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Question 1 of 10
1. Question
From the formula regarding options, warrants or convertible securities that have an exercise or conversion price (“warrants”) having a compensation value, which of the following formula is incorrect?
Correct
5110. Corporate Financing Rule — Underwriting Terms and Arrangements
Underwriting Compensation and Arrangements: Valuation of Non-Cash Compensation
Valuation of Securities That Have an Exercise or Conversion Price
Options, warrants or convertible securities that have an exercise or conversion price (“warrants”) shall have a compensation value based on the following formula:
(A) the public offering price per security multiplied by .65;
(B) minus the resultant of the exercise or conversion price per warrant less either:
(i) the market price per security on the date of acquisition, where a bona fide independent market exists for the security, or
(ii) the public offering price per security;
(C) divided by two;
(D) multiplied by the number of securities underlying the warrants;Incorrect
5110. Corporate Financing Rule — Underwriting Terms and Arrangements
Underwriting Compensation and Arrangements: Valuation of Non-Cash Compensation
Valuation of Securities That Have an Exercise or Conversion Price
Options, warrants or convertible securities that have an exercise or conversion price (“warrants”) shall have a compensation value based on the following formula:
(A) the public offering price per security multiplied by .65;
(B) minus the resultant of the exercise or conversion price per warrant less either:
(i) the market price per security on the date of acquisition, where a bona fide independent market exists for the security, or
(ii) the public offering price per security;
(C) divided by two;
(D) multiplied by the number of securities underlying the warrants; -
Question 2 of 10
2. Question
Regarding options, warrants or convertible securities that have an exercise or conversion price (“warrants”) haviung a compensation value, which of the following formula is invalid?
Correct
5110. Corporate Financing Rule — Underwriting Terms and Arrangements
Underwriting Compensation and Arrangements: Valuation of Non-Cash Compensation
Valuation of Securities That Have an Exercise or Conversion Price
Options, warrants or convertible securities that have an exercise or conversion price (“warrants”) shall have a compensation value based on the following formula:
(A) less the total price paid for the warrants;
(B) divided by the offering proceeds; and
(C) multiplied by one hundred;
(D) provided, however, that, notwithstanding paragraph (e)(4) below, such warrants shall have a compensation value of at least .2% of the offering proceeds for each amount of securities that is up to 1% of the securities being offered to the public (excluding securities subject to an overallotment option).Incorrect
5110. Corporate Financing Rule — Underwriting Terms and Arrangements
Underwriting Compensation and Arrangements: Valuation of Non-Cash Compensation
Valuation of Securities That Have an Exercise or Conversion Price
Options, warrants or convertible securities that have an exercise or conversion price (“warrants”) shall have a compensation value based on the following formula:
(A) less the total price paid for the warrants;
(B) divided by the offering proceeds; and
(C) multiplied by one hundred;
(D) provided, however, that, notwithstanding paragraph (e)(4) below, such warrants shall have a compensation value of at least .2% of the offering proceeds for each amount of securities that is up to 1% of the securities being offered to the public (excluding securities subject to an overallotment option). -
Question 3 of 10
3. Question
What is the calculated value and how long is the period regarding Valuation Discount For Securities With a Longer Resale Restriction?
Correct
5110. Corporate Financing Rule — Underwriting Terms and Arrangements
Underwriting Compensation and Arrangements: Valuation of Non-Cash Compensation
Valuation Discount For Securities With a Longer Resale Restriction
A lower value equal to 10% of the calculated value shall be deducted for each 180-day period that the securities or underlying securities are restricted from sale or other disposition beyond the 180-day period of the lock-up restriction required by paragraph (g)(1) below. The transfers permitted during the lock-up restriction by paragraphs (g)(2)(A)(iii) through (iv) are not available for such securities.Incorrect
5110. Corporate Financing Rule — Underwriting Terms and Arrangements
Underwriting Compensation and Arrangements: Valuation of Non-Cash Compensation
Valuation Discount For Securities With a Longer Resale Restriction
A lower value equal to 10% of the calculated value shall be deducted for each 180-day period that the securities or underlying securities are restricted from sale or other disposition beyond the 180-day period of the lock-up restriction required by paragraph (g)(1) below. The transfers permitted during the lock-up restriction by paragraphs (g)(2)(A)(iii) through (iv) are not available for such securities. -
Question 4 of 10
4. Question
Regarding Valuation of Items of Value Acquired in Connection with a Fair Price Derivative or Debt Transaction, which of the following is the correct statement(s)?
