2. The Usual Disclaimer
Disclaimer: Both these materials and any statements made as part of this presentation are
intended for educational and general informational purposes only. Nothing in these materials or
this presentation is intended as representation of or statements made on behalf of any of Mr.
Alberstone’s current or former clients or employers. These materials and this presentation are
not intended as, and do not constitute, legal advice, and should not be used or relied upon as
legal advice. These materials and this presentation may not be accurate with respect to the
current state of the law, which is subject to constant change and, even if accurate, may not be
applicable in all circumstances. Nothing in these materials or this presentation is intended to
create an attorney-client relationship.
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3. IPO Process
1. SELECTION OF UNDERWRITERS AND ADVISORS
2. ORGANIZE COMPANY, BOARD, CORP GOVERNANCE, WITH PUBLIC COMPANY
CONSIDERATIONS IN MIND
3. ORGANIZATIONAL MEETING
4. PREPARE PROSEPECTUS
5. DUE DILIGENCE
6. FILE PROSPECTUS AND REGISTRATION STATEMENT WITH SEC
7. RESPOND TO SEC COMMENTS
8. ROAD SHOW
9. LIST ON STOCK EXCHANGE
10. SEC DECLARATION THAT REGISTRATION STATEMENT IS “EFFECTIVE”
11. PRICE AND CLOSE SALE OF COMPANY STOCK
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4. 12-18 MONTHS OUT FROM ORGANIZATIONAL MEETING
-- EQUITY AWARDS ISSUES
-- DOCUMENT ORGANIZATION
-- COMMUNICATIONS
-- CFO DISCUSSION ITEMS
-- INSURANCE
-- IP STRATEGY
-- LICENSING AND MATERIAL AGREEMENTS ISSUES
-- LITIGATION RESPONSE RESOURCES
Overview of Preparation for IPO
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5. Overview of Preparation for IPO (continued)
6-9 MONTHS IN ADVANCE OF ORGANIZATIONAL MEETING
-- CFO DISCUSSION ITEMS
-- STRUCTURAL ITEMS
-- CORP GOVERNANCE, TRANSPARENCY, OVERSIGHT
-- INVESTMENT BANK MATERIALS
-- ONGOING M&A ACTIVITY
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6. Overview of Preparation for IPO (continued)
2-3 MONTHS OUT FROM ORGANIZATIONAL MEETING
-- CEO AND SENIOR MANAGEMENT DISCUSSION ITEMS
-- EXTERNAL COMMUNICATIONS PROCESSES AND ISSUES
-- DOCUMENT ORGANIZATION
-- DRAFTING TEAM
-- S-1 DRAFT
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7. 12-18 MONTHS OUT – SELECTED TOPICS
EQUITY AWARDS ISSUES
-- Equity awards should be granted at FMV to avoid accounting charges and
IRS issues (Section 409 of IRC). Support valuation with third party stock
valuation reports. Avoid granting awards while new valuation report is in
progress, since reports typically dated 1-2 months before delivery and can
lead to mismatch between report and valuation sought to be supported.
-- Document ongoing compliance with securities law governing awards. See
Rule 701 of ‘33 Act which can impose limits on aggregate value and create
disclosure obligations. Note: registration statement filed for IPO will have to
identify securities law exemption relied on for awards made within three
years preceding IPO and documentation for awards may be subject to SEC
scrutiny.
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8. 12-18 MONTHS OUT – SELECTED TOPICS
DOCUMENT ORGANIZATION AT THIS STAGE
Ensure adequate company records system in place for operating agreements,
licenses, investment agreements, equity award documentation and other key
records. Review typical underwriters due diligence list to understand scope of
information that will be requested during diligence process. Generally, due
diligence request will request records for past three fiscal years plus any
interim period.
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9. 12-18 MONTHS OUT – SELECTED TOPICS
COMMUNICATIONS
Ensure process in place for review and approval of all external communications.
Though the strict requirements during the IPO process are not yet necessary, in-house
counsel should be familiar and be gearing up with those in mind.
Encourage senior management to evaluate corporate marketing and public relations
efforts with IPO in mind, and plan to implement any significant new campaigns or
efforts before the IPO process has begun.
Avoid gun-jumping. Timing of new marketing should not be so close to IPO to suggest
that it is intended to support the IPO.
Clear track record of ongoing, comparable public relations and marketing reports can
reduce risk.
No discussions of potential IPO plans with reports, public forums, etc. Mentioning IPO
publicly can preclude safe harbors later.
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10. 12-18 MONTHS OUT – SELECTED TOPICS
CFO DISCUSSION ITEMS
-- Reporting structure and staffing in Finance; plans for staff necessary for public
company functioning.
-- Review of internal controls re financial reporting. Consider outside consultant to
assist.
-- Forecasting process – both for IPO (underwriters’ valuation) and post-IPO (forward
looking guidance in earnings calls and filings).
-- Retain or change outside accountants/auditors?
