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Business Separation Transactions: Spin-Offs, Subsidiary IPOs and Tracking Stock

Stephen I. Glover

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Why have some of the nation's most prominent corporations engaged in spin-offs and split-offs? What should you know about structuring these transactions for companies of any size? How do they compare to traditional M&A transactions? Finally, there is a book that examines the hows and whys of this vital corporate strategy. Business Separation Transactions: Spin-Offs, Subsidiary IPOs and Tracking Stock explains the objectives underlying these transactions, the techniques used, and the consequences for all parties.

You'll find extensive discussion of management's goals, the significance of stock market conditions, and the legal, tax and accounting issues involved in every scenario—plus sample agreements, registration statements and other helpful documents.

Whatever your reason for contemplating a business separation transaction—improving management focus, eliminating competition between business units, reducing costs of raising capital—this problem-solving guide helps you achieve your objectives while satisfying legal requirements. You'll also find coverage of employee benefits, creditors' rights, and other legal issues that may arise at any stage of a transaction. This book is a vital resource for anyone who advises management or has responsibility for making key decisions.

Book #00667; looseleaf, one volume, 1,254; published in 2002, updated as needed; no additional charge for updates during your subscription. Looseleaf print subscribers receive supplements. The online edition is updated automatically. ISBN: 978-1-58852-103-3

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  • Availability: Available
  • Brand: Law Journal Press
  • Product Type: Books
  • Edition: 0
  • Page Count: 1254
  • ISBN: 978-1-58852-103-3
  • Pub#/SKU#: 667
  • Volume(s): 1

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  • Stephen I. Glover
Stephen I. Glover is a partner in the corporate department of Gibson, Dunn & Crutcher LLP's Washington, D.C. office. He has written and lectured frequently on a variety of corporate and securities law topics. Mr. Glover is a member of the D.C. Bars Board of Governors and former co-chair of its Corporation, Securities and Finance Law Section. He has also served as a member of the New York Tribar Opinion Committee. He is a member of the advisory boards for Mergers & Acquisitions Law Report and The M&A Lawyer. Mr. Glover graduated from Harvard Law School in 1980, clerked for Judge J. Skelly Wright on the U.S. Court of Appeals for the District of Columbia Circuit during the 1980-1981 term and clerked for Justice Thurgood Marshall on the United States Supreme Court during the 1981-1982 term.

Also by Stephen I. Glover :
Partnerships, Joint Ventures & Strategic Alliances

CHAPTER 1
Introduction

§1.01 Business Separation Choices
§1.02 Labels
§1.03 Purposes of Business Separation Transactions
§1.04 History of Business Separation Transactions
[1] Spin-Offs
[2] Split-Ups and Split-Offs
[3] Subsidiary IPOs
[4] Tracking Stock Transactions
[5] Sales of Subsidiaries and Business Divisions
§1.05 The Stock Market Impact of Business Separation Transactions
§1.06 Failed Business Separation Transactions
§1.07 Conclusion
§1.08 Selected Business Separation Transactions

CHAPTER 2
An Overview of Business Separation Transactions

§2.01 Introduction
§2.02 Spin-Off Transactions
[1] Basic Structure
[2] Purpose of Spin-Off Transaction
[3] Corporate Law Issues
[4] Securities Law Issues
[5] Fraudulent Conveyance Issues
[6] Tax Issues
[7] Employee Issues
[8] Financing Alternatives
[9] The Role of Investment Bankers and Banker Opinions
[10] Documentation
[11] Timing of Spin-Off Transactions
§2.03 Split-Off Transactions
[1] Basic Structure
[2] Purpose of Split-Off Transaction
[3] Corporate Law Issues
[4] Securities Law Issues
[5] Fraudulent Conveyance Issues
[6] Tax Issues
[7] Employees Issues
[8] Financing Alternatives
[9] The Role of Investment Bankers and Banker Opinions
[10] Documentation
[11] Timing of Split-Off Transactions
§2.04 Split-Up Transactions
[1] Basic Structure
[2] Purpose of Split-Up Transaction
[3] Corporate Law Issues
[4] Securities Law Issues
[5] Fraudulent Conveyance Issues
[6] Tax Issues
[7] Employee Issues
[8] Financing Alternatives
[9] The Role of Investment Bankers and Banker Opinions
[10] Documentation
[11] Timing of Split-Up Transactions
§2.05 Subsidiary IPOs
[1] Basic Structure
[2] Purpose of a Subsidiary IPO
[3] Corporate Law Issues
[4] Securities Law Issues
[5] Fraudulent Conveyance Issues
[6] Tax Issues
[7] Employee Issues
[8] Financing Alternatives
[9] The Role of Investment Bankers and Banker Opinions
[10] Documentation
[11] Timing of Subsidiary IPO
§2.06 Tracking Stock Transactions
[1] Basic Structure
[2] Purpose of Tracking Stock Transactions
[3] Corporate Law Issues
[4] Securities Law Issues
[5] Fraudulent Conveyance Issues
[6] Tax Issues
[7] Employee Issues
[8] Financing Alternatives
[9] The Role of Investment Bankers and Banker Opinions
[10] Documentation
[11] Timing of Tracking Stock Transactions
§2.07  Sales of Subsidiaries and Business Divisions
[1]  Basic Structure
[2]  Purpose
[3]  Corporate Law Issues
[4]  Securities Law Issues
[5]  Fraudulent Conveyance Issues
[6]  Tax Issues
[7]  Employee Issues
[8]  Financing Alternatives
[9]  Investment Banks and Fairness Opinions
[10]  Documentation
[11]  Timing
§2.08 Business Separation Transactions and the Economic Bail-Out Efforts
[1] Background
[2] Examples
[3] Federal Programs

