Series 79

Economic profit =

EBIT(1-tax rate) - WACC(investment amount)

The re-allowance is

a portion of the selling concession kept by a syndicate member.

A private placement memorandum is not required to be prepared for

accredited investors

The purpose of a lock-up period following an IPO is to

avoid negative perception of the transaction.

To qualify for the Rule 168 exemption for factual or forward-looking information, the timing, manner and form of communications (made by or on behalf of issuers) must

be consistent with similar past releases.

WKSIs may use FWPs

before filing a registration statement (during the pre-registration period, cooling off period, and post effective period)

A syndicate member in an offering is also known as a

co-manager

Can an issuer trading on a foreign exchange have WKSI status?

yes

are current maturities of notes and debentures and current maturities of capital leases included in enterprise value?

yes

Institutional investment managers manage a discretionary securities portfolio of __________ and they must file a ___________

$100 million or more, 13F

Reg A+ Tier 1 permits up to

$20 million to be raised per year

Return on Invested Capital =

(EBIT - Taxes)/Average Invested Capital

Which of the following best describes a bring down due diligence meeting?

A call to capture any changes since the last due diligence meeting.

XYZ Securities, a broker-dealer, is an underwriter, but not the lead manager, in the IPO of Star Semiconductors. The CEO of XYZ owns 14% of Star's common stock. What are the consequences as it relates to the new issue?

A conflict exists and must be disclosed when the issuer is owned at least 10% by an associated person (employee) of a broker-dealer that participates as an underwriter. However, it is only when the syndicate manager has this conflict that a qualified independent underwriter must participate.

What might cause an investment banking rep to strongly recommend a firm commitment underwriting instead of a best-efforts capital raise?

A firm commitment underwriting will ensure the issuer will have the amount of cash on hand that it needs for some corporate purpose - such as moving forward on an acquisition.

A crowdfunding solicitation to investors is made through a website site is known as

A registered funding portal

The outline of the material provisions and conditions of an offering is known as a(n)

A term sheet outlines the basic terms of the offering, whether it be private debt, preferred stock, or equity. It includes information regarding coupon, maturity, ownership, covenants, and other material provisions.

Under what circumstances can an investment banker in an industry group orally communicate with the equity research analyst covering the sector regarding a recently published research report?

A) With legal and compliance approval and chaperoned presence for the conversation

A fairness opinion that is provided to public shareholders as part of proxy materials must disclose whether it has evaluated compensation paid to any insider of the client company. For purposes of this requirement, an "insider" includes a client company's

According to FINRA Rule 5150, a public fairness opinion must state whether or not it has evaluated the "amount or nature" of compensation paid to a client company's insiders relative to compensation available to public shareholders. For this purpose, "insider" is defined as directors, officers or employees. For general insider trading and corporate disclosure rules, this definition of insider remains any officer, director or greater than 10% shareholder.

Under Regulation A+, the maximum amount of capital that can be raised is referred to as the

Aggregate Offering Price As defined under Regulation A+, the aggregate offering price shall not exceed $50 million, of which no more than $15 million can be offered by selling security holders. In addition, in a case where a combination of cash and non-cash consideration is received, the aggregate offering price is based on the cash price for the securities.

An affiliate must file a notice of a proposed sale under Rule 144 with the SEC under which of the following scenarios?

An affiliate must file notice with the SEC on Form 144 if he/she wishes to sell 5,000 shares or $50,000 in aggregate in any three-month period. In addition, the sale must take place within three months of filing the Form.

In a firm commitment underwriting, what happens to unsold securities?

Any unsold securities go into the account of the syndicate manager

Under SEC Rule 145, business combinations such as mergers and acquisitions must be registered if securities holders

Are asked to vote on the proposal

In a tender offer, the issuer must file any written public announcements of the offer that are made

At any time

Consider Exhibits 56 - 59. What is Goodperson Inc's Accounts Payable Turnover for 2009?

Average Accounts Payable = (5,375 + 3,555)/2 = 4,465 Accounts Payable Turnover = COGS/Average Accounts Payable = 21,076/4,465 = 4.72×

Based on demand for an IPO, the underwriter would like to exercise the green shoe clause. Which of the following is FALSE?

Based on demand for an IPO, the underwriter would like to exercise the green shoe clause. Which of the following is FALSE?

A fairness opinion I. Is not required by law II. May be mandated by the SEC III.Does not allow directors to delegate fiduciary responsibilities

Companies involved in mergers, acquisitions, sales, spin-offs and business combinations may choose to use fairness opinions, but they are not required or mandated. They do not allow directors to delegate fiduciary responsibilities, as they ultimately are responsible for decisions regarding a sale of the business.

Company A issues $200,000,000 in bonds at 99. Underwriting fees are 75 basis points. What are the proceeds received by Company A, net of underwriting fees? Is the fee from the offering price or par value?

Company A is issuing these bonds at a discount from par, so the public offering price = $200,000,000 x 99% = $198,000,000. Also, the underwriter receives a spread of 75 basis points, calculated as a percentage of par value: $200,000,000 x 75 basis points = $1,500,000. Note that 75 basis points would be entered into a calculator as .0075. Therefore, the net proceeds received by Company A = $198,000,000 proceeds from sale to public - $1,500,000 spread to underwriter = $196,500,000.

In an M&A sale, at what point are buyers typically granted access to the data room?

Directly following the management presentation Access to the data room is typically granted to those buyers that move forward after first round bids, prior to, or coinciding with, their attendance at the management presentation. Depending on the situation - e.g., a compressed timetable - buyers may be granted access prior to the management presentation, but only after they have been accepted into the second round.

M&A documents in order of use:

Engagement letter, teaser, confidentiality agreement, CIM, initial procedures letter, first round bid (IOI)

Company A has a very young workforce. Company B has a relatively old workforce. Both companies have pension plan funding ratios of .85. If interest rates decline, which company's funding ratio is more vulnerable?

For companies, pension liabilities are similar to debts. The younger the workforce, the longer into the future the promise to pay benefits extends. A promise to a 30-year old worker (who will begin collecting benefits at around age 60) is similar to a bond with a 30-year maturity. If interest rates decline, the discounted value of a 30-year obligation increases, and this will impact the pension funding ratio negatively. A company with an older workforce also will be negatively affected by declining rates, but the impact will be less because the "time horizon" until pension payout is shorter.

Under the terms of a selected dealer agreement, participant firms I. act as principal II. act as agent III. may distribute registered securities only IV. may distribute either registered or unregistered securities

II and IV A selected dealer agreement specifies the terms between the managing underwriter and the selling group members. Selling group members act as agents because they have no financial responsibility for unsold securities. Distributions subject to a selected dealer agreement include both registered and exempt securities (e.g. municipal bonds).

What is the advantage of a Section 338(h)(10) election?

It allows the company that is buying stock to receive a "stepped-up basis." A section 338(h)(10) election treats the purchase and sale of stock to be treated for tax purposes as if assets were purchased by the buyer and assets were sold by the seller. The main caveat is that the buyer receives a stepped-up basis and a tax shied as if it bought assets for tax purposes despite the fact that the buyer actually purchased stock certificates. It is the buyer (not the seller) who receives this stepped-up basis and incremental tax shield.

Olympic Seed, Inc., a public company makes a going private tender offer to acquire its shares. The company's objective is to acquire at least 90% of outstanding common stock. Why is the 90% threshold important?

It permits a short-form merger. Under securities laws of most states, 90% is the threshold for a short-form merger in going private transactions. This means the company is not required to meet an entire fairness test on behalf of remaining minority shareholders - i.e., remaining shareholders can be forced to sell their shares.

At which point in an M&A sale process is a fairness opinion typically rendered?