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11. 12-18 MONTHS OUT – SELECTED TOPICS
INSURANCE
D&O insurance will have to be in place before IPO.
Consider other appropriate insurance.
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12. 12-18 MONTHS OUT – SELECTED TOPICS
IP STRATEGY
-- Patent disclosure and evaluation process in place.
-- Defensive/offensive considerations.
-- IP protection strategy and cost-effective approach, including all forms of IP.
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13. 12-18 MONTHS OUT – SELECTED TOPICS
POLICIES RE LICENSING AND POTENTIALLY MATERIAL
AGREEMENTS
Confidentiality and approval requirements
Term, termination and renewal
Indemnification (length, cap, and other exposure issues)
Others?
(more below, with respect to M&A)
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14. 12-18 MONTHS OUT – SELECTED TOPICS
LITIGATION RESPONSE TEAM?
(the effect of rumors and announcements)
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15. 6-9 MONTHS OUT – SELECTED TOPICS
CFO DISCUSSION ITEMS
-- Quarterly “SAS 100” review [audit standards for non-public companies]
Customary to include 6-8 reviewed quarters in IPO prospectus.
-- Any accounting policies not appropriate for public company? Discussions
with independent accounting firm on accounting policies?
-- Any non-GAAP financial or operational metrics standard in the industry or
unique to the company that will have to be presented to investors? Can
create disclosure challenges later.
-- Any acquisitions pending or completed that are large enough to trigger
need to file separate audited financial statements of target?
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16. 6-9 MONTHS OUT – SELECTED TOPICS
STRUCTURAL ITEMS
-- Founder or investor that will continue to have significant stake and want
special rights post-IPO?
-- Board: Independent directors? Will any existing directors leave board pre-
or post-IPO?
-- Audit Committee: Any directors who are qualified to act as Audit
Committee “financial expert”?
-- Board Committee structure – must conform to particular exchange.
-- Any outstanding loans or other arrangements with executive officers?
(should be eliminated before filing registration statement).
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17. 6-9 MONTHS OUT – SELECTED TOPICS
CORP GOVERNANCE, TRANSPARENCY AND OVERSIGHT
Draft, adopt corporate governance policies and procedures. SOX
requirements and also exchange-specific requirements. Typically (NYSE):
Audit Committee Charter
Comp Committee Charter
Nominating and Governance Committee Charter
Code of Business Conduct and Ethics (may be industry specific)
Corp Governance Guidelines
Whistleblower procedures (may or may not be required)
Insider Trading Policy
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18. 6-9 MONTHS OUT – SELECTED TOPICS
CORP GOVERNANCE (CONTINUED) – BOARD STRUCTURE
-- Majority of directors must be independent.
-- Executive session (as part of Nominating and Governance or Comp) must
be independent.
-- Audit Committee must have “financial expert.”
-- Key Board Committees:
-- Audit
-- Compensation
-- Nominating and Governance
Consider: (broader) Finance Committee; Quality and Regulatory; Conduct
and Ethics (includes whistleblower oversight); others.
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19. 6-9 MONTHS OUT – SELECTED TOPICS
INVESTMENT BANK MATERIALS
-- Review formal pitch materials provided by investment banks.
-- Provide relevant materials (including IPO timing and valuation information)
to equity valuation firm. This information can affect valuation reports for
equity awards.
-- Pitch materials also useful source of industry info and other data during
prep of registration statement and investor materials.
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20. 6-9 MONTHS OUT – SELECTED TOPICS
ONGOING M&A ACTIVITY
Consider potential timing implications of any potential
acquisition in process or anticipated. Can affect IPO disclosure,
accounting and marketing issues.
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21. 2-3 MONTHS OUT – SELECTED TOPICS
CEO AND SENIOR MANAGEMENT DISCUSSIONS
-- Discuss and develop key messages about company they will want to
include in prospectus (e.g., growth strategies, competitive advantages,
market protections, IP, etc.).
-- Review annual reports, IPO prospectuses, etc., of any competitors or other
industry-relevant public companies re how they describe themselves and
position their business to investors.
-- Studies, data that may be relevant re market position, market
opportunities, relative strength of company, company achievements.
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22. 2-3 MONTHS OUT – SELECTED TOPICS
EXTERNAL COMMUNICATIONS PROCESSES AND ISSUES
-- At this point, centralize approval process for all external corp.
communications: press releases, website and blogs, social media and all
other external communications.
-- Communications policy should be updated for gun-jumping considerations.
-- Advise all senior management on importance of conforming to gun-
jumping guidelines.
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23. 2-3 MONTHS OUT – SELECTED TOPICS
DOCUMENT ORGANIZATION
-- Collect documents for data room.
-- Identify material contracts that will need to be filed as exhibits to
registration statement.
(i) Redaction and confidential treatment request?
(ii) Third party approvals?
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24. 2-3 MONTHS OUT – SELECTED TOPICS
DRAFTING TEAM
-- Identify and organize management and other personnel who
will participate in drafting.
