Chapter 2: Data Collection
GOT THIS ONE RIGHT: An issuer is required to furnish an annual proxy statement to shareholders at least: 10 calendar days prior to the meeting 20 calendar days prior to the meeting 20 business days prior to the meeting 30 calendar days prior to the meeting
20 calendar days prior to the meeting ***According to SEC Rule 14c-2, an issuer is required to furnish an annual proxy statement at least 20 calendar days prior to the meeting date. An exception to this rule is granted if the issuer sends shareholders a notice of Internet availability at least 40 days prior to the meeting date. The notice will identify to shareholders how they may obtain the proxy materials free of charge through a website
GOT THIS ONE RIGHT: A preliminary proxy statement is filed with the SEC under which of the following situations? - A proposal by shareholders under SEC 14a-8 - The election of the company's accountants - The election of directors - A proposed merger transaction
A proposed merger transaction There are two types of proxy statements that are filed with the SEC. A preliminary proxy statement must be filed with the SEC at least 10 days prior to the date the definitive proxy is sent to shareholders. The second type, the definitive proxy, is given to shareholders to provide them with the information that will allow them to make an informed decision on the matter being voted on. ***In certain circumstances, the SEC does not require a company to file a preliminary proxy statement. This is the case if the matter being voted on relates only to the election of directors, the election or approval of the company's accountants, or a proposal that was put forth by shareholders of the company's stock under SEC Rule 14a-8 (the rule that addresses when a company must include a shareholder proposal in its proxy). A business combination, such as a proposed merger, would require the filing of a preliminary proxy.
NOTE: According to FINRA rules, research analysts may participate in due diligence meetings and the screening of potential investment banking clients; however, they may not participate or attend meetings for the purpose of soliciting investment banking business (pitches).
Check the due diligence meetings. That seems wrong.
Dina, a research analyst at Tweet Investments, is attending a research conference when she meets the president of Maverick Funds. Dina writes research reports on Maverick Funds. Is she permitted to introduce the president of Maverick Funds to Barry, the president of the investment banking department at Tweet Investments, in order to discuss an investment banking services transaction? - Dina may not introduce an issuer and a member of the investment banking department to discuss investment banking services transactions. - Dina may introduce the president of Maverick and the president of the investment banking department as long as she discusses only the information that is currently in her latest research report. - Dina may not introduce the issuer and the member of the investment banking department without authorization from the legal or compliance department. - Dina may introduce the president of Maverick and the president of the investment banking department to discuss investment banking services transactions.
Dina may not introduce the president of Maverick and the president of the investment banking department to discuss investment banking services transactions. If Dina did participate in a conversation between the two, she would be violating regulations prohibiting three-way communications even if she only discussed information that is currently available in her latest research report.
What is Form 3?
Form 3 is filed when a person initially becomes an insider.
GOT THIS ONE RIGHT: Which information could be found by an analyst reviewing a company's most recent Form 10-K filing? I) A list of directors and executive officers II) A list of the company's clients III) The percentage of revenue the company derives from its different businesses IV) Projected earnings of the company for the next fiscal year I and II only I and III only II and IV only III and IV only
I and III only Form 10-K will include certain information that a company is required to disclose to the SEC. This information is then available to the public. Some of the information includes: the business line and assets of the company, any legal proceedings in which the company is involved, risk factors, footnotes of accounting policies, the market for the company's equity securities, and a list of the company's directors and executive officers. The document gives a detailed overview of the past year's results of the company and its business. The 10-K may make mention of the future, but would not provide financial projections
GOT THIS ONE RIGHT Glenway Investment Group is participating in a secondary offering for Artie's Steakhouse, Inc. Anne is a research analyst at Glenway, who has just completed a research report on Artie's Steakhouse. Anne MAY NOT take which of the following actions regarding the secondary offering? I) Answer questions from clients regarding the offering II) Attend road shows for the offering III) Attend internal meetings that exclude the investment banking department IV) Attend internal meetings with the investment banking department regarding the offering I and III only I and IV only II and III only II and IV only
II and IV only NOTE: Anne may answer questions from clients regarding the offering and attend internal meetings regarding the offering that exclude the investment banking department and personnel of the issuing firm. ***A research analyst may educate personnel and clients of his firm about a particular investment banking transaction as long as his presentation is fair, balanced, and not misleading and there are no members of the investment banking department or issuing company present. Without members of the investment banking department or the issuing company present, the research analyst is under less pressure to give an overly optimistic review of the transaction.
