series 79
FINRA Rule 2269 requires members acting as brokers or dealers to give customers a written notice of interest for which of the following transactions? I. Primary offerings II. Secondary distributions III.Securities in accounts advised for a fee
"Interests in distribution" disclosures apply to a variety of transactions in an issuer's securities. FINRA Rule 2269 requires written disclosure to customers of any interest in a primary or secondary distribution of securities being offered, sold or advised for a fee. For example, if a rep is selling a client their own securities, it is required to provide disclosure of the conflict of interest.
what is stapled financing
"Stapled financing" is a "pre-packaged," committed financing structure offered to buyers in support of the target being sold. The staple, which is targeted toward sponsors, was a mainstay in auction processes during the LBO boom of the mid-2000s.
what is the dollar threshold for defining firms that are institutional investment managers
$100 milion or more in discretionary securities portfolios managed
100 million share offering has a $0.50 gross spread and $10 POP. new issue proceeds to the issuer are:
$950 million (10 m shares X $9.50 proceeds to issuer)
acid test (quick ratio)
(Current Assets - Inventory) / Current Liabilities
acid test (quick ratio)
(Current Assets - all Inventory) / Current Liabilities
WACC formula
(after tac cost of debc X %of debt) + (cost of equity X % of equity)
current yield
(annual interest/dividend)/ market price
Under Rule 144A, Qualified Institutional Buyers (QIBs) are defined as:
-Insurance Companies -Investment Companies -Business Development Companies -Investment Advisers -Broker dealers owning and investing discretionary assets of at least $10 million -Any other institution with discretionary assets of at least $100 million
copies of 13D are sent to the:
-SEC -issuer -exchange
The 'by or on behalf of an issuer" test is met if two conditions are met:
-The issuer must approve the information prior to its use and communication must be made directly by the issuer or an agent of the issuer. There is no requirement for SEC approval.
securities that are exempt from filing req. of act of 1933
-US gov -muni bonds -fixed insurance products -national and state bank securities -non-profit securities -commercial paper -bankers acceptances with maturities of 270 days or less
what are the 3 components of rganization and offering expenses (O&O) of a Direct Participation Program
-bona fide issuer expense - underwriting compensation - due diligence expenses connected to the offering. Total O&O expenses are limited to 15% of gross offering proceeds.
impact to balance sheet when company declares a dividend
-dividends payable increases -retained earnings decreases
what is a non-accelerated filer
-less than $75 m in affiliate market cap OR has not been an SEC filer for at least 1 yr
what info is required about shareholders in the proxy statement?
-list of officers -list of directors -list of 5% beneficial shareholders -amount of shares owned by each
To avoid being considered communications with the public under NYSE Rule 472, a Webcast (presented to more than 15 people) should be:
-password-protected - all participants should receive prior to the event current research supporting the analyst's opinions. - Any inaccuracies or outdated information in the documents should be corrected by the analyst during the Webcast.
what pricing info has to be included in the prospectus
-proceeds from offering -use of proceeds -entire underwriting spread (DO NOT need breakdown fo spread)
what info is included in a merger proxy M14A?
-proposed terms of the merger -whether mgmt team recieves compensation from change in control
who myst sign a 10K
-the registrant -CEO -CFO -controller -majority of board of directors (does not include chairman)
info on UW compensation must be filed with FINRA no later than:
1 business day after the registration is filed w SEC
earnings retention ratio
1- dividend payout ratio
steps of M&A transaction:
1. Seller signs an engagement letter with an adviser. 2. Seller delivers a Teaser to each potential acquirer along with a Confidentiality Agreement (CA) 3. Acquirers sign and return the CA 4. Seller delivers a Confidential Information Memorandum (CIM), also called a Detailed Memorandum or Information Memorandum, to each potential acquirer along with the Initial Bid Procedures Letter. 5. Seller receives first round bids from potential acquirers. First round bids may be called Indications of Interest (IOIs), Statements of Interest (SOIs) or Letters of Intent (LOIs) 6. In the second round, the seller and buyer do site visits, management presentations, and the seller makes the data room available. 7. The seller distributes the Final Bid Procedures Letter to each potential acquirer. 8. The seller receives Final (i.e. Second Round) Bids from each potential acquirer. 9. The seller and acquirer sign a Definitive Agreement and announce the transaction
what are components of the spread
1. managers fee 2. underwriting fee 3. selling concession
quiet period for syndicate managers research analysts to initiate research following IPO
10 days after effective date
quiet period for syndicate members reproach analyst following an IPO
10 days after effective date
form 3 must be filed within:
10 days of attaining insider status
percentage ownership threshold for conflict of interest to exist when an issuer is partially owned by a broker dealer
10% issuer ownership by a broker-dealer or its employees, including preferred stock or subordinated debt
threshold for determining when a joint account is restricted from purchasing IPOs b/c one or more persons is restricted
10% or ore of account ownership is restricted persons
time requirement for audited financials included in registration statement
130 days for WKSIS 135 days for all other issuers
prospectus info can never be older than
16 months old
form 4 must be filed within
2 days of changes in holdings
time requirement for filing DEF14A with SEC
20 days b4 annual meeting
Daily stock buybacks may not exceed _____ of the average daily trading volume
25%
a person who owns more than ____ of a BD is a restricted person
25%
what is the quiet period for syndicate managers research analysts following an additional offering
3 days after effective date
What is the normal waiting period for HSR approval?
30 days after filing
duration of gun jumping period
30 days prior to an issuers deciding to pursue a new issue or registration filing
a seller can file form 144 no more than
4 times a year or even 90 days
when must the form 5 be filed
45 calendar days of fiscal year end
an offering circular in a regulation A offering must be received by purchasers at least
48 hours prior to confirmation of sale
filing requirement for red herring
5 copies with SEC no later than date of distribution to investors
securities acquired by an underwriter in connection with an offering are subject to a holding period of at least
6 months, unless the number of shares is no more than 1% of the total deal size
what is the maximum gross underwriting spread that FINRA considered reasonable
7% of gross offer price
percentage of income the issue must receive in a state to be eligible for 147 registration
80%
length of time form 144 covers
90 days
Section 402 of the Sarbanes-Oxley Act regulates personal loans made by any issuer or public securities, directly or indirectly to:
A director or executive officer Sarbanes-Oxley prohibited public companies from extending loans to directors and executive officers, including extensions or maintenance of credit or arrangements to obtain credit, on any terms more favorable than market terms.
When subject to a restricted period under Regulation M, a firm seeking an excused withdrawal must make this request A)1 business day prior to the first complete trading session of the restricted period B)Coincident with the first complete trading session of the restricted period C)3 business days prior to the first complete trading session of the restricted period D)2 business days prior to the first complete trading session of the restricted period
A firm must request excused withdrawal status under Regulation M no later than the business day prior to the first complete trading session of the restricted period under Regulation M. Depending on the liquidity of the security, the restricted period begins either 5 days before the new issue is priced or 1 day before the new issue is priced.
preemptive bid
A negotiated sale is often initiated by the buyer as a way to preempt an auction. This is called a preemptive bid. If it is based on the value of perceived synergies between the two companies, directors of the acquiring company may be justified in paying a higher price for the target than competitors (who lack the same synergies) would be willing to pay. It's very important to identify synergies and include their estimated value in the valuation analysis supporting the preemptive bid.
reallowance
A portion of the concession available to firms that sell shares in an offering but are not syndicate or selling group members.
Why might a seller choose to pursue an IPO rather than a sale of the company? I. Potential buyers are sidelined II. Preserves equity upside to share in future growth III. Implied IPO valuation is higher than that expected in a sale IV. Favorable equity capital markets
A seller may choose to pursue an IPO as opposed to a sale of the company for a variety of reasons. A sale process is designed to maximize value for the target's shareholders; if some of the identified buyers are not in a position to currently bid due to market conditions or business factors, then waiting to sell may be a viable option. If the seller wants to maintain a sizeable equity stake in the business and share in the future growth in the enterprise, then an IPO is the best option. Often, bankers pursue a dual-track process when seeking to maximize the value of a business - 1) a sale and 2) a IPO. If the valuation implied by the IPO is greater than the sale, then the IPO may be pursued. Finally, if market conditions for IPOs are favorable, private companies will take advantage.
