Category Archives: FAQ- IPOs

Why did my stock’s ticker symbol change?

When a ticker symbol changes it’s usually not a good sign. Tickers of publicly traded companies generally only change for one of four reasons:

  1. The company has merged with another company.
  2. The company had a name change.
  3. The company has been delisted (indicated by symbols such as .PK, .OB or .OTCBB).
  4. The company has filed financial statements late or even gone bankrupt.

When a ticker symbol changes because of a merger, the company being acquired usually gives up its ticker symbol in favor of the acquirer’s symbol. Corporate actions such as mergers can often be positive for a company, especially if the company is taken over for a premium over the share price.

Sometimes, a ticker symbol changes because the company has changed its name. For example, when AOL Time Warner dropped the AOL and became simply Time Warner, it changed its symbol from AOL to TWX. A company name change generally doesn’t mean much, though you might interpret it as positive sign if it reflects a positive change in the company’s overall strategy.

If your ticker symbol has had letters added to it such as .PK, .OB or .OTCBB, this means the stock has been de-listed and is no longer trading on the exchange on which you purchased it, but rather on the less liquid and more volatile over-the-counter market. More specifically, a .PK indicates that your stock is now trading on the pink sheets, while an .OB suffix or .OTCBB prefix represents the over-the-counter bulletin board. A stock that has been de-listed is like a baseball player who has been sent from the major leagues to the minor leagues. For some reason, the stock is no longer worthy of trading on a major exchange such as the New York Stock Exchange or Nasdaq, probably because it failed to maintain the exchange’s requirements. (To see these requirements, see What are the listing requirements for the Nasdaq?)

You may have also noticed that Nasdaq-listed securities have four or five characters. In this case, the fifth character often communicates a piece of information, and it can also mean something is wrong with the company. For example, if a “Q” has been added, this means that a company is in bankruptcy proceedings, and “E” means the company is late on its SECfilings. Below is a complete list of fifth symbols on the Nasdaq and what they mean:

A – Class A
B – Class B
– Issuer qualifications exceptions
D – New
E – Delinquent in required filings with the SEC
F – Foreign
G – First convertible bond
– Second convertible bond
I – Third convertible bond
J – Voting
K – Nonvoting
L – Miscellaneous situations, such as depositary receipts, stubs, additional warrants and units
M – Fourth class of preferred shares
– Third class preferred of preferred shares
O – Second class preferred of preferred shares
P – First class preferred of preferred shares
Q – Bankruptcy proceedings
R – Rights
S – Shares of beneficial interest
T – With warrants or with rights
U – Units
V – When issued and when distributed
W – Warrants
– Mutual Fund
Y – ADR (American Depositary Receipt)
Z – Miscellaneous situations, such as depositary receipts, stubs, additional


Liability – What is the SEC’s position on indemnification for Securities Act liabilities? – (71)

Is directors’ and officers’ insurance needed?

Yes. Anyone who signs the company’s registration statement and anyone who is or was a director of the company or who consented to be named as a director of the company at the time the registration statement was filed may be sued by any purchaser of the company’s stock. These officers and directors have several potential defenses to liability, including a due diligence defense. No person will serve as a director or officer without indemnification from the company and appropriate directors’ and officers’ insurance, and a company usually represents that it has such insurance in the underwriting agreement.

What is the SEC’s position on indemnification for
Securities Act liabilities?

Since its early history, the SEC has consistently stated that indemnification of directors, officers and controlling persons for Securities Act liabilities is against public policy and is therefore unenforceable. Every registration statement is required to set forth the
SEC’s position. Nonetheless, companies have always provided such indemnification and courts have upheld such contract rights.
By Nilene R. Evans, Of Counsel, and Peter Seligson, Associate, Morrison & Foerster LLP
© Morrison & Foerster LLP, 2013

Liability – Who may also be liable under the Securities Act? – (70)

and accounting officers, and at least a majority of the company’s directors);
anyone who was a director of the issuer (or anyone who consented to be named as a director) at the time the registration statement was filed;
every accountant, engineer, appraiser or other expert who consented to be named as having prepared or certified the accuracy of any part of the registration statement, or any report or valuation used in the registration statement (but liability is limited to that information); and
every underwriter.
A purchaser of a security can also sue any person who:
offered or sold the company’s stock to that purchaser in violation of Section 5 of the Securities Act; and
offered or sold the company’s stock to that purchaser by means of a prospectus or oral communication that included an untrue statement of a material fact or omitted to state a material fact necessary to make a statement, in light of the circumstances under which it was made, not misleading.
Every person who controls (through share ownership, agreement or otherwise) any other person that is liable under Section 11 or 12 of the Securities Act is jointly and severally liable with that other person, unless the controlling person had no knowledge of, or reasonable grounds to believe in, the existence of the facts that resulted in the alleged liability.

