NEW ISSUES: CORPORATE UNDER WRITINGS

firm commitment underwriting

- principal -underwriter buys the issue outright from the company -underwriter intends to resell the issue to the public at a higher price, earning a profit (spread) -takes full financial liability for any unsold shares

secondary distribution

-"add-on offering" -proceeds go to a selling shareholder not the company -occur when privately held company goes public, and as part of the sale, some of the officers of the company sell their shares -company that has previously registered shares before (so it completed its IPO) that is coming to market with an additional new securities offering - officers of the company selling a large amount of shares that they already own

20 Day Cooling Off Period

-SEC reviews the filing for "full and fair disclosure" -issue cannot be sold -issue cannot be advertised -issue cannot be recommended to the public -issue cannot be "hyped" -orders to buy the issue cannot be solicited

primary distribution

-a sale of securities = proceeds of the sale go to the issuer - IPO - Initial Public Offering

best efforts underwriting

-agent -underwriter does not buy the issue from the company -underwriter assists the issuer in selling the securities to the public, earning a profit on each successful sale -underwriter takes no financial liability

Leveraged Buy Out

-an investor group attempts to take over a company by making a tender offer for the company's shares -financing comes from bank loan or issuance or junk bonds -company is now "private" -no longer trades in the public market -existing shareholders have been "bought out" with the financing for this coming from the company taking on debt

Tombstone Exhibit

-announcement of the offering published by the underwriters on the effective date -very limited in scope under SEC rules INCLUDES: -Name of the issuer -Type of business of the issuer -Names of the syndicate members (not the selling group) -Type of security -Public offering price -Size of the offering

investment banker

-assists issuers in raising capital for needs (expansion, new buildings, new products, etc.) -analyzes prospects for the issuing company -analyzes industry in which the company operates -analyzes products that the company produces

investment banker - acting as a principal

-buys the securities directly from the company -either holding them as an investment or reselling them to the public - underwriter assumes financial liability

vertical merger

-companies in 2 different (but usually related) industries merge -company merging with another company in its supply chain

horizontal merger

-companies in the same industry merge -to achieve economies of scale

Break-Up

-government forces a company that has a monopoly position to break-up into smaller separate competing entities

syndicate

-group of investment banking firms -shares in the financial responsibility and liability of offering and selling new issues to the public -signs a document in which it agrees to share in the profit and the financial liability associated with the underwriting

investment banker - acting as an agent

-helps the company sell securities to the public -underwriter DOES NOT assume financial liability

FINRA Rule 5130

-insure that new issue securities that are "in demand" are not withheld from sale to the public by member firms who intend to "keep" these shares for their own benefit, since the price is likely to rise in the aftermarket

Hostile Takeover

-investor group attempts to take over a company whose management objects to this action, by making a tender offer for the company's shares -existing management is fired -new management is installed

Merger

-joining of 2 companies for some strategic benefit

Spin-Off

-large company "spins-off" a wholly-owned subsidiary to its existing shareholders as a separate stock company -parent company believe it will have better business opportunities; and possible, better management

restricted persons

-own accounts in member firms -officers of member firms -associated persons -"agents" of broker-dealers -immediate family members -Fiduciaries (lawyers, accountants and financial consultants) -Portfolio managers

stabilizing bids

-placed, at, or just below, the Public Offering Price -cannot be placed above the Public Offering Price (this would create an instant "hot issue" and is considered to be manipulative).

Red Herring

-preliminary prospectus -underwriter is permitted to distribute during the 20-day cooling off period printed disclaimer in red on the cover that the document is not legally an advertisement, which would be prohibited

Stand-by Underwriting

-principal - underwriter "stands-by" on a firm commitment basis to buy any unsubscribed shares in a rights offering -the intention of reselling them to the public at a higher price

investment banker - acting as mergers + acquisitions - M & A

-underwriters help companies that wish to make an acquisitions find suitable companies to be acquired and arrange for the financing to do this. -underwriter earns an advisory fee

All or None Underwriting

-variation on a best efforts underwriting -either the entire amount is sold, or the deal is canceled -underwriter takes no financial liability

Mini-Maxi Underwriting

-variation on a best efforts underwriting -minimum amount specified in the offering must be sold or the deal is canceled -minimum is sold = underwriter will continue to sell until the maximum amount specified in the offering is reached -underwriter takes no financial liability

In a best efforts underwriting, the underwriter is acting as a(n): A. Agent B. Principal C. Dealer D. specialist (DMM)

A. Agent

All of the following are types of underwriting commitments EXCEPT: A. Fill or Kill B. Best Efforts C. Firm D. Stand-by

A. Fill or Kill

Stand-by underwritings are a(n): A. Firm commitment underwriting B. best efforts underwriting C. all or none underwriting D. agency underwriting

A. Firm commitment underwriting

A tombstone announcement would show which of the following? I. Gross proceeds of a new issue offering to the issuer II. Net proceeds of the new issue offering to the issuer III. Syndicate member names IV. Syndicate member participations A. I and III B. I and IV C. II and III D. II and IV