CHAPTER 3
Structuring Spin-Off, Split-Up and Split-Off Transactions

§3.01 Overview
§3.02 Defining the Businesses to Be Separated in a Spin-Off Transaction
§3.03 Allocating Assets Between the Parent and the Company to Be Spun-Off
[1] Intellectual Property
[2] Real Estate
[3] Personal Property and Tangible Assets
[4] Telecommunications and Information Systems
[5] Cash and Other Liquid Assets
[6] Transferring Subsidiaries
[7] Identifying Separate Facilities or Groups of Assets
[8] Brand Names, Stationery and Signage
§3.04 Allocating Liabilities in Spin-Off Transactions
[1] General Allocation Issues
[2] Assignment of Contract Obligations
[3] Product Liability
[4] Liabilities Associated with a Discontinued Business
[5] Unidentifiable Liabilities
[6] Environmental Liabilities
[7] Litigation-Related Liabilities
[8] Employee, Employee Benefits and Related Liabilities
[9] Securities Law Liability
[10] Responsibility for Transaction Costs
§3.05 The Balance Sheet Approach to Allocating Assets and Liabilities in a Spin-Off Transaction
§3.06 Impact of Fraudulent Conveyance Statutes and Other Creditors’Rights Concerns on the Allocation of Assets and Liabilities in Spin-Off Transactions
§3.07 Good Company-Bad Company Spin-Offs
§3.07A The Impact of the 2009 Economic Bailout Efforts on Spin-Offs
§3.08 Spin-Offs of Small Businesses
§3.09 Spin-Offs Coupled with Subsidiary IPOs
§3.10 Spin-Offs, Subsidiary IPOs and Dual Class Voting Structures
§3.11 Spin-Offs Coupled with Subsidiary IPOs and Exchange Offers
§3.12 Spin-Offs Coupled with Acquisitions
§3.13 Partial Spin-Offs
§3.14 Structuring Cash Payments to the Parent Company in Spin-Off Transactions
§3.14A Sponsored Spin-Offs
§3.15 Creating a Spin-Off Ready Subsidiary
[1] Old vs. New Company
[2] State of Incorporation
[3] Charter and Bylaws of the Subsidiary to Be Spun-Off
[4] Takeover Defenses
[5] Stockholder Rights Plan
[6] Impact of the Sarbanes-Oxley Act, the Dodd-Frank Act, and Renewed Focus on Corporate Governance
§3.16 Selection of Directors for the Company to Be Spun-Off
§3.17 Selection of Officers for the Company to Be Spun-Off
§3.18 Employees and Employee Benefits in Spin-Off Transactions
§3.19 Supply, Distribution, Marketing and Other Similar Arrangements; Covenants Not to Compete
§3.20 Administrative Service Arrangements
§3.21 Adjusting Credit Arrangements
§3.22 Regulatory Approvals
§3.23 Third-Party Consents
§3.24 Splitting the Stock of the Company to Be Spun-Off
§3.25 Setting a Distribution Ratio
§3.26 Fractional Shares
§3.27 Declaring the Spin-Off Dividend
§3.28 Negotiation of Spin-Off Arrangements
§3.29 Documenting the Spin-Off Transaction
[1] Documenting Reorganization Transactions
[2] Spin-Off Agreement
[3] Supply Agreement
[4] Administrative Services Agreement
[5] Intellectual Property Licensing Agreement
[6] Marketing Agreement
[7] Environmental Indemnification Agreement
[8] Employee and Employee Benefits Agreement
[9] Insurance Agreement
[10] Lease
[11] Tax-Sharing Agreement
§3.30 Spin-Off Road Shows
§3.30A Alternative Spin-Off Structure: Using a Merger Agreement to Effect a Spin-Off
§3.31 Structuring Split-Off Transactions
[1] Allocating Assets and Liabilities
[2] Coupling Split-Offs with Subsidiary IPOs and Spin-Offs
[3] Split-Offs by Small or Troubled Companies
[4] Partial Split-Offs
[5] Setting the Exchange Ratio
[6] Establishing the Number of Shares to Be Issued
[7] Dealing with Fractional Shares
[8] Dealing with Under-Subscribed and Over-Subscribed Offers
[9] Establishing Offer Conditions
[10] Exchange Offer Mechanics
[11] Information Agent and Dealer-Manager
§3.32 Structuring Split-Up Transactions
[1] Allocating Assets and Liabilities and Other Preliminary Steps
[2] Determining Number of Shares to Be Distributed
[3] Fractional Shares
[4] Developing a Plan of Liquidation
[5] Corporate Law Filings and Notice to Creditors
[6] Shareholder Approval

