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.
Friday, October 15, 2010
Wednesday, October 13, 2010
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).
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).
Friday, October 8, 2010
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.
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.
Wednesday, October 6, 2010
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.)".
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.)".
Monday, October 4, 2010
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)
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)
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