Press Release

6/12/06 – In the wake of the May 23^rd offering by Vonage Holding Corp., there has been much controversy surrounding their directed share program, bringing reserved shares back to the fore. At this juncture, IPO followers have probably read reports about disaffected directed share participants – namely Vonage customers – refusing payment, the issuer vacillating on whether to compel directed share subscribers’ payment or not, and even the filing of a class action law suit surrounding the offering.

In September we reported that the frequency of directed share programs was declining. This trend has continued. As of May 31^st this year 46 of the 96 companies to go public (47.9%) disclosed a directed share program. That percentage represents a steep decline from the almost 67% of 2001’s IPOs which did so. (To review the full Vonage Holdings, Inc. directed share program disclosure click here.)

Year	No. of IPOs in Period	Percent Reporting Directed Share Program
2001	99	66.7%
2002	92	64.1%
2003	87	55.2%
2004	253	59.7%
2005	234	50.0%
2006*	96	47.9%

Focusing on this year’s IPOs through the end of May, Vonage’s directed share program was second largest, by percent of total shares in the offer, only to REIT Resource Capital Corp. Vonage disclosed two separate directed share programs, one for customers (13.5% of offered shares) and one for officers, directors, employees, et al. (1.5% of offered shares) for a total of 15% of the offering to be reserved. Resource Capital disclosed that up to 25% of its shares would be reserved. (To review the full Vonage Holdings, Inc. directed share program disclosure click here.)

In Resource Capital’s February 6^th offering they disclosed both on the cover and in the Underwriting section that the issuer had reserved up to 1 million shares for purchase by Resource Capital Investor “an affiliate of Resource America”. Resource Capital is “externally managed and advised by Resource Capital Manager, Inc., an indirect wholly-owned subsidiary of Resource America, Inc. (NASDAQ: REXI)” [Front Cover]. At the time of the offering Resource America had already purchased 900,000 shares of the allocation. The remainder if un-purchased would be offered to the public.

Resource Capital Corp., 424B4 , offer date 2/6/06

FRONT COVER: At our request, one of the underwriters has reserved for sale to Resource Capital Investor, Inc., an affiliate of Resource America, up to 1,000,000 shares of our common stock offered by this prospectus at the initial public offering price per share, 900,000 shares of which have been purchased.

UNDERWRITING: At our request, one of the underwriters has reserved for sale to Resource Capital Investor up to 1,000,000 shares of our common stock offered by this prospectus at the initial public price per share, 900,000 shares of which have been purchased. All reserved shares purchased by Resource Capital Investor have been purchased for investment purposes only and not with a view toward distribution. Any reserved shares not so purchased have been offered by the underwriters to the general public on the same basis as the other shares offered hereby.

Since we started tracking IPO directed share programs in January 2001, Resource Capital and Vonage’s programs are the third and eighth largest disclosed programs, respectively. The largest directed share program since 2001 was that disclosed by Marshall Edwards, Inc. (12/18/03) in which 72.1% of the total offered shares were reserved. As stated in its prospectus, “Of the 2,080,000 common stock units being offered pursuant to this prospectus, up to an aggregate of 1,500,000 units are being offered at the initial public offering price to U.S. holders of ordinary shares and American Despositary Receipts of Novogen, who beneficially owned their shares or receipts as of the close of business on October 20, 2003, and to our U.S. stockholders who beneficially owned their shares as of that date.”

This year, Vonage’s directed share program is not the only one to reach out to customers. Ultimately, it may be hard to define exactly how many issuers eventually deem customers to be eligible because of the inclusion of such nebulous language as “persons related to or associated with our business”, “other related persons”, and persons related to or associated with us”. Such statements could be construed in any number of ways from friends and family to business associates to anyone having any connection to the company, client or otherwise. One issuer, Castle Brands, Inc. (4/5/06), went so far as to specify “other business associates (as well as selected individuals that we believe would have a positive impact on our company as long-term shareholders) that we invite to participate in this offering.” Could that include a favored customer?

Be that as it may, three issuers, including Vonage, specifically named customers as eligible for inclusion.

IPO Issuer Number of Reserved Shares % of Offer in Directed Shares Offer Date	“Customer” Disclosure*
Vonage Holding Corp. 4,687,500 15.0%** 5/23/06	“We have requested that the underwriters reserve up to 13.5% of the common stock offered in this prospectus for sale to certain of our *customers* at the initial public offering price in the Vonage Customer Directed Share Program.” (See IPO PROSPECTUS for entire disclosure.)
Morgans Hotel Group Co. 900,000 5.0% 2/13/06	“At our request, the underwriters have reserved up to 900,000 shares offered through the underwriters by means of this prospectus for sale at the initial public offering price to *customers*, business associates and related persons identified by us.”
American Railcar Industries, Inc. 425,000 5.0% 1/19/06	“At our request, the underwriters have reserved up to 5% of the shares of common stock for sale at the public offering price set forth on the cover page of this prospectus to persons who are directors, officers, employees, and certain vendors, suppliers, *customers* and business associates, or who are otherwise associated with us through a directed share program.”

Perhaps the most unique item about the Vonage directed share program was the considerable lengths at which Vonage went to disclose and “market” the customer portion of the program.

Most reserved share programs are disclosed in their entirety in just one or two paragraphs of the Underwriting section of the prospectus. Vonage’s program ran 12 paragraphs, nine of which were regarding just the customer portion. Moreover, it took a full two pages of the prospectus, the space taken by some issuers’ entire Underwriting section.

Vonage also extensively used the Rule 433 Free Writing Prospectus to disclose communications with and/or aid its communications with its directed share participants. Vonage filed a total of 20 Free Writing Prospectuses relating to the offering, and at least 17 pertained to dissemination of information relative to the directed share program. The sheer number of Vonage’s Free Written Prospectuses far and away eclipses the typical number used by prospective issuers if they used them at all. Including Vonage, 27 issuers have employed the Free Written Prospectus this year regardless of the existence of a directed share program or not. Other than Vonage, all filed either one or two Free Writing Prospectuses at the most. Further, six of Vonage’s 17 Free Written Prospectuses dealing with the directed share program included or were entirely screenshots of their IPO Customer Directed Share website. Only Chipotle Mexican Grill, Inc. (1/25/06) filed a Free Writing Prospectus which included a graphic – that of its logo and a website map.

What benefit did all this disclosure give Vonage? Perhaps it is all up to the outcome of current or prospective litigation.

IPO Vital Signs Subscribers can also review Lead Manager offering policies in regards to reserved shares using the following links: