Post-filing activities

Post-filing activities
SEC Review. Once the registration statement is completed
and the initial form has been filed with the SEC, it will be
reviewed by the SEC’s Division of Corporation Finance (DCF)
to monitor compliance with the applicable disclosure and
accounting requirements. You should anticipate that your

IPO registration statements will receive a full cover-to-cover
review by both a legal and accounting examiner. The DCF’s
staff commonly finds deficiencies or items that it questions
or believes require additional explanation. These are
communicated through a comment letter.
The SEC typically responds to the initial filing within 30 days
by issuing a comment letter that requests clarification and
seeks changes in the registration statement and prospectus.
The company, with the assistance of its advisors, prepares
a written response to each comment. The accounting and
legal responses are typically submitted to the SEC along with
an amendment to the registration statement that includes
any changes made as a result of the SEC comments and
other changes to update the registration statement. The
SEC will review the amended registration statement and
response letter when filed and provide another comment
letter. This process continues until all questions are resolved
and involves a number of rounds of comments and
additional amendments. The timing of the SEC review on
the amendments can vary based on the significance of the
changes and the SEC’s workload at the time, but is usually
within 10 days.
The comment letters from the SEC and the company’s
response letters ultimately will be available publicly on the
SEC website. However, companies can request to have
portions of their responses remain confidential. Some regular
areas of focus for SEC comment letters are as follows:
• Executive compensation discussion and analysis
• Share-based compensation
• Significant business acquisitions and pro forma financial
• Revenue recognition
• Complex equity instruments
• Clarification of accounting policies
• Clarification of related-party transactions
• Need for consent if a reference to a valuation firm
regarding the valuation of a registrant’s common and
preferred stock is included
You will need to reach agreement with the SEC in response
to all comments before the registration statement can
become effective. Any contentious issues with the SEC can
be discussed via telephone. It is recommended that this
be done early in the process, if it becomes clear there is a
misunderstanding of facts. You should discuss these issues
with your legal advisors and auditors prior to conversations
with the SEC.
As the comment letter process nears completion, you will
need to decide when to print the red herring. If the red
herring is distributed before all substantive SEC comments
are resolved, there is a risk that the SEC will require
additional changes to the registration statement, and a
redistribution of the red herring may need to occur. Due
to the risk of potentially having to distribute a revised red
herring and the associated costs, most companies do not
print their red herring until substantially all of the SEC’s
comments have been resolved.
The roadshow is timed to coincide with the distribution
of the red herring. Since the red herring used during the
roadshow contains a price range, pricing discussions will
have occurred prior to filing the amendment containing
the red herring. Final pricing discussions occur after the
completion of the roadshow. See further discussion of the
roadshow in Chapter 7.
Companies (together with the lead underwriter) must
file a request for acceleration of effectiveness. When
the SEC grants your request for acceleration, it issues an
order declaring your registration statement effective. The
exchange (wherever the stock will trade upon completion of
the offering) will also submit its approval of the company for
listing. See further discussion of the closing in Chapter 8.
As soon as you receive notification of the effectiveness
of the registration statement and pricing occurs, the
transaction team will work to complete the final prospectus.
This prospectus will have the final pricing information
included and the red herring legend removed.
Blue Sky and FINRA clearance. Even though you file
a registration statement with the SEC, you may need to
comply with the “Blue Sky Laws” of the states where the
stock is offered and sold. Blue Sky is the general term

applied to the states’ securities laws and regulations.
The name is derived from a court decision on the
constitutionality of Kansas securities regulations, which were
aimed at preventing “speculative schemes which have no
more basis than so many feet of blue sky.” Many states have
adopted the Uniform Securities Act as the model for their
state blue sky laws, which facilitates the state filing process;
however, some states, like California, Illinois, New York,
and Texas, have their own securities regulatory statutes and
regulations, adding complications to the process. In order
to facilitate an orderly national distribution of securities in
offerings where the securities will be traded on national
markets (and in certain other cases), Congress enacted
the National Securities Markets Improvement Act (NSMIA)
in 1996, which preempts from state registration public
offerings of securities to be traded on national markets.
Where NSMIA does not apply, you will be subject to each
individual state’s securities laws and regulations. Many states
do not permit you to circulate a preliminary prospectus until
you have filed their state application forms for registration
or notice. Thus these filings should be completed and filed
with the applicable states when the registration statement
is filed with the SEC. In contrast to the SEC, which focuses
on disclosure only, some states do evaluate the “merits”
of the offering and its suitability for investors in their state.
The lead underwriter will generally advise you of the states
in which the underwriters wish to sell the securities and
the amount of securities to be qualified in each state.
Underwriters’ counsel generally takes care of the filings,
which vary from filing a notification of intent to sell to
qualifying the offer and sale with a registration statement in
other states.
SEC regulations also call for clearance by FINRA of the
amount of the underwriters’ compensation and other
terms of the offering. FINRA reviews not only the
underwriting discount, but also other compensation that
the underwriters are deemed to receive in connection
with the offering (such as options or warrants, finders’
fees and reimbursement of expenses normally borne by
the underwriters) to determine whether the underwriting
arrangements are fair and reasonable. It is mandatory to file
the registration statement with FINRA within one business
day of filing with the SEC if the offering is not exempt
from filing with FINRA. This allows sufficient time for
FINRA clearance and possible changes in the underwriting
agreement that FINRA may require.
Lock-up agreements. At the time of filing the registration
statement, the underwriters will want to make sure that
highly visible employees and shareholders of the company
do not sell their shares for a period of time after the IPO
is completed. This is generally done to allow an orderly
trading market to develop without additional shares being
dumped into the market. To make sure that this occurs,
the underwriters will most likely require that the officers,
directors, large shareholders, and other listed management
enter into a lock-up agreement whereby such shareholders
agree not to sell or otherwise transfer their shares for
a certain period of time. The duration of the lock-up
agreement is typically 180 days, but can range in its
duration from 90 days to one year.
As you prepare for the registration process, you may
want to consider your communication strategy with your
employees and management team about these types
of agreements.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s