Just prior to Board approval and execution of the definitive agreement C) Upon deal closing

The Initial Bid Procedures Letter typically requires that prospective bidders submit

Key assumptions to arrive at the stated purchase price

What is the 10-K filing deadline for a smaller reporting company with a fiscal year that ends on December 31?

March 31 Explanation: The deadlines for smaller reporting companies are the same as for companies that are not large accelerated or accelerated filers: 90 days after the end of the fiscal year for a 10-K and 45 days after the end of each fiscal quarter for the 10-Q.

Is there a holding period for rule 144A (QIB)?

No

can foreign investors invest in an S Corp?

No

will a sell-side advisor generally be concerned with a company's dividend payout ratio when determining an appropriate valuation?

No

Lorraine, a registered rep, has a client who wants to be allocated 200 shares in an IPO. She tells the client that he will be able to purchase these shares at the public offering price but she can't indicate a specific dollar price. The client asks: "Will the price be at the market?" What should she answer?

No, the IPO public offering price is set by the issuer and underwriters, not by the market.

A preliminary proxy must be filed with the SEC how long before definitive proxies are first sent to shareholders?

Preliminary proxies must be filed with the SEC at least 10 calendar days before the definitive proxy is sent to shareholders. Any revisions made to the preliminary proxy will not require a restart of this 10-day period, unless they are material or constitute a fundamental change.

Why might a seller prefer a stock sale to an asset sale?

Provides a cleaner exit

Calculate ACC, Inc. (ACC)'s Return on Assets for the year ended December 31, 2012.

Return on Assets = Net Income / Average Assets. Net Income = $93,152,000, from income statement. Average Assets = Average assets from end of year and beginning of year = $1,028,471,000 beginning assets + $1,118,863,000 ending assets / 2 = $1,073,667,000. ROA = Net Income / Average Assets = $93,152,000 / $1,073,667,000= 8.68%.

In accordance with the Securities Exchange Act of 1934, an issuer that repurchases its own outstanding stock

Rule 10b-18 of the Act of 1934 requires that an issuer repurchase its own securities through one broker dealer per day. The issuer cannot purchase more than 25% of the average daily volume.

The standard master agreement among underwriters document is known as the

SIFMA Model Form

After trading begins in an IPO, an investor who was allocated IPO shares returns them to a syndicate member because she can't afford to pay for them. The shares are trading at a premium to the public offering price. In this scenario, which is a permitted action for the underwriter to take?

Sell the shares and donate them to charity. Answer Explanation The agreement among underwriters (AAU) requires that any IPO shares trading at a premium and returned to a syndicate member after trading begins must be: 1) used to offset any syndicate short positions; 2) offered at the public offering price to unfilled customer orders; or 3) sold, with profits anonymously donated to charity. In short, there can be no financial incentive for an underwriter to receive these returned shares. They can't ever be placed into a syndicate member's investment account.

Master Limited partnerships (MLPs) generally operate in all of the following sectors EXCEPT

Technology

Which description is true with regard to a 424(b) document?

The 424(b) is the final prospectus.

What is the main difference between a regular Dutch auction tender and a "modified" Dutch auction tender?

The ability to change the acceptable price range during bidding. A modified Dutch auction tender allows the purchaser to change the price range during the auction process, depending on investor acceptance. For example, to attract more bidders, the range can be raised.

When conducting due diligence if information is misleading, omitted or out of date the best course of action for a banker to do?

The best course of action is to alert the party who provided the information so it can be corrected.

An investor has a net worth of $500,000 and wants to invest $20,000 in a crowdfunding deal. This is the only crowdfunding deal in which the investor will participate this year. To achieve this, the investor's annual income must be at least how much?

The highest level of investment allowed is 10% of the lesser of annual income or net worth. It is only available if both factors (annual income and net worth) are $107,000 or above. To invest $20,000, this investor would need an annual income of $200,000 or above. 10% of $200,000 = $20,000.

Part (b) of the Suitability Rule requires members to make "reasonable efforts" to obtain certain types of information from non-institutional clients, including information concerning the customer's

The specific information mentioned by the Suitability Rule for non-institutional customers includes financial status, tax status and investment objectives. Though marital status and dependents could be important, the rule does not require the collection of this information.

Which of the following is true regarding private placements under Section 4(a)2 of the Securities Act of 1933?

There is no limit to the amount of money that can be raised.

A broker offers to sell an investor shares in an oil and gas drilling program "at the market." The shares are sold by prospectus and all fees, commissions and costs are disclosed. The prospectus states that shares are only available from the offering syndicate, and they may only be redeemed by direct tender to the program sponsor. Which of the following is TRUE regarding this activity?

This is a violation because no public market for the shares actually exists "At the market" means that a clear public market exists, and that market is not controlled by the broker dealer making the offer, or a syndicate in which they participate. Under SEC Rule 15c1-8, such an offer is considered manipulative, deceptive or fraudulent if another market does not exist.

A "confidential proxy" will be kept confidential by the SEC

Until the date of the shareholder vote

reg m restricted period for a medium issuer

adtv >= $100,000 and public float >= $25 million: 1 day before pricing and before distribution is complete

reg S securities can be resold in the US

after six months subject to rule 144 if the issuer is a current SEC filer

Fixed-pricing offering

all shares must be sold at the public offering price. they cannot be sold at a discount to any investor (although the syndicate and selling group will purchase at a discount)

The sell-side adviser coordinates each of the following M&A process points EXCEPT

buyers' committed financing approval schedule

In an underwriting, a competitive bid is generally used

by primary dealers when purchasing government securities in Treasury auctions Competitive bids are used by primarily dealers when purchasing government securities in Treasury auctions. In a competitive bid the issuer awards the contract to the underwriter with the best price and contract terms. Competitive bids may be used in IPOs and other offerings, though they are typically structured on a negotiated basis. Underwriters retain the risk of distributing the securities if their competitive bids are filled. See Chapter 11

a stabilization bid can last

indefinitely

ROA formula

input here

QIBs are

institutional investors managing a discretionary portfolio greater than $100 million or a BD managing more than $10 million

indemnification rights typically refer to

items for which the seller will indemnify the buyer for breaches of the representations and warranties. For example, the seller represents that it has no environmental liability. However, post-closing, a $100 million environmental problem is discovered. If the buyer had an indemnification against environmental liabilities, the seller would be required to pay the buyer $100 million (less any negotiated "deductible").

know the m&a process steps in order (i.e. CIM, teaser, CA, initial bid procedures letter, etc.)

know it

a company that disposes of an asset that was held for over 1 year would be taxed at the

long-term capital gains rate

As a general rule, buyers prefer (blank) MACs

loose MACs that afford wiggle room in the event that company performance or market conditions, for example, deteriorate; sellers, on the other hand, prefer very narrowly defined MACs that make it very hard for buyers to walk away.

Financial maintenance covenants require the borrower to

maintain or improve its credit profile by repaying debt and/or growing cash flow

Rule 506(c)

maximum deal size: unlimited number of accredited investors: unlimited # non-accredited investors: 0 general public solicitations: allowed

Rule 506(b):

maximum deal size: unlimited number of accredited investors: unlimited # non-accredited investors: 35 general public solicitations: prohibited

Under a tender offer scenario, restricted shares

may be tendered without compliance with Rule 144

When is an institutional investor accredited?

more than $5 million in assets

can research analysts attend a road show with investment bankers for an ecg

no

is there a blackout period for publishing post-effective research for an ecg

no

A press release to announce an M&A transaction is known as a (blank) and must be filed no later than (blank)

prospectus, day of first use

The pledge of, or lien on, collateral that is granted by the borrower to the holders of a given debt instrument is known as

security.

