Glossary of Common IPO Terms

Appendix 1: “Talk the Talk”—

Glossary of Common IPO Terms

The initial public offering has a distinct lexicon. Here is a list of common IPO terms that can help you navigate discussions about the IPO process.

10b-5  Reference to Rule 10b-5 of the Exchange Act, which establishes liability for fraudulent ac- tivities in a securities offering and for material misstatements or omissions in the offering materials, such as the offering prospectus.

Blue line, digital blue (or similar terms)  References to the financial printer’s providing a final, type- set version of the preliminary or final prospectus for final approval before printing the prospectus in quantity.

Book runner  The managing or lead underwriter.

Building a book  The underwriters’ process of building interest in the initial public offering and ob- taining indications of interest, and specific price and quantity information, from potential investors.

Cheap stock  Securities, commonly stock options or other equity awards, granted with an exercise price less than fair market value.

Comfort letter (or cold comfort letter)  The letter from the company’s auditors to the underwriters regarding the financial data and financial statements in the registration statement, which is delivered at pricing.

Comment letter  A letter from the SEC commenting in detail on the registration statement filed with the SEC, after its review of the initial registration statement or amendments to the filing.

D&O questionnaire  A questionnaire that the company’s directors, officers and major stockholders will be required to complete concerning matters that may be required to be disclosed in the registra- tion statement.

Directed share (or friends and family) program  A program in which certain persons close to the company (so called “friends and family”) can purchase a certain amount of shares in the offering.

Drafting sessions  Meetings with the IPO working group in-person or by conference call to discuss in detail the drafting of the prospectus.

Due diligence defense  The defense the underwriters have to liability for material misstatements or omissions in the offering documents, which is established by the conduct of reasonable due diligence as prescribed in the securities laws.

Electronic road show  A road show presentation given over the Internet or other electronic means, where the participants listen to the oral presentation and remotely view the slide presentation.

Exchange Act (or ’34 Act)  The Securities Exchange Act of 1934, as amended, and associated rules and regulations of the SEC.

FINRA  The Financial Industry Regulatory Authority (formerly, the National Association of Secu- rities Dealers, or “NASD”), which is the self-regulatory organization governing the conduct of the underwriters and broker-dealers in the IPO.

Free-writing prospectus  Any written or graphic communication, other than a prospectus that meets the statutory requirements of the Securities Act, that constitutes an offer to sell, or a solicitation of an offer to buy, securities that are or will be the subject of a registration statement.

Gun-jumping  Any publicity or other activity that might be considered an illegal offer to sell the company’s securities prior to the filing of the registration statement.

Lockups  An agreement by the company, directors, officers and certain stockholders to not sell any company securities for a prescribed period of time after the IPO, typically 180 days.

Over-allotment option (or Green Shoe, “shoe”)  An option that gives the underwriters the option to purchase up to 15% additional shares, on the same terms that they purchased the original shares, for a period up to 30 days after the initial public offering.

Pre-filing period  The period after the company becomes “in registration” and before the company has filed its registration statement. There is no bright line as to when a company first becomes “in registration,” but, at the latest, a company is in registration once it reaches an understanding with a managing underwriter to lead its public offering. During the so-called “pre-filing period” of the IPO, the company and underwriters may not solicit offers to buy the company’s securities to be offered in the IPO.

Price range  The range of prices per share stated in the preliminary prospectus as the range in which the company expects it will ultimately price its stock for sale to the public.

Pricing  The determination by the company of the per share price at which the company will offer its stock to the public, after consultation with the underwriters following the road show and effec- tiveness of the registration statement.

Pricing committee  A board committee, usually comprised of the CEO, CFO and one or two inde- pendent directors, that will determine at pricing the final offering price and approve the underwriting agreement.

Prospectus  The “glossy” portion of the registration statement given to prospective investors.

Red herring or “reds”  The preliminary prospectus, printed with a red legend on the side of the cover stating that the prospectus is subject to completion.

Response letter  A letter from the company or counsel for the company, responding to the SEC’s comments on the registration statement.

Road show  Representatives from the company meet with prospective investors (generally, institu- tional investors such as mutual funds, pension funds and the like) in various cities and make presen- tations about the company.

Road show presentation  The slide show presentation (and related remarks) prepared for investor presentations on the road show.

Sarbanes-Oxley (or Sarbox, Sox)  The Sarbanes-Oxley Act of 2002, which was the source of a great number of securities reforms increasing the legal compliance requirements of public companies.

SEC  The U.S. Securities and Exchange Commission.

Securities Act (or ’33 Act)  The Securities Act of 1933, as amended, and associated rules and regula- tions of the SEC

Summary (or Box)  The summary of the company and offering contained in the front of the pro- spectus, usually surrounded by a box border.

S-1  The Form S-1 is the registration statement filed with the SEC to register securities for an offer- ing. It includes the prospectus.

S-K  Regulation S-K includes and describes items of disclosure required to be included in the nonfi- nancial portion of the registration statement on Form S-1.

S-X  Regulation S-X includes and describes items of disclosure required to be included in the finan- cial portion of the registration statement on Form S‑1.

Window  The theoretical period in which the company may optimally sell, or may only be able to sell, its stock in the IPO.

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