Corporate finance and the securities laws / Charles J. Johnson, Jr., Joseph McLaughlin, Eric S. Haueter.
2014
KF1428 .J583 (Map It)
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Title
Corporate finance and the securities laws / Charles J. Johnson, Jr., Joseph McLaughlin, Eric S. Haueter.
Published
New York : Wolters Kluwer, [2014-2018]
Copyright
©2014
Call Number
KF1428 .J583
Edition
Fifth edition.
ISBN
9781454858393 loose-leaf
1454858397 loose-leaf
1454858397 loose-leaf
Description
1 volume (loose-leaf) : forms ; 26 cm
System Control No.
(OCoLC)900167972
Bibliography, etc. Note
Includes bibliographical references and index.
Supersedes
Revision of: Johnson, Charles J., Jr., 1932-2012. Corporate finance and the securities laws. 4th ed. New York, NY : Wolters Kluwer Law & Business : CCH Incorporated, c2006-c2013 0735563101 (OCoLC)183881252
Record Appears in
Table of Contents
About the Authors
xxxvii
Preface to the Fifth Edition
xli
Preface to the First Edition
xliii
Abbreviations and Terms
xlvii
Authors' Acknowledgments
liii
ch. 1
Overview Of The Securities Act Of 1933 And The Integrated Disclosure System
1-1
1.01.
Market Crashes and Securities Legislation
1-5
1.02.
History of the 1933 Act
1-7
1.03.
Registration Under the 1934 Act and Its Consequences
1-10
1.04.
The Securities and Exchange Commission
1-13
1.05.
Securities Offering Reform
1-16
1.06.
Key Elements of the 1933 Act
1-17
A.
Disclosure Philosophy
1-17
B.
Definition of "Security"
1-18
C.
Registration and Prospectus Delivery Requirements
1-22
1.
Registration for a Purpose
1-23
2.
How the Registration Requirement Works
1-25
a.
Contents of the Registration Statement
1-25
b.
Development of the Integrated Disclosure System
1-26
c.
SEC Staff Review of the Registration Statement
1-29
d.
Registered Offers and Sales
1-29
i.
Pre-Filing Period
1-30
ii.
Post-Filing or "Waiting" Period
1-30
iii.
Effective Date and Making "Sales"
1-31
3.
How the Prospectus Delivery Requirements Work
1-33
a.
Preliminary Prospectus
1-33
b.
Free-Writing Prospectuses
1-34
c.
Delivery of Final Prospectus with Confirmation (Rules 172 and 173)
1-35
d.
"Free-Writing" Privilege
1-38
e.
Delivery of Final Prospectus with Registered Security
1-39
f.
Dealers' Delivery of Final Prospectus in Connection with After-Market Transactions
1-39
g.
Unsold Allotments and Updating the Prospectus
1-42
h.
Market-Maker's Delivery of Prospectus When Affiliated with Issuer
1-43
i.
Electronic Delivery of Prospectus
1-45
D.
Communications During the Offering Process ("Gun-jumping")
1-45
1.
What's an Offer?
1-46
2.
What's a "Written" Offer?
1-48
3.
Continuing Importance of Definitions and Exemptions
1-49
4.
Communications Not Deemed to Be "Offers"
1-50
a.
Notices of Proposed Registered Offerings (Rule 135)
1-50
b.
Issuer Communications More Than 30 Days Before Filing (Rule 163A)
1-51
c.
Notice of Proposed, Pending or Completed Unregistered Offerings (Rule 135c)
1-52
d.
Regularly Released Factual Business Information (Rules 168 and 169)
1-53
e.
Regularly Released Forward-Looking Information (Rule 168)
1-55
f.
Offshore Press-Related Communications (Rule 135e)
1-55
g.
Research Coverage: EGCs and Non-EGCs
1-55
i.
Rule 137
1-56
ii.
Rule 138
1-58
iii.
Rule 139
1-59
aa.
Issuer-Specific Reports
1-60
bb.
Industry Reports
1-61
cc.
Other Conditions
1-61
h.
Quotes Relating to Security-Based Swaps
1-62
5.
Communications That May Be Offers But Are Not Deemed Prospectuses
1-62
a.
Factual Information About an Offering (Rule 134)
1-62
i.
Content
1-63
ii.
Required Legends
1-64
6.
Pre-Filing Offers by WKSIs
1-66
7.
"Test-the-Waters" Communications by EGCs
1-67
8.
"Non-Deal Roadshows" and Other "Non-Deal" Communications
1-67
9.
Free-Writing Prospectuses
1-68
10.
Spin-Offs
1-69
E.
Exempted Transactions
1-71
1.
Private Placements
1-71
2.
Trading Transactions
1-72
3.
Transactions by Underwriters and Control Persons
1-74
4.
Rule 144
1-77
5.
Offers and Sales to Employees
1-78
6.
Exchanges with Existing Securityholders
1-79
7.
Court or Government Approved Exchanges
1-79
8.
Bankruptcy
1-81
F.
Exempted Securities
1-81
1.
U.S. Government Obligations
1-81
2.
Municipal Obligations
1-83
3.
Bank Securities
1-89
4.
Thrift Institutions
1-91
5.
Commercial Paper
1-92
6.
Railroad Equipment Trust Certificates
1-92
7.
Insurance Contracts
1-92
8.
Regulation A Offerings
1-93
a.
Scope of the Exemption
1-95
i.
Offering Limits
1-95
ii.
Eligible Issuers and Securities
1-95
iii.
Investment Limitations in Tier 2 Offerings
1-96
iv.
Integration
1-96
b.
Offering Process Prior to Filing
1-96
i.
Testing the Waters
1-96
ii.
Nonpublic Submission
1-97
c.
Offering Document
1-97
i.
No fee
1-97
ii.
Form 1-A
1-97
iii.
Qualification
1-98
iv.
FINRA Filing and Review Requirements
1-99
v.
Continuous Offerings
1-99
vi.
Updating Offering Circulars and Use of Offering Circular Supplements
1-99
vii.
Delivery Requirements
1-100
d.
Liability Considerations
1-101
e.
Blue Sky Qualification
1-101
f.
Continuing Disclosure Obligations
1-101
i.
Completion of Offering Report
1-101
ii.
Tier 2 Ongoing Reporting
1-102
iii.
Exchange Act Registration; Exchange Listing
1-103
iv.
Current Public Information Requirements Under 1934 Act Rule 15c2-11(a) and 1933 Act Rules 144 and 144A
1-104
v.
Suspension of Tier 2 Ongoing Reporting Obligations
1-104
1.07.
The Future of the 1933 Act
1-105
ch. 2
Syndicate Procedures And Underwriting Documents
2-1
2.01.