Which of the following most closely approximates free cash flow?
A) Net Income + Interest - Capex f the choices given, Net Income + Interest - Capex is the best approximation for a company's free cash flow. Interest is added back because it is a financing cash flow. These types of cash flows are generally excluded when calculating free cash flow. The best calculation would be EBIT - taxes - capex, but that is not provided as an answer choice here.
ABC Securities, a broker-dealer, participates in an IPO as underwriter. The firm's head of investment banking believes the syndicate manager is charging his own personal travel and entertainment expenses, unrelated to underwriting activity, to the syndicate. How can ABC obtain a detailed list of all syndicate expenses by category, to determine whether or not the suspicion is true? A) The list is included on the mandatory final settlement of syndicate accounts statements, which must be provided to all syndicate members. B) The list is on an addendum to the underwriters report, which the lead manager must provide to the SEC. C) ABC can make written request to the syndicate manager to provide details on certain expenses charged to the syndicate; the manager has 30 days to respond. D) This type of itemization usually is not available to syndicate members unless there is a reason to suspect fraud.
A) The list is included on the mandatory final settlement of syndicate accounts statements, which must be provided to all syndicate members. FINRA requires final settlement of syndicate accounts by the syndicate manager within 90 days following the syndicate settlement date. The manager must provide each syndicate member an itemized statement that includes expenses by category and other details of the syndicate's account. The syndicate's finances must be transparent to all members.
A sophisticated institutional customer wants to receive and act on investment recommendations from a broker. But the customer does not wish to provide the profiling data necessary for customer-specific suitability. What should it do? A) affirm that it is exercising independent judgment B) trade in an omnibus account C) document its objectives for each trade D) limit trades to listed securities
A) affirm that it is exercising independent judgment
A quote for a U.S. Treasury bond of 101-18+ is the same as A)101 and 37/64 B)101 and 19/32 C)101 and 18/64 D)101 and 18/32
A)101 and 37/64
Schedule TO must be filed by an entity that expects to own more than what percentage of the target company's securities? A)5% B)25% C)A controlling interest D)10%
A)5% Schedule TO is required under the '34 Act, and must be filed by entities that expect to own more than 5% of a class of the target company's securities, after the tender is completed.
Which of the following ratios provides the best measure of a company's overall leverage? A)Debt-to-EBITDA B)Return on equity C)Return on assets D)EBITDA margin
A)Debt-to-EBITDA Overall leverage is typically measured as a multiple of EBITDA (e.g., debt-to-EBITDA) or as a percentage of total capitalization (e.g., debt-to-total capitalization). As a general rule, the higher a company's leverage, the higher its risk of financial distress due to the burden associated with interest expense and principal repayments. EBITDA margin is an accepted standard for measuring a company's operating profitability. Return on assets (ROA) measures the return generated by a company's asset base, thereby providing a barometer of the asset efficiency of a business. Return on equity (ROE) measures the return generated on the equity provided to a company by its shareholders.
A former affiliate of an issuer may sell their shares under Rule 144 after meeting which of the following conditions? I. The individual has not been an affiliate of the issuer for three months II. The individual has held the restricted securities for at least one year III. The individual has not been an affiliate of the issuer for six months IV. The individual has held the restricted securities for at least two years
A)I and II Generally, corporate insiders are limited in the amount of securities they can sell over any 90 day period. However, if the individual has not been an insider for a period of at least 3 months and the shares have been held for at least one year, they can be freely sold. This is an exception to the rule.
An investment bank would likely need to sign a confidentiality agreement with a public company in order to obtain which two pieces of the following information? I. Company earnings guidance II. Detailed segment information III. Company's 10-Ks and 10-Qs for the past 5 years IV. Internal company financial projections
A)II and IV An investment bank would likely need to sign a confidentiality agreement with a public company in order to obtain detailed segment information that is not publicly disclosed as well as internal company projections. The bank can obtain earnings guidance for the company on earnings calls and press releases as well as its 10-Ks and 10-Qs for the past 5 years through IBES and EDGAR, respectively.
To qualify for confidential treatment, a preliminary proxy filing must fulfill which of the following requirements? I. Shareholders must vote to make the proxy confidential II. Public communications must not have been made, other than a basic announcement III. Shareholders must vote in public IV. It must not be a "going private" or rollup transaction A)II and IV B)I and III C)II and III D)I and IV
A)II and IV Preliminary proxies can be kept from public disclosure until they become definitive, but only if they adhere to certain rules. They must be marked confidential and public communication must have been limited to a basic Rule 135 announcement. Confidentiality is not allowed in going private and rollup transactions.
Which of the following M&A process events is the selling company's management team directly involved in? A)Preparation of Confidential Information Memorandum B)Drafting of the Definitive Agreement C)Distribution of Confidential Information Memorandum D)Buyer contact
A)Preparation of Confidential Information Memorandum Management input is essential for the crafting of the Confidential Information Memorandum as management knows the company better than anyone else. Furthermore, management input is critical for crafting and signing off on the detailed financial projections.
SEC form F-6
ADR registration stmt
DSO
AR/sales X 365
Which of the following are key sources of capital in the equity funding life cycle of a company? I. Venture capital II. Private equity III. Initial public offering IV. Follow-on offering
All of the equity capital types listed are part of the equity funding life cycle. Venture capital is for the start-up stage, private equity is for product development, an initial public offering is for revenue growth, and a follow-on offering is for net income growth as well as market share growth.
What percentage of shareholders in a corporation must consent to a Subchapter S election, for the election to be valid?
All shareholders must consent to the Subchapter S election. Even one dissenter can prevent a company from making the election.
rule 144A
An exemption to the holding period and volume restrictions of Rule 144 for qualified institutional buyers (QIBs)
inter-creditor agreement
An inter-creditor agreement is an agreement between creditors, indicating their relative rights and obligations in the event of a bankruptcy.
When are management presentations typically held within the context of an M&A process?
At the start of the second round once bidders have been pared down
Marty is a registered rep with JKL Financial Inc. His sister Judy is an editor for a publishing house. May Judy purchase an IPO? A)No, as Marty and Judy are immediate family members B)Yes. Although Marty and Judy are immediate family members, Judy may purchase the IPO, but not through Marty's firm. C)Yes, as long as her purchase is insignificant in size and consistent with her investment history D)Judy must receive written consent from Marty
B)Yes. Although Marty and Judy are immediate family members, Judy may purchase the IPO, but not through Marty's firm. Although Marty and Judy are immediate family members, they do not materially support each other. Judy may purchase the IPO, but she cannot purchase the shares through Marty's firm, and Marty may not control the allocation of any shares to Judy,
A distressed fund might be interested in companies with all the following characteristics except A)has had recent operating losses B)has consistently produced earnings surprises C)has experienced financial challenges D)has retracted earnings guidance
B)has consistently produced earnings surprises Distressed funds invest in companies experiencing operational or financial challenges, such as companies with recent operating loses or that have retracted their earnings guidance.
number of share classes permitted in C corps vs S corps
C corps may have multiple share classes S corps are limited to a single share class
Which of the following types of investments requires the longest commitment and has the least short-term liquidity? A)Hedge fund B)Master limited partnership C)Private equity fund D)REIT
C) Private equity fund
For a given company, a fairness opinion for a company in the same sector serves as a valuable source of information by providing data on relevant I. Precedent transactions II. Market share information III. Customer information IV. Comparable companies A)I and III B)II and III C)I and IV D)II and IV
C)I and IV A fairness opinion is a letter opining on the financial fairness of the transaction. The opinion letter is supported by detailed analysis and documentation providing an overview of the sale process (including number of parties contacted and range of bids received), as well as an objective valuation of the target. The valuation analysis typically includes comparable companies, precedent transactions, DCF analysis, and LBO analysis (if applicable), as well as other relevant industry and share price performance benchmarking analyses, including premiums paid (if the target is publicly traded). The analysis, however, does not contain company market share, customer or supplier information.
