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.