When syndicate members purchase securities from the managing underwriter they pay the

takedown price

A two step merger is a

tender offer

the communication under 168 will not be considered an offering provided that

the issuer has met all sec reporting requirements and the information meets the definition of either factual or forward looking statements

Bets place to identify large shareholders?

the proxy statement

In an offering with multiple bookrunners, the lead bookrunner's name is shown in which location on the prospectus in relation to the other underwriters?

top, left

CFD deems unfair any tail-fee arrangements that last longer than

two years

Required disclosures by the writers of a fairness opinion

whether they will receive any compensation contingent on the deal closing (but not the amount), whether they have done business with any of the parties in the last two years, whether the data provided to complete the opinion was verified by a third party, if the opinion considers the compensation to board members vs all other shareholders

can an issuer include forward-looking statements in its SEC filings?

yes, if they include meaningful, cautionary language identifying factors that could cause actual results to differ

An IPO has a very poor reception in the public market. After pricing at $55 per share, the stock price sinks in Nasdaq trading as low as $51. Underwriters are forced to buy shares at a discount to the offering price to support the stock. The offering has a greenshoe option. Can underwriters exercise it to offset their losses?

yes, within 30 days of the effective date, if the stock price rises above $55

Gulf Shipping, a private issuer, has a control relationship with a broker-dealer. If the company plans a $20 million private placement, what is the maximum amount of proceeds that may be used for non-business purposes such as offering costs, commissions and sales incentives?

$3 million In a member private offering, unless an exemption applies, issuers must make sure at least 85% of offering proceeds will be used for business purposes - i.e., not for offering costs, discounts, commissions, and any other cash or non-cash sales incentives. This helps to prevent potential conflicts of interest due to the issuer's ownership or control of a broker-dealer.

XYZ Company goes public at a public offering price of $31. Several days later, the stock has increased to $43. If the underwriters decides to exercise the greenshoe clause, what price will investors pay for those shares?

$31 per share, as that is the public offering price

Private Placements: A private placement memorandum (PPM) is required for non-accredited investors unless the private placement is for less than

$5 million (Rule 504).

Rule 504 of Regulation D allows companies to sell a maximum of

$5 million in a 6-month period Answer Explanation The Rule 504 exemption is only available for private placements (not advertised to the public), and securities must be restricted from resale to the public without registration. The maximum offering size is $5 million in a 6-month period. Take note, that the threshold was recently increased from $1 million.

Reg A+ Tier 2 permits up to

$50 million to be raised each year

A real estate Direct Participation Program raises $50 million in gross proceeds. What is the maximum amount that it may spend on total organization and offering expenses (O&O)?

$7.5 million Explanation: Total O&O in DPP programs is limited to 15% of the deal's gross proceeds. For a $50 million offering, the limit would be $7.5 million.

WKSI

$700 million public float or $i billion in nonconvertible debt last 3 years AND sec filer for at least 1 year

What is the threshold for defining a "large accelerated filer," for purposes of determining the filing deadline for a company's 10-K report?

$700 million worldwide non-affiliate market capitalization

Proxy vs. 8-K

- Proxy statements permit shareholders to vote, and are used annually to elect board members and, when needed, for extraordinary corporate events (e.g. mergers). 8-K filings are used to disclose any material current event (a much lower standard). Companies file 8-Ks much more frequently than proxies.

When subject to a restricted period under Regulation M, a firm seeking an excused withdrawal must make this request

1 business day 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.

Private sales of securities (including convertible bonds) that would increase the number of outstanding shares by (blank %) or more must be reported on a (blank)

1%, 8K

Ineligible Issuers: These include

1) a company not current with its SEC filings; 2) a company that has filed for bankruptcy in the past three years; or 3) a blank check company. Importantly, an ineligible issuer CANNOT use a free writing prospectus (FWP).

QWE Corp. is a manufacturing company with the following information: 1) Cur. Assets = $400,000 2) Cur. Liabilities = $200,000 3) Raw Materials = $25,000 4) Work in Progress = $25,000 5) Finished Goods = $50,000 6) Tax Rate is 40% From the above information determine QWE's Quick Ratio.

1.5 to 1 Explanation: Current Assets = $400,000 less Inventory of $100,000 = Quick Assets of $300,000. Current Liabilities are 200,000. Quick Ratio = $300,000/$200,000 = 1.5 to 1 The tax rate is not needed to solve this question.

The 14D-9 target board response is due within

10 business days of schedule TO filing

The preliminary proxy (PRE14A) must be filed with the SEC at least

10 calendar days prior to filing a definitive proxy with the SEC (DEF14A)

For an IPO, the "blackout period," during which analysts employed by syndicate managers or co-managers may not issue research or engage in public appearances, is for what period?

10 days after the effective date The blackout period is different, depending on the type of offering and the employer of the analyst. For an IPO, it is 10 calendar days after the effective date for a deal in which an analyst is employed by a manager or co-manager. For follow-on offerings, it is 3 days for a syndicate manager, and there is no blackout period for syndicate members. In all cases, the period is after the effective date.

A preliminary proxy (PRE14A) is only filed with the SEC (blank) days prior to mailing the definitive proxy (DEF14A) if the matter being voted on is not considered (blank). A merger vote would always require a preliminary proxy. shareholders must receive the definitive proxy at least (blank) days prior to the vote. Information in the preliminary and definitive proxies are (blank). Although it contains detailed director, information, director (blank) records are not disclosed, nor are board of director minutes. If directors attended less than (blank %) of last year's meetings that would be a required disclosure.

10, routine, 20, identical, voting, 75%

percentage of board;s audit committee that must be idependent

100%

large accelerated filers (WKSI)

10K: 60 days Q: 40 days 8K: 4 business days

Accelerated filers (seasoned)

10K: 75 days Q: 40 days 8K: 4 business days

Non-accelerated filers (unseasoned), and smaller reporting companies

10K: 90 days Q: 45 days 8K: 4 business days

The target board response in a tender offer is the

14D-9

A currency transaction report must be filed within

15 days of a cash deposit in excess of $10,000

Corporate Finance Rule: The underwriter must submit the key offering documents (e.g. prospectus) to FINRA at least (blank) prior to effectiveness and must receive a (blank) from FINRA to sell the securities.

15 days, no-objection letter

Under the FINRA Corporate Finance Rule, underwriters receiving stock as compensation are required to hold the shares for how many days before they can be sold?

180 days

A tender offer must be made available to shareholders for at least

20 business days

The definitive proxy must be filed with the SEC and sent to shareholders at least

20 calendar days prior to the shareholder meeting

Acquirer company shareholders vote on a stock deal only if the number of new shares issued by the acquirer will increase the number of outstanding shares by at least

20%

24 broker-dealers will participate in distributing shares of a public stock offering. Only eight are underwriters and the remaining 16 are in the selling group. To how many broker-dealers, at minimum, must the syndicate take reasonable steps to deliver red herring documents?

24 The syndicate must take reasonable steps to deliver sufficient copies of the red herring to each underwriter and broker-dealer expected to participate in a distribution. The SEC expects underwriters to make the red herring conveniently available to all investors.

in a stock buyback, the issuer cannot purchase more than

25% of the stock's average daily volume per day

An OTC issue has an average daily trading volume of 10,000 shares. During a restricted period, a passive market maker may not exceed what level of net purchases per day?

3,000 shares During the restricted period, a passive market maker's per day limit on net purchases is the greater of 30% of average daily trading volume or 200 shares.

a greenshoe is effective for

30 days after the effective date

A suspicious activity report must be filed within

30 days of learning of suspicious activity

ABC Corporation has one million shares of common stock, of which the public float is 900,000 shares. To qualify for an S-3 filing, what is the maximum amount of common shares that the company may have sold under an S-3 in the previous 12 calendar months?