After a merger in which a change of control takes place an officer of the firm receives a golden parachute payment. Which of the following statements is true with regard to a golden parachute? I. If a termination payment is considered excissive, that amount will not be a tax-deductible expense to the party that pays it. II. If an excess parachute payment has been made the officer must also pay a 20% excise tax. III. An officer of a firm receives a golden parachute payment of $900,000. Her average compensation over the last five years was $200,000. In this situation, an excess golden parachute payment has been made. IV. Excess parachute payments can no longer be made
C)I, II and III only Although Congress has not outlawed Golden Parachute payments or even excess golden parachute payments, they have added punitive measures to the tax law to discourage making excess payments. The formula shown in one of the answer choices is correct in terms of determining whether an excess golden parachute payment exists - any amount in excess of three times the average compensation. The excess amount is subject to a 20% excise tax.
Which of the following are "fiduciaries" covered under FINRA Rule 2060's restrictions on using information about the ownership of an issuer's securities to solicit transactions? I. Broker-dealers II. Transfer agent III. Registered Representative IV. Trustee
C)II and IV Specified types of fiduciaries are covered under FINRA Rule 2060. They consist of transfer agents, paying agents, trustees and others who have privileged access to information about ownership of the issuer's securities.
Which of the following is not descriptive of one of the many due diligence duties an advisor would partake in during an M&A process? A)As part of a buy-side advisor's second-round due diligence, they would need to access the data room in order to examine relevant information that will help in formulating a final bid. B)As part of a buy-side advisor's second-round due diligence, they should examine the contracts the target company has with customers and suppliers to make sure they survive the acquisition. C)In an all cash offer the seller will spending significant timing running due diligence on the buyer to ensure the company performs well post-closing. D)The buy-side advisor would examine the target company's capital base, including outstanding debt and equity.
C)In an all cash offer the seller will spending significant timing running due diligence on the buyer to ensure the company performs well post-closing. In an all cash deal the sell-side advisor's due diligence is not to ascertain the buyer's equity value. Instead they need to focus on whether the buyer has the wherewithal to pay cash to close the deal.
In which of the following instances would it be advisable to use a "sum of the parts" analysis? A)When valuing a company as a standalone entity B)When determining the terminal value C)When valuing companies with diverse business segments D)When valuing an acquisition target
C)When valuing companies with diverse business segments Companies with diverse business segments may have different costs of capital for their various businesses. In these instances, it may be advisable to conduct a DCF using a "sum of the parts" approach in which a separate DCF analysis is performed for each distinct business segment, each with its own WACC. The values for each business segment are then summed to arrive at an implied enterprise valuation for the entire company.
Carol is the placement agent for a private placement, with responsibility for introducing qualified investors to the offering. She invites seven qualified investors to a pitch meeting, at which the investment is presented. If a few of these investors want to bring their friends to the same meeting, is this allowed? A)No, this is not allowed. B)Yes, provided they sign statements, affirming they understand the private nature of the investment. C)Yes, provided they are each personally determined to be qualified investors prior to attending. D)Yes, provided they are each personally determined to be qualified investors prior to making an actual investment.
C)Yes, provided they are each personally determined to be qualified investors prior to attending. In private placement marketing, no seminars or meetings may be held in connection with an offering unless each invitee is known and qualified in advance. This generally means filling out an Investor Suitability Questionnaire prior to attending the meeting. It isn't sufficient to qualify the investor later - i.e., before an actual investment. The investor must be qualified to attend and hear the pitch.
Which of these investment combinations could be expected to perform the best during a period of steadily rising inflation and interest rates? A)zero-coupon Treasury bonds and stocks B)mortgage-backed and asset-backed bonds C)short-term Treasury notes and stocks D)long-term corporate and high-yield bonds
C)short-term Treasury notes and stocks When interest rates and inflation are rising, the prices of long-term bonds are more vulnerable to declines than prices of short-term bonds. Stocks can be a good inflation hedge but long-term bonds generally are not. Mortgage-backed and asset-backed bonds generally have medium to long-term durations. As interest rates rise, high-yield (lower-quality) bonds become more vulnerable to default or downgrade risk.
inventory turnover equation
COGS/ inventory
how will rising interest rates affect the CY of bond
CY will increate CY annual interest paid/current bond market value higher interest rates = lower price
In an underwriting of corporate securities, the total takedown:
Compensates syndicate members and consists of the underwriting fee and selling concession
form 4
Corp Insider changes holdings
form 5
Corp insider reports transactions in sec's not in public market
ABC Grocers, Inc. is a private company that wishes to raise investment capital from its thousands of customers in small amounts via crowdfunding. Its target raise is $500,000. By regulation, what is the maximum number of investors to whom it can sell stock in a crowdfunding offering, assuming the target is reached? A)50 B)500 C)5,000 D)Unlimited
Crowdfunding is a very flexible way to raise capital, especially among an existing base of customers, acquaintances, investors, etc. There is no limit on the number of investors who can participate or the maximum or minimum amount of stock that each investor may purchase (subject to an annual limit per issuer). An unlimited number of investors can participate.
At what point in the M&A process is the engagement letter typically signed? A)At the start of management presentations B)Upon signing of the definitive agreement C)Upon receipt of first round bids D)At the start of the M&A process
D) At the start of the M&A process
In which case can an account in which a restricted person owns a beneficial interest participate in an IPO? A) when the restricted person agrees to a share lock-up of at least 90 days B) when the restricted person is not the CEO or CFO of the issuer C) in no case D) when the restricted person owns less than 10% beneficial interest in the account
D) when the restricted person owns less than 10% beneficial interest in the account An account in which a restricted person owns less than 10% of the beneficial interest can invest in an IPO. The 10% limit is sometimes referred to as a "de minimis" amount.
The typical initial bid procedures letter requires bidders to provide all of the following EXCEPT A)Indicative purchase price B)Key assumptions behind purchase price C)Form of consideration D)Committed financing letters
D)Committed financing letters The initial bid procedures letter, which is typically sent out to prospective buyers following distribution of the CIM, states the date and time by which interested parties must submit their written, non-binding preliminary indications of interest ("first round bids"). It also defines the exact information that should be included in the bid, such as: • Indicative purchase price (typically presented as a range) and form of consideration (cash vs. stock mix) • Key assumptions to arrive at the stated purchase price • Structural and other considerations • Information on financing sources • Treatment of management and employees • Timing for completing a deal and diligence that must be performed • Key conditions to signing and closing • Required approvals • Buyer contact information Committed financing letters, however, are not required until final bids are submitted.
Media headlines unanimously predict that the Federal Reserve will have to take action to stimulate a slowing U.S. economy. What is likely to be the near-term trend in fed fund futures? A)fluctuating with a high degree of volatility B)up C)there is no relationship between the economic outlook and fed fund futures D)down
D)down The Fed raises the federal funds rate to slow down a rapidly expanding economy and the resulting high inflation. It reduces the federal funds rate to stimulate a sluggish economy. Fed funds futures tend to anticipate fed actions and changes in the fed funds rate.
An increase in retained earnings would be reflected in which of the following balance sheet line-items? A)noncontrolling interest B)current assets C)net income D)shareholders' equity
D)shareholders' equity Retained earnings are increased by net income less dividend distributions. They are a component of shareholders' equity. Noncontrolling interest refers to minority interest exerting no influence of the decisions or operations of a company. Current assets refer to assets that can be sold or can be reasonably expected to be sold within one year.
Which one of the following facts does not need to be disclosed in a fairness opinion? A)that the writer of the fairness opinion will receive compensation contingent upon completion of the transaction B)that the fairness opinion was approved by a fairness committee C)a material relationship between the writer of the opinion and the company involved in the transaction D)that the writer of the opinion is a market maker in securities issued by a company involved in the transaction
D)that the writer of the opinion is a market maker in securities issued by a company involved in the transaction Fairness opinions are required to contain disclosures pertaining to material relationships, compensation, and fairness committees. They do not require disclosure whether or not the opinion writer is a market maker in issuer securities.
