DIRECT DIAL | |
| (650) 470-4530 | |
EMAIL ADDRESS | |
| KENTON.KING@SKADDEN.COM | |
| | |
| | |
| | January 4, 2013 |
Ms. Amanda Ravitz Assistant Director U.S. Securities and Exchange Commission Division of Corporation Finance Washington, D.C. 20549 |
| | Re: | MIPS Technologies, Inc. |
Amendment No. 1 to Preliminary Proxy Statement on Schedule 14A
Filed December 20, 2012
File No. 000-24487__________________________
Dear Ms. Ravitz:
On behalf of our client, MIPS Technologies, Inc., a company existing under the laws of the state of Delaware (the “Company”), and in connection with the filing of the Company's Form DEFM14A (the “Proxy Statement”), we hereby submit the Company's response to the comments of the staff (the “Staff”) of the U.S. Securities and Exchange Commission (the “Commission”) set forth in your comment letter dated January 3, 2013. Pursuant to our discussion, given the timing of the Company's annual meeting, we would appreciate your expeditious review of this response letter and the attached Exhibit A. The Company’s responses set forth in this letter are numbered to correspond to the numbered comments in the Staff’s letter. For ease of reference, we have set forth the Staff’s comment and the Company’s response for each item below.
General
| 1. | We note your response in prior comment 1. With respect to the Patent Sale Agreement, please provide us additional information to help us understand how the sale of the patents may impact your results in future |
Ms. Amanda Ravitz
U.S. Securities and Exchange Commission
January 4, 2013
Page 2
periods. For example, we note that in connection with the sale of the patents, you will receive a license back for each patent. Discuss how your results of operations may differ in future periods as a result of you being a sublicensee of these patents as opposed to being the owner of the patents as you have been in the historical periods. Discuss how you considered any differences in determining whether pro forma financial information would be material to shareholders.
In response to the Staff's comment, we respectfully advise the Staff that we do not believe the sale of the patents will have any impact on our financial results for future periods.
MIPS Technologies generates revenue by licensing our architectures and processor cores. As disclosed on page 1 of the Proxy Statement, we are retaining 82 of the patents in our patent portfolio. As disclosed on page 6 of the Proxy Statement, MIPS Technologies will receive a worldwide, non-exclusive, irrevocable, sublicensable, transferable, royalty-free license from Bridge Crossing to freely exploit the technologies covered by the assigned patents for use in connection with any product, service, technology, material or process of MIPS Technologies and its present and future customers. We believe the patents on the retained patent list and the broad rights granted to MIPS Technologies under the assigned patents encompass the patent assets and patent rights we need to license the MIPS Technologies architectures and processor cores. In addition, MIPS Technologies will not pay any future royalties to Bridge Crossing following the patent sale as a result of the royalty-free license to the assigned patents granted by Bridge Crossing. Therefore, we expect to continue this business strategy without interruption and without any impact on our results of operations following the patent sale.
As disclosed on page 43 of the Proxy Statement, we entered into a license agreement with Broadcom Corporation on June 29, 2012, pursuant to which we granted Broadcom a non-exclusive license to our patents as of such date, for $26.5 million. This license agreement was the first of its kind for MIPS Technologies and has never been a part of our historical business strategy. Following the patent sale, we would lose the ability to enter into license agreements like the agreement entered into with Broadcom. However, we entered into the license agreement with Broadcom in connection with our publicly announced strategy to unlock the value in our patent portfolio, as disclosed on page 40 of the Proxy Statement. The proposed patent sale to Bridge Crossing for $350 million is the culmination of our efforts to monetize our patent portfolio and thus we would not entertain this business strategy after completing the patent sale. Therefore, given that the agreement with Broadcom was an unprecedented event, we do not believe the inability
Ms. Amanda Ravitz
U.S. Securities and Exchange Commission
January 4, 2013
Page 3
to pursue such agreements in future periods will have an effect on our future results of operations. We have revised the disclosure on page 59 of the Proxy Statement to highlight our inability to enter into transactions like the license agreement with Broadcom. Exhibit A hereto sets forth the revisions to the Proxy Statement.
