Public Offering Wall Street “lingo” IPO underpricing and overpricing IPOs from abroad SEC filings (last updated 31 Jan 13)

"PR Newswire, June 30, 1995, Friday "THE RATTLESNAKE HOLDING COMPANY, INC. (Nasdaq: RTTL) announced today that its initial public offering of Common Stock commenced on June 29, STAMFORD, Conn., June 30 The offering covered 1,300,000 shares of Common stock (plus 195,000 additional shares to cover over- allotments) at an initial public offering price of $5.50 per share. The offering was underwritten on a firm commitment basis by Auerbach, Pollak & Richardson, Inc. "Rattlesnake operates a chain of casual dining restaurants featuring a southwestern theme under the name "Rattlesnake Southwestern Grill."

"PR Newswire, June 30, 1995, Friday "THE RATTLESNAKE HOLDING COMPANY, INC. (Nasdaq: RTTL) announced today that its initial public offering of Common Stock commenced on June 29, STAMFORD, Conn., June 30 The offering covered 1,300,000 shares of Common stock (plus 195,000 additional shares to cover over- allotments) at an initial public offering price of $5.50 per share. The offering was underwritten on a firm commitment basis by Auerbach, Pollak & Richardson, Inc. "Rattlesnake operates a chain of casual dining restaurants featuring a southwestern theme under the name "Rattlesnake Southwestern Grill." Initial public offering?

"PR Newswire, June 30, 1995, Friday "THE RATTLESNAKE HOLDING COMPANY, INC. (Nasdaq: RTTL) announced today that its initial public offering of Common Stock commenced on June 29, STAMFORD, Conn., June 30 The offering covered 1,300,000 shares of Common stock (plus 195,000 additional shares to cover over- allotments) at an initial public offering price of $5.50 per share. The offering was underwritten on a firm commitment basis by Auerbach, Pollak & Richardson, Inc. "Rattlesnake operates a chain of casual dining restaurants featuring a southwestern theme under the name "Rattlesnake Southwestern Grill." Initial public offering? Common stock?

"PR Newswire, June 30, 1995, Friday "THE RATTLESNAKE HOLDING COMPANY, INC. (Nasdaq: RTTL) announced today that its initial public offering of Common Stock commenced on June 29, STAMFORD, Conn., June 30 The offering covered 1,300,000 shares of Common stock (plus 195,000 additional shares to cover over- allotments) at an initial public offering price of $5.50 per share. The offering was underwritten on a firm commitment basis by Auerbach, Pollak & Richardson, Inc. "Rattlesnake operates a chain of casual dining restaurants featuring a southwestern theme under the name "Rattlesnake Southwestern Grill." Initial public offering? Common stock? “Effective”?

"PR Newswire, June 30, 1995, Friday "THE RATTLESNAKE HOLDING COMPANY, INC. (Nasdaq: RTTL) announced today that its initial public offering of Common Stock commenced on June 29, STAMFORD, Conn., June 30 The offering covered 1,300,000 shares of Common stock (plus 195,000 additional shares to cover over- allotments) at an initial public offering price of $5.50 per share. The offering was underwritten on a firm commitment basis by Auerbach, Pollak & Richardson, Inc. "Rattlesnake operates a chain of casual dining restaurants featuring a southwestern theme under the name "Rattlesnake Southwestern Grill." Initial public offering? Common stock? “Effective”? “Green Shoe”?

"PR Newswire, June 30, 1995, Friday "THE RATTLESNAKE HOLDING COMPANY, INC. (Nasdaq: RTTL) announced today that its initial public offering of Common Stock commenced on June 29, STAMFORD, Conn., June 30 The offering covered 1,300,000 shares of Common stock (plus 195,000 additional shares to cover over- allotments) at an initial public offering price of $5.50 per share. The offering was underwritten on a firm commitment basis by Auerbach, Pollak & Richardson, Inc. "Rattlesnake operates a chain of casual dining restaurants featuring a southwestern theme under the name "Rattlesnake Southwestern Grill." Initial public offering? Common stock? “Effective”? “Green Shoe”? Firm commitment?

"PR Newswire, June 30, 1995, Friday "THE RATTLESNAKE HOLDING COMPANY, INC. (Nasdaq: RTTL) announced today that its initial public offering of Common Stock commenced on June 29, STAMFORD, Conn., June 30 The offering covered 1,300,000 shares of Common stock (plus 195,000 additional shares to cover over- allotments) at an initial public offering price of $5.50 per share. The offering was underwritten on a firm commitment basis by Auerbach, Pollak & Richardson, Inc. "Rattlesnake operates a chain of casual dining restaurants featuring a southwestern theme under the name "Rattlesnake Southwestern Grill." Initial public offering? Common stock? “Effective”? “Green Shoe”? Firm commitment? Lead underwriter?