300,000 shares The limit for an issuer to be able to file a Form S-3 is one-third or 33.3% of the public float within the previous 12 calendar months. The public float is defined as shares held by the public - i.e. not officers, directors or shareholders with a 10% voting interest.

an issuer must wait (period of time) after its IPO to conduct to a share buyback

4 weeks

Each of the following SEC filings contains a fairness opinion EXCEPT

424B

A 13 G must be filed within

45 days of calendar year end

When marketing an IPO, the red herring must be delivered to investors at least

48 hours prior to confirming the sale of securities.

According to Regulation M, the restricted period for distributors of a common stock with an ADTV value of less than $100,000 and a public float of less than $25 million begins

5 business days before pricing "Restricted period" as defined in Rule 100 of Regulation M states that securities with an ADTV value of $100,000 or more of an issuer whose common equity has a public float value of $25 million or more is subject to a 1 business day restricted period. Those securities below this threshold are subject to a 5 day restricted period.

the proxy lists shareholders greater than

5%

the maximum spread for fair and reasonable underwriter fees that the corporate finance department of FINRA is comfortable with is

7% of the gross offer price

Which of the following disclosure documents would lack a full copy of an income statement?

8-K report that is used to ensure that the earnings announcement becomes public information on a timely basis.

A sale of unregistered stock requires disclosure on an

8-k filing.

The final syndicate settlement must occur within

90 days following the syndicate settlement date

Under Rule 14e-5, a "covered person" is not allowed to purchase shares of the target company in a tender offer, except by tendering shares through the offer, during which period?

A "covered person" is not permitted to buy shares covered in a tender during the period of the tender offer, which is defined by Rule 14e-5 as being from the time the tender is publicly announced until it expires.

HJK Corp. pays a $2 quarterly dividend. The stock has a dividend yield of 5%. HJK Corp. has 20,000 shares outstanding. What is the value of one share of HJK common stock?

A $2 quarterly dividend x 4 = $8 annual dividend. $8.00 div/5% = $160 stock price The formula is: Stock Price = (Annual Dividend/ Dividend Yield)

Which of the following would be considered a Qualified Institutional Buyer?

A broker dealer with a securities portfolio of $15 million, representing client assets 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

Under FINRA Rule 2111, which of the following entities would be considered an "institutional customer" for purposes of gathering customer suitability information? I. Pension fund with assets of $27 million II. Insurance company III. Individual with assets of $60 million IV. Bank

An individual can be an institution, if total assets are at least $50 million. A pension fund, foundation or endowment is not considered an institution unless it has assets of at least $50 million.

Under SEC Rule 10b-18 an issuer with an average trading volume less than $1 million per day or a public float value below $150 million is unable to

An issuer with an average trading volume less than $1 million per day or a public float value below $150 million is unable to trade within the last 30 minutes of trading. Companies with higher average-trading-volume or public float value can trade up until the last 10 minutes.

What is GoodPancakeHouse Inc's Days Sales Outstanding?

Average Accounts Receivable = (18,106 + 15,146)/2 = 16,626 Days Sales Outstanding = 365 × Average Accounts Receivable/Sales = 16,626/608,103 = 10.0 days Note that the "top line" for GoodPancakeHouse is not revenue. The total revenue line is the third line, labelled "Total operating revenue".

Average Invested Capital =

Average of "Total stockholders' equity" + average net debt (total debt - cash) = [(81,137 - 45,572) + (63,583 - 25,500)]/2 = 36,824

Company DEF, which has $1,500,000,000 in revenue, $180,000,000 in EBITDA, and $150,000,000 in book value is preparing an initial public offering to raise $75,000,000. Company DEF will have $75,000,000 in debt after the IPO. To increase demand, the shares will be offered at a 15% discount. The average multiples for companies in the same sector are 1x EV/SALES, 6.5x EV/EBITDA, and 2.5x Price/Book. Based on the above data, what is the most likely valuation of Company DEF? A) $1,170,000,000

Because this is a profitable company, the best comparable to use for this question is the EBITDA multiple. Company DEF's valuation using the EBITDA multiple is $180,000,000 x 6.5x = $1,170,000,000. However, to increase demand, the shares will be offered at a 15% discount. Therefore, the valuation after the discount is $1,170,000,000 x (1 - 15%) = $994,500,000.

In the context of an offering for a Direct Participation Program fees paid to transfer agents, escrow agents and engineers; and fees paid for legal and accounting services provided to the sponsor are examples of

Bona fide issuer expenses are rightfully charged to the issuer but paid from offering proceeds. They come out of investors' pockets.

The "refreshing requirements" for a shelf registration applies to

Both automatic and non-automatic registrations, with different maximum periods for each The maximum period for offering automatic shelf registrations is three years after the effective date. The maximum period for non-automatic shelf registrations is 180 days after the third anniversary. In both cases, these periods can be refreshed by filing a new registration statement.

What statement is the best description of the concept of bring-down due diligence?

Bring-down due diligence occurs right before a deal is closed. Both sides want to make sure there were no breaches in the reps and warranties that were outlined and agreed to when the definitive agreement was signed. Because of the gap in time between signing a deal and closing a deal, bring-down due diligence serves to assure that nothing material has occurred during this period.

A prospective investor wants to know if a crowdfunding offering in which she is interested has been vetted by an intermediary in an extensive "due diligence" process. The answer is

Due diligence is required of broker-dealers but not funding portals

At what point during the sale process does the financing provider typically commit to the final staple terms and conditions?

During the second round of the sale process, prior to submission of final bids.

How many days does a registrant have to file a Form 8-K after the occurrence of triggering event?

Four business days

What term describes a company's total borrowings, notes and bonds, deferred purchases and capitalized leases?

Funded debt is one input in a measure of a company's total leverage - which can be expressed through its funded debt to EBITDA ratio. This ratio measures total liabilities as a multiple of current cash flow available to pay off debts. The higher the ratio, the more leverage a company has.

A group of comparable companies has a mean enterprise value-to-EBITDA trading multiple of 7.0x. Given the income statement information in Exhibit 23, what is TargetCo's implied enterprise valuation?

Given the income statement information provided, EBITDA is calculated as $230mm EBIT + $45mm D&A + $20mm restructuring charge (one time item) = $295mm As the target's comparable companies are currently trading at 7.0x EV/EBITDA, that multiple applied to EBITDA of $295 million provides an enterprise value of $2.065 billion ($295mm x 7.0).

Rule 144 applies to the sale of securities that I. were acquired by investors through unregistered, private transactions II. are considered control securities because they are held by an affiliate of the issuer III. were acquired by non-affiliates through an open market transaction IV. must under all circumstances satisfy a holding period before they can be sold

I and II Rule 144 allows public resale of restricted and control securities if a number of conditions are met. Restricted securities are those securities that have been acquired through a private placement or other exempt transaction (i.e. Regulation S for overseas offerings), and are not registered. Control securities are those held by an affiliate of the issuing company. An affiliate is a person, such as a director or large shareholder, in a relationship of control with the issuer. Control securities are not always subject to a holding period. They must satisfy a holding period only if they are also restricted. Securities acquired by non-affiliates through an open market transaction are neither restricted nor control stock, and are not subject to Rule 144.

In which two of the following scenarios would a buyer be expected to pay a higher premium for a given public target? I. All-cash deal II. All-stock deal III.Target trading at a 52-week low IV. Target trading at an all-time high

I and III All-cash deals tend to result in a higher premium paid for a given target because in selling for cash, target shareholders forego the ability to participate in value creation opportunities that result from combining the two companies. Targets trading at a 52-week low tend to require a higher premium paid because their shareholders are wary of selling on the cheap. Similarly, shareholders may be willing to accept a lower premium if they are selling at an all-time high stock price.