GOT THIS ONE RIGHT: You are an investment banking representative working the banking sector of the mergers and acquisitions department. A managing director has asked you to review and analyze valuation trends concerning recent mergers in your sector. Which of the following choices would be the BEST source to review? Previous S-1 registration statements filed with the SEC Previous proxy statements filed with the SEC Previous corporate finance documents filed with FINRA Previous 10-K filings with the SEC
Previous proxy statements filed with the SEC Since shareholders will need to vote on the proposed merger, a proxy statement must be issued. Issuers will usually hire a financial adviser to write a fairness opinion, ensuring that the price for the target company is fairly valued. This document will include valuation metrics that are relevant for the sector, a comparison with other companies, and valuations of recent M&A transactions in the sector.
A large media company is planning to spin off its cable television division. You have been asked to review comparable transactions related to this market. Which of the following choices is the BEST source of information about previous transactions in the sector? Form S-4 filings Form S-1 filings Form 10-K filings Proxy statements
Proxy statements A company that is planning a spinoff will hold a special meeting for shareholders to vote on the proposal. The important information relevant to the transition will be contained in the proxy statement.
GOT THIS ONE RIGHT An investment banking representative is concerned with the impact of stock option compensation paid to senior executives on the firm's future profitability. Which of the following documents would be the most useful to research? Form 8-K Form 10-K Form 4 The proxy statement
The proxy statement The most complete information regarding the impact of stock option compensation paid to senior executives is found in the firm's proxy statement. Annual reports on Form 10-K and registration statements might simply refer you to the information in the proxy statement.
GOT THIS ONE RIGHT: A preliminary proxy statement must be filed with the SEC: -10 business days prior to the date the definitive proxy is sent to shareholders -No later than the day the definitive proxy is first sent to shareholders -Within 10 days of the date the definitive proxy is first sent to shareholders -10 calendar days prior to the date the definitive proxy is sent to shareholders
-10 calendar days prior to the date the definitive proxy is sent to shareholders In certain circumstances, a preliminary proxy statement is required to be filed with the SEC at least 10 calendar days prior to the date the definitive proxy is sent to shareholders. A definitive proxy statement must be filed with the SEC no later than the date it is first sent to shareholders.
You have been asked to research the largest shareholders of a company, since your firm is representing the buy-side in an M&A transaction. Which TWO of the following forms should you review? (Pick two) I) 13D II) 13F III) 10-Q IV) proxy
13D and Proxy Information on the largest shareholders of an SEC reporting company may be found in four places; a 13D or 13G filing, a 10-K (annual report), and a proxy. A 13D filing is triggered when a person or group of persons acquires ownership exceeding 5% of a company's equity. (The filing is required within 10 days of the transaction.) Schedule 13G is an alternative to Schedule 13D. It is usually filed by institutional investors (such as an investment company) that have no intention to influence or control the issuer. Although a 10-K provides information on the largest shareholders, this information is NOT found in a 10-Q. Rule 13f-1 of the Securities Exchange Act of 1934 requires quarterly filings (13F) by institutional investment managers who exercise investment discretion over at least $100,000,000 in equity securities. This filing discloses all of its equity securities holdings. A 13F is a good source of information to find out how many shares of all companies are owned by an investment manager such as a hedge fund.
Company A is acquiring Company B. Company A will be issuing stock to shareholders of Company B . Which of the following choices would be the BEST place for an investment banking representative to find detailed information on the terms of the merger? An S-4 issued by Company A An S-4 issued by Company B A proxy statement issued by Company A A Schedule TO issued by Company A
An S-4 issued by Company A Note, proxy is issued by company B, but that is not a choice. If securities are to be issued in connection with a merger, an S-4 must be filed by the acquiring company (Company A) with the SEC. Since shareholders will need to vote on the proposed merger, a proxy statement must be issued. Issuers are permitted to incorporate most of the important details of the merger in the S-4 filings. Since the S-4 must be issued, the information required in the proxy statement will be incorporated into the S-4. The document is sometimes referred to as a proxy statement/registration statement because it is used as a registration statement for Company A and a proxy statement for Company B. The acquiring company, not the target company, issues the S-4. This is an important source of information, detailing the cash and/or stock the shareholders of the target company will receive from the acquirer. Other information included is the purpose of the merger, the tax implications of the transaction, the conditions for the completion of the merger, termination fees (if applicable), whether or not the target is permitted to solicit other offers, historical financial information, risk factors of the merger, overall business risk of the industry, recommendations of the target company's board of directors, the fairness opinion rendered by the target's financial adviser, the merger agreement, and historical price ranges for the common stock of both companies.