Underwriting Syndicates
2-4
A.
Pre-1933 Act Procedures
2-5
B.
Post-1933 Act Procedures
2-8
2.02.
The Agreement Among Underwriters
2-11
A.
Underwriters' Questionnaire and "Invitation Wire"
2-12
B.
Manager's Authority
2-13
C.
Price Maintenance
2-14
D.
Retentions and "Pot" Sales
2-15
E.
Restriction on First-Day Market Orders in IPOs
2-15
F.
Shares Returned to Underwriters
2-16
G.
Overallotment and Stabilization Authority
2-17
H.
Control of the Syndicate
2-19
I.
Trading Restrictions
2-20
J.
Penalty Bids
2-20
K.
Components of the Spread
2-22
L.
Payment and Delivery; Syndicate Settlement
2-23
M.
Authority to Borrow
2-24
N.
FINRA Provisions; Federal Reserve Regulation K
2-24
O.
Free-Writing Prospectuses and Research
2-24
P.
Net Capital Requirements
2-24
Q.
Claims Against Underwriters
2-24
R.
Exculpation and Indemnity
2-25
S.
Underwriters' Representations; Default and Step-Up
2-26
T.
Termination of Price and Other Restrictions
2-26
2.03.
The Underwriting Agreement
2-28
A.
Individual ("Several") Commitments
2-28
B.
Pricing, Timing and, Risk
2-29
C.
Enhancement of Company's Rad in Pricing IPOs...
2-29
D.
Manager as Fiduciary to Issuing Company
2-30
E.
Representations and Warranties
2-32
F.
Representations by Selling Securityholders; Powers of Attorney and Custody Arrangements
2-35
G.
Covenants
2-36
H.
Updating the Prospectus
2-37
I.
Lock-Up Agreements
2-38
J.
Delayed Delivery Contracts
2-42
K.
Overallotments and the "Green Shoe" Option
2-43
L.
Indemnification
2-46
M.
Contribution
2-50
N.
Purchase and Sale; Closing; "Green Shoe" Closing
2-51
O.
Closing Conditions
2-53
1.
Legal Opinions and "Negative Assurance Letters"
2-54
2.
Officers' Certificates
2-56
3.
Responsibility for Closing Conditions
2-56
P.
Comfort Letters
2-57
Q.
"Outs": Termination of Underwriting Agreement at Underwriters' Election
2-59
R.
Default and Step-Up
2-62
2.04.
The Selected Dealers Agreement and Section 2(a)(11) of the 1933 Act
2-63
ch. 3
Initial Public Offerings
3-1
3.01.
Recent Trends in IPOs
3-5
3.02.
Selecting the Investment Banker
3-8
3.03.
Getting Organized and Other Preliminary Matters
3-13
A.
Gun-Jumping Questions Prior to Filing
3-15
1.
Websites and "Social Media"
3-17
2.
Product Advertisements
3-19
3.
"Friends and Family" Communications
3-20
B.
Financial Statements
3-20
1.
Age of Financial Statements
3-20
2.
Other Accounting Issues
3-21
C.
Stock Exchange Listing
3-21
D.
Directed Share Programs (Issuer-Directed Shares)
3-24
E.
Two-Tiered Voting Shares
3-27
F.
Alternative Dispute Resolution Provisions
3-28
G.
"Tick Size" and Payments to Market-Makers
3-30
H.
Getting Ready for Life as a Public Company
3-32
I.
The JOBS Act "IPO On-Ramp"
3-32
1.
Background of the IPO On-Ramp
3-32
2.
What Is an EGC?
3-33
3.
Confidential Filing
3-34
4.
Reduced Number of Years for Audited Financial Statements and Related Information
3-36
5.
Audit of Management's Assessment of Internal Control over Financial Reporting
3-37
6.
"Test-the-Waters" Option
3-37
7.
Disclosure and Governance Related to Executive Compensation
3-37
8.
New or Revised Financial Reporting Standards
3-38
9.
New or Revised Auditing Standards
3-38
10.
"Pre-Deal Research"
3-39
11.
Communications Among Analysts, Investment Bankers, Customers and Issuers
3-40
12.
Reduced or Eliminated Research Blackout Periods
3-40
13.
Success to Date of the IPO On-Ramp
3-41
3.04.
Preparation of the Registration Statement
3-41
A.
Form S-1
3-42
B.
"Plain English"
3-42
C.
Risk Factors
3-44
D.
Prospectus Summary
3-47
E.
Management's Discussion and Analysis
3-48
F.
MD&A: Taking a "Fresh Look"
3-49
1.
MD&A Presentation
3-50
2.
MD&A Content and Focus
3-51
3.
"Key Indicators"
3-51
a.
Materiality
3-52
b.
Material Trends and Uncertainties
3-52
c.
Analysis
3-53
4.
Significance of Additional Information Available to Management
3-53
5.
Responsibility for Preparing MD&A
3-55
6.
Liquidity and Capital
3-56
7.
Results of Operations
3-59
8.
Off-Balance Sheet Arrangements
3-60
9.
Tabular Disclosure of Contractual Obligations
3-61
10.
Critical Accounting Estimates
3-61
11.
Forward-Looking Focus of MD&A
3-62
12.
Caterpillar Proceeding
3-63
13.
"Climate Change"
3-64
G.
Estimated Price Range
3-65
H.
Sales of Discretionary Accounts
3-67
I.
Shares Eligible for Future Sale
3-68
J.
Exhibits and Embedded Representations
3-68
3.05.
Other Selected Issues
3-70
A.
Role of the Securities Analyst in Securities Offerings
3-70
1.
NASD Rule 2711 and FINRA Rule 2241
3-70
2.
"Global Settlement"
3-76
3.
Projections and the Continuing Importance of the Analyst's Role
3-76
B.
"Online" Offerings
3-76
C.
Electronic Auctions
3-82
1.
Direct Registration
3-85
E.
"Blue Sky" Considerations
3-85
F.
FINRA Filing Requirements
3-86
G.
"Deal Sites"
3-86
H.
Requests for Confidential Treatment
3-88
3.06.
The SEC Staff Review Process
3-89
A.
Selective and Periodic Review (IPOs and Other Registration Statements)
3-90
B.
SEC Staff Comments
3-93
C.
Responding to Comments
3-94
D.
Public Release of Comment Letters and Responses
3-95
3.07.
Getting to Pricing and Closing
3-96
A.
Free-Writing Prospectuses
3-97
1.
Purposeful FWPs
3-98
a.
"Ineligible Issuers"
3-100
b.
Legend
3-101
c.
Filing
3-101
d.
Availability of Preliminary Prospectus that Qualifies as a Section 10 Prospectus
3-103
e.
Record Retention
3-103
f.
