SIE Unit 7
The ABC Chemical Corporation wishes to advertise its upcoming offering of common stock in a tombstone advertisement that they, the issuer, will place. When placing the tombstone advertisement, which of the following would be least likely to appear? A) The expected price range of the offering B) The names of the investment bankers underwriting the issue C) The total number of shares being offered D) The name of the issuer
B, In most cases, the names of the firms underwriting the issue only appear in the tombstone ad when they, rather than the issuer, have placed the ad. In this instance, with the tombstone advertisement placed by the issuers, the names of the underwriters would not likely appear.
Modulux, Inc., a NYSE listed manufacturing company, was founded by Clarence Mod. Clarence is now 82 years old and is looking to divest his significant interest in Modulux to capitalize the Mod Family Foundation, a charity. He has enlisted the help of Seacoast Securities, a FINRA member broker-dealer based in Seattle, to run the sale. Seacoast Securities is acting as A) an owner. B) an issuer. C) a dealer. D) an investment banker.
D, In this example, Seacoast is acting as an investment banker, assisting a person (Clarence) in a secondary offering
Cypress Care Nurseries, Inc., owns and operates a chain of nurseries and is headquartered in Cypress, California. The company is considering selling shares of the company to the public in California. In order to be exempt from registration with the SEC, under Rule 147 it would need to meet several criteria. Which of these is not a listed criterion under Rule 147? A) 80% of the issuer's revenue must be generated from the state of California. B) 80% of the issuer's assets are located in the state of California. C) 80% of the issuer's proceeds will be used in the state of California. D) 80% of the issuer's customers must be located in the state of California.
D, The 80% rule is that the company must meet at least one of the three 80% rules: 80% of revenue from the state, 80% of the proceeds earmarked for the state, or 80% of company assets in the state. The rule is the percentage of revenue, not the percentage of customers, from the state. Theoretically Cypress could have a majority of its customers from outside the state, so long as it has a few large customers generating at least 80% of revenue within the state it meets the requirement of Rule 147.
The Mod Family Foundation is a $500,000,000 charitable foundation headed by Clarence Mod. The foundation is seeking to purchase a large block of WeariTech, Inc., a Nasdaq listed company, for the foundation's portfolio. Seacoast Securities is assisting with this secondary market transaction. In this example, the Mod Family Foundation is A) an institutional investor. B) a venture capitalist. C) a retail investor. D) an issuer.
A, With half a billion in assets, the foundation is an institutional investor. We know that they are not acting as a venture capitalist because the company is already trading, and these shares are to be purchased in the secondary markets.
All of the following are exempt issuers except A) Modulux, Inc., a home manufacturer. B) the Southwest Railroad Co. C) Alta Loma Community Foundation. D) the City of Alta Loma.
A, Common carriers (e.g., railroads), municipalities, and charities are all examples of exempt issuers under the Securities Act of 1933. A for-profit corporation is not exempt.
During the cooling-off period the disclosure document that may be delivered to interested parties is called the A) preliminary prospectus. B) summary prospectus. C) final prospectus. D) cool off period prospectus.
A, The document available during the cooling-off period in the preliminary prospectus, also called a red herring.
Modulux, Inc., a NYSE listed manufacturer, is offering 5,000,000 shares to the public, which will raise capital to build a new plant. The new technology and design should allow Modulux to increase market share significantly in the modular home business. This offer is A) an APO. B) an IPO. C) a secondary offering. D) a venture offering.
A, There are two important points to consider (1) This is an offering of stock to raise money for the issuer, which is (2) a primary transaction. The company's stock is actively trading in the secondary markets so this must be additional shares. This is an additional public offering (APO).
The Big Shoe Sneaker Company is a small manufacturer of athletic shoes. It is selling $100 million of its stock. This will be its first public offering. It will use the money to enhance both marketing and production with a plan to grow the business and obtain a Nasdaq listing in two or three years. After the initial sale of the new shares, buyers of the stock in the over-the-counter market should expect to receive the final prospectus for how many days? A) 90 B) 25 C) Buyers in the secondary market are never entitled to the IPO prospectus D) 40
A, This is the initial public offering of an unlisted, non-Nasdaq, security. The requirement is that the prospectus be made available to buyers in the secondary market for 90 days after the release date.
A corporation seeking to raise funds in order to expand its manufacturing capacity would do so in A) the funding market. B) the capital market. C) the currency market. D) the secondary market.
B, Raising new capital is generally accomplished through the issuance of stock (equity capital) or bonds (debt capital). This is done in the capital market. When an issuer offers stock and the proceeds from the sale are added to the company's capital, it is called a primary offering. By contrast, a secondary offering is one in which one or more shareholders in the corporation sell all, or a portion of their equity holdings to the public. The proceeds of a secondary offering are paid to the selling shareholder(s), not the company.
