Each tMEDS is a unit composed of a prepaid stock purchase contract and a senior amortizing note due May 15, 2015.  Of the $220 million aggregate stated amount of tMEDS, approximately $177.5 million will be accounted for as equity and $35.9 million will be accounted for as debt.

Each purchase contract will automatically settle on May 15, 2015 for between 4.5855 and 5.3879  common shares of Thompson Creek, subject to adjustment.  A unitholder may elect to settle a purchase contract early prior to the third scheduled trading day immediately preceding the mandatory settlement date and receive a number of common shares per contract equal to: (i) 95% of the minimum settlement rate for settlement prior to November 10, 2012, and (ii) the minimum settlement rate for settlement commencing on November 11, 2012.  

The amortizing notes will pay equal quarterly installments of $0.406250 per amortizing note, which will constitute a payment of interest and a partial repayment of principal, and which in the aggregate will be equivalent to a 6.5% cash payment per year with respect to each $25 stated amount of tMEDS. The amortizing notes will be senior unsecured obligations of the issuer.  Each tMEDS may be separated into its constituent purchase contract and amortizing note after the initial issuance date of the tMEDS, and the separate components may be combined to recreate a tMEDS.

Thompson intends to use the net proceeds from the tMEDS offering, together with cash and the net proceeds from a concurrent senior notes offering, to complete construction of its Mt. Milligan copper-gold mine.  The validity of the tMEDS was passed upon for the company by Gibson, Dunn & Crutcher and for the underwriters by Simpson Thacher & Bartlett.

IPOs by Emerging Growth Companies as Defined by JOBS Act

Four of the seven underwritten initial public offerings that were completed for the week ended Friday, April 20 were by an "emerging growth company" as defined in the Jumpstart our Business Startups (JOBS) Act enacted on April 5, 2012.  Title I of the JOBS Act amends Section 2(a) of the Securities Act of 1933 to establish a new category for issuers that have total annual gross revenues of less than $1 billion (as such amont is indexed for inflation). 

Splunk Inc. Form 424B4 on 4/20/12 (SEC file no. 333-178988)
Infoblox Inc. Form 424B4 on 4/20/12 (file no. 333-178925)
Midstates Petroleum Company Form 424B4 on 4/20/12 (333-177966)
Proofpoint Inc. Form 424B4 on 4/20/12 (file no. 333-178479)

Essentially, emerging growth companies are exempted from certain regulatory requirements until the earliest of three dates: (1) five years from the date of the emerging growth company’s initial public offering; (2) the date an emerging growth company has $1 billion in annual gross revenue; or (3) the date an emerging growth company becomes a large accelerated filer, which is defined by the SEC as a company that has a worldwide public float of $700 million or more.

The JOBS Act allows emerging growth companies to provide audited financial statements for the two years prior to registration, rather than three years as is now required of other public companies. This two-year period already applies to companies with a public float under $75 million, which are known as non-accelerated filers.

In addition, emerging growth companies:

• are not required to comply with Sarbanes-Oxley Act Section 404(b) requirements for auditor attestation of internal control over financial reporting;
• have reduced disclosure obligations regarding executive compensation in periodic reports and proxy statements;
• are not required to hold shareholder advisory votes on executive compensation, or obtain shareholder approval of any golden parachute payments not previously approved;
• are not required to comply with any new audit rules adopted by the Public Company Accounting Oversight Board after April 5, 2012, unless the SEC determines otherwise,
• can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards, thus can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

Treasury Department Sells $6 Billion of AIG Stock, Agrees to $8.5B Repayment

American International Group, Inc. (NYSE: AIG) filed a Form 424B7 Prospectus Supplement on March 9 in connection with U.S. Treasury efforts to exit its investment in AIG and wind down the Troubled Asset Relief Program (SEC file no. 333-160645).  The underwritten resale of $6B worth of the $41.8B common stock held by the government, $3B of which is to be repurchased by AIG at the initial price to the public, will bring Treasury's stake in the insurer down from 77 to approximately 70 percent. 

The supplement notes that Treasury and AIG reached agreement on March 7 that provides for the repayment of the government’s remaining $8.5B preferred equity investment in the AIG-owned entity AIA Aurora LLC (AIA SPV) – a special purpose vehicle that holds ordinary shares in AIA Group Limited (AIA).  The AIA SPV was created in December 2009 in exchange for a reduction in the debt that AIG owed the Federal Reserve Bank of New York at the time.  The Agreement to Amend Master Transaction Agreement is filed as Exhibit 10.1 to the Form 8-K filed by AIG on March 8 (file no. 001-08787). 

