470 Making Key Strategic Decisions
typically takes for the SEC to provide both accounting and business comments
on the prospectus, several things will be occurring:
- The company’s accountants will work on updating financials, so they will
be “fresh” (i.e., within 135 days of filing) for the anticipated amendments
to the registration statement. - The company will be careful in its public utterances and in the contents of
its Web site, to avoid the improper direct or implicit promotion of the
company’s stock; during this waiting period generally the only writing
that may be utilized to actually offer company stock for sale is the
prospectus itself, and no generally ancillary writing and no inconsistent
oral presentations can be made. - The comanaging underwriters will form a syndicate of additional under-
writers who will agree to purchase a certain number of the IPO shares.
These under writers in turn will deal with the lowest tier of distribution,
the “selected securities dealers” whose securities customers ultimately
will be asked to purchase the shares. - The managing underwriters will have filed with the National Association
of Securities Dealers Inc. (NASD) the following: the registration state-
ment, their under writing agreement with the company, the agreement
among the under writers themselves, and the agreement between the un-
der writers and those “selected securities dealers.” The NASD regulates
compensation of under writers, and must review the offering to declare
that the consideration to be paid by the company to the under writers is
fair and reasonable. - The company will prepare the information necessary to permit the com-
pany’s common stock to be quoted over the NASDAQ, on completion of
the IPO.
When the SEC staff issues its comment letter, a f lurry of rewriting re-
sults in an amended registration statement, which is combined with updated fi-
nancial statements and refiled with the SEC as promptly as possible. Typically,
this version of the prospectus is then printed in large numbers and distributed
by the under writers to the investment community. This distributed prospectus
is typically referred to as the “red herring.” Until 1996, the SEC required that
the cover of a preliminary prospectus, which was being distributed, bear in red
ink a legend which advised that the prospectus was subject to change and that
the SEC had not finally approved the offering. Under current practice, lan-
guage to similar effect is required on the front cover and on occasion may be
printed in red ink, but it need not be.
At this juncture, the under writers together with key company manage-
ment embark on a “road show,” which is a key element in the marketing of an
IPO. For a couple of weeks, the managing under writers and management criss-
cross the United States, and sometimes travel overseas, to hold brief meetings
with underwriters, brokers, securities analysts, and significant investors to