-- Crucial that every member of drafting team understand
company’s business.
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25. 2-3 MONTHS OUT – SELECTED TOPICS
BEGIN DRAFTING S-1
If confident that company will proceed with IPO, consider
preparing initial draft registration statement on Form S-1 prior
to Organizational Meeting to shorten group drafting process and
ensure drafting process reflects management vision from the
outset.
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26. Overview of Preparation for Acquisition
NDA – Special considerations
WORKING WITH BOARD
ENGAGING INVESTMENT BANK OR OTHER FINANCIAL ADVISORS
DEALING WITH POTENTIAL CONFLICTS
CONFIDENTIALITY WITHIN THE COMPANY
ORGANIZE DUE DILIGENCE MATERIAL
EVALUATE POTENTIAL ANTITRUST ISSUES
PUBLIC COMPANY ISSUES
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27. PREPARATION FOR ACQUISITION – SELECTED TOPICS
NDAs –
-- For public companies, should include standstill provisions (e.g., precluding
purchasing acquisition target stock, proxy contest, etc.).
-- “Don’t ask, don’t waive”? Precludes potential acquirer from taking listed
actions AND from asking for waiver.
-- Note: may create fiduciary complications under Delaware law by
suppressing competing bids during no-shop period. Board should be
apprised.
-- Consider “firewall” protections within potential acquirer.
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28. PREPARATION FOR ACQUISITION – SELECTED TOPICS
WORKING WITH BOARD
-- Gauge board interest early.
-- Schedule Special Meeting to discuss potential acquisition.
-- If going forward, keep board informed of all material
developments through negotiation process.
-- Informal communication with Chair and/or key committee
chairs.
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29. PREPARATION FOR ACQUISITION – SELECTED TOPICS
INVESTEMENT BANKS AND FINANCIAL ADVISORS
-- Consider with board whether investment bank or other
financial advisors advisable.
-- They can: serve as de facto broker; negotiation liaison; smooth
completion of transaction; provide assistance in evaluating
economic terms and fairness opinion.
-- Potential for conflict of interest based on success bonus (see
Delaware or applicable state law).
-- Engagement letter: note particularly success fee terms –
nature, conditions, timing, tail, termination.
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30. PREPARATION FOR ACQUISITION – SELECTED TOPICS
DEALING WITH POTENTIAL CONFLICTS
-- Board should evaluate whether the transaction poses potential conflict of
interest for members of board or management.
-- Watch out for conflicts arising during course of transaction (e.g., members
of management team discussing/accepting positions in acquiring company).
-- If appropriate, counsel should encourage board to form special committee
of disinterested directors to negotiate the transaction, and whether that
committee needs separate financial and legal advisors.
-- Virtually all acquisitions of public companies (and many private) result in
litigation, and unaddressed conflicts present a weakness in defending a
transaction in litigation.
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31. PREPARATION FOR ACQUISITION – SELECTED TOPICS
CONFIDENTIALITY WITHIN COMPANY
-- Risks for any public company (acquirer or target).
-- Risks even for entirely private company transactions. Premature disclosure
of potential transaction can destabilize relationships with third parties, affect
morale, lead to loss of important personnel, affect ongoing operations, etc.
-- To avoid premature disclosure, create internal working group and restrict
number of individuals within and outside company aware of transaction.
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32. PREPARATION FOR ACQUISITION – SELECTED TOPICS
ORGANIZE AND OBTAIN DUE DILIGENCE DATA AND
DOCUMENTS
-- Start early to create data room (or at least collection of files in
anticipation).
-- Ideally, alert as few people as possible outside of the working group, which
implies certain approaches.
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33. PREPARATION FOR ACQUISITION – SELECTED TOPICS
EVALUATE POTENTIAL ANTITRUST ISSUES
-- If filing required under Hart-Scott-Rodino (“Size of Transaction” and “Size of
Person” tests), file early to allow for 30 day evaluation period, and assess
whether FTC or DOJ likely to scrutinize transaction.
-- If transaction is likely to involve heightened level of review, engage
antitrust counsel and economic expert early in the process.
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34. PREPARATION FOR ACQUISITION – SELECTED TOPICS
SPECIAL CONSIDERATIONS FOR PUBLIC COMPANIES
-- Blackout period on insiders’ transactions during negotiations of deal (close
trading window for all employees or just working group?).
-- After transaction announced, FINRA and/or SEC may investigate.
-- EXPECT: (i) investigation if stock moves prior to public announcement (ii)
shareholder litigation (even if shareholders overwhelmingly approve).
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35. LICENSING ISSUES IN ANTICIPATION OF BEING
ACQUIRED
Key elements:
-- Scope of License
-- Exclusivity
-- Term of license – and renewal terms
-- Transfer and revocation
-- Geographic scope
-- Confidentiality and notice provisions
-- Use/Media/Distribution limitations
-- Indemnification – capped?
-- Non-compete?
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