Page 116 - Initial Public Offering - An Introduction to IPO on Wall Street

1) The commitment of the underwriter to enter into a subscription agreement with the issuing
firm
2) A pledge by the issuing firm to provide all relevant details to the underwriter and, therefore,
guarantee full cooperation in all due diligence activities
3) A commitment by the issuing firm to include a 15 percent overallotment offer for the
underwriter
There is no indication of the final offering price in the letter of intent.

Underwriting Agreement
The letter of intent remains effective until the stocks are priced and the Underwriting
Agreement is enforced thereafter. The underwriter is then contractually obliged to buy the
problem at a particular price from the firm.

Registration Statement

The statement of registration usually comprises of details related to the IPO, the firm’s financial
reports, management history, insider holdings, any legal issues experienced by the business
and the ticker symbol to be utilized by the issuing firm after it is listed on the stock exchange.

The SEC mandates that a registration statement be filed by the issuing firm and its underwriters
after the particulars of the issue have been negotiated and signed. There are two parts of the
statement of registration:

1) The Prospectus: This is offered to each investor who purchases the security issued. It must
clearly define the commercial practices of the firm, the financial situation, outcomes of
operations, the risk factors, and the leadership. It is also important to include audited
financial reports.
2) Private Fillings: This includes information that is provided for review by the SEC but is not
generally made accessible to the public.

The statement of registration guarantees that investors have sufficient and accurate information
on the securities. The SEC then performs due diligence to make sure that all the information
needed has been properly disclosed.

Red Herring Document

This is a provisional prospectus that provides information on the activities and prospects of the
firm, with the exception of key specifics of the issue, such as price and amount of shares. The
issuing firm and the underwriters market the securities to public investors after Red Herring
Document has been developed.

Underwriters frequently go on roadshows (referred to as dog and pony show that run for three
to four weeks) to sell the shares to retail investors and determine the interest for them.

5.2.3 Step 3: The IPO Roadshow
A roadshow refers to promotional presentations that are made at different places to market the
initial public offering. These promotions or promotional presentations are made by the
representatives of the issuing or the underwriter who travel to the different locations for
marketing the IPO.
To see what interest, if any, there is, they promote the shares to investors. Based on the investor
interest, the underwriter can make a good estimation of the volume of shares to be offered.

Page 116