A managing director of your firm has asked you to research the most recent source of information of the largest shareholders of a company. The BEST method of finding this information is to review: Form 13F The annual report The proxy Form 13D
Form 13D Information on the largest shareholders of an SEC reporting company may be found in three places -- a 13D, a 10-K (annual report), and a proxy. A 13D filing is triggered when a person or group of persons acquires ownership exceeding 5% of a company's equity. Since this filing is required within 10 days of the transaction, it is the most recent source of information. The annual report or 10-K and the proxy provide information on the largest shareholders, but are filed only once a year. A 13F filing is made by institutional investment managers who exercise investment discretion over at least $100,000,000 in equity securities. This filing discloses its equity securities holdings and would only be a good source of information for obtaining all of the holdings of an individual money manager.
You are seeking information on insider purchases. Which of the following filings would be the BEST source for such information? Form 3 Form 4 Form 5 Schedule 13D
Form 4 Form 4 is filed by any insider of a corporation who buys or sells shares of his company. The form must be filed no later than the second business day following the transaction. Form 3 is filed when a person initially becomes an insider. Form 5 is an annual filing by insiders. An insider is defined as any person who is an officer, director, or owner of more than 10% of the equity. The filings apply to insiders of an SEC registered company. Schedule 13D is used to report acquisitions of more than 5% of the equity of a company.
An investment banking representative is seeking information on the recent sales by insiders of a potential takeover candidate. Which of the following forms would be the best source of such information? Form 4 Form 10-K Form 13D Form 5
Form 4 Form 4 is filed by insiders of a corporation when they buy or sell shares of their company. The form must be filed no later than the second business day following the transaction. Remember, insiders can hold less than 10% of a the company (officers, directors) Form 5 is filed annually by insiders. Form 10-K is filed annually, while 10-Q is filed quarterly, and are the company's filings with the SEC. Form 13D is used to report acquisitions of more than 5% by individuals.
What is Form 4?
Form 4 is filed by any insider of a corporation who buys or sells shares of his company. The form must be filed no later than the second business day following the transaction.
What is Form 5?
Form 5 is an annual filing by insiders. An insider is defined as any person who is an officer, director, or owner of more than 10% of the equity. The filings apply to insiders of an SEC registered company
Which TWO of the following entities would be required to file Form 13D with the SEC? (pick two) I) A person who owns 4.0% of the common stock of the Pine Corporation, a publicly traded company, who intends to ultimately acquire a controlling interest in the company II) A person who owns 3% of a public company's common stock and who has just purchased 2.5% of the same company's stock for the UTMA account of a minor child III) A broker-dealer that holds 7.0% of Ykeya Furniture stock in street name for several hundred retail customer accounts IV) The Scuderia Growth Fund that holds 6.2% of the outstanding shares of Brem Bros. Brakes.
II and IV) Any person who becomes the BENEFICIAL OWNER of more than 5% of any class of equity security registered under the Securities Exchange Act of 1934 must file a statement of beneficial ownership on Schedule 13D with (i) the issuer, (ii) EACH exchange on which the security trades, and (iii) the SEC. The report must be filed within 10 days after the acquisition. The person described in choice I has not yet hit the reporting threshold. If a group of persons acting in concert purchases more than 5% of the security, the group must file in the same manner as an individual. This is why choice II describes a person who must file. The broker-dealer described in choice III does not need to file since the firm is NOT the beneficial owner of those shares. However, the mutual fund in choice IV would need to file since the fund shareholders are not the beneficial owners of the securities in the portfolio. The fund is.