CHAPTER 4
Corporate Law Issues in Spin-Off, Split-Up and Split-Off Transactions

§4.01 Introduction
§4.02 Fiduciary Duties and the Business Judgment Rule in Spin-offs
[1] Basics of Fiduciary Duty
[2] The Business Judgment Rule
[3] Gross Negligence as the Applicable Standard of Care
[4] Breach of the Duty of Loyalty and the Entire Fairness Standard
[5] The Use of a Special Board Committee
[6] The Effect of Stockholder Ratification on Interested Director Transactions
[7] The Voidability of Interested Director Transactions
[8] Reliance on Management Support
[9] Reliance on Experts
[10] Factors the Board of Directors May Take into Account in Considering Spin-Off Transactions
[11] Spin-Offs of Majority Controlled Subsidiaries
[12] Spin-Offs Combined with Public Offerings
[13] Spin-Offs Combined with Mergers and Changes in Control
[14] The Spin-Off as a Takeover Defense and the Board’s Fiduciary Duties
[15] Fiduciary Duty to Stockholders of Spun-Off Company
[16] Fiduciary Duty to Creditors
[17] Exculpation of Directors
§4.03 Stockholder Approval of Spin-Offs
[1] Spin-Off Transactions as the Disposition of All or Substantially All of a Corporation’s Assets
[2] Stockholder Approval of Spin-Offs Combined with Mergers
[3] Appraisal Rights
[4] Voluntarily Submitting the Transaction to Stockholders for Approval
§4.04 Restrictions on Declaration of Dividends
[1] Basic Dividend Standards
[2] Measuring the Amount of Surplus
[3] Measuring the Value of the Subsidiary to Be Spun-off
[4] Reliance on Management and Experts
[5] Role of Investment Bankers, Appraisal Experts and Opinions
[6] Directors’Personal Liability for Violation of Dividend Restriction Statutes
[7] Director Exculpation and Indemnification
[8] Declaration Dates, Record Dates and Distribution Dates
[9] Contingent Spin-Off Dividends
[10] Obligation to Pay Declared Dividends
§4.05 Corporate Law Issues in Split-Off Transactions
[1] The Basics
[2] Fiduciary Duties and the Business Judgment Rule in Split-Off Transactions
[3] Factors the Board of Directors May Take into Account in Considering Split-Off Transactions
[4] Reliance on Management and Experts
[5] The Role of Investment Bankers
[6] Setting the Exchange Ratio
[7] Split-Offs of Partly Owned Subsidiaries
[8] The Split-Off as a Takeover Defense
[9] The Split-Off as a Sale of All or Substantially All of the Parent’s Assets and the Need for Stockholder Approval
[10] Appraisal Rights in Split-Offs
[11] Application of Dividend Restriction
§4.06 Corporate Law Issues in Split-Up Transactions
[1] Basics of Split-Ups
[2] Fiduciary Duties and the Business Judgment Rule in Split-Ups
[3] Liquidation and Dissolution Procedures

CHAPTER 5
Securities Law Issues in Spin-Off, Split-Up and Split-Off Transactions

§5.01 Introduction
§5.02 Registering Spin-Offs Under the Securities Act
[1] Section 5 of the Securities Act
[2] Early Spin-Off Decisions
[3] The SEC’s No-Action Positions
[4] The Staff Legal Bulletin
[5] Impact of Parent Stockholder Vote
[6] Change of Control Transactions
[7] Partial Distributions
[8] Spin-Offs by a Company with a Controlling Stockholder
[9] Spin-Offs with Management Interlocks
[10] Treatment of Fractional Shares
[11] Status of Spun-Off Securities as Restricted Securities Under Rule 144
[12] Eligibility to Use Form S-3
[13] Eligibility to Use Form S-8
[14] Avoiding Exchange Act Registration
[15] Abusive Spin-Offs
[16] Spin-Offs by Privately-Held Companies
§5.03 Consequences of Registration Under the Securities Act
[1] Section 11 and Section 12(a)(2) Liability
[2] Rescission Remedy
[3] Securities Act Filing Fees
[4] Timing Issues
[5] Disclosure Issues
§5.04 Summary of Filing and Disclosure Requirements in Spin-Offs
§5.05 Preparation, Filing and Distribution of Information Statement on Schedule 14C for Spin-Offs Not Registered Under the Securities Act
[1] Satisfying the Adequate Information Requirement with an Information Statement
[2] Overview of Regulation 14C
[3] Overview of Schedule 14C
[4] Post-Filing Amendments to Information Statement
[5] Redistribution of the Definitive Information Statement
§5.06 Preparation, Filing and Distribution of Proxy Statement for Spin-Offs Registered Under the Securities Act
[1]  Combined Proxy Statement/Prospectus
[2] Overview of Regulation 14A
[3] Overview of Schedule 14A
[4] Filing Requirements
[5] Obtaining Confidential Treatment for Preliminary Proxy Statement
[6] Post-Filing Amendments to Proxy Statement
[7] Redistribution of Definitive Proxy Statement
§5.07 Registering Spin-Off Transactions Under the Securities Act
[1] Use of Form S-4
[2] Disclosure Requirements
[3] Distribution Requirement in the Event of Incorporation by Reference
[4] Pre-Effective Amendments to the Prospectus
[5] Becoming Effective Under the Securities Act
[6] Post-Effective Stickers and Prospectus Supplements; Post-Effective Amendments to the Registration Statement
§5.08 Registering the Class of Subsidiary Securities Being Spun-Off Under the Exchange Act
[1] All Public Company Spin-Offs Must Be Registered Under the Exchange Act
[2] Registration on Form 10 vs. Registration on Form 8-A
[3] Form 10 Requirements
[4] Form 8-A Requirements
[5] Becoming Effective Under the Exchange Act
§5.09 Spin-Offs and the SEC Review Process
§5.10 Due Diligence in Spin-Off Transactions
§5.11 Confidential Treatment Requests
§5.12 Restrictions on Disclosure by the Parent and the Subsidiary in Spin-Off Transactions
[1] Communications in Spin-Offs Not Being Registered Under the Securities Act
[2] Communications in Spin-Offs Being Registered Under the Securities Act and the Role of the Gun-Jumping Rules and Proxy Rules
[3] Road Shows in Spin-Off Transactions
[4] Form 8-K Disclosure Requirements
[5] Disclosure of Non-GAAP Financial Measures
§5.13 Listing Spun-Off Securities on an Exchange or the Nasdaq Stock Market
[1] Deciding Where to List
[2] NYSE Listing Standards
[3] Nasdaq Stock Market Listing Standards
[4] Application for Listing
[5] Coordination of Record Date, Distribution Date and When-Issued Trading with the Exchanges
[6] CUSIP Number
§5.14 Application of Blue Sky Laws to Spin-Off Transactions
§5.15 EDGAR Filing Mechanics in Spin-Off Transactions
§5.16 Securities Act and Exchange Act Filing Fees in Spin-Offs
§5.17 Application of Section 16 to Spin-Off Transactions
§5.18 Application of Regulation M to Spin-Off Transactions
§5.19 Application of Section 13(d) to Spin-Off Transactions
§5.20 Securities Law Issues in Split-Off Transactions
[1] Overview of Split-Off Registration and Disclosure Requirements
[2] Securities Act Registration
[3] Self-Tender Requirements
[4] Registration of Class of Securities Being Split-Off Under the Exchange Act
[5] Listing of Securities on an Exchange or the Nasdaq
§5.21 Securities Law Issues in Split-Up Transactions