AIG, AIA SPV, Treasury and FRBNY are parties to a Master Transaction Agreement dated 12/8/2010 regarding a series of integrated transactions to recapitalize AIG, including the repayment of all amounts owing under a 2008 Credit Agreement with FRBNY.  The master agreement (Exhibit 2.l to the AIG Form 8-K filed 12/8/2010) indicates that Davis Polk & Wardwell provides counsel to Treasury and FRBNY, and that Sullivan & Cromwell is counsel to AIG and AIA SPV.

SEC Staff Reverses Position on Net Neutrality Shareholder Proposals

In February 2011, the SEC's Division of Corporation Finance issued No-Action Letters to each of AT&T Inc., Comcast Corp. and Verizon Communications Inc. that confirmed a basis to omit from their proxy materials shareholder proposals requesting the companies to publicly commit to abide by Internet network neutrality principles - "i.e., operate a neutral network with neutral routing along the company's wireless infrastructure such that the company does not privilege, degrade or prioritize any packet transmitted over its wireless infrastructure based on its source, ownership or destination."  The proposals were excluded under Rule 14a-8(i)(7) as relating to ordinary business operations.

In December 2011, the Nathan Cummings Foundation submitted similar proposals to AT&T, Verizon and Sprint Nextel Corp., noting that since SEC staff last reviewed the issue, net neutrality had continued to be a consistent and hotly contested topic of policy debate in Washington, in the press, in academia and communities throughout the U.S.  Senators Al Franken and Ron Wyden wrote to the SEC in March 2011 about the importance of net neutrality.  The Foundation said they called net neutrality the free speech issue of our time.  AT&T also received identical proposals from Trillium Asset Management, LLC on behalf of three proponents and from the Benedictine Sisters of Mount St. Scholastica.

By No-Action Letters dated February 10 and 13, 2012, SEC staff reversed its 2011 position, explaining that due to the sustained public debate over the last several years concerning net neutrality and the Internet and the increasing recognition that the issue raises significant policy considerations, the proposals may not be omitted in reliance on the ordinary business exclusion.  In the 2011 letters, SEC staff noted increasing levels of public attention, but did not believe that net neutrality had emerged as a consistent topic of widespread public debate such that it would be a significant policy issue.

AT&T filed a preliminary proxy statement on Form PRE 14A on February 21 for the annual meeting scheduled for April 27, 2012 (SEC file no. 1-08610) .

Filings on New Form ABS-15G

As reported in this space on January 21, 2011, issuers of asset-backed securities ("ABS") are required to disclose the last three years of repurchase history in an initial filing on Form ABS-15G by Feb. 14, 2012, with additional disclosures to be required quarterly thereafter.  Not including amendments, 146 filings of the new form had been submitted on EDGAR through February 13.  Many securitizers reported that they had requested but were unable to obtain all information with respect to investor repurchase demands, and that it is possible disclosures may not contain information about all investor demands  made prior July 22, 2010.  Early filers of Form ABS-15G that do present a repurchase demand activity reporting table include:

• RWT Holdings, Inc. on 2/6/12 (SEC file no. 25-131)
• Federal Home Loan Mortgage Corp. on 2/10/12 (file no. 25-240)
• Dexia Real Estate Capital Markets on 2/13/12 (file no. 25-435)
• Wells Fargo Asset Securities Corp. on 2/13/12 (file no. 25-453)

"Dear Potential Investors…"

The IPO Registration Statement filed by social network operator Facebook, Inc. on February 1 (SEC file no. 333-179287) contains an open letter from CEO & Chairman Mark Zuckerberg, making it the fifth internet/tech IPO registrant to do so since Google Inc. presented the concept in 2004 (333-114984).

Google founders Larry Page and Sergey Brin directly addressed a variety of things that they wanted prospective shareholders to know about the more personal side of the company’s history, mission, and values.  Inspired by Warren Buffet’s essays to shareholders in Berkshire Hathaway annual reports, the letter was subtitled "'An Owner's Manual' for Google's Shareholders" and ended up being placed in between the Risk Factors and a special prospectus section that discussed the novel Dutch Auction Process that determined the IPO price and allocation of shares.  Web hosting service provider Rackspace Hosting, Inc. included its 2008 Racker Letter to Investors in essentially the same position of its Dutch Auction IPO prospectus (333-150469).