Jacqueline is an analyst at Top Shelf Brokerage. Top Shelf is the lead underwriter for a follow-on offering of the common stock of the One Timer Corporation. If a buy-side client calls Jacqueline to discuss One Timer, which of the following statements is CORRECT? - Jacqueline must determine if the call was prompted by members of her firm's investment banking department. - Jacqueline may comment on the industry and sector, but may not comment on the subject company. - If Jacqueline has not published a note relating to the follow-on offering, she may not comment to the client about the offering. - If the follow-on offering has been publicly announced, she may provide a fair and balanced view of the company, sector, and industry.
If the follow-on offering has been publicly announced, an analyst may provide a fair and balanced view of the company, sector, and industry. An analyst may not contact potential investment banking investors at the request of members of the investment banking department, but an analyst may respond to inquiries from potential investors
Hoody's, a large media company listed on the NYSE with an enterprise value of $7.3 billion, makes an acquisition of ISC Global for $151.4 million in order to increase the content it delivers over the Internet. ISC is a privately held company owned by three venture capital funds. If the acquisition is made in cash, Hoody's will: Be required to file a 14A proxy statement with the SEC Be required to file an S-4 registration statement with the SEC Be required to file a Schedule TO with the SEC Not be required to file any document with the SEC
No SEC filing would be required by Hoody's. Since its shareholders will not be voting on the acquisition, a proxy statement will not need to be filed. In addition, since ISC is a private company, it would not be required to file any forms with the SEC. Since the acquisition is being made on a cash basis, and no securities need to be issued by Hoody's, an S-4 filing would not be required. An 8-K might need to be filed if the acquisition was outside the ordinary course of business but, in this case, this small acquisition would not be outside the scope of its regular business.
Prospective investment banking compensation must be disclosed in research reports, EXCEPT in cases where material: Public information may be revealed Nonpublic information may be revealed Public information is concealed Nonpublic information is concealed
Nonpublic information may be revealed Disclosure rules require that a broker-dealer identify the types of services provided to its clients and the compensation that has been received from issuers within the past 12 months. Also, a broker-dealer must disclose investment banking business it intends to seek within three months following the publication of a research report. However, there is an exemption for disclosure that would lead to the release of material nonpublic information. The release of material nonpublic information would allow for insider trading and possibly the manipulation of a security.
Which TWO of the following investors must file Form 13G? I) A portfolio manager who has controlled more than 5% of the outstanding shares of a publicly traded company through the end of a calendar year II) An insider who intends to sell restricted stock III) An investor whose ownership level first exceeded 10% of the outstanding shares of a publicly traded company in the previous calendar month IV) A publicly traded company that intends to acquire another publicly traded company I and III I and IV II and III II and IV
Pay attention to timing / filing rules: Answer: I and III **Form 13G is filed within 45 days of the end of the year. It is an alternative to 13D, and is usually filed by institutional investors who have no intention of influencing or controlling the issue. Any person who becomes the beneficial owner of more than 5% of any class of equity security registered under the Securities Exchange Act of 1934 must file a statement of beneficial ownership on Schedule 13D with (i) the issuer, (ii) EACH exchange on which the security trades, and (iii) the SEC. The report must be filed within 10 days after the acquisition. **Form 13G is also filed within 10 days of the end of the month in which an investor's ownership first exceeds 10%
Your firm has been hired to represent a company planning an acquisition of a company listed on the Nasdaq Global Select Market. You have been asked to research the largest shareholders, which are investment companies. Which of the following forms should you review? 13F ADV 13G 10-Q
READ the explanation 10-K (which is not an answer). If 10-k was listed, it might be the best answer as it would include all the largest shareholders not just those listed on the 13G Information on the largest shareholders of an SEC reporting company may be found in three places -- a 13D or 13G filing, or a 10-K (annual report). A 13D filing is triggered when a person or group of persons acquires ownership exceeding 5% of a company's equity. (The filing is required within 10 days of the transaction.) Schedule 13G is an alternative to Schedule 13D. It is usually filed by institutional investors (such as an investment company) that have no intention to influence or control the issuer. Although a 10-K provides information on the largest shareholders, this information is not found in a 10-Q. In order to register as an investment adviser with the SEC, the applicant must file Part 1 and Part 2 of Form ADV with the SEC. Rule 13f-1 of the Securities Exchange Act of 1934 requires quarterly filings (13F) by institutional investment managers who exercise investment discretion over at least $100,000,000 in equity securities. This filing discloses its equity securities holdings.