CHAPTER 6
Securities Law Disclosures in Spin-Offs

§6.01 Overview
§6.02 Information/Proxy Statement
[1] Summary of Transaction
[2] Risk Factors
[3] Parent Company Information
§6.03 Description of the Separation and Related Agreements
[1] Pre-Spin-Off Relationship
[2] Allocation of Assets and Liabilities
[3] Contingent Liabilities
[4] Transition Services and Intercompany Arrangements
[5] Leasing Arrangements
[6] Supply and Distribution Agreements
[7] Intellectual Property Rights
[8] Credit and Debt Arrangement
[9] Continuing Equity Interest
[10] Noncompetition
[11] Employee Arrangements
§6.04 Form 10 Registration
[1] Description of the Subsidiary’s Business and Properties
[2] Financial Information: Management’s Discussion and Analysis (“MD&A”)
[2A]  SEC Guidance
[3] Safe Harbor Protection
[4] Security Ownership of Certain Beneficial Owners and Management
[5] Directors and Executive Officers; Corporate Governance Matters
[6] Executive Compensation
[7] Certain Relationships and Related Transactions
[8] Legal Proceedings
[9] Market Price and Dividends; Related Shareholder Matters
[10] Recent Sales of Unregistered Securities
[11] Description of Securities to Be Registered
[12] Indemnification of Directors and Officers
§6.05 Financial Information
[1] Audited Balance Sheets and Statements of Income
[2] Interim and Stale Financial Information
[3] Pro Forma Financial Information
[4] Selected Financial Data
§6.06 Exhibits
§6.07 Disclosure to Debt Holders
§6.08 Disclosure of Opinions of Financial Advisors
§6.09 Spin-Off Timeline

CHAPTER 7
Structuring Subsidiary IPOs

§7.01 Introduction
§7.02 Allocation of Assets
§7.03 Allocation of Liability
§7.04 Balance Sheet-Based Allocations
§7.05 Dealing with Parent and Subsidiary Debt and Credit Arrangements
[1] The Need for Consents Under Existing Credit Arrangements
[2] Establishing New Credit Arrangements for the Subsidiary
[3] Restructuring the Parent’s Credit Arrangements
[4] Intercompany Indebtedness and Parent Guarantees
§7.06 Third Party Consents
§7.07 Governmental Filings and Consents
§7.08 Creating an IPO-Ready Subsidiary
§7.09 Selecting a Board of Directors for the Subsidiary
§7.10 Selecting Officers for the Subsidiary
§7.11 Employees and Employee Benefits
§7.12 Agreements Between the Parent and the Subsidiary
[1] Administrative Services Agreement
[2] Supply and Purchase Arrangements
[3] Tax Sharing Agreement
[4] Other Agreements
§7.13 Procedures for Handling Conflict of Interest, Duty of Loyalty and Corporate Opportunity Problems
§7.14 Secondary vs. Primary Offerings
[1] Market Perception
[2] Tax Issues
[3] Parent and Subsidiary Capital Needs
[4] Complete Exit by the Parent
[5] Partial Exit by the Parent
§7.15 Using the Over-Allotment Option to Funnel Proceeds
§7.16 Size of the Offering
[1] Capital Needs of the Parent and the Subsidiary
[2] Market Appetite for Subsidiary Stock
[3] Tax Consequences
[4] Accounting Consequences
[5] Parent’s Desire to Exit
§7.17 Coupling Subsidiary IPOs with Spin-Offs and Split-Offs
§7.18 Dual Class Voting Stock Structure
§7.19 Debt-Equity Swaps
§7.20 Taking Cash Out of the Subsidiary
§7.21 Parent Contributions to the Subsidiary
§7.22  Sarbanes-Oxley and the NYSE Corporate Governance Listing Standards: Applicability to Companies Engaging in Initial Public Offerings
[1]  The Sarbanes-Oxley Act
[2]  NYSE Corporate Governance Standards

CHAPTER 8
Corporate Law Issues in Subsidiary IPOs

§8.01 Introduction
§8.02 The Need for Stockholder Approval
§8.03 The Need for Parent and Subsidiary Board Approval
§8.04 Obtaining Parent Board Approval of a Subsidiary IPO
[1] Applicability of the Business Judgment Rule
[2] Designing an Effective Review Process
[3] Relevant Factors
[4] Investment Banker Opinions
[5] Establishing a Pricing Committee
[6] Duty of Loyalty Problems
[7] Duty to Prospective Subsidiary Stockholders
§8.05 Obtaining Subsidiary Board Approval of the Subsidiary IPO
§8.06 Corporate Issues After the Subsidiary Is Public
[1] Parent’s Fiduciary Duty as Controlling Stockholder
[2] The Entire Fairness Standard
[3] Impact of Disinterested Director Review or Stockholder Approval
[4] Dealing with Controlling Stockholder Fiduciary Duties in Subsidiary IPOs
§8.07 Corporate Opportunity Problems in Subsidiary IPOs
[1] The Law of Corporate Opportunity
[2] Solutions to Corporate Opportunity Problems