Moreover, the only rights that MIPS Technologies is giving up in the future as a result of being a licensee under the assigned patents as opposed to the owner of the assigned patents is the right to bring an infringement claim. Historically, patent enforcement has not been a part of our business strategy and thus giving up the right to enforce these patents should not have an impact on our future results of operations. Furthermore, we believe the retained patents, as well as our right to revoke the sublicenses granted under the retained patents in certain circumstances as disclosed on page 6 of the Proxy Statement, provide MIPS Technologies with ample protection to file a counterclaim for patent infringement in the event we were to receive a patent infringement claim.
For these reasons, it is believed that the pro forma financial information with respect to the patent sale is not material to our stockholders. At the Staff's request, the Company has revised its disclosure on page 68 of the Proxy Statement to include the effects the patent sale would have on our balance sheet. Exhibit A hereto sets forth the revisions to the Proxy Statement.
Background of the Proposed Transactions, page 40
| 2. | Please expand your response to prior comment 2 to further clarify the competing proposals that you discuss. In this regard, (i) clarify the “significant number” of patents in the offer from Party B, (ii) clarify Party G’s role in the proposed transaction discussed on the bottom of page 42 and whether and when Party G’s involvement ended, and (iii) clarify the size of the patent portfolio in the potential transaction with Party D discussed on page 45 and the substance of the board’s discussions, if any, regarding Party D’s proposal. |
In response to the Staff's comment, the Company has revised its disclosure on pages 40, 42 and 45 of the Proxy Statement. Exhibit A hereto sets forth the revisions to the Proxy Statement.
* * *
The Company acknowledges the following in regards to the filing:
| | · | the Company is responsible for the adequacy and accuracy of the disclosure in the filing; |
| | · | Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the filing; and |
Ms. Amanda Ravitz
U.S. Securities and Exchange Commission
January 4, 2013
Page 4
| | · | the Company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States. |
* * * * *
We appreciate the time and attention you have given to these matters. Please direct any further questions regarding this response letter to the undersigned by phone at (650) 470-4530 or via e-mail at Kenton.King@skadden.com.
| | Sincerely, |
| | |
| | /s/ Kenton J. King |
| | Kenton J. King |
| cc: | Gail H. Shulman, Esq. |
Ms. Amanda Ravitz
U.S. Securities and Exchange Commission
January 4, 2013
Page 5
Exhibit A – Proposed Disclosure
| | 1. | In response to comment #1, the disclosure under the heading "Reasons for the Patent Sale; Recommendation of Our Board of Directors" on page 59 of the Company's Proxy Statement shall be revised as set forth below: |
| | | |
| | | "Our board of directors also considered potential risks or negative factors relating to the patent sale, including the following: |
| | | · | the fact that the completion of the patent sale will preclude MIPS Technologies’ stockholders from having the opportunity to participate in the future appreciation of the value of its capital stock derived from ownership of certain of MIPS Technologies’ patents; |
| | | | |
| | | · | the fact that the completion of the patent sale will preclude MIPS Technologies from engaging in license agreements, like the license agreement entered into with Broadcom Corporation, for the patent portfolio we previously owned; |
| | | | |
| | | · | the fact that, although the patent sale agreement contains a “fiduciary out,” it does not contain a “go shop” provision;" |
| | 2. | In response to comment #1, page 68 of the Company's Proxy Statement shall include a new section as set forth below: |
| | | |
| | | "Impact on the Balance Sheet of the Patent Sale If the Company completes the patent sale but does not complete the proposed merger, the impact of the patent sale on our balance sheet would be an increase to the Company’s cash balance of $350 million and an increase to the Company’s current accrued liabilities of approximately $10.7 million as a result of transaction fees owed to advisers on the patent sale. In addition, the Company would incur a tax liability related to the patent sale. At statutory federal and state tax rates, the tax liability would be approximately 40% prior to usage of any of the Company’s tax attributes and tax credits. MIPS Technologies estimates that the patent sale will generate a tax liability of approximately $96.0 million (net of estimated losses and estimated tax attributes)." |
| | | |
| | 3. | In response to comment #2, the disclosure on page 40 of the Company's Proxy Statement shall be revised as set forth below: |
| | | |
| | | "In early 2012, we received a proposal from Party B, expressing an interest in a proposed exclusive licensing structure for a significant numberapproximately half of our patents whereby we would receive guaranteed payments of $20 million over one year plus some portion of future net licensing revenue." |