Correct
5110. Corporate Financing Rule — Underwriting Terms and Arrangements
Underwriting Compensation and Arrangements: Valuation of Non-Cash Compensation
Valuation of Items of Value Acquired in Connection with a Fair Price Derivative or Debt Transaction
Any debt or derivative transaction acquired or entered into at a “fair price” as defined in paragraph (a)(9) and item of value received in or receivable in the settlement, exercise or other terms of such debt or derivative transaction shall not have a compensation value for purposes of determining underwriting compensation. If the actual price for the debt or derivative security is not a fair price, compensation will be calculated pursuant to this paragraph (e) or based on the difference between the fair price and the actual price.Incorrect
5110. Corporate Financing Rule — Underwriting Terms and Arrangements
Underwriting Compensation and Arrangements: Valuation of Non-Cash Compensation
Valuation of Items of Value Acquired in Connection with a Fair Price Derivative or Debt Transaction
Any debt or derivative transaction acquired or entered into at a “fair price” as defined in paragraph (a)(9) and item of value received in or receivable in the settlement, exercise or other terms of such debt or derivative transaction shall not have a compensation value for purposes of determining underwriting compensation. If the actual price for the debt or derivative security is not a fair price, compensation will be calculated pursuant to this paragraph (e) or based on the difference between the fair price and the actual price. -
Question 5 of 10
5. Question
When it is Unreasonable Terms and Arrangements, which of the following statement(s) is/are true?
Correct
5110. Corporate Financing Rule — Underwriting Terms and Arrangements
Underwriting Compensation and Arrangements: Valuation of Non-Cash Compensation
Unreasonable Terms and Arrangements: General
No member or person associated with a member shall participate in any manner in a public offering of securities after any arrangement proposed in connection with the public offering, or the terms and conditions relating thereto, has been determined to be unfair or unreasonable pursuant to this Rule or inconsistent with any By-Law or any rule or regulation of FINRA.Incorrect
5110. Corporate Financing Rule — Underwriting Terms and Arrangements
Underwriting Compensation and Arrangements: Valuation of Non-Cash Compensation
Unreasonable Terms and Arrangements: General
No member or person associated with a member shall participate in any manner in a public offering of securities after any arrangement proposed in connection with the public offering, or the terms and conditions relating thereto, has been determined to be unfair or unreasonable pursuant to this Rule or inconsistent with any By-Law or any rule or regulation of FINRA. -
Question 6 of 10
6. Question
Regarding Unreasonable Terms and Arrangements: Prohibited Arrangements, which one of the following terms and arrangements is/are incorrect?
Correct
5110. Corporate Financing Rule — Underwriting Terms and Arrangements
Underwriting Compensation and Arrangements: Valuation of Non-Cash Compensation
Unreasonable Terms and Arrangements: Prohibited Arrangements
Without limiting the foregoing, the following terms and arrangements, when proposed in connection with a public offering of securities, shall be unfair and unreasonable.
(A) Any accountable expense allowance granted by an issuer to the underwriter and related persons that includes payment for general overhead, salaries, supplies, or similar expenses of the underwriter incurred in the normal conduct of business.
(B) Any non-accountable expense allowance in excess of 3% of offering proceeds.
(C) Any payment of commissions or reimbursement of expenses directly or indirectly to the underwriter and related persons prior to commencement of the public sale of the securities being offered, except a reasonable advance against out-of-pocket accountable expenses actually anticipated to be incurred by the underwriter and related persons, which advance is reimbursed to the issuer to the extent not actually incurred.
(D) Any compensation by an issuer to a member or person associated with a member in connection with an offering of securities that is not completed according to the terms of agreement between the issuer and underwriter.Incorrect
5110. Corporate Financing Rule — Underwriting Terms and Arrangements
Underwriting Compensation and Arrangements: Valuation of Non-Cash Compensation
Unreasonable Terms and Arrangements: Prohibited Arrangements
Without limiting the foregoing, the following terms and arrangements, when proposed in connection with a public offering of securities, shall be unfair and unreasonable.