CHAPTER 9
Securities Law Issues in Subsidiary IPOs

§9.01 Introduction
§9.02 Securities Act Registration Basics: Forms and Rules
§9.03 Gun-Jumping in Subsidiary IPOs: Communications Before Filing the Registration Statement
§9.04 Due Diligence Investigation
§9.05 Drafting the Registration Statement
[1] The Drafting Process
[2] “Plain English” Rules
[3] Prospectus Summary
[4] The Risk Factors Section
[5] Selected Financial Data
[6] Use of Proceeds
[7] Dilution
[8] Management’s Discussion and Analysis (“MD&A”)
[9] Description of Business
[10] Directors and Executive Officers
[11] Executive Compensation
[12] Certain Relationships
[13] Principal Stockholders
[14] Shares Available for Sale
[15] Financial Statement Requirements
[16] Part II of the Registration Statement
[17] Signature Requirements
[18] Expert and Director Consents
§9.06 Filing and Other Preparation Matters
[1] EDGAR Filing Mechanics
[2] Registration Fees
[3] Confidential Information Requests
[4] Registration Under the Exchange Act
[5] Listing on Exchanges or the Nasdaq
[6] Financial Industry Regulatory Authority Review
[7] State Blue Sky Laws
[8] CUSIP Number
§9.07 Activities During the Waiting Period
[1] Restrictions on Communications During the Waiting Period
[2] The SEC Review and Comment Process
[3] Distribution of the Preliminary Prospectus; Recirculation Issues
[4] Road Show
[5] Directed Share Programs
§9.08 Going Effective and Pricing
[1] Mechanics of Going Effective
[2] Pricing and Rule 430A Amendments
[3] Changes in Volume or Price of Securities Being Registered
§9.09 Post-Effective Activities
[1] Closing
[2] Delivery of Final Prospectuses
[3] Post-Effective Amendments, Prospectus Supplements and Stickers
[4] Communication During the Post-Effective Quiet Period
§9.10 The Role of the Underwriters and the Underwriting Agreement
[1] Role of the Underwriters
[2] Selecting an Underwriter
[3] Firm Commitment vs. Best-Efforts Underwritings
[4] Underwriting Agreement
[5] Over-Allotment Option
[6] Lock-Up Option
[7] Accountants’ Comfort Letter
§9.11 Securities Act Liability Issues
[1] Liability Under Section 11 of the Securities Act
[2] Liability Under Section 12(a)(2) of the Securities Act
[3] Controlling Person Liability Under Section 15 of the Securities Act
[4] Liability Under Rule 10b-5
[5] Liability Under Section 17(a) of the Securities Act
[6] Other Liabilities
§9.12 Investment Company Act Issues in Subsidiary IPOs
§9.13 Schedule 13G Filings by the Parent Following a Subsidiary IPO
§9.14 Application of Section 16 in Subsidiary IPOs
§9.15 Application of Regulation M in Subsidiary IPOs
§9.16 Application of Form 8-K Disclosure Requirements

CHAPTER 10
Structuring Tracking Stock Transactions

§10.01 Introduction
§10.02 Defining the Business Divisions and Allocating Assets and Liabilities
§10.03 Charter Amendment Creating the Tracking Stock
§10.04 Dividend Rights
[1] Fixed or Discretionary Dividend
[2] The “Available Dividend Amount” Concept
[3] Impact of Retained Business
[4] Rules Governing Distributions of Securities and Assets
§10.05 Voting Rights
[1] Fixed vs. Floating Voting Rights
[2] Class Votes
§10.06 Liquidation Rights
[1] Fixed or Variable Liquidation Preferences
[2] Other Issues
§10.07 Discretionary Conversion Provisions
[1] General Conversion Right
[2] Conversion upon the Occurrence of a Tax Event
[3] Conversion Mechanics and Premiums
§10.08 Mandatory Conversion Provisions
[1] Triggering Events
[2] Conversion Mechanics and Premiums
§10.09 Rights of Tracking Stock upon Merger, Consolidation or Sale of All or Substantially All of the Parent’s Assets
§10.10 The Parent’s Retained Interest
[1] Overview
[2] The Allocation Fraction Concept
[3] Other Adjustments to the Parent’s Retained Interest
§10.11 Governance Issues
[1] The Board of Directors and Conflict of Interest Problems
[2] Capital Stock Committees
§10.12 Policy Statements
[1] General Policy Statements
[2] Corporate Opportunities
[3] Cash Management
[4] Incurrence of Debt and Issuance of Stock
[5] Redemptions and Repurchases of Stock
[6] Dividends
[7] Allocation of Shared Services
[8] Allocation of Assets and Liabilities
[9] Allocation of Rights to Intellectual Property
[10] Transactions Between the Two Businesses
[11] Covenant Not to Compete
[12] Treatment of the Parent’s Retained Interest
[13] Tax Allocation
[14] Changes to Policies
§10.13 Initial Issuance of Tracking Stock
[1] Dividend Distribution
[2] Reclassification
[3] Offerings
[4] Exchange Offer
[5] Merger or Other Acquisition Transactions
[6] Combination Transactions
§10.14 Subsequent Offerings of Tracking Stock
§10.15 Tracking Stock Transactions Followed by Spin-Offs