Liability
3-104
g.
FINRA Standards
3-104
2.
Rule 159 FWPs
3-105
3.
Inadvertent FWPs
3-106
B.
Roadshows (Electronic and Otherwise)
3-107
1.
"Oral" v. "Written" Roadshows
3-108
2.
Handouts
3-109
3.
Electronic Roadshows
3-109
C.
Information on a Company's Website and Social Media
3-110
D.
Press Coverage
3-112
1.
Authorized or Paid Coverage
3-113
2.
Unpaid Coverage by Unaffiliated Media
3-113
E.
Acceleration Request and "Tandy Representations"
3-114
F.
Pricing and Sizing the IPO with the Help of Rule 430A
3-115
G.
Rule 159 "Time of Sale" Disclosure and "Reforming" Contracts
3-119
H.
"Access Equals Delivery" and Electronic Delivery of Required Documents
3-121
I.
Negative Developments Prior to Closing
3-124
J.
Post-Pricing Trading (Syndicate Short Position, Green Shoe Exercise, Stabilization)
3-125
K.
Closing the Deal ("T+3" Settlement Date)
3-126
3.08.
Inadvertent and Transient Investment Companies
3-127
3.09.
Extension of Credit (Section 11(d)(1) of the 1934 Act)
3-128
ch. 4
Trading Restrictions During Distributions
4-1
4.01.
Introduction
4-5
4.02.
Regulation M
4-6
A.
Definition of "Distribution"
4-7
1.
Shelf Registrations (Including "At-the-Market" Offerings) as Distributions
4-9
2.
Private Placements as "Distributions"
4-10
3.
M&A and Other Issuer Transactions as "Distributions"
4-11
B.
"Covered Securities" ("Subject Securities" and Reference Securities")
4-11
C.
"Distribution Participant" under Rule 101
4-12
D.
"Affiliated Purchaser"
4-14
E.
"Restricted Period"[—]Commencement
4-16
F.
"Restricted Period"[—]Termination
4-17
4.03.
Rule 101[—]Basic Prohibitions and Exceptions
4-17
A.
Inducing After-Market Purchases ("Laddering")
4-18
B.
Excepted Securities (Exempted, "Investment Grade Non-Convertible" and $1 Million ADTV/$150 Million Float Securities)
4-21
C.
Excepted Activities
4-23
1.
Research
4-23
2.
Passive Market-Making and Stabilization Transactions
4-24
3.
Odd-Lot Transactions
4-25
4.
Exercises of Securities
4-25
5.
Unsolicited Transaction 4
4-25
a.
Unsolicited Brokerage Transactions
4-25
b.
Unsolicited Purchases
4-26
6.
Basket Transactions
4-27
7.
De Minimis Transactions
4-28
8.
Transactions Among Distribution Participants
4-28
9.
Transactions in the Securities Being Distributed or Securities Offered as Principal
4-29
10.
Transactions in Rule 144A Securities
4-31
11.
Transactions in Foreign Sovereign Bonds
4-31
D.
Rule 101 Applied in Practice to IPOs
4-32
1.
Successful Offering
4-32
a.
Refreshing the Shoe
4-34
b.
Individual Underwriters' Short Positions
4-35
c.
Conflicts of Interest in Covering the Syndicate Short Position
4-36
2.
Unsuccessful Offering
4-37
3.
Investment Account
4-38
4.04.
Rule 102: Trading Restrictions for Issuers and Selling Securityholders
4-41
4.05.
Rule 103: Passive Market-Making
4-44
4.06.
Rule 104: Stabilization and Related Activities
4-45
A.
Excepted Securities
4-46
B.
Mechanics and Notice
4-46
1.
Pre-Effective or Pre-Pricing Stabilization
4-47
C.
General Requirements
4-48
D.
Prices at Which Stabilization May Take Place
4-49
1.
Initiating Stabilization When There Is No Market for the Security
4-49
2.
Initiating Stabilization When the Principal Market Is Open
4-50
3.
Initiating Stabilization When the Principal Market Is Closed
4-51
4.
Initiating Stabilization Before the Offering Price Is Determined
4-53
5.
Maintaining or Carrying Over a Stabilization Bid
4-54
6.
Increasing or Reducing a Stabilizing Bid
4-54
7.
Effects of Exchange Rates
4-54
8.
Adjustments to Stabilizing Bid
4-55
E.
Stabilization Outside the United States
4-55
4.07.
Disclosure, SRO Filing and Recordkeeping Requirements
4-56
A.
Disclosure in Prospectus
4-56
B.
SRO Filing Requirements Regarding Stabilizing Bids, Syndicate Short Covering Transactions or Penalty Bids
4-57
C.
SRO Filing Requirements Regarding Restricted Periods
4-58
D.
Withdrawal of Quotations
4-59
E.
Recordkeeping Requirements
4-59
4.08.
Dealing with Problems Under Regulation M
4-59
4.09.
Rule 105: Restrictions on Receiving Allocations in Certain Public Offerings
4-60
A.
History of Rule 105
4-61
B.
Rule 105 Prior to the 2007 Amendments
4-62
C.
Rule 105 as Amended in 2007
4-63
4.10.
Proposed Rule 106: Soliciting or Receiving Compensation in Connection with Allocations
4-67
4.11.
Manipulation Involving Security-Based Swaps
4-67
4.12.
Manipulation Outside the Trading Practice Rules
4-68
ch. 5
Liabilities And Due Diligence
5-1
5.01.
Introduction
5-5
5.02.
Sources of Liability
5-7
A.
Section 11
5-7
1.
Standing Requirements (Purchase of Registered Securities)
5-8
2.
"Effective Date"
5-11
3.
State Court Claims
5-11
4.
Defenses
5-12
a.
Absence of Material Misstatements or Relevant Omissions
5-12
b.
Fact or Opinion?
5-15
c.
Plaintiff's Knowledge
5-16
d.
Absence of Loss Causation
5-17
e.
Safe Harbor Defense for Forward-Looking Statements
5-17
f.
"Hold-Down" Limitation on Damages
5-20
g.
Reliance
5-21
h.
Statute of Limitations and Statute of Repose
5-22
i.
Enhanced Pleading Requirements
5-24
j.
Due Diligence Defense
5-24
B.
Section 12(a)(2)
5-27
C.
Rule 10b-5
5-33
D.
Controlling Persons
5-38
E.
Rescission Claims Under Section,12(a)(I)
5-38
5.03.
SEC and Judicial Interpretations Concerning Due Diligence
5-39
A.
SEC Administrative Proceedings
5-40
B.
BarChris
5-41
C.
Leasco Data Processing
5-43
D.
Chris-Craft
5-44
E.
WorldCom
5-45
1.
2000 Offering
5-46
2.