(A) Any accountable expense allowance granted by an issuer to the underwriter and related persons that includes payment for general overhead, salaries, supplies, or similar expenses of the underwriter incurred in the normal conduct of business.
(B) Any non-accountable expense allowance in excess of 3% of offering proceeds.
(C) Any payment of commissions or reimbursement of expenses directly or indirectly to the underwriter and related persons prior to commencement of the public sale of the securities being offered, except a reasonable advance against out-of-pocket accountable expenses actually anticipated to be incurred by the underwriter and related persons, which advance is reimbursed to the issuer to the extent not actually incurred.
(D) Any compensation by an issuer to a member or person associated with a member in connection with an offering of securities that is not completed according to the terms of agreement between the issuer and underwriter. -
Question 7 of 10
7. Question
Which one of the following is untrue while a termination fee or a right of first refusal, as set forth in a written agreement between the issuer and the participating member, provided that?
Correct
5110. Corporate Financing Rule — Underwriting Terms and Arrangements
Underwriting Compensation and Arrangements: Valuation of Non-Cash Compensation
Unreasonable Terms and Arrangements: Prohibited Arrangements
A termination fee or a right of first refusal, as set forth in a written agreement between the issuer and the participating member, provided that:
a. the agreement specifies that the issuer has a right of “termination for cause,” which shall include the participating member’s material failure to provide the underwriting services contemplated in the written agreement;
b. an issuer’s exercise of its right of “termination for cause” eliminates any obligations with respect to the payment of any termination fee or provision of any right of first refusal;
c. the amount of any termination fee must be reasonable in relation to the underwriting services contemplated in the agreement and any fees arising from underwriting services provided under a right of first refusal must be customary for those types of services; and
d. the issuer shall not be responsible for paying the termination fee unless an offering or other type of transaction (as set forth in the agreement) is consummated within two years of the date the engagement is terminated by the issuer.Incorrect
5110. Corporate Financing Rule — Underwriting Terms and Arrangements
Underwriting Compensation and Arrangements: Valuation of Non-Cash Compensation
Unreasonable Terms and Arrangements: Prohibited Arrangements
A termination fee or a right of first refusal, as set forth in a written agreement between the issuer and the participating member, provided that:
a. the agreement specifies that the issuer has a right of “termination for cause,” which shall include the participating member’s material failure to provide the underwriting services contemplated in the written agreement;
b. an issuer’s exercise of its right of “termination for cause” eliminates any obligations with respect to the payment of any termination fee or provision of any right of first refusal;
c. the amount of any termination fee must be reasonable in relation to the underwriting services contemplated in the agreement and any fees arising from underwriting services provided under a right of first refusal must be customary for those types of services; and
d. the issuer shall not be responsible for paying the termination fee unless an offering or other type of transaction (as set forth in the agreement) is consummated within two years of the date the engagement is terminated by the issuer. -
Question 8 of 10
8. Question
While the terms or the exercise of the terms of an agreement for the receipt by the underwriter and related persons of underwriting compensation consisting of any option, warrant or convertible security, which one of the following statement(s) is/are true?
Correct
5110. Corporate Financing Rule — Underwriting Terms and Arrangements
Underwriting Compensation and Arrangements: Valuation of Non-Cash Compensation
Unreasonable Terms and Arrangements: Prohibited Arrangements
The terms or the exercise of the terms of an agreement for the receipt by the underwriter and related persons of underwriting compensation consisting of any option, warrant or convertible security that:
(i) is exercisable or convertible more than five years from the effective date of the offering;
(ii) is not in compliance with paragraph (e)(1) above;
(iii) has more than one demand registration right at the issuer’s expense;
(iv) has a demand registration right with a duration of more than five years from the date of effectiveness or the commencement of sales of the public offering;
(v) has a piggyback registration right with a duration of more than seven years from the date of effectiveness or the commencement of sales of the public offering;Incorrect
5110. Corporate Financing Rule — Underwriting Terms and Arrangements
Underwriting Compensation and Arrangements: Valuation of Non-Cash Compensation
Unreasonable Terms and Arrangements: Prohibited Arrangements
The terms or the exercise of the terms of an agreement for the receipt by the underwriter and related persons of underwriting compensation consisting of any option, warrant or convertible security that:
(i) is exercisable or convertible more than five years from the effective date of the offering;
(ii) is not in compliance with paragraph (e)(1) above;
(iii) has more than one demand registration right at the issuer’s expense;
(iv) has a demand registration right with a duration of more than five years from the date of effectiveness or the commencement of sales of the public offering;
(v) has a piggyback registration right with a duration of more than seven years from the date of effectiveness or the commencement of sales of the public offering; -
Question 9 of 10
9. Question
Lock-Up Restriction on Securities: Lock-Up Restriction, how long does it take that are unregistered and acquired by an underwriter and related person?