To sell securities under Regulation A an issuer I. must file a Form 1-A with the SEC. II. is not required to file offering documentation with the SEC. III.is required to provide a prospectus to investors. IV. is required to provide an offering circular to investors.

I and IV

Which two of the following presentations does the buyer's financial adviser typically provide during an auction's second round in helping prepare a bid? I. The preliminary valuation analysis for the buyer's management team II. The management presentation III. The valuation presentation to target's management IV. The board presentation on the M&A opportunity and financial analysis

I and IV The buyer's financial adviser typically provides a preliminary valuation analysis for the buyer's management team, eventually followed by a more formal presentation to the Board of Directors on the M&A opportunity and financial analysis. In the event a fairness opinion is being provided, this would also be provided to the Board just prior to signing the definitive agreement. It is highly unusual for a buyer to present its valuation analysis to the target's management. The management presentation is provided by the target's management team.

In a Direct Participation Program, which of the following types of compensation paid to brokers are considered underwriter's compensation? I. Sales commissions II. Non-transaction compensation for clerical or ministerial functions III. Printing fees IV. Continuing fees and trail commissions

I and IV Underwriting compensation includes all types of compensation, from any source, paid as compensation to underwriters, broker-dealers, registered representatives and their affiliates. The one exception is for non-transaction based compensation paid to registered persons who perform only clerical or ministerial functions, not sales activities. Also, the expense associated with printing the prospectus or offering document is paid by the issuer.

In an initial public offering, the selling group members I. receive lower fees than the underwriters II. receive higher fees than the underwriters III.are listed before the syndicate members on the tombstone ad, if at all IV. are listed after the syndicate members on the tombstone ad, if at all

I and IV Explanation: The selling group members assist the syndicate (underwriters) in selling new issues, but have no responsibility for unsold securities. Therefore, the selling group members receive lower fees than the syndicate members and are listed last on the tombstone.

To qualify as a "reporting issuer," which of the following conditions must be met by the issuer? I. It must be subject to the reporting requirements of Section 13 or 15(d) of the '34 Act for at least 90 days prior the sale of a new issue II. It must have registered with the SEC at least 9 months prior to filing of a registration statement III.It must not have a holding period requirement on restricted stock IV. It must have at least 1,000 shareholders

I only

Which of the following parties are classified as insiders under the Securities Exchange Act of 1934? I. A shareholder who owns 7 percent of outstanding stock of a corporation and his spouse who owns 4 percent II. The vice president of a firm III. A firm's director of technology

I only Explanation: The Securities Exchange Act of 1934 defines insiders as corporate directors, officers, or stockholders owning more than 10% of a firm's shares. The positions of spouses are aggregated in determining the ownership percentage of a shareholder.

An underwriter is preparing a registration statement for a company's IPO. The company lacks extensive operating history or performance, and the underwriter includes its own "good faith assessment" projections of future performance. An independent review of these projections may be included provided that I. The reviewer's qualifications are disclosed II. The reviewer's relationship to the issuer is disclosed III. The reviewer's consent is obtained

I, II and III

An SEC Rule 165 exemption covers certain written communications made before a registration is filed for a business combination transaction. To qualify for the exemption, such written communications must meet which requirements? I. Be limited to a basic announcement of the offering II. Be included in a prospectus filed on the date of first use III.State that the announcement is not an offer IV. Avoid any mention of offering terms such as amount, time frame or use of proceeds

I, II and III only The exemption applies to written communications made in business combinations before the registration is filed, other than non-public communications between participants. Securities may be offered if such communications are prospectuses filed with the SEC and they are limited to a basic announcement, which may include basic terms of the offering and use of proceeds. The announcement must include a legend stating that it is not an offer, and be filed with the SEC prior to first use.

Which of the following are disclosure requirements for a registrant's description of its business in its 10-K? I. The sources and availability of raw materials. II. The extent to which the business of the industry segment is or may be seasonal. III.The importance to the industry segment and the duration and effect of all patents, trademarks, licenses, franchises and concessions held. IV. The political affiliations of its board of directors and executive management.

I, II, and III only The instructions on Description of Business in Regulation S-K state that the registrant must disclose numerous items in the business description, including the sources and availability of raw materials, the extent to which the business of the industry segment is or may be seasonal, and importance to the industry segment and the duration and effect of all patents, trademarks, licenses, franchises and concessions held. Other items that must be discussed include the principal products produced and services rendered by the registrant, a description of the status of a product or segment, the practices of the registrant and the industry, and the dollar amount of backlog orders believed to be firm.

A proxy statement filed in connection with a one-step merger transaction contains which of the following?. I. The price and terms of a tender offer. II. A description of the financial analysis underlying the fairness opinion(s) of the financial advisor(s). III. A copy of the definitive purchase/sale agreement. IV.Disclosures regarding a "squeeze out".

II and III In a one-step merger transaction, the target obtains approval from its shareholders through a vote at a shareholder meeting. Prior to the vote, the target provides appropriate disclosure to the shareholders via a proxy statement. The proxy statement contains a summary of the background and terms of the transaction, a description of the financial analysis underlying the fairness opinion(s) of the financial advisor(s), a copy of the definitive purchase/sale agreement ("definitive agreement"), and summary and pro forma financial data. Tender offer or "squeeze out" provisions are not part of a one-step merger.

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

II and III Answer Explanation 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.

TRW Corp. sells two of its divisions and is now flush with cash. It decides to buy back 25% of its shares in a Modified Dutch Auction. Which of the following statements are true? I. All forms of a Dutch auction may only be used in M&A acquisitions. It cannot be used by a company to buy back their own stock. II. Shareholders will have their shares purchased by TRW on a first come - first served basis. III. Any shareholder who doesn't tender their shares, will end up owning a larger percentage of TRW once this transaction is completed. IV. Shareholders who tender their shares to TRW and have these shares accepted in this Dutch auction will all receive the same clearing price.

III and IV only

Form S-4:

If a public company acquires a private company and issues stock in the transaction, one can find the details of the merger in the public company's Form S-4.

NewPublicCo raises capital by selling shares to the public at $58.00 per share. The spread is equal to 6% of the total proceeds. What would be a reasonable estimate of the underwriting fee for this transaction?

In a corporate underwriting spread, the syndicate manager's fee and underwriting fee are each typically 20% of the gross spread, while the selling concession is typically 60% of the gross spread. In this particular transaction, the gross spread = 6% x $58 = $3.48 per share, so the manager's fee and underwriting fee could be estimated to be about $.70 while the selling concession would be closer to $2.09.

The lead manager of a syndicate offers shares of a publicly registered master limited partnership program at a price of $13.45. The price is set before the prospectus is printed and without regard to book-building activity or supply/demand feedback. Under securities law, what type of offering is this?

In a fixed-price offering, the lead manager sets the public offering price prior to publishing the prospectus, without supply-demand feedback. In such an offering, all shares must be sold at the public offering price. Only syndicate and selling group members are allowed to receive shares at a discount - i.e., the public offering price less the selling concession.

Karen wants to establish a valuation for a privately held software company. She has identified several other software companies with comparable business and financial profiles. However, all of the companies have far more net working capital than the subject company. Which valuation method should she use?

In order to capture a significant difference in net working capital in a valuation analysis, a discounted cash flow would be a better choice. A company with lower working capital (i.e. source of cash) would have a higher valuation when utilizing a DCF.

A research analyst who participates in a non-deal road show is not allowed to communicate with customers

In the presence of investment bankers or representatives of the securities issuer

ABC Securities, a member firm, has a conflict of interest while participating in a public offering. The firm may not sell securities with respect to the conflict to a discretionary account unless the account holder

In this case, the member may not sell conflict-related securities to a discretionary account without specific written approval. A blanket approval or standing statement is not sufficient. For example, if a broker dealer is selling its own stock to a client, a conflict would apply and discretionary accounts must receive written approval.