2001 Offering
5-47
F.
Summary Judgment and Motions to Dismiss
5-49
G.
Few Judicial Decisions
5-50
5.04.
Due Diligence Standards
5-51
5.05.
Due Diligence Procedures
5-53
A.
Integrity of Management
5-53
B.
Effect of the Transaction on the Company's Financial Statements
5-55
C.
Corporate Governance
5-56
D.
Staffing
5-57
E.
Due Diligence Checklists
5-59
F.
Legal Review[—]Opinion Matters
5-60
G.
Legal Review[—]Disclosure Matters
5-63
H.
Review of Industry
5-66
I.
Role of Analysts in Due Diligence
5-66
J.
Company's Website, SEC Filings and Other Communications
5-67
K.
Questionnaires from Officers, Directors and Other Persons
5-70
L.
Review of Registration Statement
5-71
M.
Materiality
5-74
N.
Maximizing "Expertization"
5-76
O.
Visits to Principal Facilities and Meetings with Principal Officers
5-78
P.
Due Diligence Regarding Emerging Disclosure Issues
5-80
Q.
Negotiation of Underwriting Agreement
5-82
R.
Review of Confidential Documents
5-82
S.
Accounting Matters
5-83
1.
Preparing for Financial Statement Due Diligence
5-84
2.
Meeting Focused on Financial Statement Due Diligence
5-86
a.
SEC's Formal Requirements for Financial Statements
5-90
b.
Revenue Recognition
5-91
c.
Market Risk
5-93
d.
Non-GAAP Financial Measures
5-95
e.
Segment Disclosure
5-98
f.
Related Party Transactions
5-99
g.
Other Areas for Inquiry
5-100
h.
MD&A Adequacy
5-101
i.
Critical Accounting Estimates
5-101
j.
Off-Balance Sheet Entities
5-101
T.
Mandatory Interactive Data Format for Financial Statements
5-102
U.
Negotiation of Comfort Letters
5-103
V.
"Rule 159 Disclosure Package"
5-107
W.
"Bring-Down" Due Diligence
5-108
X.
Documentation
5-108
Y.
Due Diligence by Non-Lead Underwriters
5-108
5.06.
The Penn Central Affair
5-110
5.07.
The Hughes Tool Company Initial Public Offering
5-116
ch. 6
Finra Rules Applicable To Securities Offerings
6-1
6.00.
FINRA's Role in Securities Offerings
6-3
A.
Origins of Self-Regulation
6-3
B.
Regulatory Consolidation
6-4
C.
National Securities Exchanges
6-5
D.
Exchanges' Status as Self-Regulators
6-6
E.
Disciplinary Proceedings
6-7
F.
FINRA Regulation of Securities Offerings
6-8
6.01.
Review of Corporate Financing (FINRA Rule 5110)
6-10
A.
Filing and Clearance
6-11
B.
Types of Review for Non-Shelf Filings
6-14
C.
Non-Exempt Shelf Filings
6-15
D.
Exemptions
6-15
1.
Exemptions from Filing
6-15
a.
Rating-Based Exemptions
6-15
b.
Exempt Shelf Registrations
6-16
2.
Exempt Offerings
6-17
E.
Notification to FINRA
6-17
F.
Submission of Pricing Information
6-18
G.
Underwriters' Compensation[—]Items of Value
6-18
H.
Lockup Agreements
6-20
I.
"Included in Underwriting Compensation"
6-22
J.
Standards of Fairness
6-24
K.
Unfair Underwriting Arrangements
6-25
L.
Proceeds Directed to a Member
6-27
M.
Applications for Exemptions
6-27
N.
Antitrust Claims Based on Uniform Spreads
6-27
O.
Rule 5131(d): Enhancements of Issuer's Role in Pricing IPOs
6-28
6.02.
Underwritings Involving Conflicts of Interest
6-29
A.
FINRA Rule 5121
6-29
B.
FINRA Rules 2262 and 2269
6-33
6.03.
Liabilities of Qualified Independent Underwriters
6-34
6.04.
Free-Riding and Withholding (FINRA Rule 5130) and Other Ways of Exploiting "New Issues"
6-37
A.
FINRA Rule 5130
6-38
1.
Applicable to "New Issues" Rather Than Hot Issues"
6-38
2.
Prohibitions of FINRA Rule 5130 (and Rule 5131(d)(3))
6-39
3.
Restricted Persons
6-40
4.
Preconditions for Sale
6-42
5.
General Exemptions
6-43
6.
Issuer-Directed Securities
6-44
7.
Antidilution Provisions
6-45
8.
Stand-by Purchasers
6-45
9.
IPO Distribution Manager
6-45
10.
Other Exemptive Relief
6-46
B.
Rule 5131(b): Restrictions on "Spinning"
6-46
C.
Rule 5131(a): Restrictions on Excessive Compensation for Other Services
6-49
D.
SEC's Proposed Rule 106
6-51
6.05.
The "Papilsky Rule" (FINRA Rule 5141)
6-51
A.
Background
6-52
1.
Pressure by Institutions
6-52
2.
The Pipilsky Case and NASD Rulemaking
6-53
B.
Prohibitions of FINRA Rule 5141
6-54
C.
NASD Rule 2420: Transactions with "Non-Member Broker-Dealers"
6-56
ch. 7
Private Placements
7-1
7.01.
Introduction
7-5
7.02.
Legislative History and Early Administrative and Judicial Interpretations of Section 4(a)(2)
7-7
7.03.
Rule 146
7-12
7.04.
Regulation D
7-14
A.
General Solicitation or Advertising
7-16
1.
Express Exclusions
7-17
2.
Offering-Related Websites and Qualification of Eligible Investors
7-18
3.
Non-Offering-Related Websites
7-22
4.
Contemporaneous Publicity and the Role of SEC Release 33-8828 (August 3, 2007)
7-23
5.
Number of Offerees
7-26
6.
"Crowdfunding" and Other Mass Capital-Raising Efforts
7-27
7.
New Rule 506(c): Transactions Accompanied by General Solicitation or General Advertising
7-29
a.
Pre-JOBS Act Criticism of the Prohibition on General Solicitation or General Advertising
7-30
b.
Conditions to Availability of SEC Rule 506(e)
7-32
c.
Availability to Private Investment Companies
7-34
d.
Proposed Amendments to Regulation D and Form D
7-34
e.
Frequency of Use of Rule 506(c)
7-35
f.
CFTC Exemptive Relief to Commodity Pool Operators
7-35
B.
"Accredited Investors"
7-36
C.
Informational Access and Disclosure
7-40
D.
Anti-Underwriter Precautions
7-41
1.
Restrictive Legends and Book-Entry Securities
7-41
2.