CHAPTER 11
Corporate Law Issues in Tracking Stock Transactions

§11.01 Introduction
§11.02 The Charter Amendment
[1] Contents of the Charter Amendment
[2] Stockholder Approval of Charter Amendment
[3] Disclosure to Stockholders
[4] Restated Charter
§11.03 Approval of Tracking Stock Policies and Intercompany Agreements
§11.04 Corporate Action Required to Issue Tracking Stock in Public Offering
§11.05 Corporate Action Required to Issue Tracking Stock in a Merger
§11.06 Corporate Action Required for Dividend Distributions
§11.07 Corporate Action Required to Approve Tracking Stock Recapitalization
§11.08 Corporate Action Required to Approve a Tracking Stock Exchange Offer
§11.09 Business Judgment Protection for the Board’s Decision to Implement a Tracking Stock Transaction
§11.10 The Duties of the Board of Directors of a Tracking Stock Company
[1] Introduction
[2] Solomon v. Armstrong
[3] In re General Motors Class H Stockholders Litigation
[4] Lessons from the GM Cases
§11.11 Role of the Capital Stock Committee
§11.12 Providing Guidance to the Board of Directors and the Role of Tracking Stock Policies
§11.13 Content of Tracking Stock Policies
§11.14 The Importance of Disclosure to Stockholders
§11.15 Dividends by Tracking Stock Companies
§11.16 Exculpation and Indemnification for Tracking Stock Directors

CHAPTER 12
Securities Law Issues in Tracking Stock Transactions

§12.01 Introduction
§12.02 Overview of SEC Filing Requirements and Disclosure Documents in Tracking Stock Transactions
§12.03 SEC Staff Views on Tracking Stock Disclosure
§12.04 Securities Law Issues Relating to Stockholder Approval of Tracking Stock Charter Amendments
[1] Preparation, Filing and Distribution of Proxy Materials Relating to Tracking Stock Charter Amendments
[2] Overview of Proxy Rules
[3] Summary of Regulation 14A
[4] Summary of Regulation 14B: Obligations of Brokers, Dealers and Banks
[5] Summary of Schedule 14A
[6] Securities Law Issues Relating to Stockholder Approval of Changes to Incentive Plans in Tracking Stock Deals
[7] Typical Disclosures in Proxy Statements Seeking Approval of Tracking Stock Charter Amendments
[8] “Plain English” Requirements
[9] Filing Procedures
[10] SEC Review Process
[11] Communications Restrictions
§12.05 Securities Law Issues in Tracking Stock Offerings
[1] Securities Act Registration of Tracking Stock Offerings
[2] Coordination of Tracking Stock Offering with Charter Amendment Approval
[3] Registration Forms for Tracking Stock Offerings
[4] Typical Disclosures in Tracking Stock Offerings
§12.06 Securities Law Issues in Tracking Stock Exchange Offers
[1] Overview of Securities Law Issues in Tracking Stock Exchange Offers
[2] Summary of Rule 13e-4
[3] Overview of Schedule TO
[4] Typical Disclosures in a Tracking Stock Exchange Offer
[5] Registration of a Tracking Stock Exchange Offer Under the Securities Act
[6] Preparation and Filing of Disclosure Documents in Registered Tracking Stock Exchange Offers
[7] Special Disclosure and Other Requirements in Registered Tracking Stock Exchange Offers
[8] SEC Processing Issues Relating to Tracking Stock Exchange Offers
[9] Obligation to Amend and Redistribute Tracking Stock Disclosure Documents
[10] Termination of and Extensions to Tracking Stock Exchange Offer
[11] Early Commencement of Tracking Stock Exchange Offer
[12] The All Holders and Best Price Rules in Tracking Stock Exchange Offers
[13] Fees
§12.07 Securities Law Issues in Connection with the Use of Tracking Stock as Merger Consideration
[1] Overview of Securities Law Issues in Tracking Stock Mergers
[2] SEC Processing of Tracking Stock Mergers
[3] The Use of Preliminary Proxy Materials and a Preliminary Prospectus in Tracking Stock Mergers
[4] Solicitation and Offer Activity Prior to the Filing of Proxy Materials and Registration Statement
[5] Compliance with Proxy Rules and Securities Act
[6] Securities Act Fees in Tracking Stock Mergers
[7] Typical Disclosures in Joint Proxy Statement/Prospectus Relating to Tracking Stock Merger
§12.08 Securities Law Issues in Tracking Stock Distributions
[1] Overview
[2] Registration of Tracking Stock Distributions Under the Securities Act
§12.09 Securities Law Issues in Tracking Stock Recapitalization
§12.10 Exchange Act Registration in Tracking Stock Transactions
§12.11 Listing Issues in Connection with the Issuance of Tracking Stock
§12.12 Obtaining a CUSIP Number
§12.13 Application of Exchange Act Section 13(d) and (g) to Tracking Stock Transactions
§12.14 Application of Exchange Act Section 16 to Tracking Stock Transactions
§12.15 Application of Regulation M to Tracking Stock Transactions
§12.16 Regulation FD in Tracking Stock Transactions
§12.17 Reports on Form 8-K in Connection with Tracking Stock Transactions
§12.18 Securities Law Issues in the Conversion of Tracking Stock Back to Common Stock
§12.19 Securities Law Liability Issues in Tracking Stock Transactions
[1] Liability Under the Proxy Rules
[2] Liability Under the Tender Offer Rules
[3] Other Liability Under the Exchange Act
[4] Liability Under the Securities Act
§12.20 Investment Company Act Issues in Tracking Stock Transactions
[1] Overview of Investment Company Act Problems in Tracking Stock Transactions
[2] Status of Tracking Stock Units as Separate Issuers
[3] Availability of Exemptions for Tracking Stock Companies