Underwriting Methods Documentation

Underwriting methods Issuer UW (investment bank) Investors Firm-commitment Best efforts Dutch auction

Underwriting methods Issuer UW Retail firm Investors Retail dept Firm-commitment IPO price$20.00 Issuer proceeds$18.60 Spread (7%)$1.40 Managing UW20% Selling concession60% Expenses20%

Underwriting methods Issuer UW (investment bank) Investors Best efforts Straight Mini-max All or nothing

Underwriting methods Dutch auction (sell 1 million shares) Issuer Investment bank Investors Bid# $ price $50/sh $45/sh $40/sh $35/sh $30/sh $25/sh

Underwriting methods Dutch auction (sell 1 million shares) Issuer Investment bank Investors Bid# $ price $50/sh $45/sh $40/sh $35/sh $30/sh $25/sh

Dutch auction clearing price

Underwriting documentation

Issuer UW Retail firm Investors Retail dept

Underwriting documentation Issuer UW Retail firm Investors Retail dept Letter of intent

Underwriting documentation Issuer UW Retail firm Investors Retail dept Letter of intent Housekeeping

Underwriting documentation Issuer UW Retail firm Investors Retail dept Letter of intent Housekeeping Agreement among underwriters

Underwriting documentation Issuer UW Retail firm Investors Retail dept Letter of intent Housekeeping Agreement among underwriters Underwriting agreement

Underwriting documentation Issuer UW Retail firm Investors Retail dept Letter of intent Housekeeping Agreement among underwriters Underwriting agreement Comfort letters Issuer’s counsel

IPO Pricing Underpricing Overpricing

Rattlesnake Holdings DatePriceEvent 6/28/95--SEC makes registration “effective” 6/29/95--IPO postponed when UW out of business 6/30/95$5.50IPO – 13MM shares / $7.15 MM raised 7/16/95$6.13One week after IPO (up 11.5%) 8/14/95$5.88Down 6.8% 8/21/95$5.75Down 4.5% 9/11/95$5.50Back to IPO price 12/29/95$5.38Down 2.5% 4/15/96--BW says industry overbuilt 6/17/96--10Q – sales double, but lost $630,000 7/22/96$2.75Down 47% 7/24/95--Private placement - $125 MM 8/25/97< $1.00Delisted from NASDAQ

“IPO phenomenon” IPO Market First day of trading (avg = +16.4%) Three years after IPO (avg = -27.4% compared to mkt)

IPO Underpricing and Disclosure JAMES C. SPINDLER IPO Underpricing and Disclosure JAMES C. SPINDLER University of Southern California Law School (May 2009) Using a unique data set, I find that U.S. IPO prospectus disclosure dramatically affects the degree of first day underpricing of the new issue, consistent with theories of underpricing as caused by informational asymmetry. In particular, a 1 standard deviation increase in positive prospectus disclosure is associated with almost a third reduction in first day underpricing. Further, this may derive from disclosure-related litigation risk: an increase in negative prospectus disclosure is associated with an increase in subsequent IPO-related lawsuits, which suggests that less positive (or more negative) disclosure is a reaction to litigation risk.

“IPO phenomenon” IPO Market First day of trading (avg = +16.4%) Three years after IPO (avg = -27.4% compared to mkt) Why underpricing? (UWs as gatekeepers)

“IPO phenomenon” IPO Market First day of trading (avg = +16.4%) Three years after IPO (avg = -27.4% compared to mkt) Why overpricing? (ECMH)

American Depositary Receipts

Reuters Financial Service July 31, 1996, Wednesday GRUPO RADIO CENTRO OFFERING PRICED AT $ 7/ADS NEW YORK, JULY 31 Grupo Radio Centro SA said Wednesday the public offering of 3.7 million of its American Depositary Shares (ADSs) was priced at $ 7.00 per ADS. The shares were being offered in the United States and elsewhere outside Mexico by the company and certain selling shareholders.The selling shareholders include a Mexican trust controlled by the Aguirre family, the company's controlling shareholders, and Clemente Serna, a director of the company. Of the total shares offered, the company will sell about 1.5 million ADSs, the trust will sell 1.1 million, and Serna will offer 1.1 million. Each ADS represents nine of the company's CPOs, or Participation Certificates. The company said it plans to use its proceeds from the deal to repay a substantial portion of its debt. Bear Stearns and BT Securities are the managing underwriters of the offering, which is set to close August 2.

Fraud (tort of deceit) Material misrepresentation Intentional (defendant aware of truth) Reliance (plaintiff relies reasonably) Misrepresentation is cause of loss Damages

Fraud (tort of deceit) Material misrepresentation Intentional (defendant aware of truth) Reliance (plaintiff relies reasonably) Misrepresentation is cause of loss Damages What is a “prospectus”?

What is registration statement? Netflix, Inc. (Form S-1) Form S-1

Integrated disclosure ’33 Act Registration Statement [S-1, S-3] ’34 Act Proxy Statements [14A] Reg S-K Reg S-X ’34 Act Periodic Reports [10-K, 10Q, 8-K]

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