A group of dissident shareholders is opposing the proposed acquisition of their company by a larger competitor. They believe the offer of $41 per share for their stock is too low. In total, they hold about 16% of shares outstanding. They lost the shareholder vote to approve the acquisition by a wide margin. Do they have any recourse? A)no, the acquisition is finalized with the majority shareholder vote B)yes, file their own proxy and demand a re-vote C)yes, challenge the fairness opinion in court D)yes, petition a court for appraisal rights
D)yes, petition a court for appraisal rights An appraisal right, established by state law, gives minority shareholders the right to go to court and have an independent valuation of the company performed by a court-appointed expert. If they are successful, they can force the acquiring company to pay the appraised price for their shares. Shareholders who voted against the deal would seek to exercise appraisal rights after the shareholder vote.
unlettered FCF
EBIT -adjusted taxes + D & A - Capex -increase in NWC
is EBIT or EBITDA always bigger
EBIT is always bigger than EBITDA
what is the formula for calculating a company's EBITDA and EBIT margins
EBITDA margin = EBITDA/sales EBIT Margins = EBIT/sales
EBITDA margin
EBITDA/ revenue
interest coverage expense ratio
EBITDA/current interest expense -higher is better
what is most useful when valuing divisions of public companies
EV/EBIT
Organized employee participation in the ownership of a company is known as a(n)
Employee stock ownership plans (ESOPs) are trusts established by corporations which make tax-deductible contributions to a trust on behalf of employees, primarily in the form of the company's stock.
Which metric is a banker least likely to use? A)Equity value / Net income B)EV / Net income C)EV / EBITDA D)Equity value / Dividends
Equity value/Net Income and EV/EBITDA are both widely used valuation ratios. Equity Value/Dividends is usually computed as Dividend Yield = Dividends/Equity value, but is still a valid ratio. EV/Net income, however, should never be used because Enterprise Value includes both Debt and Equity whereas Net Income is after Interest payments have been made.
A broker-dealer uses a fairness committee to review and approve its fairness opinions. Which one of the following is not required to be documented in written procedures? A) the method for selecting committee members B) qualifications needed to sit on the committee C) how fairness committee members will be compensated, and steps taken to prevent conflicts when such compensation is contingent on deal closing D) safeguards to promote a balanced review by the committee, including review and approval by non-deal team members
FINRA Rule 2290 contains three required types of written procedures for fairness committees: 1) the method for selecting committee members, 2) qualifications needed to sit on the committee, 3) safeguards to promote a balanced review by the committee. Documentation of the committee's compensation is not required.
regulatory unit that examines compensation paid to underwriters to determine if it is fair and reasonable
FINRAs corporate financing department (CFD )
when is form 3 filed
Form 3 is filed when a person or entity becomes an insider.
when is form 4 filed
Form 4 is filed when an insider makes a trade in the open market or when the insider no longer meets the definition of an insider.
when if form 5 filed
Form 5 is filed for every other change in ownership that is not a buy/sell in the open market. This would include: receiving stock as compensation, exercising a stock option, investing in a private placement, or gifting stock.
Where should an investment banker look to find change of control provisions that could impact a company's contracts in the event of a merger or acquisition?
Form DEF14A
All of the following are typically used to assess competitors' ability to pay in an M&A auction EXCEPT A)DCF Analysis B)Pro forma credit statistics impact C)Synergies D)Accretion/dilution
From a buy-side advisory perspective, the banker typically performs accretion (dilution) analysis as well as pro forma credit statistics impact for competitive bidders in the process to assess their ability to pay. These analyses require making assumptions regarding each specific acquirer's financing mix and cost, as well as synergies. A DCF Analysis for the target, however, is not particularly informative for assessing specific competitors' ability to pay because the DCF valuation would presumably be the same for all parties given that it is an intrinsic valuation of the target and therefore does not rely upon buyer-specific assumptions. The exception would be in performing a DCF for specific competitors that estimates their expected synergies.
Under which set of circumstances would a registered representative working for a broker-dealer be permitted to invest in an IPO? I. The CEO of XYZ Corp. directed that 200 shares be allocated to each of 50 of her sorority sisters. Coincidentally, three of the sorority sisters happen to be registered representatives who would like to invest. II. A registered representative's spouse is employed by XYZ Corp, the issuer of an IPO. III. Each of thirty college friends have invested equal amounts into an investment club. Two of these friends work for broker dealers and are registered representatives who would like to invest. IV. A registered representative's firm is not the lead bank or a member of the syndicate that is underwriting the IPO. It would be permissible for the registered representative to invest in the IPO, even if his firm is part of the selling group. A) I, II and III B) I and II C) II only D) None of the scenarios
Generally registered representatives are precluded from investing in IPO's, even when their own firm is not involved. The fact that they work in the securities industry disqualifies them from investing. However, there is an exception for issuer directed allocations where there was no intention to circumvent the general rule. There is also an exception when a family member works for the issuer of the IPO. Here it wouldn't matter whether the rep's firm was involved. Also, an investment fund cannot be owned greater than 10% in value by those employed in the security industry. In this case since each of the thirty investors put in equal amounts, the combined reps' ownership is less than 10%
13E-3
Going private Concurrently with a tender offer, registration statement, or other privatization document
Large Accelerated Filer
Have a market cap of $700mm+, as measured on the last day of Q2. Has to have been subject to continuous reporting requirements for LTM and must have already filed at least 1 10-K
Which of the following documents does a public target file immediately after signing a Definitive Agreement? I. Press release II. Annual Report III. Merger proxy IV. Reps and warranties
I and III Upon signing a Definitive Agreement, a public target issues a press release (that is filed as part of an 8-K) and files a merger proxy. A company files its annual report only after the completion of its fiscal year. An M&A transaction would not affect this timing. In a an M&A transaction, the buyer and seller make representations ("reps") to each other about their ability to engage in the transaction, and the seller makes reps about the target's business. In a stock-for-stock transaction, the buyer also makes reps about its own business. Examples include: • financial statements must fairly present the current financial position • no material adverse changes (MACs) • all material contracts have been disclosed • availability of funds (usually requested from a financial sponsor) • Reps and warranties serve several purposes: • assist the buyer in due diligence • help assure the buyer it is getting what it thinks it is paying for • baseline for closing condition (see "bring-down" condition below) • baseline for indemnification
Which of the following would occur if a company repurchased shares of its own stock in the open market using cash on its balance sheet? I. Assets decrease II. Liabilities increase III. Shareholders' equity decreases IV. Goodwill increases
I. Assets decrease III. Shareholders' equity decreases Repurchasing shares using cash on the balance sheet would result in a decrease in assets, as cash is a current asset. At the same, shareholders' equity is reduced as the repurchase of treasury stock is netted against shareholders' equity. If debt were used to repurchase shares, then liabilities would increase. Goodwill is defined as the value paid in excess over the book value of an asset.
A company must meet ongoing reporting requirements of the Securities Exchange Act of 1934 if it I. has securities that trade in interstate commerce II. exceeds a size requirement III. offers more than one type of security to the general public
I. has securities that trade in interstate commerce II. exceeds a size requirement
A supermajority vote may be required for shareholder approval of a change of control transaction in accordance with which two of the following? I. Board has majority of independent directors II. Company's corporate charter III.State law IV. CEO request
II and III Shareholder approval is typically determined by a majority vote, or 50.1% of the voting stock. Some companies, however, may have corporate charters, or may be incorporated in states, which require higher approval levels for certain events, including change of control transactions.
Which two of the following does the final bid procedures letter require bidders to submit? I. HSR approval II. Board of directors approvals (if appropriate) III. Cash in escrow covering full purchase price IV. Markup of the draft definitive agreement in a form that the buyer would be willing to sign
II and IV As part of their final bid package, prospective buyers submit a markup of the draft definitive agreement together with a cover letter detailing their proposal in response to the items outlined in the final bid procedures letter. They must also submit Board of Directors approval (if appropriate). HSR approval is typically sought after the definitive agreement is signed. Buyers are NOT typically required to put the purchase price in cash in escrow.