Removal of Restrictive Legends
7-42
3.
Minimum Denominations
7-43
E.
Resales
7-44
F.
Form D Notice and Proposed Amendments
7-44
G.
Disqualification of "Bad Actors" (Rules 506(d) and (e))
7-46
1.
Disclosure Under Rule 506(e) of "Grandfathered" Disqualifying Events
7-46
2.
Covered Persons Under Rule 506(d)
7-47
3.
Disqualifying Events Under Rule 506(d)
7-48
4.
Effect of Issuer's Unawareness of Disqualification Event
7-50
5.
Effect of Action by Court or Authority Imposing Sanction
7-51
6.
Waivers by SEC
7-51
H.
Blue Sky Requirements
7-53
I.
Integration
7-54
J.
Insignificant Deviation Rule
7-54
7.05.
Rule 144A
7-54
A.
QIB Status
7-55
B.
Screen-Based and Other "Offers"
7-58
C.
"Fungibility
7-58
D.
Information Requirement
7-59
E.
Notice Requirement
7-60
F.
Resales of Rule 144A Securities
7-60
1.
Secondary Market Transactions Under Rule 144
7-60
2.
"Rule 144A for Life" Securities
7-61
3.
PORTAL and DTC Eligibility
7-61
4.
"Private Exchanges" for Rule 144A Securities
7-63
5.
"Portal Alliance" for Rule 144A Securities
7-64
6.
Dissemination of Transactions in TRACE-Eligible Rule 144A Securities
7-64
7.06.
Private Placement Procedures
7-65
A.
Rule 144A Private Placement
7-65
1.
Rule 144A Debt Offering
7-66
2.
Rule 144A Offering of Equity Securities
7-68
B.
Continuous Private Placement Programs (MTNs)
7-70
C.
Stand-Alone Institutional Placements (Section 4(a)(2))
7-71
1.
Procedures
7-72
2.
Investment Representations
7-74
3.
Availability of Section 4(a)(2) Exemption
7-74
4.
Secondary Private Placements of Debt Placed with Institutions
7-76
D.
Regulation D Placements with Individual Investors
7-78
1.
Effect of Failure to File Required Financial Statements
7-78
2.
General Solicitation and Prior Relationships (in Transactions Not Relying on New SEC Rule 506(c))
7-79
3.
Procedures and Controls
7-82
a.
Designation of Qualified Sales Representatives
7-82
b.
Designation of Qualified Offerees
7-83
c.
Solicitation of Qualified Offerees
7-83
d.
Processing of Subscription Agreements
7-84
4.
Due Diligence and FINRA Rule 5123
7-84
5.
Resale of Regulation D Securities
7-86
7.07.
Related Private Placements and Public Offerings
7-88
A.
Unsuccessful or Completed Private Offering Followed by Public Filing
7-89
B.
Unsuccessful Public Filing Followed by Private Offering
7-93
C.
Private Offering with Concurrent Registration PIPES")
7-94
D.
Registration Rights Agreement
7-97
E.
Private Offering Followed by "Exxon Capital" or A/B" Exchange Offer
7-100
7.08.
Private Offering Followed by Short Sales into Public Market
7-103
7.09.
Private Investment Companies (Sections 3(c)(1) and 3(c)(7))
7-105
7.10.
Credit on New Issues (Section 11(d)(1))
7-108
ch. 8
Shelf Registration (Rule 415)
8-1
8.01.
Introduction
8-5
8.02.
The Evolution of Shelf Registration
8-7
8.03.
The Adoption of Rule 415
8-9
8.04.
The Impact of Rule 415
8-13
8.05.
Securities Offering Reform
8-15
8.06.
How Rule 415 Offerings Work
8-16
A.
Form S-3 Eligibility Requirements
8-16
1.
Form S-3: Registrant Requirements
8-17
2.
Form S-3: Transaction Requirements
8-20
B.
Securities Offerings Eligible to Use Rule 415
8-23
C.
WKSIs' Shelf Registration Statements
8-24
D.
Who's a WKSI?
8-26
1.
Ineligible Isspers and SEC Waivers of Ineligibility
8-28
E.
Amount of Securities Registered; Three-Year "Shelf Life;" Use of Combined Prospectus Under Rule 429
8-30
1.
Amount of Securities Registered
8-30
2.
Exhaustion of Shelf Capacity
8-30
3.
Three-Year "Shelf Life"
8-31
4.
Combined Prospectus Under Rule 429
8-32
F.
Type of Securities Registered ("Unallocated," "Generic" or "Universal" Shelf)
8-33
G.
Information in Base Prospectus and Prospectus Supplement; "New Effective Date" and Rule 424(b) Filings
8-34
H.
Basic Documentation
8-39
I.
Incorporation by Reference of 1934 Act Reports
8-40
1.
Incorporation by Reference of Past Reports
8-40
2.
Incorporation by Reference of Future Reports
8-41
3.
Disclosure of Unresolved Staff Comments
8-41
4.
Superseding Prior Reports
8-42
5.
"Furnished" Reports Not Incorporated by Reference
8-42
6.
Incorporating Reports that Contain Forward-Looking Information
8-43
J.
Suspension of Ability to Make Takedowns from Effective Shelf Registration Statement
8-44
K.
Section 11 Negative Assurance Letters
8-46
L.
Section 12(a)(2) Negative Assurance Letters
8-47
8.07.
Conventional Debt and Preferred Stock Shelf Registration
8-47
A.
Securities to Be Registered; Elimination of "Convenience Shelf' Doctrine
8-48
B.
Takedown Terms and Conditions and Plan of Distribution
8-50
C.
The Indenture and the Description of the Securities
8-54
D.
Medium-Term Notes and Medium-Term Note Platforms
8-57
1.
The "Classic" Medium-Term Note Platforms
8-57
2.
Current Expanded Use of MTN Platforms
8-61
3.
Extension of Credit
8-62
E.
Guarantees and Credit Enhancement
8-63
F.
Preferred Stock
8-64
G.
Board Authorization and Exhibit 5 Legal Opinion
8-64
H.
Underwriting Documents
8-66
I.
Use of Preliminary Prospectus
8-67
J.
Due Diligence
8-68
K.
Ratings
8-70
L.
Research
8-72
M.
Preparation and Filing of Final Pricing Term Sheet and Prospectus Supplement
8-73
8.08.
Common Stock Shelf Registration
8-74
A.
"Follow-on" Offerings by Public Companies
8-74
B.
At-the-Market Equity Primary Offerings
8-77
C.
Non-Underwritten Registered Equity Secondaries
8-79
8.09.
Shelf Filings by Foreign Governments or Political Subdivisions
8-85
8.10.
The Presumptive Underwriter Problem
8-88
8.11.