CHAPTER 12A
Structuring Sales of Subsidiaries or Divisions

§12A.01 Introduction
§12A.02 Negotiations in Business Separation Transactions
§12A.03 Basic Issues in a Subsidiary or Division Sale
§12A.04 Structuring the Deal
[1] Asset Sale
[2] Stock Sale
[3] Merger
[4] Tax Consequences of the Transaction Structure
§12A.05 Identifying Businesses to Be Sold
[1] Introduction
[2] Allocation of Assets
[3] Allocation of Liability
[4] “Bad Company” Sales
§12A.06 Pricing the Deal and Purchase Price Adjustments
[1] Valuation Methods
[2] Pricing Methods
§12A.07 Determining the Type of Consideration Paid by the Buyer
§12A.08 Corporate Approval Issues
[1] Board Approval Usually Required
[2] Stockholder Approvals
[3] Fairness Opinion
[4] Takeover Defense
§12A.09 Governmental Approvals and Filings
[1] Antitrust Regulations
[2] Other Regulatory Restrictions
§12A.10 Securities Law Issues
[1] Issuance of Stock by the Buyer
[2] Private Placement of Buyer’s Stock
[3] Private Placement of Target’s Stock
[4] Registration Rights
[5] Public Disclosure Regarding the Transaction
[6] Sarbanes-Oxley Act Issues
§12A.11 Documenting the Deal
[1] Confidentiality Agreement
[2] Letter of Intent
[3] Definitive Agreement
[4] Supply, Distribution, Marketing and Other Similar Arrangements
[5] Administrative Service Arrangements
§12A.12 Creditors’Rights Issues
§12A.13 Employee and Employee Benefit Issues
[1] Determining Employees to Be Retained by Target
[2] WARN Act and State Statutes Regarding Mass Layoffs
[3] Employee Benefit Plan Issues
§12A.14 Timing of a Subsidiary or Division Sale

CHAPTER 13
Tax Issues in Business Separation Transactions

§13.01 Spin-Offs
[1] Introduction
[2] Section 355 Requirements
[3] Tax Consequences of a Spin-Off
[4] Business Purpose
[5] Active Conduct of a Trade or Business
[6] Continuity Requirements
[7] Device
[8] Distribution of Control; Retention of Stock or Securities
[9] Section 355 Distributions as Part of a Plan with the Acquisition of Distributing Corp. or Controlled Corp.
[10] Disqualified Distributions
[11] Liabilities in Spin-Off Transactions
[12] Disqualified Investment Corporations (“Cash Rich Spin-Offs”)
§13.02 Tracking Stock
[1] The Service’s Position
[2] Analogous Code Provisions and Case Law
[3] Factors Favoring Treatment as Stock of Issuer
[4] Factors Favoring Treatment as Subsidiary Stock
[5] Impact on Other Code and Regulatory Provisions
§13.03 Subsidiary IPOs
[1] Treatment of Dividends
[2] Tax Sharing Agreements
[3] Employee Stock Options

CHAPTER 14
Creditors’Rights Issues in Business Separation Transactions

§14.01 Introduction
§14.02 Basic Fraudulent Conveyance Law Principles
[1] Sources of Fraudulent Conveyance Law
[2] The Uniform Fraudulent Conveyance Act
[3] The Uniform Fraudulent Transfer Act
§14.03 Federal Bankruptcy Law
[1] Introduction
[2] Actual Fraud Claims Under Section 548
[3] Constructive Fraud Claims Under Section 548
[4] Transfers to Good Faith Transferees
[5] Burden of Proof
[6] Statute of Limitations
§14.04 The “Step Transaction” Approach to Evaluating Fraudulent Conveyance Risk
§14.05 Fraudulent Conveyance Issues in Spin-Offs
[1] Fraudulent Conveyance Issues Associated with Pre-Spin-Off Reorganization
[2] The Spin-Off as Fraudulent Transfer
§14.06 Fraudulent Conveyance Issues in Split-Offs
§14.07 Fraudulent Conveyance Issues in Split-Ups
§14.08 Fraudulent Conveyance Issues in Subsidiary IPOs
[1] Claims Related to Reorganization
[2] Issues Associated with the Initial Public Offering
§14.09 Fraudulent Conveyance Issues in Tracking Stock Transactions
§14.10 Preparing to Defend a Transaction Against Fraudulent Conveyance Challenges
§14.11 Solvency Opinions
§14.12 The Relationship Between Fraudulent Conveyance Statutes and Corporate Dividend Statutes
§14.13 Choice of Law Principles in Fraudulent Conveyance Cases
[1] Introduction
[2] Application of Restatement Analysis
[3] Government Interest Analysis
[4] Lex Loci Delicti Approach
§14.14 Duties of Directors of an Insolvent Corporation
§14.15 Piercing the Corporate Veil
§14.16 Substantive Consolidation
§14.17 Preferential Payments in Fraudulent Conveyances
§14.18 Agency Theory; Aiding and Abetting Theory

CHAPTER 15
Employee Benefits Issues in Business Separation Transactions

§15.01 Introduction
§15.02 Equity Plans
[1] Initial Considerations
[2] Types of Equity Incentive Awards
[3] Types of Plans
[4] Initial Federal Securities Law Considerations
[5] Other Federal Securities Law Concerns
[6] State Securities Law
[7] Foreign Securities Law
[8] Accounting Considerations
§15.03 Other Plans
§15.04 Other Health and Welfare Plans
§15.05 Employment Agreements
§15.06 Tax Considerations—Section 162(m)
§15.07 Electronic Delivery of Employee Benefit Documents
[1] Securities Law
[2] Department of Labor Regulations
[3] IRS Regulations