A private company seeking to fund growth and development and clean up its balance sheet should consider what type of capital raise?

Initial public offering

Qualified Institutional Buyer

Institution that has $100 mm in discretionary assets or a BD that has $10 mm in discretionary assets

A "public announcement" of a tender offer is defined as communication that has the effect of informing the public or security holders about the tender offer. This communication

May be oral or written

Return on Assets =

Net Income/Average Assets = 41,554/((312,627 + 341,798)/2)

An underwriter is in the process of assisting in the preparation of a registration statement of an issuer with an operating history of two fiscal years. Which of the following is true regarding the financial statements that must be included in the registration statement?

Normally, audited income statements and cash flows statements are required for the three most recent fiscal years. However, if the company lacks such history, it must include these audited statements in the registration for those fiscal years it has been in operation. There is no requirement to include projections of future performance. It must include audited cash flow statements for both years

Under Regulation M Rule 101, "actively traded securities" are

Not subject to a restricted trading period

Two situations can trigger a member private offering (MPO).

One is when a broker-dealer itself is raising capital in a private offering. The other is when a control relationship exists between the broker-dealer and issuer. A control relationship exists if the issuer has a beneficial interest of more than 50% of the outstanding voting securities of the broker-dealer or the right to more than 50% of the distributable profits or losses.

An underwriter files a preliminary prospectus with the SEC, as required under Rule 424. The underwriter then notices that there are mistakes in the red herring that must be corrected. In which case would the filing of copies of the updated "red herring" be required?

Only if there are "substantive changes" in the red herring

An underwriter meets a prospective investor for lunch during the "quiet period" for an offering. Without presenting any written information, the underwriter discusses the offering and makes a casual verbal offer to the investor. Is such an offer allowed?

Oral communications made during the quiet period are not considered to be a prospectus. Such communication is permitted, provided no sales are completed prior to the effective date. It is sound practice to deliver a red herring whenever an offering is verbally discussed during the quiet period but this is not required as long as a prospectus is delivered at or before the time the order is completed.

What is its net debt?

Plugging in the Enterprise Values and Equity Values, and Noncontrolling interest and cash from the question, Net Debt = Enterprise value - equity value - noncontrolling interest - preferred stock = $7,877 - $3,782 - $300 - $0 = $3,795. Net debt includes cash, so the $150 million in cash is not relevant to the calculation of net debt in this example.

The ABC Pension Fund, a qualified institutional buyer (QIB), buys unregistered debt securities in a Rule 144A offering. When can it sell these securities to other QIBs?

Rule 144A offerings allow QIBs to purchase unregistered securities and then freely and immediately trade them to other QIBs. When the target market for the offering is large institutions, this can be an attractive way to avoid SEC registration.

There are different types of entities that are afforded different treatment under United States Tax Law. Which of the following statements accurately depict the status or tax situations of S Corporations?

S Corps are pass thru entities. This means that they don't pay taxes, but instead the shareholders pay the tax.

For purposes of determining whether it is a large accelerated filer or an accelerated filer, when does a company calculate its worldwide market cap?

SEC filer classifications are determined at the end of the second quarter of each fiscal year. This value then determines the company's category and filing deadlines for the next full fiscal year.

WKSIs vs Seasoned issuers:

Seasoned issuers are smaller than WKSIs. They have at least $75 million in non-affiliate market cap or has been an SEC filer for less than 1 year. It can use an FWP after filing a registration statement

Priority of claims in a bankruptcy:

Secured claims, administrative claims, unsecured claims, subordinated debentures, equity

BNM Corp (a public company) has signed a definitive agreement to acquire WER Corp., also a public company. Which statements are true with regard to the requirements related to a DEFM14A proxy? I. Selling shareholders of WER will only be required to vote on this proposed deal if stock of the acquirer BNM is part of the consideration paid. II. Selling shareholders of WER will be required to vote on this proposed deal regardless of whether the consideration is all stock, all cash or a combination. III. Shareholders of the acquiring corporation BNM never vote on an acquisition because it is considered an operational decision of management. IV. Shareholders of the acquiring corporation BNM will be required to vote on the acquisition if the consideration paid includes BNM Stock, and the outstanding share count of BNM increases by at least 10%.

Selling shareholders must vote regardless of the form of the consideration they are receiving. The acquiring shareholders generally do not vote because it is considered an operational decision of management. However, the acquiring shareholders do vote if the stock being paid out increases the company's outstanding share count by at least 20%.

If an independent outside auditor of the firm determines an illegal act may have occurred their next course of action is to: My Answer:

The auditor's responsibility is to Contact the Board of Directors' Audit Committee if they believe an illegal act might have taken place. These illegal acts could take many forms, including embezzlements. Don't confuse this question with the bribing of foreign officials to gain lucrative foreign contracts. That would be in violation of the Foreign Corrupt Practices Act which would dictate contacting the Justice Department, a duty placed on a myriad of parties that would include non-auditors. This question was not focused on that situation.

Two investors want to participate in a Rule 144A offering. One is a pension fund that controls a securities portfolio of $50 million on a discretionary basis. The other is a broker-dealer with a securities portfolio of $20 million. Which of these investors is eligible for the transaction?

The broker-dealer To be a QIB, an institution must control a securities portfolio of at least $100 million on a discretionary basis. Broker-dealers with securities portfolios of at least $10 million also are considered QIBs. All investors in a Rule 144A offering must be QIBs.

Which two of the following typically accompany the buyer to the management presentation? I. M&A adviser II. Legal counsel III. Accountants IV. Financing sources

The buyer typically brings its M&A adviser and financing sources to the management presentation. The buyer's legal counsel and accountants do not typically attend the management presentation.

XYZ stock is trading for $50 per share. It paid a dividend of $.50 last quarter. What is the current yield of XYZ stock?

The current yield of common stock is determined by dividing the annual dividend by the current market price. $2.00/$50 = 4%. Note that the equation requires the annual dividend, not the quarterly dividend.

Up to now, Tidal Recycling, a private company, has been funded by family, friends and angels. Now, the company is planning an exempt Regulation A+, Tier 2 offering to give liquidity to early investors. If the company wants to raise $25 million in a single offering for its own capital needs plus the maximum possible amount for secondary stock sales by affiliates, what should be the total size of the offering?

The funding limit for Regulation A+ Tier 2 offerings is $50 million in a 12-month period, of which no more than $15 million may constitute secondary sales by affiliates. Add the $15 million to the $25 million of capital the company needs for its own purposes and the offering should be for $40 million. This example shows how Tier 2 offerings can be used to accomplish two objectives - company capital and liquidity for early shareholders. But the liquidity part is limited to $15 million.

If an issuer of corporate bonds includes the Moody's rating on its debt in a registration statement, which of the following is true regarding the S&P rating for the same issue?

The issuer is required to include the S&P rating in the registration statement only if the S&P rating is different

Which one of the following is required under the Rule 168 exemption for factual or forward-looking communications made by an issuer?

The issuer must meets all SEC reporting requirements Explanation: The Rule 168 exemption is only available for communications made by (or on behalf of) issuers that make factual or forward-looking statements and have met all SEC reporting requirements.

John Jones and his wife Mary Jones are shareholders in an S corporation. For purpose of the maximum shareholder limit in an S corporation, which of the following statements is TRUE?

The limit is 100 and John and Mary are counted as one shareholder

All of the following statements are true about short swing profits EXCEPT

The rules apply to profits realized in any period of less than one year Explanation: The Securities Exchange Act of 1934 prohibits short-swing profits (profits realized in any period less than six months) by corporate insiders in their own corporation's stock, except in very limited circumstance. If an insider does take a short swing profit, the profit is disgorged, or returned, to the company. This rule applies only to directors or officers of the corporation and those holding greater than 10% of the stock and is designed to prevent insider trading by those most likely to have access to important corporate information.