GOT THIS ONE RIGHT You are an investment banking representative working in the energy sector of the mergers and acquisitions department. A managing director has asked you to review and analyze trends concerning recent mergers in your sector. Which of the following choices would be the BEST source to review? Recent S-4 filings Recent S-3 filings Recent 13D filings Recent 10-K filings
Recent S-4 filings If securities are to be issued in connection with a merger, an S-4 must be filed by the acquiring company with the SEC. Since shareholders will need to vote on the proposed merger, a proxy statement is required to be issued. Issuers are permitted to incorporate most of the important details of the merger in the S-4 filings. The acquiring company, not the target company, would issue the S-4. This is an important source of information, detailing the cash and/or stock the shareholders of the target company will receive from the acquirer. Other information included is the purpose of the merger, the tax implications of the transaction, the conditions for the completion of the merger, termination fees (if applicable), whether or not the target is permitted to solicit other offers, historical financial information, risk factors of the merger, overall business risk of the industry, recommendations of the target company's board of directors, the fairness opinion rendered by the target's financial adviser, the merger agreement, and historical price ranges for the common stock of both companies.
GOT THIS ONE CORRECT: Under the Securities Act of 1933, the registration statement that the issuer of new securities files with the SEC must include all of the following information EXCEPT: - Certified financial statements - Biographies of all the issuer's officers and directors - Results of the due diligence meeting - The issuer's capitalization
Results of the due diligence meeting The due diligence meeting is customarily held after the registration statement is filed with the SEC. A final meeting known as bring down due diligence, is held prior to the issuance of the final prospectus. The term bring down refers to making sure all the parties involved in the offering (the underwriter, issuer, attorneys, and other interested parties) are brought up-to-date since the last due diligence meeting. The purpose of the meeting is to make certain that the information to be published in the final prospectus is complete and accurate. Its results are not required as part of the registration statement. All the other choices refer to information that the issuer must include in the registration statement.
A managing director has contacted an investment banking representative to ask her to find information on the common stock holdings of a few large hedge funds. The representative should do which of the following? - A) Contact the hedge funds directly and ask for a copy of their SEC filings - B) Search the EDGAR database and retrieve the fund's 13F filings - C) Search the EDGAR database and retrieve the 13F filings, but inform the managing director that such information is available only for hedge funds that are registered with the SEC - D) Search the EDGAR database and retrieve the funds' 13G filings
Rule 13f-1 of the Securities Exchange Act of 1934 requires quarterly filings when an institutional investment manager exercises investment discretion over at least $100,000,000 in equity securities. This information is made available to the public through the SEC EDGAR Web site. This form must be filed regardless of whether or not the hedge fund is registered with the SEC.
GOT THIS ONE RIGHT: Company XAM is acquiring Company WES. Company XAM will be issuing stock to shareholders of Company WES. Company XAM would file which of the following choices with the SEC? S-4 S-3 proxy statement Schedule TO
S-4 If securities are to be issued in connection with a merger, an S-4 must be filed by the acquiring company (Company XAM) with the SEC. Since shareholders will need to vote on the proposed merger, a proxy statement must be issued by Company WES. Issuers are permitted to incorporate most of the important details of the merger in the S-4 filings. Since the S-4 must be issued, the information required in the proxy statement will be incorporated into the S-4. The document is sometimes referred to as a proxy statement/registration statement because it is used as a registration statement for Company XAM and a proxy statement for Company WES. The acquiring company, not the target company, issues the S-4. This is an important source of information, detailing the cash and/or stock the shareholders of the target company will receive from the acquirer. Other information included is the purpose of the merger, the tax implications of the transaction, the conditions for the completion of the merger, termination fees (if applicable), whether the target is permitted to solicit other offers, historical financial information, risk factors of the merger, overall business risk of the industry, recommendations of the target company's board of directors, the fairness opinion rendered by the target's financial adviser, the merger agreement, and historical price ranges for the common stock of both companies.
Westwood Electric Company is making a cash tender offer for the outstanding shares of the Tecova Corporation. If an investment banking representative wants to review the recommendations of the board of directors, she should examine the: Proxy statement Schedule TO 8-K filings Schedule 14D-9
Schedule 14D-9 SEC Rule 14d-9 concerns recommendations, or solicitations by the subject company and other parties. The rule requires Schedule 14D-9 to be filed by certain persons such as: The subject company, any officer or director, or employee of the affiliate of the subject company Any owner of any security of the subject company, the bidder, or any affiliate of the bidder Any other person who makes a solicitation or recommendation to shareholders on behalf of any of the above Schedule 14D-9 is filed with the SEC. A letter from the board of directors addressing its recommendation concerning the tender offer would be attached as one of the exhibits of the Schedule 14D-9.