CHAPTER 16
The Role of the Investment Banker in Business Separation Transactions

§16.01 Introduction
§16.02 Relevance of Bankers’ Advice Under Corporate Law
§16.03 Investment Banker Evaluation of Alternative Transactions
[1] Spin-Offs
[2] Split-Ups and Split-Offs
[3] Subsidiary IPOs
[4] Tracking Stock Transactions
[5] Acquisitions, Dispositions and Joint Ventures
§16.04 Implementing the Transaction
[1] Spin-Offs
[2] Split-Ups and Split-Offs
[3] Subsidiary IPOs
[4] Tracking Stock Transactions
§16.05 Investment Banker Opinions
[1] Types of Opinions
[2] Disclosure of Banker Opinions
[3] Investment Banker Liability for Opinions
[4] Investment Banker Disclaimers

CHAPTER 17
Federal Securities Law Governing Newly Public Companies

§17.01 Introduction
§17.02 Public Company Reporting Requirements
[1] Reporting Requirements
[2] Proxy Rules
[3] Reports to Shareholders
[4] Non-GAAP Financial Measures (Regulation G)
[5] Reports by 5% Beneficial Owners
[6] Tender Offer Rules
[7] Internal Controls
§17.03 Section 16 Beneficial Ownership/Reports
[1] Who Is Required to Report
[2] Forms 3 and 4
[3] Annual Form 5 Filing
[4] Retiring Directors and Officers
[5] Puts, Calls, Options or Other Rights or Obligations to Buy or Sell Company Securities
[6] Contents of Reports
[7] Implications of Late Filings
[8] Method of Filing
§17.04 Liability for “Short-Swing” Profits
[1] Section 16(b) of the 1934 Act
[2] Good Faith Is Not a Defense
[3] Sequence of Transactions Is Not Relevant
[4] Computation of Short-Swing Profits
§17.05 Insider Trading
[1] Nature of Liability
[2] Insider Trading and Securities Fraud Enforcement Act
[3] Affirmative Defenses
[4] Regulation BTR
§17.06 Rule 144 and Limitations on Public Sales of Company Securities by Directors, Officers and Significant Stockholders
[1] Overview
[2] Application of Rule 144
§17.07 Regulation FD
§17.08 Nasdaq Requirements
[1] Annual and Quarterly Reports
[2] Disclosure of Material Nonpublic Information
[3] Corporate Governance Listing Requirements
[4] Certification/Affirmation Requirements
[5] Filings Relating to Changes in Shares Outstanding and Name Changes, Notices of Dividends, Stock Splits, Etc.
§17.09 New York Stock Exchange Requirements
[1] Annual and Quarterly Reports
[2] Disclosure of Material Nonpublic Information
[3] Corporate Governance Listing Requirements
[4] Certification/Affirmation Requirements
[5] Filings Relating to Changes in Shares Outstanding and Name Changes, Notices of Dividends, Stock Splits, Etc.
§17.10 Corporate Governance and the Sarbanes-Oxley Act
[1] Related Person Transactions
[2] Auditor Independence
[3] Prohibition Against Loans to Executives
[4] Code of Ethics
[5] Whistleblower Protection
[6] Professional Conduct Rules for Attorneys
[7] Shareholder Approval of Executive Compensation
§17.11 Exhibit A—Public Filing Calendar

CHAPTER 18
Select Spin-Offs and Other Business Separation Transactions

§18.01 Time Warner/AOL
[1] The Parties and Their Business
[2] Purpose of the Transaction
[3] Description of the Transaction (Spin-Off)
[4] The Basic Deal Document
[5] Other Key Deal Documents
[6] Management and Governance
[7] Employment Arrangements
[8] Tax Consequences of the Spin-Off
[9] Conditions to Closing the Transaction’
[10] Financing Arrangements
[11] Market Capitalization Data
§18.02 Bristol-Myers Squibb/Mead Johnson Nutrition
[1] The Parties and Their Business
[2] Purpose of the Transaction
[3] Description of the Transaction (IPO Followed by Split-Off)
[4] The Basic Deal Document
[5] Other Key Deal Documents
[6] Management and Governance
[7] Employment Arrangements
[8] Key Tax Consequences
[9] Conditions to Closing the Transaction
[10] Financing Arrangements
[11] Unusual Deal Feature: International Aspects
[12] Market Capitalization Data
§18.03 Advanced Micro Devices/GlobalFoundries
[1] The Parties and Their Business
[2] Purpose of the Transaction
[3] The Transaction (Joint Venture) and the Basic Deal Documents
[4] Other Key Deal Documents
[5] Management and Governance
[6] Employment Arrangements
[7] Conditions to Closing the Transaction
[8] Financing Arrangements
[9] Market Capitalization Data
§18.04 Northrup Grumman/Huntington Ingalls Industries
[1] The Parties and Their Business
[2] Purpose of the Transaction
[3] Description of the Transaction (Spin-Off)
[4] The Basic Deal Document
[5] Other Deal Documents
[6] Management and Governance
[7] Employment Arrangements
[8] Conditions to Closing the Transaction
[9] Financing Arrangements
[10] Market Capitalization Data
§18.05 Marathon Oil/Marathon Petroleum
[1] The Parties and Their Business
[2] Purpose of the Transaction
[3] Description of the Transaction (Spin-Off)
[4] The Basic Deal Document
[5] Other Deal Documents
[6] Management and Governance
[7] Employment Arrangements
[8] Conditions to Closing the Transaction
[9] Financing Arrangements
[10] Market Capitalization Data


APPENDIX
APPENDIX
TABLE OF ABBREVIATIONS
INDEX