New Issues - Corporate Underwritings

Question 1

The basic specs of a new issues are set out in the _____ and signed by both _____

Answer 1

letter of intent signed by both parties

Question 2

Letter of Intent includes:

Answer 2

• type of security
• size of issue
• par value
• estimated public offering price
• estimated interest rate
• underwriter’s spread
• underwriting commitment type

Question 3

Firm commitment:

Answer 3

• will act as the principal, buying issue outright from ford
• resell the issue with the spread earned
• underwriter assumes full financial responsibility

Question 4

Best efforts:

Answer 4

• only acts as agent
• no financial liability
• any part unsold remains with issuer

Question 5

All or none

Answer 5

• all the deal must get sold

- typically used for start-up companies

Question 6

Mini-max

Answer 6

• min amount must be sold before deal is effective

- the maxi part of the deal is handled “best efforts”

Question 7

Stand by underwriting

Answer 7

• used when trying to sell additional shares through a rights offering
• any shares not bought are bought by the underwriter who then sells them to the public

Question 8

Negotiated underwriting

Answer 8

• final terms of the letter of intent are negotiated between the issuer and the underwriter

Question 9

Formal agreement among the syndicate is called the ______

Answer 9

Agreement Among Underwriters

Question 10

Managing underwriter has ______

Answer 10

full control over syndicate decisions - who is allowed in and how much they get, as well as due diligence

Question 11

The managing underwriter also earns a ______

Answer 11

management fee

Question 12

A “western” syndicate means:

Answer 12

• each member takes a specified amount and is responsible ONLY for that amount
• used for underwriters that are sufficiently risky where they want to limit potential liability

Question 13

An “eastern” syndicate means:

Answer 13

• the members share the responsibility and liability as a whole

Question 14

The “selling group” act as _____ and take _____ financial responsibility

Answer 14

act as agents (to sell the issue) and take no financial responsibility

Question 15

Selling group members are given a “____” as compensation

Answer 15

a “selling concession”

Question 16

The selling group is set up under the ________

Answer 16

Selling Group Agreement

Question 17

New issues are regulated under the ______

Answer 17

Securities Act of 1933

Question 18

Once the prospectus is filed with the SEC, the issue enters a _____ period

Answer 18

a 20 day cooling off period

Question 19

Aside from registering the issue with the SEC, the issuer must register with ______

Answer 19

each state the issue is being sold in - called “blue skying”

Question 20

During the cooling off period, what kind of prospectus can be delivered to customers? And can selling occur?

Answer 20

Selling cannot occur, a preliminary prospectus is delivered to clients

Question 21

A prelim prospectus is also called a ______

Answer 21

red herring

Question 22

Using a red herring, a syndicate member can solicit __________

Answer 22

indications of interest

Question 23

If the market goes sideways, the underwriters can be released under a _________

Answer 23

market out clause in the underwriting agreement

Question 24

Once final price of the issue is determined, they submit it to the SEC and the issue is ______

Answer 24

effective

Question 25

The “tombstone” ad cannot be considered _______

Answer 25

an advertisement or offer of securities - that can ONLY be through the final prospectus

Question 26

The selling group is included in the “tombstone”. T/F

Answer 26

FALSE

Question 27

The final prospectus is sent _______ confirmation of sale

Answer 27

at or prior to final confirmation

Question 28

If it is a first registered offering of a company that will be quoted on the Pink sheets or OTCBB, then final prospectuses must be delivered _____

Answer 28

within 90 days following the effective date

Question 29

If a company has shares outstanding, but is not listed on an exchange, then prospectus delivery period is reduced to ________; if on an exchange, delivery is ______

Answer 29

40 days; 25 days

Question 30

FINRA does not allow _____ to buy common equity IPOs fro underwriters

Answer 30

insiders - Rule 5130

Question 31

“Restricted persons” under Rule 5130 are considered:

Answer 31

• member firms for own accounts, officers of member firms, associated persons, employees of member firms, agents of BDs, and immediate family members of officers and employees of BDs
• fiduciaries to member firms (lawyers, accountants, consultants)
• portfolio managers for their own accounts
• passive owners of BDs not covered in first group

Question 32

A “green shoe clause” is when an offering is ____ and the underwriters can request up to ______

Answer 32

when an issue is hot and they can request up to 15% more shares

Question 33

The syndicate manager is allowed to enter a ______ in the market to keep the price stable

Answer 33

stabilizing bid

Question 34

Stabilizing bids can be placed _______

Answer 34

at or just below the P.O.P.

Question 35

Penalty bid clause:

Answer 35

• if the manager has to buy back too many shares at the stabilizing bid, then those syndicate members who sold them will lose their concession

Question 36

If using a shelf registration, is the cooling off period needed?

Answer 36

NO

Question 37

New issues can be bought on margin. T/F

Answer 37

FALSE - not for 30 days under Fed Reserve rules