A. I and III

Which of the following statements are TRUE about new stock offerings? I. New issues are sold under a prospectus II. New issues are not sold under a prospectus III. New issues are sold at the Public Offering Price IV. New issues are sold at the Public Offering Price plus a commission or mark-up A. I and III B. I and IV C. II and III D. II and IV

A. I and III

Most of the registration statement filed with the SEC is information that is found in the: A. Preliminary Prospectus B. Underwriting Agreement C. trust Indenture D. annual Report

A. Preliminary Prospectus

Which statement is TRUE? A. The proceeds from a primary distribution go to the issuer while the proceeds from a secondary distribution go to a selling shareholder B. Primary distributions cannot be purchased on margin while secondary distributions can be purchased on margin C. There is no limitation on the size of a primary distribution while secondary distributions have caps on the maximum permitted sale D. Primary distributions must be made at the POP (Public Offering Price) while secondary distributions must be "at the market" offerings

A. The proceeds from a primary distribution go to the issuer while the proceeds from a secondary distribution go to a selling shareholder

The U.S. Government orders a company that has 80% of the computer software market to split itself into 4 separate operating companies, that have the right to compete with each other. This is a: A. break up B. spin off C. fall out D. leveraged buy out

A. break up

A U.S. soft drink manufacturer buys a French soft drink manufacturer. This is a: A. horizontal merger B. vertical merger C. diagonal merger D. foreign exchange

A. horizontal merger

An underwriting commitment where the underwriter is liable for any unsold securities is a(n): I. Firm Commitment underwriting II. Best Efforts underwriting III. Agency relationship IV. Principal relationship A. I and III B. I and IV C. II and III D. II and IV

B. I and IV

Which of the following statements are TRUE regarding the use of a preliminary prospectus? I. The preliminary prospectus may be sent to a potential customer prior to that customer expressing an indication of interest II. The preliminary prospectus may not be sent unless a customer expresses an indication of interest for the new issue III. The preliminary prospectus may be sent prior to the issue entering the 20-day cooling off period IV. The preliminary prospectus may be sent once the issue enters the 20-day cooling off period A. I and III B. I and IV C. II and III D. II and IV

B. I and IV

Stabilizing bids are permitted: A. only below the Public Offering Price B. at, or below, the Public Offering Price C. only at the Public Offering Price D. at, or above, the Public Offering Price

B. at, or below, the Public Offering Price

An automobile manufacturer decides to distribute shares of its parts making subsidiary to existing shareholders as a separate operating company. This is a A. break up B. spin off C. fall out D. Leveraged buy out

B. spin off

Corporation "A" wishes to acquire the publicly held stock of Corporation "B," a company with a market capitalization of $300 million. Corporation "A" does not have the cash necessary to complete the purchase since it only has a free cash balance of $100 million. To finance the additional $200 million needed for the acquisition via a leveraged buy out: A. the assets of Corporation "A" would be pledged as collateral for the purchase of Corporation "B" B. the assets of Corporation "B" would be pledged as collateral for the purchase of Corporation "B" C. Corporation "A" would borrow from a large financial institution D. Corporation "B" would borrow from a large financial institution

C. Corporation "A" would borrow from a large financial institution

When selecting syndicate members for a new corporate bond offering, the managing underwriter will consider the potential member's: I. financial capability to handle its portion of the offering II. track record in past underwritings III. Geographic location IV. back-office capability A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV

C. I, II, III

Which of the following can be found in an initial public offering preliminary prospectus? A. The Public Offering Price of the issue B. The current market price of the issue C. The financial statements of the issuer D. The SEC statement of approval of the issue

C. The financial statements of the issuer

Investment banks perform all of the following functions EXCEPT: A. distribute new issues on an agency basis B. assist issuers in publicizing new issue offerings C. accept time and demand deposits D. buy new securities offerings from issuers on a principal basis

C. accept time and demand deposits

All of the following statements are true regarding "indications of interest" EXCEPT indications of interest: A. allow an underwriter to gauge investor interest in the issue B. Help the underwriter to decide the final Public Offering Price C. are binding on both the customer and the underwriter D. can be canceled by both the customer and the underwriter

C. are binding on both the customer and the underwriter

When a corporation decides to spin off a subsidiary to its shareholders, after completion, the shareholders will own shares of: A. The parent company only B. The subsidiary company only C. both the parent and subsidiary company D. either the parent or the subsidiary company

C. both the parent and subsidiary company

In a new corporate bond offering, the lead underwriter selects syndicate members based upon: I. geographic location II. track record III. Financial capability IV. historic relationships A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV

D. I, II, III, IV

During the 20-day cooling off period when a non-exempt new issue is in registration with the SEC, which of the following is permitted? I. Sale of the issue to interested parties II. Distribution of a preliminary prospectus III. Recommendation of the purchase of the issue IV. Solicitation of indications of interest for the issue A. I and III B. I and IV C. II and III D. II and IV

D. II and IV

Which of the following are prohibited from buying an IPO directly from an underwriter? I. A registered investment company II. An officer of a registered investment company III. An insurance company IV. An officer of an insurance company A. I and II only B. III and IV only C. I and III only D. II and IV only

D. II and IV only