Regulation M
8-90
8.12.
Deep Discount and Zero Coupon Obligations
8-92
A.
Tax Considerations
8-92
1.
Definition of OID
8-93
2.
Consequences of OID
8-93
3.
Reporting of OID
8-94
B.
Bankruptcy and Events of Default
8-95
C.
Accounting Treatment
8-95
D.
Deep Discount Obligations
8-95
E.
Zero Coupon Obligations
8-96
8.13.
"Reopenings"
8-97
ch. 9
International Securities Offerings
9-1
9.01.
Introduction
9-5
9.02.
Offshore Offerings and the 1933 Act
9-7
A.
Developments Prior to Regulation S
9-7
B.
Adoption of Regulation S
9-11
1.
Subsequent SEC Concerns with "Abusive" Regulation S Transactions
9-12
2.
General Statement
9-13
3.
Safe Harbors
9-13
4.
Offshore Transaction
9-14
5.
Directed Selling Efforts
9-15
a.
Internet Postings
9-16
b.
Foreign Press-Related Activity (Rule 135e)
9-18
c.
Notices of Unregistered Offerings
9-20
d.
Advertising
9-20
e.
Price Quotes
9-21
f.
Research
9-21
g.
Selling Efforts from the United States
9-22
h.
Offers and Sales to Persons in the United States Who Are Not Considered to Be "U.S. Persons"
9-24
i.
Miscellaneous Activities
9-24
j.
Selling Efforts in Connection with Registered or Exempt Offerings
9-24
k.
Duration of Prohibition
9-25
6.
Issuer Safe Harbor
9-25
a.
Category 1 Transactions
9-25
b.
Category 2 Transactions
9-26
i.
"U.S. Persons"
9-29
ii.
Custody Arrangements
9-32
c.
Category 3 Transactions
9-32
7.
Rule 905
9-35
8.
Convertible Securities
9-35
9.
Custody Arrangements in "Side-by-Side" Offerings (Offshore Public Offerings and U.S. Private Placements)
9-36
10.
Resale Safe Harbor
9-39
11.
Resales of Regulation S Securities in the United States
9-40
C.
Section 5 and Morrison v. National Australia Bank, Ltd.
9-42
D.
Section 11 Liability and Morrison v. National Australia Bank, Ltd.
9-44
9.03.
TEFRA Issuer and Holder Sanctions
9-45
9.04.
Foreign Private Issuers and the U.S. Securities Laws
9-47
A.
Status as a "Foreign Private Issuer"
9-50
B.
American Depositary Receipts
9-52
1.
Types of ADR Facilities
9-54
2.
1933 Act Status of ADR Facilities
9-57
3.
Form F-6 and Increase in Number of Unsponsored ADR Programs
9-58
4.
Adequacy of Disclosure Regarding ADRs
9-59
C.
Forcing the 1934 Act on Foreign Companies
9-60
1.
Development of a Regulatory Compromise
9-60
2.
Current Status of the Rule 12g3-2(b) Exemption
9-63
D.
Entering the U.S. Reporting System
9-66
1.
Form 20-F and 1934 Act Registration
9-66
2.
1933 Act Registration for Foreign Private Issuers
9-69
E.
Financial Statement Requirements
9-72
1.
Formal Requirements
9-72
2.
Elimination of U.S. GAAP Reconciliation Requirement for Certain IFRS Financial Statements
9-73
3.
Geographic Market and Industry Segments
9-75
4.
SEC Staff Review of IFRS Financial Statements
9-76
5.
Delay of Implementation of Interactive Data Requirement
9-76
F.
Continuous Reporting Under the 1934 Act
9-77
G.
Listing on a U.S. Exchange
9-78
H.
Sarbanes-Oxley Consequences for Foreign Reporting Companies
9-79
I.
"Delisting" and "Deregistration": Leaving the U.S. Reporting System
9-81
J.
Multijurisdictional Disclosure System
9-84
K.
1940 Act Exemptions for Foreign Banks, Insurance Companies and Finance Subsidiaries
9-85
9.05.
Rights Offerings by Foreign Companies into the United States
9-85
A.
1933 Act
9-85
B.
Regulation M
9-90
C.
Section 11(d)(1) and Installment Payment Offerings
9-91
9.06.
Sales in the United States by Foreign Governments and Their Political Subdivisions
9-92
A.
1933 Act Registration
9-93
B.
Signature Consent to Service and Sovereign Immunity
9-95
C.
Pari Passu and Collective Action Clauses
9-99
D.
1934 Act Registration and Reporting
9-100
E.
Filing Under FINRA's Corporate Financing Rule
9-100
ch. 10
Commercial Paper
10-1
10.01.
Characteristics of the Market
10-6
10.02.
Credit Quality and the "Orderly Exit"
10-8
10.03.
Dealers' Role
10-12
10.04.
Mechanics
10-12
10.05.
Section 3(a)(3) Commercial Paper Exemption
10-13
A.
SEC Release No. 33-4412
10-13
B.
The Prime Quality Standard
10-14
C.
Offers to the Public
10-14
D.
Eligibility for Discounting
10-17
E.
The Current Transaction Test
10-18
F.
The Concept of Commercial Paper Capacity
10-18
G.
Role of No-action Letters
10-20
H.
Financing of Inventories and Accounts Receivable
10-21
I.
Payment of Operating Expenses
10-22
J.
Carrying Finance Company Rectlivables
10-22
K.
Lending Activities of U.S. Bank Holding Companies and Foreign Banks
10-23
L.
Financing of Leasing and Related Activities
10-24
M.
Financing of Insurance Operations
10-25
N.
Financing of Broker-Dealer Operations
10-26
O.
Investments in Money Market Obligations
10-27
P.
Interim Construction Financing
10-29
Q.
Financing of Public Utility Operations
10-30
R.
Nuclear Fuel Financing
10-32
S.
Acquisition Financing
10-33
T.
Issuer's Repurchase of Securities
10-34
U.
Financing by Foreign Governmental Entities
10-34
10.06.
Continuous Offerings of Restricted Commercial Paper
10-36
A.
Continuous Offering Procedures for Restricted Commercial Paper
10-37
B.
Integration
10-43
C.
Extendible Commercial Paper
10-45
10.07.
Section 3(a)(2) Bank Exemption
10-46
10.08.
1940 Act Considerations
10-49
A.
Foreign Banks and Insurance Companies
10-49
B.
Finance Subsidiaries
10-52
10.09.
Liabilities on Default
10-53
A.
Section 12(a)(1)
10-55
B.
Antifraud Remedies
10-57
1.
Section 12(a)(2)
10-57
2.
Rule 10b-5
10-61
ch. 11
Innovative Financing Techniques
11-1
11.01.