In performing valuation analysis for a given target, which two of the following may result in tax benefits that would accrue to the buyer as tangible value? I. Low tax basis II. Asset step-up III. Sizeable pension liabilities IV. Net operating losses
II. Asset step-up IV. Net operating losses
Please arrange the proper sequencing for the following M&A sell-side auction process events I. Buyer site visits II. First round bids received III. Definitive Agreement negotiations IV. Teaser distributed
IV, II, I, III The teaser is distributed at the start of the process launch. Afterwards, the sell-side adviser receives first round bids. If a buyer is selected to proceed to the second round, then that buyer attends a management presentation and conducts detailed due diligence, including site visits. Later on in the second round of the process, detailed discussions and negotiations take place on the Definitive Agreement.
when is schedule 13E-3 required?
In a "going private" LBO
form 3
Individual becomes corp insider (i.e. officer, director or >10% SH)
Company ABC has Cash of $50m, Accounts Receivable of $25m, Raw Materials of $25m, Work in Process of $5m, Finished Goods of $20m, Accounts Payable of $35m and Accrued Expenses of $15m. What is Company ABC's Current Ratio?
Inventory = Raw Materials + Work in Process + Finished Goods = 20 + 25 + 5 = 50 Current Assets = Cash + Accounts Receivable + Inventory = 50 + 25 + 50 = 125 Current Liabilities = Accounts Payable + Accrued Expenses = 35 + 15 = 50 Current Ratio = Current Assets/Current Liabilities = 125/50 = 2.5×
days held in inventory
Inventory/(COGS X 365
Which type of advertising or public notice is allowed by issuers for their registered crowdfunding offers? A) Only an advertisement on the issuer's own web site, and those of its affiliates B) Any that is pre-approved by the SEC and also FINRA C) None at all D) Only a basic notice directing investors to the intermediary
Issuers can't advertise crowdfunding offers. Optionally, they can only provide a basic notice that directs investors to the intermediary. The notice may disclose the amount being raised, price per share, and basic information about the issuer. D) Only a basic notice directing investors to the intermediary
ABC Securities is participating in an underwriting for Bright Leaf, Inc., a public company. ABC also serves as a market maker for Bright Leaf and owns a block of its stock. Does it have a conflict of interest? A) yes, because it is a market maker and also owns some stock B) no, because it is a market maker C) only if it wishes to sell some of its own stock in the underwriting D) only if it owns at least 10% of the outstanding common stock
It is a conflict of interest if the underwriter owns 10% or more of the common stock of the issuer.
A broker-dealer wishes to take ABC Company public with an IPO. ABC has only been in existence for only two years. The broker-dealer's research analysts and investment bankers can perform "joint due diligence" in which circumstance?
Joint due diligence is permitted when the underwriting mandate of an Emerging Growth Company (EGC). This is defined as a company with less than $1 Billion in sales during its most recent fiscal year.
In which context is a fairness opinion typically rendered?
M&A transaction
In evaluating first round bids, the sell-side advisor assesses all of the following EXCEPT A)Purchase price and form of consideration B)Mark-up of definitive agreement C)Strategic fit D)Bidder's M&A track record
Mark-up of definitive agreement On the first round bid date, the sell-side advisor receives the initial indications of interest from prospective buyers. Over the next few days, the deal team conducts a thorough analysis of the bids received, assessing indicative purchase price as well as key terms and other stated conditions. There may also be dialogue with certain buyers at this point, typically focused on seeking clarification on key bid points. An effective sell-side advisor is able to discern which bids are "real" (i.e., less likely to be re-traded). Furthermore, it may be apparent that certain bidders are simply trying to get a free look at the target without any serious intent to consummate a transaction. The advisor's past deal experience and specific knowledge of the given sector and buyer universe, including individual buyers' M&A track record and strategic fit, is key in this respect. The definitive agreement is a legally binding contract between a buyer and seller detailing the terms and conditions of the sale transaction. In an auction, it is typically distributed to prospective buyers (and their legal counsel) during the second round—often toward the end of the diligence process.
is inventory included in the current assets of the quick ratio?
NO. INVENTORY IS NOT INCLUDED
formula for calculating dollar value of proceeds of a securities offering paid to the issuer
Number of shares sold X (POP-gross spread)
While a company's operating profit margin has held steady at 15%, its net profit margin has declined from 8% to 3%. What factors possibly account for this pattern? A) Increased taxes and interest costs B) Declining sales C) Increased cost of goods sold D) Increased capital spending
Operating margin = operating income/net sales. Operating income is the difference between operating revenues and operating expenses, and it can also be expressed as earnings before interest and taxes (EBIT). Net profit margin = net profit (after interest and taxes)/net sales. Operating margin and net profit margin both have the same denominator, net sales. The main differences in their numerators are interest and taxes, as cost of goods sold would impact both.
What type of companies are generally issuers of PIPEs?
PIPEs (private investments in public equity) are a market that is tapped mainly by small-cap and micro-cap companies to raise financing. Some of these companies have a difficult time accessing capital in public markets. PIPEs also can help them raise money faster than a public registration by avoiding the time and expense associated with preparing a prospectus.
do indemnification provisiions in definitive agreements occur in public or private deals?
PRIVATE DEALS ONLY
A qualified institutional buyer (QIB) participates in a Rule 144A offering and is given piggyback rights. What is the advantage of these rights to the QIB?
Piggyback registration rights are often used in connection with pre-IPO Rule 144A offerings, sold only to QIBs. The QIB buys stock that can only be sold immediately to other QIBs. However, when the issuer goes public, the shares purchased by the QIB will be registered and then can be sold by the QIB to the public. The advantage, in a word, is eventual liquidity.
PEG ratio
Price-Earnings Ratio/Earnings Growth Rate (%)
From whom must investment bankers receive approval for the Fairness Opinion before it can be presented to the client company? A) Outside auditors B) Internal Fairness Opinion committee C) Client company CFO D) Key shareholders
Prior to the delivery of the fairness opinion to the client company's board of directors, the sell-side advisory team must receive approval from its internal fairness opinion committee. While the actual constituents of the committees and procedures differ from bank to bank, this is a highly serious, thoughtful, and comprehensive process. In a public deal, the fairness opinion and supporting analysis is publicly disclosed and described in detail in the relevant SEC filings.
rule 105 of reg M:
Restricts purchase of new issues if short position was executed within the five business days prior to pricing
market risk premium
S & P expected return-risk free rate
form 13F
SEC form filed by institutional investment managers quarterly to report long equity holdings
The maximum amount of capital an individual investor can invest on an annual basis in all crowdfunding offerings is determined by A)The investor's annual income and marital status B)The investor's level of investment experience and sophistication C)Total crowdfunding capital raised in the investor's state of residence in the prior year D)The investor's annual income and net worth
SEC rules limit the amount an individual can invest on an annual basis in all crowdfunding issuers. The limit is based on an individual's annual income and net worth.
Which of the following documents does a target file in response to a tender offer? A)Schedule 14D-9 B)10-K C)Schedule 13E-3 D)T-10
Schedule 14D-9 In a tender offer, the acquirer offers to buy shares directly from the target's shareholders. As part of this process, the acquirer mails an Offer to Purchase to the target's shareholders and files a Schedule TO. In response to the tender offer, the target files a Schedule 14D-9 within ten business days of commencement. The Schedule 14D-9 contains a recommendation from the target's board of directors to the target's shareholders on how to respond to the tender offer, typically including a fairness opinion. The Schedule TO and the Schedule 14D-9 include the same type of information with respect to the terms of the transaction as set forth in a proxy statement. A 10-K is filed after the end of a company's fiscal year. There is no such thing as T-10 filing. Regarding a Schedule 13E-3, in an LBO of a public company where an "affiliate" (such as a senior company executive or significant shareholder) is part of the buyout group, the SEC requires broader disclosure of information used in the decision-making process on a Schedule 13E-3.
what are legend shares
Shares purchased in a PIPE (private investment in public equity) transactions are considered restricted (Rule 144) stock. They work just like other common equity shares except that they cannot be resold immediately. They become unrestricted and can be resold only after the issuer files a registration resale statement and it is cleared by the SEC. In this case, "legend" = restricted.