Williams Airways is filing an 8-K to announce a proposed merger with McLaren Freight Co. All of the following statements are TRUE regarding disclosure documents filed in conjunction with the deal, EXCEPT: -A registration statement must contain a description of the type of securities offered for sale and the use of proceeds -Any projections contained in SEC filings associated with the future performance of the new entity must have a reasonable basis -Disclosure documents may not contain projections or assessments about the future performance of the merged entity -Management may pay an outside firm to conduct a review and render an opinion of the filing
THIS IS THE FALSE STATEMENT: Disclosure documents may not contain projections or assessments about the future performance of the merged entity According to SEC Regulation S-K, disclosure documents filed in conjunction with a merger or an acquisition, such as an 8-K, proxy statement, tender offer statement, or registration statement, may contain projections regarding the future performance of the combined entity. Regulation S-K requires that a registrant have a reasonable basis for making assessments regarding the company's future performance. Management may provide for an outside review in the filing. The filing should disclose the qualifications of the reviewer, the extent of the review, the relationship between the registrant and the reviewer, and any material factors regarding the process, such as how the outside review was sought or obtained
All of the following information may be found in a Schedule 13D EXCEPT: - Whether the filer is an individual or a group - The name of the financial institution that is providing the funds for the purchase - The number of shares that are currently being held by the filer - A standstill agreement
The name of the financial institution that is providing the funds for the purchase. Although the source of the funds is disclosed, the name of the financial institution providing the funds is not a required disclosure. The filer is required to update the schedule promptly for any material changes A 13D filer is required to provide certain information such as: -The security and issuer -The identity and background of the filer, which may be an individual or a group -The source and amount of funds, or considerations that were used for the purchase. This section will indicate if the funds used to purchase the securities were borrowed, or came from an existing cash position of the filer. -The purpose of the transaction. This important section indicates if the filer wants to acquire the company, or is purchasing the shares as an investment. -The number of shares and the percentage ownership of the filer -Contracts or relationships regarding the securities of the issuer, e.g., a standstill agreement -Any material to be filed as exhibits, e.g., a merger agreement or a tender offer agreement
GOT THIS ONE RIGHT: The General Store Corporation is being acquired by RKK & Co., a private equity firm. The proxy statement would contain all of the following information EXCEPT: - A fairness opinion that provided a valuation comparison with other public companies in the same sector - The amount of debt and equity that is used to finance the merger - A description of the events that may trigger the termination of the merger - RKK & Co.'s anticipated filing date for its initial public offering
The proxy statement relating to a merger or acquisition will contain all the information listed, except the anticipated date on which the company plans on filing for an initial public offering. The company that is taken private may decide to file for an initial public offering at a later date, but this would not be listed in the proxy statement. It is not certain that an IPO will ever occur. The private company could later be purchased by another company, liquidated in whole and/or parts, or may become insolvent. NOTE: Proxy statement would provide a fairness opinion of the acquisition terms
What information would NOT be found in a company's annual proxy statement? -Financial statements -The names of the independent directors -Last year's voting results on shareholder proposals -The name of the independent public accounting firm performing the audit
Would include all but financial statements ***The annual proxy statement contains the names of the members of the board of directors, executive compensation, ownership of securities by holders of five percent or more of the company's common stock (based on 13D and 13G filings), the name of the independent public accounting firm performing the audit, and other information related to any other matter that will be voted on at the annual shareholder meeting. Shareholder proposals will be presented with a supporting statement, and the BOD's response, either for or against. Sometimes the same shareholder proposal that was voted on at last year's meeting and the proxy will show the results of the vote.
The filing of Form 8-K, pursuant to the Securities Exchange Act of 1934, is required for which of the following circumstances? I) A change in control of the registrant II) A change in the registrant's accountant III) The resignation of a director IV) A change in fiscal year a) I and II only b) II and III only c) II and IV only d) I, II, III, and IV
d) I, II, III, and IV