The Perils of Innovation
11-3
11.02.
Regulation Under the Commodity Exchange Act
11-8
A.
Treasury Amendment
11-9
B.
Hybrid Instruments
11-10
C.
Traditional Bank Products
11-11
D.
State Law Preemption
11-12
11.03.
Debt Securities with Embedded Options
11-12
11.04.
Retail-Oriented Issuer Debt Programs
11-16
11.05.
"Green Bonds"
11-17
11.06.
Custody Receipts (Old Bottles Waiting for New Wine)
11-19
11.07.
"Equity Line" Financing Arrangements
11-24
A.
1933 Act Issues
11-24
B.
1934 Act Issues
11-25
C.
Tax Issues
11-26
11.08.
Short Sales and Equity Derivatives
11-26
11.09.
"PIPEs" and "Registered Direct" Offerings
11-34
11.10.
"Covered Bonds"
11-37
A.
European Covered Bonds
11-37
B.
Efforts to Create a U.S. Covered Bond Market
11-41
ch. 12
Convertible And Exchangeable Securities; Structured Notes; Warrants
12-1
12.01.
Convertible Securities
12-4
A.
Current Return
12-5
B.
Conversion Terms
12-7
C.
Contingent Convertibility
12-8
D.
Mitigating Dilution for Existing Shareholders
12-10
E.
Anti-Dilution and Other Protections for Buyers of Convertible Securities
12-11
F.
Increasing the Supply of Borrowable Stock
12-13
G.
Puts by Holder
12-15
H.
Cash or Stock on Conversion/Net Share Settlement
12-16
I.
Redemption
12-17
J.
M&A Transactions
12-17
K.
1933 Act Considerations
12-19
L.
Rule 144A Convertible Securities
12-21
M.
Regulation M Restricted Periods
12-21
N.
Tender Offer Issues
12-23
12.02.
Exchangeable Securities
12-23
A.
Registration of the Underlying Securities
12-24
B.
Avoiding Registration in Control Situations
12-24
C.
Disclosure About Issuer of Underlying Securities
12-25
D.
Liabilities and Due Diligence
12-27
E.
Communications with Underlying Issuer
12-28
F.
Listing
12-29
G.
Regulation M
12-29
H.
Rule 144A Offering
12-30
12.03.
Mandatorily Convertible or Exchangeable Securities
12-30
A.
Conversion into Company's Own Common Stock
12-31
B.
Exchange for Another Company's Common Stock
12-32
C.
1933 Act Registration
12-33
D.
Rule 144A
12-33
E.
Disclosure
12-34
F.
Third-Party Monetizations
12-34
12.04.
Structured Notes
12-37
12.05.
Stock Purchase Warrants and Options
12-43
A.
Units of Debt Securities and Warrants
12-43
B.
Units of Common Stock and Warrants
12-44
C.
Cash-Settled Warrants
12-45
D.
Cash-Settled Employee Stock Options
12-45
E.
TARP Preferred Stock and Warrants
12-47
12.06.
Calls for Redemption to Force Conversions
12-48
A.
Standby Arrangements
12-50
B.
1933 Act Considerations
12-51
C.
Redemptions and Regulation M
12-52
D.
Lay-Offs
12-53
12.07.
Expiring Warrants
12-54
ch. 13
Transactions With Securityholders: Stock Repurchases, Debt Restructurings, Rights Offerings And Rescission Offers
13-1
13.01.
Introduction
13-5
13.02.
Stock Repurchases
13-5
A.
Corporate, Margin, Covenant and Regulatory Considerations
13-6
B.
Material Nonpublic Information and Other Antifraud Considerations
13-7
C.
Purchases in the Open Market
13-9
1.
Avoiding a "Tender Offer"
13-9
2.
Rule 10b-18
13-12
a.
"Rule 10b-18 Purchases"
13-13
b.
Scope of Safe Harbor
13-14
c.
Conditions to Availability of Safe Harbor
13-15
d.
Relaxed Conditions During Marketwide Trading Suspensions and Pursuant to SEC Emergency Orders
13-19
e.
Purchases Outside the Safe Harbor
13-20
f.
"Accelerated Share Repurchases" (Short Sales by Broker-Dealers)
13-20
D.
Innovative Repurchase Techniques
13-21
E.
Using Derivatives
13-22
F.
Disclosure of Stock Repurchases
13-24
G.
Cash Tender Offers
13-26
1.
Tender Offer Mechanics
13-26
2.
Regulation of Issuer Tender Offers
13-27
3.
Innovative Pricing Methods
13-33
4.
Going Private Transactions
13-35
5.
Short Tendering of Securities (Rule 14e-4)
13-37
13.03.
Debt Restructurings
13-39
A.
Redemptions
13-40
B.
Open Market Purchases
13-44
C.
Cash Tender Offers
13-46
D.
Fixed-Spread Offers and Shorter Tender Periods
13-49
1.
Pre-2015 No-Action Letters
13-49
2.
2015 Debt Tender and Exchange Offer No-Action Letter
13-51
E.
Inducements to Encourage Early. Tenders; "Waterfall" Structures
13-54
F.
Issuer Recommendation
13-54
G.
Exchange Offers
13-54
1.
Section 3(a)(9) Exchange Offer Exemption
13-56
a.
Issuer Identity Requirement
13-56
i.
Downstream Guarantees
13-56
ii.
Upstream Guarantees
13-58
b.
Exclusivity Requirement
13-58
c.
No Paid Solicitation
13-60
d.
Shareholder Votes; Compliance with Covenants; Trust Indenture Act; Resales of Exchanged Securities
13-65
H.
Consent Solicitations
13-66
1.
Consent Solicitations Tied to Tender Offer
13-67
2.
Consent Fees
13-68
3.
"Coercive" Consent Solicitations
13-70
4.
Collaboration Among Debtholders
13-74
I.
"Rule 14e-1 Opinions"
13-74
13.04.
Rights Offerings
13-75
A.
Mechanics
13-76
B.
The Role of the Investment Banker
13-78
C.
1933 Act Registration
13-79
D.
Shields Plan
13-80
E.
Dealer-Manager Plan
13-81
F.
"Backstop" Commitments from Substantial Shareholders
13-81
G.
Section 11(d)(1)
13-82
H.
Regulation M (Rule 102)
13-83
13.05.
Rescission Offers
13-84
A.
Registering the Rescission Offer Under the 1933 Act
13-85
B.
Does the Rescission Offer Cut Off "Put" Rights?
13-87
1.
Google's 2007 Rescission Offer
13-87
2.
Does a Rescission Offer Cut Off Section 12(a)(1) Put" Rights?
13-88
C.
Issuer Tender Offer Considerations
13-89
D.