Liability – Who may also be liable under the Securities Act? – (69)

sale of shares of a company’s stock is based. Liability can also arise from the failure to comply with registration requirements or to supply or make available a final prospectus to investors. Purchasers of a company’s stock in a registered public offering have a right of action under Section 11 of the Securities Act for an untrue statement of material fact or an omission to state a material fact in a registration statement. Section 11 imposes liability on the issuer, each person who signs the registration statement, each director, the company’s accountants (and certain other experts) and the underwriters. Purchasers also have a right of action under Section 12(a)(2) for false or misleading statements that are material in a prospectus and in oral statements. The SEC may bring actions under Section 17 of the Securities Act and Section 10(b) and Rule 10b-5 under the Exchange Act.
Under the Securities Act, the company is absolutely liable for material misstatements or omissions in the registration statement, regardless of good faith or the exercise of due diligence. Directors and officers of the company, however, may have certain due diligence defenses, as do underwriters, the company’s accountants and other experts and controlling persons.
Who may also be liable under the Securities Act?
If a company’s registration statement contains an untrue statement of a material fact or omits to state a material fact required to be stated in it (or that is necessary to make the statements not misleading), any purchaser of the company’s stock can sue the issuer and the following persons:
anyone who signed the registration statement (the registration statement is signed by the company’s chief executive, principal financial

Liability – What liability can a company face in an IPO? – (68)

market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open market prior to the completion of the offering.
Stabilizing transactions consist of various bids for or purchases of the company’s common stock made by the underwriters in the open market prior to the completion of the offering.
The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the other underwriters a portion of the underwriting discount received by it because the sole book-running manager has repurchased shares of the common stock sold by or for the account of that underwriter in stabilizing or short covering transactions.
Purchases to cover a short position and stabilizing transactions may have the effect of preventing or slowing a decline in the market price of the common stock. In addition, these purchases, along with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the relevant exchange, in the over-the-counter market or otherwise.
What liability can a company face in an IPO?
Civil and criminal liability may arise under the Securities Act from material misstatements or omissions in a registration statement when it becomes effective or in a preliminary prospectus upon which a contract for

Pricing – What actions may underwriters take after pricing? (67)

pricing and that the statements in the prospectus remain accurate. At the closing, the company will deliver the documents required by the underwriting agreement, including a bring-down comfort letter, certificates of officers and one or more opinions of counsel. Upon satisfaction of the closing conditions, the underwriters will wire transfer the net proceeds of the offerings to the company and upon receipt, the company will instruct its transfer agent to release the shares to the underwriters. A final prospectus must accompany or precede the delivery of the securities after their sale.
What actions may underwriters take after pricing?
After pricing and during the offering itself, the underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, purchases to cover positions created by short sales and stabilizing transactions.
Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the IPO. Covered short sales are sales made in an amount not greater than the underwriters’ option to purchase additional shares of common stock from the company in the IPO. The underwriters may close out any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters consider, among other things, the price of shares available for purchase in the open market compared to the price at which they may purchase shares through the over-allotmentoption.
Naked short sales are any sales in excess of the over- allotment option. The underwriters must close out any naked short position by purchasing shares in the open

Pricing – What happens at a closing? – (66)

underwriting syndicate. The company will issue a press release to announce the IPO price before the stock market opens the following day.
What is a ‘syndicated offering’?
In a syndicated offering, at the time of pricing, the managing underwriter(s) will invite additional underwriters to participate in the offering. Each member of the underwriting syndicate will agree to underwrite, that is, purchase, a portion of the shares to be sold and will enter into a separate addendum to the existing general agreement among underwriters that governs their relationship.
What is a “green shoe” or “over-allotment option”?
Most “firm commitment” equity public offerings include an “over-allotment option” or “green shoe” (the latter name references a case about these kinds of options). This option enables the underwriters to purchase additional shares (usually 15% of the “firm” shares purchased by the underwriters) from the company if there is substantial demand for the offered shares. The option is typically exercisable for 30 days after the pricing of the IPO and the underwriters may purchase the additional shares at the same price per share as those sold in the IPO.
What happens at a closing?
The closing of the offering usually takes place three or four business days (T+3 or T+4) after the pricing of the IPO, typically T+4 because offerings are usually priced after the close of the market at 4 p.m. Eastern time. Immediately prior to the closing, the underwriters will also hold a bring-down diligence call with the company to confirm that no material changes in the company’s business or finances have occurred since the date of