13D
Statement of beneficial ownership of greater than 5% - active investors
13 D must be filed:
Statement of beneficial ownership of greater than 5% - active investors Going PrivateQuarterly filing by institutional investment managers ($100mm+ in assets)Corporate insider preparing to sell shares Current report - newsworthy items Preliminary Proxy Statement Includes terms of a tender offer within 10 dayswithin 2 business days 45 calendar days of fiscal year end10 calendar days of transactionPromptly for any material change to ownership (1%) or intentions
control stock
Stock acquired by an affiliated person such as officer or directors, or person with 10% or more of issuers voting stock
As a buy-side adviser, an investment banker performs all of the following roles for its client during second round due diligence EXCEPT A) Schedules the management presentation and site visits B) Coordinates with target sell-side adviser on follow-up due diligence items C) Provides the target sell-side adviser with a mark-up of the CIM D) Updates the valuation model for findings from the due diligence process
The CIM is NOT marked up in a sale process as it is simply a marketing document. The buy-side advisor plays a central role during the second round by coordinating management presentations, facility site visits, and follow-up diligence sessions with key company officers. The buy-side adviser also updates the valuation model for findings from the due diligence process.
In which two of the following circumstances might a break-up fee be paid? I. The buyer receives a breakup fee from the seller because seller sees business is picking up and kills the deal II. The buyer receives a breakup fee from the seller because the seller terminates the deal to take a better offer III. The seller receives a breakup fee from the buyer because the buyer cannot come up with financing IV. The seller receives a breakup fee from the buyer because the buyer has concerns that business will decline
The Termination Provisions of the Definitive Agreement detail the circumstances under which one party may terminate the agreement rather than complete the deal. In some circumstances, one party may owe a termination fee ("breakup fee") to the other party. Examples include: • if the seller terminates the deal to take a better offer, the seller pays a breakup fee to the buyer • if the seller terminates because the buyer cannot come up with financing, the buyer may owe a breakup fee to the seller The circumstances under which one party may terminate the agreement are clearly defined. Business trends do not typically constitute grounds for termination and receipt of a break-up fee post-signing.
offering circular
The appropriate disclosure document for those using Regulation A to issue securities.
In evaluating a prospective acquisition, which one of the following would not normally be a responsibility of the buy-side advisor? A) hire a PR firm to announce a completed deal B) evaluate potential acquisition targets C) negotiate terms with targets D) conduct due diligence on acquisition targets
The buy-side advisor works for the potential acquirer, from evaluating potential acquisition targets to closing the deal. The buy-side adviser usually does not hire a PR firm to announce the completion of a deal.
what is a cramdown
The confirmation of a plan of reorganization despite the objection of a creditor class
All of the following documents are used in the first round of an auction process EXCEPT a(n) A)Contact log B)Teaser C)Definitive agreement D)CIM
The contact log, which is a detailed log of buyer contacts and activity level during the process, is prepared prior to the onset of auction and filled in as buyers move through the process. The teaser is distributed upon auction launch and the CIM is distributed once the CA is signed. The definitive agreement is a legally binding contract between a buyer and seller detailing the terms and conditions of the sale transaction. In an auction, the first draft is prepared by the seller's legal counsel in collaboration with the seller and its bankers. It is distributed to prospective buyers (and their legal counsel) during the second round—often toward the end of the diligence process.
Copies of the definitive proxy must be sent to:
The definitive proxy must be sent to shareholders who will vote, and eight copies must be filed with the SEC. Three copies must be filed with each national securities exchange on which any class of the registrant's securities are listed.
An exception to registration requirements under the Securities Act of 1933 is made for an issuer that offers an exchange of its own securities under certain conditions. What conditions must be satisfied? I. Exchange must be limited to common stock II. Exchange must be limited to existing holders III. Exchange must not include commission paid to brokers
The exception applies to exchange offers made only to its existing securities holders and not involving commissions or other remuneration paid to brokers, directly or indirectly.
earnings yield
The inverse of the PE ratio. OR EPS/stock price
Which of the following would be captured under the investing activities section of a company's cash flow statement? A) decrease in accounts payable B) increase in accounts receivable C) purchase of new equipment D) issuance of senior notes
The purchase of new equipment (i.e., capital expenditures) is classified as an investing activity. The issuance or repayment of debt or equity instruments is captured in the financing activities section of a company's cash flow statement. Changes in current assets and current liabilities accounts would be displayed under the operating activities section of the cash flow statement.
The purchase of a new plant using cash would be detailed under which section of the cash flow statement?
The purchase or sale of long-term assets would be classified as an investing activity. Other types of investing activities include the purchase or sale of land or equipment. The operating activities section captures cash inflows and outflows associated with the cash generated by a company's products or services. Financing activities include changes in debt or equity as well as the payment of dividends.
Under which circumstance can a seller cancel the sale process after it has accepted first round bids? A) When proof of change in capital markets conditions or company financial performance is provided B) At any time with no approvals necessary C) With written approval from each of the remaining bidders D) With approvals from the SEC or other appropriate local finance authority
The seller can cancel the sale process at any time under any circumstances without receiving approvals or need to provide cause. The only risk is reputational. An unsuccessful sale process can create a meaningful "taint" for the company in the market that may prevent it from re-engaging buyers in a sale process until a meaningful amount of time has passed.
summary term sheet
The summary term sheet explains the material terms of the transaction in brief bullet-point form. It is almost always the first section of the TO filing. But in any case, it must begin on page one or page two of the disclosure document.
In a public offer, the underwriting spread is defined as the difference between the: A)total takedown and the underwriting proceeds B)the public offering proceeds and the underwriting proceeds C)Underwriting fee and the manager's fee D)Manager's fee and the selling concession
The underwriting spread is the difference between the price paid to the issuer, known as the underwriting proceeds, and the amount the underwriters receive from selling the securities in the public offering. It is divided into the manager's fee, the underwriting fee and the selling concession.
UW notification requirement for lock up periods
UW must notify the issuer at least 2 biz days b4 lock u[ expires
An investor has an annual income of $100,000 and a net worth of $1 million. What is the annual limit that this investor can invest in all crowdfunding offerings? A)$5,000 B)$10,000 C)$15,000 D)$50,000
Unless both income and net worth are $107,000 or above, the limit is the greater of $2,200 or 5% of the lesser of annual income or net worth. In this case, income is below the threshold and 5% of $100,000 = $5,000
A "confidential proxy" will be kept confidential by the SEC until:
Until the definitive proxy is filed This can help to prevent information from leaking until it is sent to shareholders.
Gun Jumping
When communications are made during a period that is off limits. Prohibited Oral or Written communication during the cooling off period, for example. 30 days prior to registration
Carlson, a sophisticated investor, wants to participate in the follow-on offering of XYZ Energy Corp. He already owns a large amount of the company's stock and thinks the price might drop just ahead of the offering's effective date, so he sells 10,000 shares of XYZ short. The stock was selling for $30 a share at the time. The effective date is three days later. Can he still participate in the offering?
Yes, but only if he covers the short before the effective date. An investor who sells stock short during the 5-day period before pricing of a follow-on offering could not subsequently invest in the new issue unless he/she has covered the short position before the effective date.
An investment bank (a FINRA member) is hired to provide a fairness opinion. A large amount of information the firm uses is provided by the client company. Only a small part of information is independently verified by the member bank. Is this practice permitted under FINRA rules?