Rule 102 of Regulation M
13-89
E.
Broker-Dealers' Self-Reporting Obligations
13-89
ch. 14
Asset-Backed Securities
14-1
14.01.
ABS and the Legislative and Regulatory Response to the Financial Crisis
14-5
A.
Weaknesses of the Historical Securitization Model
14-6
B.
Legislative Response (Dodd-Frank) and SEC Implementation Efforts Prior to 2014
14-9
C.
Risk Retention
14-10
a.
Risk Retention Compliance
14-11
b.
Qualifying Commercial Loans, Commercial Real Estate Loans and Automobile Loans
14-12
c.
Exemptions
14-13
d.
Qualified Residential Mortgages
14-13
D.
FDIC Regulatory Response
14-13
E.
ABS and the Volcker Rule
14-16
14.02.
Basic Structure of an ABS Transaction
14-19
A.
Conventional Securitizations
14-20
B.
Asset-Backed Commercial Paper
14-21
C.
New Asset Classes
14-24
14.03.
Development of Regulation AB
14-26
A.
Background of Regulation AB
14-26
B.
2014 Amendments to Regulation AB
14-26
C.
2014 Rules Regarding Rating Agencies and Third-Party Due Diligence Services
14-26
14.04.
1933 Act Considerations
14-27
A.
Who Is the Registrant?
14-27
B.
Definition of ABS
14-27
C.
Registration and Documentation Under the 2014 Amendments
14-30
1.
Forms S-1, S-3 and SF-3
14-30
a.
Registrant Requirements
14-31
i.
Timely Filing of Certification and Transaction Agreements
14-31
ii.
Timely Filing of 1934 Act Reports
14-31
iii.
Annual Compliance Review
14-31
b.
Transaction Requirements
14-32
i.
C.E.O. Certification
14-32
ii.
Asset Representations Reviewer
14-32
iii.
Dispute Resolution Process
14-32
iv.
Means for Investor Communication
14-33
2.
New Rule 430D
14-33
3.
"Speed Bumps"
14-34
4.
"Pay-as-You Go"
14-36
D.
Registration of Underlying Pool Assets
14-36
E.
Disclosure Requirements
14-37
1.
Sponsors
14-38
2.
Static Pool Data
14-39
3.
SPV (Issuing Entity)
14-40
4.
Servicers
14-41
5.
Trustees and Other Transaction Parties
14-43
6.
Originators
14-44
7.
Pool Assets
14-44
8.
Significant Obligors of Pool Assets
14-46
9.
Transaction Structure
14-46
10.
Credit Enhancement and Other Support
14-47
11.
Derivative Instruments Whose Primary Purpose is Not to Provide Credit Enhancement
14-48
12.
Alternative Methods of Presenting Third-Party Financial Information
14-49
13.
Consents from Ratings Agencies
14-51
14.
Transaction Documents as Exhibits
14-53
15.
Other Disclosure Items in Regulation AB
14-54
F.
Offering Materials and Other Communications
14-54
1.
Regulation AB Vehicles for ABS Informational and Computational Material
14-54
2.
Free-Writing Prospectuses as Vehicles for ABS Informational and Computational Material
14-56
3.
ABS Roadshows
14-58
4.
Rule 134
14-58
5.
Rating Agency Pre-Sale Reports
14-58
G.
Access to Loan Files
14-58
H.
Prospectus Delivery Considerations
14-59
1.
Rule 424(h) and Rule 15c2-8(b)
14-59
2.
Post-Offering Delivery Requirements; Availability of Materials as FWPs or Through Electronic Media (Rule 168)
14-60
3.
Market-Maker Prospectuses
14-61
I.
Research Materials
14-62
J.
Integration
14-63
K.
Due Diligence
14-64
L.
Rule 159 Letters
14-68
M.
Rule 144A(d)(4) Information
14-69
14.05.
1934 Act Considerations
14-70
A.
Form 10-D
14-70
B.
Form 8-K
14-72
C.
Form 10-K
14-72
D.
Section 15(d)
14-73
E.
Confirmations
14-74
F.
Section 11(d)(1)
14-74
G.
Rating Agency Conflicts of Interest (Rule 17g-5)
14-75
H.
Third-Party Due Diligence Providers and Reports
14-77
14.06.
1940 Act Exemptions and the Volcker Rule
14-79
14.07.
Other Considerations
14-84
A.
Bankruptcy
14-84
B.
Accounting Issues
14-85
C.
Tax Issues
14-86
D.
1939 Act
14-87
E.
SMMEA
14-88
F.
Legal Investment Considerations
14-89
G.
Preemption of State Securities Registration
14-89
H.
Underwriting Syndicate Practices
14-90
I.
FINRA Considerations
14-90
J.
Commodity Exchange Act Considerations
14-90
ch. 15
Insurance-Linked Securities
15-1
15.01.
Introduction to Insurance-Linked Securities
15-3
15.02.
Property and Casualty Insurance-Linked Securities: Catastrophe Bonds and Reinsurance Sidecars
15-4
A.
General Overview
15-4
B.
History and Development of the Market
15-4
C.
Basis Structure
15-5
D.
Certain Insurance Considerations
15-6
1.
Permitted Jurisdictions in Respect of Catastrophe Bonds
15-6
2.
Cayman Islands or Bermuda Insurance License
15-7
E.
Certain Catastrophe Bond Disclosure Considerations
15-7
1.
Payment Triggers
15-8
a.
Indemnity
15-8
b.
Non-Indemnity
15-8
2.
Disclosure in Indemnity Transactions
15-9
3.
Disclosure in Non-Indemnity Transactions
15-10
4.
Risk Modeling
15-11
5.
Ceding Company's Credit Risk
15-12
F.
Sidecar Disclosure
15-12
G.
Certain Swap Considerations Under Dodd-Frank
15-12
15.03.
Life Insurance-Linked Securities
15-16
A.
General Overview
15-16
B.
Statutory Reserve and Embedded Value
15-17
1.
Statutory Reserve
15-17
2.
Embedded Value
15-20
3.
Basic Structure
15-20
4.
Credit Enhancement
15-22
5.
Regulatory Approval
15-23
6.
Disclosure
15-23
7.
Other Considerations
15-24
C.
Extreme Mortality and Longevity
15-24
D.
Life Settlement
15-25
15.04.
Securities Law Considerations
15-26
A.
1933 Act Considerations
15-26
1.
Investment Only by ()Ms
15-26
2.
Rule 144A(d)(4) Information
15-27
B.
1934 Act Considerations
15-27
1.
Rule 17g-5
15-27
2.
Rule 10b-5
15-28
C.
1940 Act Considerations
15-28
15.05.
Statutory Accounting vs. GAAP
15-29
Index
I-1