At what point are site visits typically conducted for a given buyer?

The second round of the auction centers on facilitating the prospective buyers' ability to conduct detailed due diligence and analysis so they can submit strong, final (and ideally) binding bids by the set due date. Site visits include tours of the sellers key locations, including main offices, manufacturing facilities, and distribution warehouses.

For purposes of determining who must register with the SEC or a national security exchange under the '34 Act, the "size requirement" is any company exceeding

The size requirement for registration with the SEC or with an exchange has two components: 1) number of shareholders (2,000 or more); and 2) an asset threshold ($10 million or above).

Two active investors each own 4% of ABC Corporation. The two investors reach an agreement to vote their shares in the same manner. What is the consequence of this agreement?

The two investors are considered to be acting in concert with one another. Accordingly, together they own 8%, which would necessitate their filing a Form 13-D.

In a fixed price IPO, FINRA Rule 5130 requires the book-running underwriter to file with FINRA a final list of distribution participants and their commitments, by what deadline?

Three days after the offering date

For a broker dealer to qualify for the Rule 139 exclusion of issuer-specific research reports, so that publishing these reports is not considered an offering, which issuer requirements must be met?

Two issuer-specific requirements are contained in Rule 139. The issuer must have filed all periodic reports over the preceding 12 months and the issuer must meet requirements for using Form S-3 or F-3. Seasoned issuers or WKSIs can meet these requirements.

An underwriter prepares the financial statements for inclusion in a registration statement for an issuer that has an operating history of six years. Financial statements have been audited for the last four years. At minimum, balance sheets must be included for how many years?

Two years of audited balance sheets are required for the registration, although more may be supplied. They must be for the two most recently completed fiscal years. Unaudited balance sheets are not allowed in a registration statement.

Honest Broker Dealer underwrites an IPO with an offering price of $22.50. The day after the IPO, with the last sale at $22.10 and the current quote $22.08 bid $22.15 offer, Honest Broker Dealer decides to stabilize the offering. What is the highest price at which the firm can enter a stabilization bid?

Under Regulation M Rule 104, an underwriter can stabilize a new issue no higher than the most recent transaction price or the best independent bid, whichever is greater.

ABC Corporation recently issued an IPO. Shortly thereafter it decides it wants to buy back some of its shares. What time frame restrictions would ABC face in order to buy back their own stock?

Under Rule 10b-18, an issuer can do a share buyback four weeks after its IPO.

Under Regulation M, an offering of securities separated from regular trading activities by dedicated selling mechanisms, would be referred to as a

Under the definition of "distribution" in Rule 100 of Regulation M, an offering is differentiated from ordinary trading by the magnitude of the offering as well as the presence of special selling efforts.

Which of the following transactions provides shareholders with a full exit from their investment?

While an IPO, dividend recap and special dividend each provide a monetization event for investors, only a sale of the company provides shareholders with a full exit of their investment.

Can selling group members accept IOIs?

Yes

Do you have to discount back the terminal value to present time?

Yes

Patsy is a director of ABC Corp., a public company, and she holds 10,000 shares of its stock. The current stock price is $40. If she plans to sell 2,000 shares during the next three months, is she required to file a proposed notice of sale with the SEC?

Yes, because the dollar value of the proposed sale exceeds the limit. 5,000 shares or an aggregate dollar amount of $50,000 in any three-month period.

The effective date for Grapevine Technologies IPO was one week ago. The company wishes to promote its new products, which are not described in the registration statement, red-herring or prospectus. Can it now use a free writing prospectus for this purpose?

Yes, free writing prospectuses may be used by all eligible issuers in the post-effective period

An issuer in a public offering is partially owned by a broker-dealer. There are no other conflicts of interest between the issuer and the broker-dealer. Does this fact alone create a conflict of interest?

Yes, if the broker-dealer owns at least 10% of the issuer's shares. A conflict of interest exists if an issuer is owned at least 10% by a broker-dealer (equity) or at least 10% by an associated person of a broker-dealer. The ownership test is 10%, based on common stock equity. If the test is met, it will trigger the need for prominent disclosure of the conflict, compliance with net capital requirements, and the inclusion of a qualified independent underwriter (QIU).

Sarbanes-Oxley Act (SOX): SOX requires public companies disclose whether they have

a an "audit committee financial expert" on their audit committee (not that there must be an expert on the committee). If a company does not have an expert, it must disclose this and explain why it does not. An "audit committee financial expert" must understand GAAP and financial statements, such as a public accountant.

golden parachute

a contractual provision promising an employee (often senior management) a large payout or bonus if employment is terminated, including due to a change of control after a merger

Reg M restricted period for a small issuer

adtv < $100,000 or public float < $25 million: 5 days before pricing and until distribution is complete

insiders are also called

affiliates

Seasoned and unseasoned issuers may use FWPs

after filing a registration statement (during the cooling off period and post effective period)

"Spinning" in an IPO allocation is

allocating new shares to the officers, directors, or senior management of current, future, or prospective investment banking clients from whom the broker-dealer has received compensation in the past 12 months for investment banking services or expects to in the next three months

proxy statement:

also called a form 14A, is distributed to shareholders prior to a shareholder meeting to elect directors, approve a merger, and address other corporate actions

a de minimis account is

an account in which a restricted person owns less than 10% of the beneficial interest, can invest in an IPO

Equity Research: A research report is defined as

any analysis of equities with a recommendation that is sent to at least 15 recipients.

In an underwriting transaction, syndicate expenses

are deducted from the underwriting fee

Institutional Investors: Most FINRA rules define an institutional investor as having

at least $50mm in assets.

To qualify as a REIT, a corporation must be organized under state laws in the U.S. and have

at least 100 shareholders by the second taxable year To qualify for REIT tax status, a corporation must have at least 100 shareholders by the second taxable year. It also must meet a 5/50 test for shareholder ownership, with five or fewer shareholders not owning more than 50% of its stock during the last half of the taxable year.

Criteria for a WKSI:

at least a $700 million, non-affiliate market cap or have issued at least $1 billion in nonconvertible debt in the last three years AND have been an SEC filer for at least 1 year

An S Corporation must meet all of the following requirements EXCEPT

at least three years of operating history Explanation: Corporations must meet several requirements to qualify for Subchapter S election. They must adopt a qualifying tax year, be a domestic corporation (or domestic eligible entity), and not have more than 100 shareholders. All shareholders must be individuals or other qualified entities and no shareholder may be a nonresident alien. All shareholders must consent to the Subchapter S election. Tax-wise, Subchapter S corps benefit from a pass through of gains and losses to investors (i.e. no corporate tax).

WKSI beneifts:

automatic shelf registration, which means their registration statements are effective immediately upon submission to the SEC and FWPs may be used at any time (i.e. either before or after filing a registration statement)

A private company offers its stock to qualified investors in a private offering that aims to raise $25 million. The offering will not terminate until this amount is raised, regardless of the time it takes to reach the subscription goal. What type of offering is this?

best efforts The termination date for a private offering depends on the type of offer. In an all-or-none deal, a termination date is pre-set. In a best efforts deal, sales continue until a required goal amount of capital has been raised, regardless of time.

