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To: Bilow who wrote (360)	8/1/2000 6:34:11 PM
From: LPS5	Respond to of 1426

Absolutely not. The maximum allowable profit that an underwriter can make from a public offering is the underwriting spread, which is included in the final offering price. If you see an issue that prices at $20, a built-in slice of that price is the compensation to the syndicate and selling group. This is the underwriting spread, which once negotiated with the issuer (by the managing underwriter) must be approved for reasonableness by the NASD Committee on Corporate Financing. Like the 5% markup rule, it's a floating target, but generally 10% is seen as unreasonable. So, whereas for some issues, 7% might be acceptable, for others 7% might be deemed excessive. Therefore, if stock ABCD goes public at a price of $15.00/sh and the CCF has approved a 5% underwriting spread, the company will receive $14.25 per share, and the syndicate will receive $.75 per share as their compensation. Furthermore - and hopefully not confusing you more - in large offerings requiring large syndicates, that $.75 might be broken down between the managing underwriter, other underwriters, and selling group members in percentages. So, the managing firm might get $.15/share, the others (say 4) might get $.10 each, and the selling group members (say 5) might get $.04 apiece. These numbers, of course, represent the financial reward for (a) effort undertaken and (b) risk incurred in the transaction. An underwriter may NOT profit from the premium that certain IPOs open at. Regulations address this directly (by the "freeriding and withholding" prohibition that directly addresses hot issues and registered individuals/SRO member firms) and indirectly (by the one year sale restriction pertaining to securities held or tendered by conversion of convertibles, warrants, or options). LPS5

To: Bilow who wrote (360)	8/1/2000 8:56:40 PM
From: dannobee	Read Replies (1) \| Respond to of 1426

Jeez, no mention of floatation costs, or revenues generated from the IPO going to the company? I'll try to help with some of the very basics. When the company wants to go "public," they'll contact an investment bank to help them with an IPO. Most companies are NOT in the business to round up investors for an IPO, so they hand the job over to those who have that experience, the investment banks. The IB will call up some contacts (other IB's to help "spread the risk," in case of a failure or eroding stock price). We call these groups of IB's the "syndicate," and you'll notice the names on the company's "tombstone" when it's printed in the WSJ or other business newspaper. It's a full page ad, outlining the company, the offering price of shares, the number of shares, and the underwriters (the IB's) with the lead underwriter normally on the top of the list. When the IB's have attracted enough interest in the IPO, they'll sell the shares to the initial investors (BEFORE the general public gets to buy them). The IB's take their cut (flotation costs), the company gets its money (what's left after expenses). When the IPO "goes public," the individual investors can then purchase some, but not all, of the shares. Now, in the case of PALM, the initial interest in the IPO was such that, after the first day of trading, the market cap of the spinoff exceeded that of the parent company. It was poised for a fall, as COMS still owned the larger portion of the shares outstanding of the spinoff. I don't remember the amount, but it was on the order of 70% or something. So, the fall of PALM was easy to see once you worked the numbers, and individual investors who did the DD stayed away from it, or purchased COMS for the spinoff shares. This is a brief overview, not meant to cover the minutiae, but the basic points are valid. Hope this helps.