| | | |
| | 4. | In response to comment #2, the disclosure on page 42 of the Company's Proxy Statement shall be revised as set forth below: |
| | | |
| | | "On May 25, 2012, our board of directors held a meeting. Representatives of J.P. Morgan, Skadden Arps and members of our senior management were present at the meeting. J.P. Morgan updated our board of directors on its discussions with potential partners, noting that Party F verbally expressed interest in possibly purchasing selected patent families from MIPS Technologies. Mr. Vij noted to our board of directors that Imagination Technologies expressed interest in buying LicenseCo. A representative of J.P. Morgan then summarized the financial terms of the Bridge Crossing proposal for our board of directors and explained that Party G was a member of this consortium of companies interested in an acquisition or license to all of the MIPS Technologies patents and patent applications. At all times after Party G declined to move forward with a proposal, the negotiation with respect to a potential patent sale was led by Bridge Crossing although Party G was and remained an equity participant in Bridge Crossing. J.P. Morgan then led a discussion of the potential staged transaction of selling PatentCo and simultaneously selling LicenseCo to a separate buyer. Our board discussed the opportunities and challenges that would be posed by the continuation of MIPS Technologies as an independent company assuming that a PatentCo transaction was completed but a LicenseCo transaction was not completed. Representatives of J.P. Morgan made a preliminary presentation concerning the valuation of MIPS Technologies, including related to its financial plan to monetize its patent portfolio. After a lengthy discussion, our board of directors directed management and J.P. Morgan to expand the strategic review process to include potentially selling PatentCo and LicenseCo separately, while at the same time continuing to review alternatives for a sale of the entire company. Representatives of Skadden Arps reviewed with the directors their fiduciary duties." |
Ms. Amanda Ravitz
U.S. Securities and Exchange Commission
January 4, 2013
Page 6
| | 5. | In response to comment #2, the disclosure on page 45 of the Company's Proxy Statement shall be revised as set forth below: |
"On August 7, 2012, Bridge Crossing submitted a final proposal letter including a revised purchase price of $350 million in cash for the purchase of PatentCo. Bridge Crossing also included a mark-up of the draft patent sale agreement with its letter. On that same day, Party D submitted a revised licensing proposal for substantially all of our patent portfolio whereby Party D and MIPS Technologies would form a licensing partnership for nine months, during which Party D would receive a fee of 15-35% of licensing revenues, plus reimbursement of any third party expenses. After the nine-month licensing period, Party D would have an option to acquire the stock of MIPS Technologies, which would include the patent portfolio but not any cash or the operating business, for $100 to $130 million.
On August 9, 2012, our board of directors met to consider and discuss the proposals received and to discuss our strategic alternatives. Representatives of Skadden Arps, J.P. Morgan and Ocean Tomo and members of our senior management attended the meeting. At this meeting, representatives of J.P. Morgan updated our board of directors on the strategic review process and reviewed with our board of directors the parameters and status of the respective proposals received. A representative of J.P. Morgan reported to our board of directors that Bridge Crossing provided a revised indication of interest of $350 million for an outright purchase of PatentCo and sublicensable rights to patents retained by LicenseCo, however Bridge Crossing desired to move quickly in a manner that did not allow for a simultaneous LicenseCo transaction. A representative of Skadden Arps led a discussion about the timeline for a transaction with Bridge Crossing, taking into account the necessary stockholder approval, as well as some of the terms of Bridge Crossing's proposal around Bridge Crossing's financing arrangements, certainty of closing and the ability to respond to competing proposals. In addition, Skadden Arps led a discussion with respect to the licensing rights associated with Bridge Crossing's proposal, and the alternatives for our operating business in the event that a LicenseCo transaction could not be completed simultaneously with a PatentCo transaction. In addition, J.P. Morgan noted that with respect to a LicenseCo transaction each of Imagination Technologies, CEVA and Party L expressed interest in exploring a transaction with MIPS Technologies, although final proposals had not yet been received. A representative of Skadden Arps made a presentation to our board of directors on the expected timing for the strategic review process. Skadden Arps explained the fiduciary duties of our board of directors as they relate to the current phase of the process. At this meeting, our board of directors determined that the structure and nature of Party D's proposal was unattractive and determined not to go forward with Party D's proposal."