At a pitch meeting for a private placement offering among qualified investors, the CEO of the issuer is asked to describe his prior experience in similar programs. In fact, he has a strong track record in two prior programs that are similar, one launched seven years ago and the other three years ago. How may he answer the question?

by stating the number of years he has been in business and how many similar programs he has offered

in an accretion dilution

calculate acquirers stand alone eps on a dilutive basis if you're going to compare to pro forma diluted eps, and make sure cost of debt is calculated from percentage of purchase consideration that is debt

Qualified Tender: A qualified tender allows a purchaser to

condition the tender on its receiving a certain percentage of the desired shares. For example, I launch a tender seeking 10 million shares, and impose a condition that if fewer than 9 million shares are tendered by expiration on March 31st, I will not do the deal. If on March 30th I have not received 9 million shares I could extend the offer for 30 days and notify shareholders of the extension. I could NOT extend by only 5 days however (must be at least 10 days). I could NOT prohibit previously tendered shares from being withdrawn (meaning they could be withdrawn). I could NOT purchase shares in the open market to reach the full tender amount.

to stabilize the underwriter must

disclose its potential intent to do so in the prospectus and then notify the SEC each day stabilization is in effect

post-effective research: following the effective date, underwriters are prohibited from publishing research for a certain number of days

for IPOs: 10 days for a syndicate manager and syndicate member For follow-on offerings: three days for a syndicate manager; no blackout period for member

ABC Industries owns a majority of the shares of a public company and controls its board of directors. However, this company's minority shareholders feel ABC has mismanaged its businesses and left it undervalued. They are demanding seats on the board. In response, ABC launches a tender offer at a price just above the company's public share price, to take the company private and eliminate minority shareholders and their dissent. What is this strategy called?

freeze-out

An issuer of a private placement wishes to avoid the special requirements that apply to member private offerings by qualifying for an exemption from these requirements. Securities are not being sold in an exempt transaction. To whom must the issuer sell securities to qualify for an exemption?

institutions and other qualified purchasers

In a PIPE offering,

investors commit to purchase a certain number of restricted (unregistered) shares from a public company at a specified price.

Rule 504:

maximum deal size: $5 million number of accredited investors: unlimited # non-accredited investors: unlimited general public solicitations: allowed

Which one of the following is not an exempt security?

municipal bond unit investment trust It's important to remember all the categories of exempt securities: U.S. government, nonprofit organizations, municipal bonds, short-term debt up to 270 days maturity, bank securities, and Eurodollars. Make sure not to confuse municipal bonds (debt instruments), which are exempt from federal registration, with municipal funds and municipal unit trusts, which are not exempt from federal registration.

A firm commitment underwriting has an effective date of May 18 and a scheduled closing date of May 23. However, due to complications, the underwriters decide to delay the closing to May 26. When must FINRA be notified of the closing delay?

no later than May 23

The red-herring for Steelpoint Inc.'s IPO states that the company was founded by two brothers in 2010. After the registration but before the effective date, the company wishes to clarify this information by stating that one brother did not join the company until 2013. Can this correction be made in a free writing prospectus?

no, because it conflicts with information in the red-herring A free writing prospectus is designed to supplement information in the registration and red-herring. It cannot be used to make corrections to material facts in those filings - i.e., when it is in conflict with them. The registration and red-herring will need to be amended with the correct facts, and then the free writing prospectus can be used to clarify.

Contingency Underwritings: In a contingency underwriting (e.g. an all-or-none or mini-max deal), once the contingency is met, the funds must be released to the issuer by

noon the next business day.

ineligible issuer

not current w. sec filings, filed for bankruptcy within the last 3 years, a blank check company i.e SPAC

Rule 168 provides an exemption for communication so that the communication is not considered an

offering or prospectus and the like

insiders or affiliates are defined as

officers, directors, or greater than 10% shareholders of a company

A securities issuer is evaluating the pros and cons of Regulation A, Regulation A+ Tier 1 and Regulation A+ Tier 2 for its next exempt stock offering. The issuer prefers to not have to meet state blue sky registration requirements. Which of these choice(s) avoid blue sky registration?

only Regulation A+ Tier 2 The tradeoff of a Regulation A+ Tier 2 offering is that the issuer must have audited financials and file ongoing reports with the SEC. In return, the issue is treated the same as non-exempt exchange-listed issues in avoiding state securities (blue sky) registration. Since federal disclosure standards are lower in Regulation A and Regulation A+ Tier 1, state blue sky registration and disclosure is required.

Interest income and interest expense are both considered part of (blank) cash flow

operating

Forward looking statements are

permitted in SEC filings (i.e. 10K or 10Q) . However, such statements must include meaningful, cautionary language identifying factors that could cause actual results to differ from those discussed in the forward-looking statements

The shareholders of ABC Corp. will meet on July 16 and vote on whether to approve a merger. When must ABC shareholders be given a prospectus describing terms and risk of the proposed transaction?

prior to July 16

An investment banking firm bases a fairness opinion on information supplied by the client company. The firm must disclose whether it independently verified this information through other sources only if the information

provides a substantial basis for the opinion

Executive Compensation: Changes to director and executive compensation can be found in a company's

proxy.

seasoned issuer

public float of $75 mm or more and sec filing for at least 1 year

Fairness Opinions: The disclosures in a fairness opinion (success fee, material relationships, etc.) are only required if the fairness opinion will be seen by

public shareholders. If it will be used only internally by the board, the disclosures are not required.

issuer-directed shares are

shares specifically directed by the issuer to a restricted person

To avoid multiple private placements being treated as one transaction, at least (blank) months must elapse without any offering to investors.

six, For example, if an issuer did a PIPE on Aug 1st and then a Rule 506(b) transaction on Sept 1st, the transactions would be considered part of the same capital raise and must comply with the private placement rule in aggregate. On the other hand, a PIPE transaction on Feb 1st followed by a private placement on Nov 1st would be treated as two different transactions.

if the board of director's minute book (a written record of the discussions by the Board) is not signed.....

the Corporate Secretary or the Chairman may sign them after the meeting

In an auction process, a re-trade occurs when

the bidder re-bids at a later point in the process at a lower price

10K vs 10Q:

the differences between the 10K and the 10Q are that the financial statements in a 10Q are unaudited and that the 10Q does not include a list of major shareholders

A registration statement must be signed by

the issuer's CEO, CFO, controller and the majority of the board

an amended prospectus or prospectus supplement must be filed if

the prospectus is nine months old AND the financials in that prospectus are more than 16 months old

state registration (blue sky)

the securities, the underwriters, and the bankers themselves must all be appropriately registered in all states where the securities are sold. these state securities laws are referred to as "blue sky" laws

Zenith Cellular, a private company, wishes to raise $35 million by selling its stock. It would also like to avoid ongoing SEC reporting requirements and audited financials. Which Regulation A+ strategy can accomplish all of these objectives?

two Regulation A+ Tier 1 offerings spaced more than 12 months apart Explanation: Between Reg A+ choices, it is only under Tier 1 that a private company can avoid ongoing SEC reporting and audited financials. The Reg A+ Tier 1 dollar limit is $20 million of securities in a 12-month period. By waiting more than 12 months for the second offering, the company can raise up to $40 million under two separate Tier 1 offerings.

are firms engaged in agency capacity in a mini max? standby?

yes and no

Carlton is a US citizen who participates in a Reg S follow-on stock offering while living in Germany. The securities are issued by a US public company and SEC filer. Right after buying the securities, Carlton moves back to the US. Can he resell the securities while living in the US?

yes, after holding them six months Reg S securities are restricted and not immediately tradable in the US. The holding period depends first on whether the securities are debt or equity. For debt, it is 40 days. For equities, it is six months if the issuer is a current SEC filer. It is 12 months if the issuer is not a current SEC filer.

A banker's acceptance is issued by a bank holding company. It has a maturity of 30 days. Is it exempt from federal registration?

yes, because the maturity is 270 days or less Answer Explanation A banker's acceptance is a money market security issued by a bank or bank holding company. If it is issued by a bank that is supervised by a federal or state authority, it is automatically exempt. If it is issued by a bank holding company, it must have a maturity of 270 days or less to be exempt.