Yes, provided the member discloses whether it independently verified information If part or all of a fairness opinion is based on information supplied by the client, the member must disclose whether it independently verified this information through other sources or methods.
golden parachute
a payment companies make in connection with a change in ownership or control of a company
what does the quick ratio (acid test) measure
ability to meet near term financial obligations using only liquid assets
rule 144A
addresses the sale of non registered foreign and domestic securities to institutional investors
actions a large shareholder can take without triggering a change from passive to active investor filing status
advocates ate for a change in majority voting standards, corporate governance rules, removal of a staggered board
when can securities registered under rule 147 be sold to non-us resident?
after 6 months
what is the document that determines treatment of shares trading at a premium and returned by a purchaser to a syndicate member after trading begins
agreement among underwriters
compensation to UW considered by FINRA CD to determine if it is fair and reasonable
all compensation paid beginning 6 months prior to registration filing date
regulation A
an SEC regulation that exempts public issues of less than $5 million from most registration requirements for a 12 month period
Equity research report
an analysis of equities with a recommendation and sent tp at least 15 recipients
what is a qualified independent underwriter (QIU)
an underwriter whose the SEC requires to participate in an offering when there is an issuer conflict of interest the QIU is required to execute due diligence
PV of cash flow calculation
annual cash flow/WACC
dividend payout ratio
annual dividend/BASIC EPS
how FINRA CFD treats a reimbursement paid by an issuer to an underwriter for syndicate expenses
as compensation, which must be fair and reasonable (7% or less) when considered with other compensation
when must offering documents be submitted to FINRA for review and a no-objection letter
at least 15 days prior to effective date
filing deadline for Def14A
at least 20 days prior to shareholder meeting
nasdaqs continuous listing requirement for # shareholders
at least 400
red herring must be delivered:
at least 48 hours prior to confirming the sale of securities
red herring must be delivered to investors:
at least 48 prior to the trade confirmation
method by which IPO shares trading at a premium, returned by a purchaser to a syndicate member after trading begins, may be offered to unfilled customer orders
at public offering price and on random allocation method
a type of offering that may be preferable to a follow on rights offering for issuers needing capital on a regular basis
at the market offering
invested capital
avg SHE + avg net debt
why is EBITDA more affected than net income when normalizing?
because EBITDA is pre tax and net income is post tax
how to calculate ending inventory
beginning inventory-COGS=ending inventory
are accounting fees issuer or syndicate expenses?
bona fida issuer
are blue sky fees issuer expenses or syndicate expenses?
bona fida issuer expense. -any reimbursement fees would not be considered compensation to the underwriter
when must funds be released from escrow in a contingency underwriting
by noon of next biz day after contingency is met
what is the capital asset pricing model useful for?
calculating a company expected return on equity
components of current assets that are included in a quick ratio (acid test)
cash marketable securities accounts reeivable no inventory
credit revolver
cash that can be borrowed from a bank-up to a limit only the amount drawn on a revolver is considered debt
impact to balance sheet when a company issues stock
cash, par value, and capital surplus increase
accounts payable turnover formula ..and what is another term for this
cogs/acc payable another term: credit ratio
what is the definition of an illegible user?
company which has been bankrupt within the last 3 years or is not current with their SEC filings -blank check companies, shell companies, penny stock issuers=examples
tail fee arrangement
compensation paid by an issuer to an underwriter when the issuer cancels a proposed deal and later does a similar deal with a different underwriter
deadline to file form 144
concurrent w/ sale
who sings the BOD minute book after each meeting
corporate secretary or the chairman
a fixed charge coverage ratio is an effective way to evaluate a borrowers:
credit risk or ability to take on more debt
current ratio
current assets/current liabilities
info required on cover of 10k or 10q
current stock price market value of voting and non voting shares number of outstanding shares
after-tax cost of debt
current yield X (1-tax rate)
Where will the buyer and its advisers find the target's environmental compliance certificates and insurance claims?
data room
If a company's taxable income is higher than its book-reported income that will result in a _______________
deferred tax asset
acceleration of revenue for tax purposes: deferred tax asset or liability
deferred tax asset
is acceleration of expense for accounting purposes a deferred tax asset or liability?
deferred tax asset
Acceleration of an expense for tax purposes deferred tax asset or liability?
deferred tax liability
is acceleration of revenue for accounting purposes a deferred tax asset or liability?
deferred tax liability
what is the purpose of a capitalization table in a registration?
details issuer's current debt (excluding commercial paper_ and equity capital
how underwriters must disclose their intent to stabilize prices in secondary mkt
disclosure must be in prospectus underwriters must notify the SEC each day stabilization is in effect
impact to BS when company pays dividend
dividends payable decreases cash decreases
for company acquisition: adjusted EBITDA multiple (accounting for synergies)
effective EBITDA multiple = (purchase multiple X EBITDA)/(EBITDA + pre-tax synergies)
other names for book value
equity and net worth
filing deadline for PRE14A
filed with SEC at least 10 days before definitive proxy is mailed to shareholders
a deal that provides underwriters a pre-set amount of deal revenue, regardless 0f amt of securities sold
fixed economics
when might it be warranted to add a size premium to the WACC used in DCF valuation
for small firms-to address concerns of lower liquidity and inaccurate beta
forms used to initiate an exempt offering under reg A/A+
form 1-A
situation in which form 144 must be filed with SEC to announce intent to sell control shares
form 144 must be filed if sales exceed 5000 shares or $50,000 in any 3 month period
operating profit (EBIT) formula
gross profit - SG&A
gross profit margin formula
gross profit/revenue
what is the best course of action when an UW finds misleading info in registration
identity it to legal counsel so that it can be corrected
when are options paid as compensation to underwriters prohibited>
if the strike price is below the offer price or if expiration is greater than 5 years
what does the syndicate manager have to do when the syndicates final settlement is delayed
immediately notify FINRAs operations department
how does a company typically update any changes to market risk facosr
in the next 10Q
effective tax rate
income tax/earnings b4 tax
nasdaqs initial and continuous listing requirements for share price
initial: at least $4 bid continuous: $1 bid price
Nasdaqs listing requirements (initial and continuous) for market makers
initial: at least 3 MM continuous: at least 2 MM
analysts should pay attention to sunsetting subsidies in evaluating companies with debt because
interest coverage ratios will be negatively impacted when subsidies end due to less profit
DCF will produce the highest valuation when:
interest rates are low the lower the DR, the higher the value under DCF
The valuation implied for a company by a discounted cash flow analysis is also known as its
intrinsic value
piggybacking registration rights
investor recieves pre-IPO shares in private placement and can later sell the shares in the public market after the issuer files registration statement and at the issuers expense
waht is form 3
invidivual becomes corporate insider
who signs a registration statement
issuer's CEO CFO Controller majority of the board
what happens to EBIT/EBITDA when u adjust it with a 1 time pre-tax charge?
it increases by the amount of the charge
To qualify as a "smaller reporting company," a company must have a common equity public float of
less than $75 million calculated as of the end of the second fiscal quarter for that fiscal year.
what effect does a size premium have on DCF value
lower. when WACC increases, the valuation decreases
sarbanes oxley req for public companies
majority of companies BOD must be independent directors
three components of underwriting spread
management fee underwriting fee selling concession
Under a tender offer scenario, restricted shares:
may be tendered without compliance with Rule 144
Public companies use accretion/(dilution) analysis to:
measure the pro forma effects of buying the target on earnings, assuming a given purchase price and financing structure. Private company bidders do not calculate earnings per share, so there is no basis for accretion/(dilution) analysis.
how to calculate capital surplus
money raised in excess of par value (price - par value)
holding period required for long term capital gains tax treatment in both C corps and S corps
more than 1 year for shorter holding periods--tax treatment is short term gains(ordinary income)
warrants acquired by underwriters are unreasonable compensation if they have a maturity of:
more than 5 years
when must a FWP be filed
must be filed with SEC on first day of use
requirement for communication between non-research person and analysts
must be reviewed and chaperoned by legal or compliance personnel
the impact of a sale leaseback transaction and subsequent dividend of sale proceeds on a company debt/equity ratio will be:
negative (higher ratio) because debt stays the same while equity falls -the dividend reduces SHE
ratio that indicates that a company has more cash than debt
negative net debt ratio
operating cash flow equation
net income + D&A - increase in NWC
cash flow proxy formula
net income + depreciation + amortization
equity value using P/E
net income X P/E ratio
what is the formula for calculating the increase in net income due to debt refinancing (bc of lower interest rate)
net income increase=reduced interest expense X (1-MTR)
what is the impact of debt refinancing to lower interest rate on pro forma net income
net income increases by the amount saved (adjusted by tax)
return on equity
net income/avg SHE
net income margin
net income/revenue
net new shares under treasury method
new shares issued: (stock price-strike price)/(stock price X number of options)
Jack is a research analyst for ABC Securities. If ABC is an underwriter in a public offering, in which case is it permissible for Jack to attend the road show presentation supporting the offering?