Media software developer DivX, Inc. went public in September 2006 (333-133855) and was the first IPO issuer after Google to include a letter inside the prospectus.  The DivX founders stress a sentiment common with most letters to potential investors in digital media – the goal of enabling connection. The five DivX signators write, “We want to help creators create and reach broader and more diverse audiences. We want to help everyone become more engaged and forge deeper, more intensive connections.”

Another theme that tends to be addressed in such letters is a commitment to long-term shareholder value.  In the Letter From Our Founder included in the December 2011 IPO prospectus of online gaming developer Zynga, Inc. (333-175298), CEO Mark Pincus states "We will prioritize innovation and long-term growth over quarterly earnings. We will not make short-term decisions that sacrifice our core values or veer from our long-term vision."  The founder and CEO of e-commerce firm Groupon, Inc. strikes a similar note in the Letter From Andrew D. Mason: "When we see opportunities to invest in long-term growth expect that we will pursue them regardless of the short-term impact on our profitability" (Form 424B4 on 11/7/11, 333-174661). 

Both Zynga and Groupon place the letters directly after the Risk Factors section, which follows the Prospectus Summary.  The letters in the Facebook and DivX filings are placed between the MD&A and Business sections of the respective prospectuses.

CenterPoint Subsidiary Offers Bonds Supported by Transition Property

CenterPoint Energy Transition Bond Co. IV, LLC is issuing $1.695 billion of senior secured transition bonds in multiple tranches.  A wholly-owned subsidiary of public utility holding co. CenterPoint Energy, Inc., serves as the seller, initial servicer and sponsor.  The bonds are secured by transition property, which includes the right to a special, irrevocable nonbypassable charge, known as a transition charge, paid by all retail electric customers in the certificated service territory. 

The transition property is not a static pool of receivables or assets.  The utility restructuring provisions of the Public Utility Regulatory Act mandate and the Public Utility Commission of Texas requires that transition charges be adjusted at least annually, and semi-annually as necessary, to ensure the expected recovery of amounts sufficient to timely provide all scheduled payments of principal, interest and other required amounts and charges in connection with the bonds.  Credit enhancement for the bonds will be provided by such statutory true-up mechanism, as well as by general and capital subaccounts held under the indenture. 

Goldman, Sachs & Co., Citigroup Global Markets and Morgan Stanley & Co. are acting as representatives of the underwriters.  The prospectus supplement was filed on Form 424B2 filed 1/12/12 (SEC file no. 333-177662).  The underlying registration on Form S-3 includes the Texas PUC financing order as Exhibit 99.5.  The Form 8-K filed on 1/18/12 under file no. 001-03187 includes as exhibits the forms of indenture, transition property servicing agreement, transition property sale agreement, administration and intercreditor agreements.

SEC Adopts Accredited Investor Net Worth Standard Under Dodd-Frank

By Final Rule that becomes effective on February 27, 2012, the SEC has amended its rules to exclude the value of a person’s home from net worth calculations used to determine whether an individual may invest in certain unregistered securities offerings.  Dodd-Frank Act Section 413(a) requires the definitions of “accredited investor” in the 1933 Securities Act rules to exclude the value of a person’s primary residence for purposes of determining whether the person qualifies as an “accredited investor” on the basis of having a net worth in excess of $1 million.

SEC rules permit certain private and limited offerings to be made without registration, and without requiring specified disclosures, if sales are made only to “accredited investors.”  Under the amended net worth calculation, indebtedness secured by the person’s primary residence, up to the estimated fair market value of the primary residence, is not treated as a liability, unless the borrowing occurs in the 60 days preceding the purchase of securities in the exempt offering and is not in connection with the acquisition of the primary residence. In such cases, the debt secured by the primary residence must be treated as a liability in the net worth calculation.

Dodd-Frank Section 413(b) requires the SEC to review the definition of accredited investor every four years and authorizes the SEC to make adjustments based on its reviews.  The SEC also adopted technical amendments to Form D and a number of other rules to conform them to the requirements of Section 413(a) and to correct cross-references to former 1933 Act Section 4(6) which was renumbered Section 4(5) by the Dodd-Frank Act.