Correct
5110. Corporate Financing Rule — Underwriting Terms and Arrangements
Underwriting Compensation and Arrangements: Valuation of Non-Cash Compensation
Lock-Up Restriction on Securities: Lock-Up Restriction
In any public equity offering, other than a public equity offering by an issuer that can meet the requirements in paragraph (b)(7)(C)(i) or (ii) any common or preferred stock, options, warrants, and other equity securities of the issuer, including debt securities convertible to or exchangeable for equity securities of the issuer, that are unregistered and acquired by an underwriter and related person during 180 days prior to the required filing date, or acquired after the required filing date of the registration statement and deemed to be underwriting compensation by FINRA, and securities excluded from underwriting compensation…Incorrect
5110. Corporate Financing Rule — Underwriting Terms and Arrangements
Underwriting Compensation and Arrangements: Valuation of Non-Cash Compensation
Lock-Up Restriction on Securities: Lock-Up Restriction
In any public equity offering, other than a public equity offering by an issuer that can meet the requirements in paragraph (b)(7)(C)(i) or (ii) any common or preferred stock, options, warrants, and other equity securities of the issuer, including debt securities convertible to or exchangeable for equity securities of the issuer, that are unregistered and acquired by an underwriter and related person during 180 days prior to the required filing date, or acquired after the required filing date of the registration statement and deemed to be underwriting compensation by FINRA, and securities excluded from underwriting compensation… -
Question 10 of 10
10. Question
Which one of the following shall be prohibited regarding Exceptions to Lock-Up Restriction?
Correct
5110. Corporate Financing Rule — Underwriting Terms and Arrangements
Underwriting Compensation and Arrangements: Valuation of Non-Cash Compensation
Lock-Up Restriction on Securities: Exceptions to Lock-Up Restriction
Notwithstanding paragraph (g)(1) above, the following shall not be prohibited:
(A) the transfer of any security:
(i) by operation of law or by reason of reorganization of the issuer;
(ii) to any member participating in the offering and the officers or partners thereof, if all securities so transferred remain subject to the lock-up restriction in paragraph (g)(1) above for the remainder of the time period;
(iii) if the aggregate amount of securities of the issuer held by the underwriter and related persons do not exceed 1% of the securities being offered;
(iv) that is beneficially owned on a pro-rata basis by all equity owners of an investment fund, provided that no participating member manages or otherwise directs investments by the fund, and participating members in the aggregate do not own more than 10% of the equity in the fund;Incorrect
5110. Corporate Financing Rule — Underwriting Terms and Arrangements
Underwriting Compensation and Arrangements: Valuation of Non-Cash Compensation
Lock-Up Restriction on Securities: Exceptions to Lock-Up Restriction
Notwithstanding paragraph (g)(1) above, the following shall not be prohibited:
(A) the transfer of any security:
(i) by operation of law or by reason of reorganization of the issuer;
(ii) to any member participating in the offering and the officers or partners thereof, if all securities so transferred remain subject to the lock-up restriction in paragraph (g)(1) above for the remainder of the time period;
(iii) if the aggregate amount of securities of the issuer held by the underwriter and related persons do not exceed 1% of the securities being offered;
(iv) that is beneficially owned on a pro-rata basis by all equity owners of an investment fund, provided that no participating member manages or otherwise directs investments by the fund, and participating members in the aggregate do not own more than 10% of the equity in the fund;