no case
NASDAQ listing requirements
no requirements other than: minimum monthly trading volume requirement
time limit for stabilization bid
no time limit
where do you find goodwill on corporate balance sheet?
non-current assets
rule 504 reg D
not exceeding 5 million
definition of non reporting issuer
not required to file financial reports with SEC ex: private company registering an IPO
requirement for filing and delivering a final prospectus
once the issue becomes effective, the issuer files 10 copies with teh SEC and delivers a copy to all purchasers
how many stabilizing bids are allowed at 1 time
only 1 stabilizing bid is allowed at a time
when can a seasoned issuer use a FWP?
only after the registration statement is filed
what is the term that means interest is paid not in cash but rather by increasing principal due at maturity
payment in kind (PIK)
when do underwriters complete due diligence?
pre registration
what is the best method for valuing target companies for a proposed acquisition
precedent transactions multiples -includes any premiums incurred
what are the disclosure documents that are used to collect IOIs during cooling off period?
preliminary prospectus (red herring)
type of proxy statement that is filed with SEC but not sent so shareholders
preliminary proxy (PRE14A)
calculation of shares outstanding after IPO
previous shares + PRIMARY shares (do not count secondary shares)
regulation D
private placement exemption
tie in arrangement
prohibited allocation that requires investors who receive IPO shares to buy more shares in the secondarynmarket
spinning
prohibited practice of allocating IPO shares to officers, directors, or senior managers of a company in terutn for investment banking business
quid pro quo
prohibited practice that allocates shares od=f a new issue to a customer in return for payment of excess compensation for other services
Regulation FD
promote full and fair disclosure of material info to all investors
what is the disclosure statement distributed to shareholders prior to shareholder meeting to elect directors, approve a merger, or address corporate actions
proxy statement (14A)
impact of secondary offering on companies public float
public float increased by the number of shares sold by insiders to public investors
what is the purpose of schedule 13F
quarterly filing by institutional investment managers to disclose long equity positions
The lower a company's DSO, the faster it
receives cash from credit sales
SEC form S-11
registration statement for REITS
what is the impact on the BS after paying stock dividends in excess of net income
retained earnings will fall by the amount of the dividend caesura
technique used to raise capital from existing shareholders through a public offering
rights offering
Cost of Equity using CAPM
risk free rate + (beta X MRP)
what is the only type of reg D safe harbor offering that allows unlimited non-accredited investors
rule 504: maximum deal size= limited to 5 million
equity turnover equation
sales/ Avg SHE
A/R turnover
sales/A/R
The contents of the merger proxy are governed in accordance with:
schedule 14A For public companies, the SEC requires that a proxy statement includes specific information as set forth in Schedule 14A. These information requirements, as relevant in M&A transactions, generally include a summary term sheet, background of the transaction, recommendation of the board(s), fairness opinion(s), summary financial and pro forma data, and the definitive agreement, among many other items either required or deemed pertinent for shareholders to make an informed decision on the transaction. Schedule 14D-9 is a recommendation from the target's board of directors on how shareholders should respond to a tender offer.
formula for calculating money paid to a selling group member per share
selling concession minus underwriters reallowance
how often issuers who use Reg A+ must notify the SEC of the amount of capital raised
semiannually
impact to balance sheet when company repurchases stock
shareholder's equity falls by the acquisition price of the shares
how investors who buy Into PIPE can resell their securities
shares become resalable when the issuer files resale registration statement
which shares require minimum lock up periods
shares earned by underwriters as compensation---FOR 6 MONTHS
a commitment committee decides if a member firm:
should enter into an underwriting agreement with the issuer
decrease in inventories: source or use of cash?
source
decrease in prepaid expenses -source or use of cash?
source of cash
increase in A/P source or use of cash?
source of cash
increase in accrued liabilities source or use of cash?
source of cash
A rights offering is typically followed by waht kind of underwriting?
standby
what is the backstop to a rights offering
standby commitment
what is a broker dealer that is a restricted person, but is allocated shares in an IPO after the underwriter certifies that it cannot find other buyers
standby purchaser -this is an exemption to FINRA rule 5130
the document that investors in a private placement sign to confirm their investment
subscription agreement
underwriters counsel-issuers expense or syndicates expense?
syndicate expense
research blackout period for syndicate managers and members of follow on offering
syndicate managers: 3 days syndicate members: zero
Acting in Concert
term that describes multiple shareholders who own more than 5% in aggregate and agree to vote their shares together -jointly file a form 13D
under sarbanes-oxley--quarterly and annual reports must be certified by
the CEO and CFO
to add economic value (EVA)-a proposed acquisition must generate EBIAT greater than:
the amount invested multiplied by the WACC
Trendline Analytics Corp. has filed for Chapter 11 bankruptcy. Who is responsible for filing motions on behalf of the company in federal bankruptcy court?
the company's legal counsel
when does the regulation M restricted period begin for securities that are part of a merger?
the day proxy materials are sent to shareholders
To qualify as a well-known seasoned issuer (WKSI), a company must have issued at least $1 billion in non-convertible debt in primary offerings for cash over what period?
the past 3 years
what is the definition of enterprise value
the sum of all ownership interest in a company and claims on assets from both debt and equity holders
what is the total capitalization of a company
the sum of total debt and SHE (Book value of equity)
negotiated underwriting
the terms of the offering are determined between issuer and a single underwriter
transaction comps are most useful when___
there have been a number of Mergers and acquisitions recently and in the same sector
what is the required holding period before a non US investor can resell regulation S securities on an offshore exchange
there is no requirements. can be sold offshore any time
making pro forma adjustments to calculate pro forma EPS after an acquisition requires removing which operating expenses?
those that will be eliminated after the merger, such expenses reduced by synergies or headcount elimination
Reg A+ annual limits on capital raised for both tier 1 and tier 2
tier 1 permits up to 20 million per year tier 2 permits up to 50 million per year
what is the best method for determining IPO valuation
trading comps using comparable multiples
impact of PIK interest on income statement
treated as interest expense
Employee stock ownership plans (ESOPs)
trusts established by corporations which make tax-deductible contributions to a trust on behalf of employees, primarily in the form of the company's stock. Organized employee participation in the ownership of a company
when must underwriters notify FINRA of their intent to engage in syndicate covering transactions
two written notices: first is prior to first transaction and second is within 1 day of completing the business transaction
competitive bid process
underwriters submit sealed bids to the issuer to sell the securities -the issuer awards the contract to the underwriter with the best price and contact terms
the portion of gross spread paid to underwriter for shares sold by selling group
underwriting fee + reallowance (if any)
what is the time period permitted for filing a delayed prospectus
up to 15 days after effective date
underwriter options if a deal is substantially oversubscribed
upsize the deal by increasing shares offered and/or increase the POP
decrease in accounts payable: source or use
use of cash
decrease in accrued liabilities: source or use of cash?
use of cash
improvement in net working capital: source or use of cash?
use of cash
increase in A/R source or use of cash?
use of cash
sales of control securities are subject to___
volume limits (over any 3 month period)
when does regulation M apply to broker dealers?
when a BD acts as an underwriter and also a market maker for the same securities
when FINRA CFD prohibits a ROFR or exclusivity agreement granted by an issuer to an underwriter
when it exceeds 3 years
when does FINRA CFD consider a tail fee arrangement unfair compensation
when it lasts longer than 2 years
situations in which a penalty bid is imposed
when securities allotted to a syndicate member are flipped: (sold shortly after the issue becomes effective)
exceptions to sarbances-ocley prohibition on personal loans to company executives
when the company is the lending business (bank) and the loan is on market terms
filing deadline for 13D
within 10 calendar days of the acquisition with the issuer, exchange, and the SEC
when does form 3 have to be filed
within 10 days
when must the form 3 be filed
within 10 days
when must the form 4 be filed
within 2 business days
deadline for filing form 4
within 2 days after transaction
what is the filing deadline for schedule 8k
within 4 days of the event for all issuers
filing deadline for schedule 13G
within 45 days of calendar year end
uniform practice code require that corporate syndicate accounts must be settled:
within 90 days of syndicate settlement date
when can green shoe option be excercised
within first 30 days after effective date