Pricing – What happens after the SEC has completed its review? – (65)

What happens after the SEC has completed its review?
Once a registration statement has been declared effective and an offering has been priced, the issuer and the managing underwriters execute the underwriting agreement and the auditor delivers the executed comfort letter. This occurs after pricing and before the opening of trading on the following day. The company then files a final prospectus with the SEC that contains the final offering information. On the third or fourth business day following the pricing transaction (T+3 or T+4), the closing occurs, the shares are issued, and the issuer receives the proceeds. The closing completes the offering process. Then, for the next 25 days, aftermarket sales of shares by dealers must be accompanied by a final prospectus or a notice with respect to its availability. If during this period there is a material change that would make the prospectus misleading, the company must file an amended prospectus.
How is an offering priced?
In most IPOs, after the road show, representatives of a company and the underwriters will meet to price the offering. The initial public offering price will be determined based on the demand for the stock, current market conditions and the price range stated in the preliminary prospectus. If the number of shares will be significantly increased or decreased or the offering will not be priced within the range, a free writing prospectus is often issued at this point to make sure that investors have the necessary information before deciding to purchase the shares. Additional information will also be determined at this time, including the underwriters’ fees and commissions and the members of the

Marketing the IPO – Does an issuer need to disclose ownership by shareholders and/or management? (64)

IPO shares and must be sold pursuant to the IPO prospectus.
Does an issuer need to disclose ownership by
shareholders and/or management?
In addition to information about the issuer itself, federal securities laws are concerned with trading by
“affiliates” of the issuer and public disclosure of affiliate ownership of the issuer’s securities. The SEC has a simple definition of affiliate that is often hard to understand and apply to specific situations. An affiliate is any entity or person that, directly or indirectly, controls or is controlled by or under common control with the specified entity. While there is much written about affiliates, Congress in Section 16 of the Exchange Act has determined that directors, officers and holders of 10% or more of the issuer’s equity securities are persons likely to be affiliates. Therefore, under the Exchange Act, directors, officers and 10% shareholders must report their holdings of a company’s securities as well as their purchases and sales. The initial statement of ownership is on Form 3, which must be filed with the SEC on or prior to the effective date of the registration statement. Subsequent changes in ownership are filed on Form 4, or for certain transactions, on Form 5, all of which are available on the EDGAR system. In addition, under Section 13 of the Exchange Act and its rules, certain existing holders who will own 5% or more of the post-offering shares will be required to file a short-form Schedule 13G within 45 days after the end of the calendar year, since the holder will not have “acquired” securities triggering the long-form Schedule 13D; however, any subsequent transactions in the securities may require an amendment using Schedule 13D.

Marketing the IPO – What is a “family and friends” or “directed share” program? (63)

released by an issuer needs to be in the form of a free writing prospectus, and the deal team may need to determine the value of filing specific information.
Can an IPO issuer use free writing prospectuses?
Yes. A company may use free writing prospectuses in addition to a preliminary prospectus as long as the preliminary prospectus precedes or accompanies the free writing prospectus. In addition, certain free writing prospectuses must be filed with the SEC and contain a required legend. Underwriters may also use free writing prospectuses, and the underwriting agreement for an IPO will contain mutual restrictions on the use of issuer free writing prospectuses and underwriter free writing prospectuses. BDCs and other investment companies may not use free writing prospectuses.
What is a “family and friends” or “directed share”
In connection with an IPO, an issuer may want the option to “direct” shares to directors, officers, employees and their relatives, or specific other designated people, such as vendors or strategic partners. Directed share (or “family and friends”) programs (“DSPs”) set aside stock for this purpose, usually 5-10% of the total shares offered in the IPO. Participants pay the initial public offering price. Shares not sold pursuant to the DSP, usually within the first 24 hours after pricing, are then sold by the underwriters in the IPO. Generally, directed shares are freely tradable securities and are not subject to the underwriter’s lock- up agreement, although the shares may be locked up for some shorter period. Each underwriter has its own program format. There are, however, guidelines that must be followed. The DSP is not a separate offering by the company but is part of the plan of distribution of the