GEMCO Oil and Gas, a non-NMS stock, wishing to sell up to $100 million of convertible debt as market conditions permit, files a shelf registration statement with the SEC. Which of these statements are true? I For securities offered via a shelf registration, a supplemental prospectus must be filed with the SEC before each sale. II The registration statement is effective upon completion of the cooling-off period. III Shelf registration allows the issuer to sell portions of a registered shelf offering over a 2-year period without having to reregister the security. IV Shelf registration allows the issuer to sell portions of a registered shelf offering over a 4-year period without having to reregister the security. A) II and IV B) I and III C) I and IV D) II and III
B, Section 415 of the Securities Act of 1933 allows publicly traded issuers to register an offering for sale at times to be determined by the issuer. In essence, the issuer is taking the securities off the shelf and selling them when needed; hence the name, shelf offering. No new registration is required for a period of two years, but a supplemental prospectus must be filed with the SEC before each sale. Some issuers, called Well-Known Seasoned Issuers (WKSI), may have a three-year period. This relatively small non-NMS stock is not likely to be a WKSI.
Seacoast Securities is a syndicate member for the initial public offering of WeariTech, Inc., WeariTech is a hot new issue in the wearable technology space. The S-1 registration statement has been filed but the effective date has not yet been released. This is A) the posteffective period. B) the cooling-off period. C) the mandated waiting period. D) the pre-filing period.
B, The period of time after the offering is filed, but before the SEC releases the security for sale, is called the cooling-off period.
Which of these may be found in the final prospectus that is not in the preliminary prospectus? I Next year's sales II Public offer price III Release date IV Planned use of the proceeds A) II and IV B) II and III C) I and IV D) I and II
B, The public offer price may vary up until the release date. The SEC determines the release date, not the issuer. Next year's sales are counted next year, and could not be in the prospectus. Planned use of the proceeds is in both documents.
The SEC has established rules regarding delivery of a prospectus when a secondary market transaction occurs after the effective date. Which of these comply with those rules for initial (IPO) and additional (APO) public offerings? An IPO of a stock to be listed on the NYSE requires delivery for a period of 25 days. An IPO of a stock that will not be listed nor quoted over Nasdaq requires delivery for a period of 40 days. An APO of a stock listed on the NYSE requires delivery for a period of 25 days. An APO of a stock that will not be listed nor quoted over Nasdaq requires delivery for a period of 40 days. A) III and IV B) I and II C) I and IV D) II and III
C, The prospectus delivery rules include the following: <ul>IPO for listed or Nasdaq—25 days APO for listed or Nasdaq—none IPO for non-Nasdaq—90 days APO for non-Nasdaq—40 day</ul>
A company's board of directors has agreed that the company should be prepared to have shares of common stock ready to be issued that are intended to be distributed in the form of a one-time employee bonus. Not knowing exactly when the one-time bonus plan will be implemented and the shares will be needed, the type of registration or offering that would best suit the scenario is A) an ESOP registration. B) a bonus share plan. C) a shadow registration. D) a shelf registration.
D, The Securities Act of 1933 permits issuers to quickly raise money in the capital markets when needed via a shelf registration. This type of registration allows the company to, in essence, take the securities from the shelf without the delay of registering with the Securities and Exchange Commission (SEC), because the actual registration has already been done ahead of time.
Modulux, Inc., a NYSE listed manufacturing company, was founded by Clarence Mod. Clarence is now 82 years old and is looking to divest his significant interest in Modulux to capitalize the Mod Family Foundation, a charity. He has enlisted the help of Seacoast Securities, a regional investment banker based in Seattle, to run the sale. This is an example of A) an IPO. B) an APO. C) a CRUT. D) a secondary offering.
D, The shares that are to be sold belong to a person (Clarence Mod), not the issuer. This is a secondary offering. An APO or an IPO are both issuer transactions. A charitable remainder unitrust (CRUT) is an estate planning tool often used by the wealthy, but is not something you are likely to see on this exam.
Shelf offerings are covered under which if the following? A) The Investment Company Act of 1940 B) The Trust Indenture Act of 1939 C) The Bank Secrecy Act D) The Securities Act of 1933
D, The shelf offering (registration) provision under the Securities Act of 1933 allows issuers to quickly raise capital when needed or when market conditions are favorable.
The preliminary prospectus for the IPO of the Big Shoes Sneaker Company indicates that the number of shares sold may be increased as much as 15% if market demand is sufficient. This is called a A) Shelf offering B) Secondary IPO offering C) Flex offering D) Green Shoe option
D, This is a Green Shoe offering, based on a rule first used in the IPO, for the Green Shoe Manufacturing Company (now known as Stride-Rite). A shelf offering occurs when the shares may be held and sold later under Rule 415. The other names are fictional.
