Differentiate Public Offerings - Series 65

1. Which option best describes who receives proceeds in a secondary offering: issuer or selling shareholders?

   Selling shareholders receive the proceeds. In secondary offerings, funds flow to existing owners, providing them liquidity without impacting the issuer's capital.

2. What is an initial public offering (IPO) in terms of a company's first sale of shares?

   First sale of a company's shares to the public in the primary market. An IPO enables a private company to raise capital by issuing new shares directly to public investors for the first time.

3. What is a follow-on offering (FPO) for a company that is already publicly traded?

   A subsequent public offering after the IPO (primary and/or secondary). An FPO allows a public company to issue additional shares or enable sales by existing holders post-IPO.

4. Which type of offering increases public float without raising new capital for the issuer: primary or secondary?

   Secondary offering. Secondary offerings enhance market liquidity by increasing tradable shares without new capital infusion.

5. Identify the market type for an IPO sale: primary market or secondary market?

   Primary market. IPOs occur in the primary market where new securities are created and sold directly by the issuer.

6. Which term describes a best-efforts underwriting arrangement for an offering?

   Underwriter sells as agent; issuer bears the risk of unsold shares. Best-efforts underwriting minimizes underwriter risk, with sales on a non-guaranteed basis.

7. What is the basic purpose of a SPAC at the time it raises money from the public?

   To raise cash to acquire or merge with an operating company later. SPACs provide a blank-check structure to fund future acquisitions, bypassing traditional IPO processes.

8. Which term describes a firm-commitment underwriting arrangement for an IPO?

   Underwriter buys the issue and resells it, assuming distribution risk. Firm-commitment underwriting ensures the issuer receives funds as the underwriter guarantees the sale.

9. What is a primary offering (primary distribution) of securities?

   Issuer sells newly issued securities; proceeds go to the issuer. In a primary offering, the company issues new securities to obtain funds for its operations or expansion.

10. Which type of offering is most directly associated with dilution: primary or secondary?

    Primary offering. Primary offerings introduce new shares, thereby diluting ownership percentages.

11. What does SPAC stand for in capital markets?

    Special purpose acquisition company. SPAC is a vehicle designed for acquiring private companies to take them public efficiently.

12. Identify the offering type: founders sell personal holdings to the public; issuer receives no proceeds.

    Secondary offering. This allows insiders to monetize shares without the company gaining new funds.

13. Identify the market type when investors trade shares on an exchange after an IPO: primary or secondary?

    Secondary market. Post-IPO trading happens in the secondary market among investors, without issuer involvement.

14. What is the "de-SPAC" transaction in a SPAC structure?

    The merger/acquisition that takes the target company public via the SPAC. De-SPAC completes the SPAC's purpose by integrating the target into a public entity.

15. What is dilution, as it relates to a primary offering that issues new shares?

    Reduction in existing owners' percentage ownership due to new shares. Issuing new shares in a primary offering reduces existing shareholders' proportional ownership.

16. Which option best describes the operating status of a SPAC at IPO: operating company or shell company?

    Shell company with no operating business at IPO. At IPO, SPACs lack operations, focusing solely on future acquisitions as blank-check entities.

17. What is a secondary offering (secondary distribution) of securities?

    Existing holders sell shares; proceeds go to selling shareholders. A secondary offering allows current shareholders to liquidate their holdings without the company receiving any new capital.

18. What is an underwriting spread in a public offering?

    Difference between public offering price and underwriter's purchase price. The spread compensates underwriters for their services and risk in distributing the securities.

19. Identify the key investor protection feature common in SPACs regarding investor funds pre-merger.

    IPO proceeds are typically held in a trust account until a deal closes. Trust accounts safeguard investor capital, ensuring availability only for approved acquisitions or redemptions.

20. Identify the structure: a public shell raises cash first, then later merges with a private target to go public.

    SPAC structure (de-SPAC merger). SPACs offer an alternative to traditional IPOs by merging with targets after initial fundraising.

21. What is a lock-up agreement in the context of an IPO?

    Contract restricting insiders from selling shares for a set period. Lock-up agreements stabilize post-IPO stock prices by preventing insider sales floods.

22. What is a mixed offering in which both the issuer and existing shareholders sell shares?

    A combined (primary and secondary) offering. Mixed offerings combine capital raising for the issuer with liquidity for existing shareholders.

23. Identify the offering type: issuer sells new shares to raise capital for expansion; insiders do not sell.

    Primary offering. This structure focuses on capital raising for the issuer without insider liquidation.

24. What is the redemption right in a SPAC, as commonly provided to public shareholders?

    Right to redeem shares for cash (often near trust value) before de-SPAC. Redemption rights protect investors by allowing exit if they disapprove of the proposed merger.

25. Which option best describes who receives proceeds in an IPO primary offering: issuer or selling shareholders?

    Issuer receives the proceeds. The company benefits directly from a primary IPO as it uses the funds for growth or debt reduction.

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