A Guide For Entrepreneurs, Executives, THE IPO HANDBOOK
A Guide for Entrepreneurs, Executives,Directors and Private InvestorsTHE IPO HANDBOOKSecond EditionSonny AllisonChris HallJustin BastianDavid McSheaEric DeJongNora Gibsonand contributing authorsfrom Perkins Coie LLP
About Merrill Corporation.High risk, high reward makes for high anxiety in today’s complex workspace. What about low risk, high reward? Is it even possible? It is whenyou partner with us. Merrill’s proven team of highly driven professionalscan navigate the complexity, freeing you to focus on bigger opportunities.Lean on our deep global expertise to support your company’s needsaround the world. Leverage our innovative technology and advancedanalytics. Create seamless connections across stakeholders. Bank onironclad security. From secure content sharing and disclosure, to regulatedcommunications and compliance services, to printing and digitalcommunications—we secure the solutions so you can secure the businessof moving ahead.Merrill for financial transactions and reporting.Time sensitive. Privacy sensitive. Brand sensitive. Sharing confidentialfinancial documents is a complex process. Updating those who needto be informed without risking security is paramount. Merrill is your24/7/365 partner in ensuring the highest security with speed and accuracy.Leverage our world-class technology to create seamless connections so thattransactions progress. Tap into our global network of experts and accessdeep industry knowledge. Navigate ever-changing regulatory requirements.Manage regulated disclosure with precision and accuracy. Replace dealcomplexity with progress. Ensure secure content sharing and collaborationwith our award-winning Merrill DataSite and Merrill Bridge platforms.Deliver confidently with our superior printing and digital services. FromIPOs to mergers to financial disclosure and reporting—we secure thecontent so you can get back to making business thrive.The Initial Public OfferingHandbook:A Guide for Entrepreneurs, Executives,Directors and Private InvestorsSecond EditionSonny AllisonJustin BastianEric DeJongNora GibsonChris HallDavid McSheawithContributing Authors from Perkins Coie LLPMerrill Corporation
Copyright ! 2008-2016 by Perkins Coie LLPDEDICATIONAll rights reserved. No part of this handbook may be reproduced or transmitted in any form by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system,without prior written permission.We dedicate this book to our partner and colleague Stewart Landefeld for hismentorship and leadership, and for serving as a role model of what it meansto be a professional.DISCLAIMERSPLEASE READ THESE DISCLAIMERS: This Handbook is intended toprovide an informational overview to nonlawyers and is not intended toprovide legal advice as to any particular situation. The laws and regulationsapplicable to initial public offerings and public companies are complex andsubject to frequent change. Experienced corporate and securities counselshould be consulted regarding the information covered in this Handbook.The views expressed in this handbook are those of the authors only and donot necessarily reflect the views of Perkins Coie LLP or Merrill Corporation.Merrill CorporationPublications DepartmentOne Merrill CircleSt. Paul, Minnesota 55108(651) 698-1865ISBN 1-877927-59-7Merrill Corporation products are designed to provide accurate and currentinformation with regard to the subject matter covered. They are intended tohelp attorneys and other professionals maintain their professional competence. Products are distributed with the understanding that neither the Corporation, any affiliate company, nor the editors are engaged in renderinglegal, accounting, or other professional advice. If legal advice or other expertassistance is required, the personalized service of a competent professionalshould be sought. Persons using these products when dealing with specificlegal matters should also research original sources of authority.PRINTED IN THE UNITED STATES OF AMERICA
About Perkins CoieWith more than 1,000 lawyers in 19 offices across the United States andAsia, Perkins Coie LLP represents great companies across a wide range ofindustries and stages of growth—from startups to FORTUNE 50 corporations. For more information about Perkins Coie LLP, please visit the firm’swebsite at www.perkinscoie.com.Lead AuthorsSonny Allison regularly counsels public and private companies and privateequity funds in corporate transactions, corporate governance matters andsecurities law compliance matters. He has extensive experience with publicand private mergers and acquisitions, leveraged buyouts and recapitalizations, tender offers and going private transactions, asset acquisitions anddispositions, initial public offerings, follow-on offerings, PIPE and 144Atransactions and private placements.(This page has been left blank intentionally.)Justin Bastian represents private companies, public companies and financialinstitutional clients in a wide range of equity offerings and debt financings.He has guided clients through more than 100 public offerings in such industry sectors as semiconductors, technology software and hardware, cleantechnology, REITs, Internet and communications. Justin works with clientson SEC, public reporting and other regulatory compliance issues, andfinance.Eric DeJong has over 25 years’ experience providing transactional, governance and securities-related advice to public and private companies in a widerange of industries. He has a broad range of securities offering experience,including initial and follow-on public offerings, debt offerings and PIPEfinancings and regularly advises public companies on SEC reporting, disclosure and corporate governance matters.Nora Gibson has lead more than 100 initial and follow-on public offerings,primarily by growth-oriented technology and biotechnology companies. Sherepresents emerging growth companies and investment banks in registeredpublic equity and debt offerings, 144A private placements, private investment in public offering transactions (PIPEs) and mezzanine-level privateplacements. Her deal portfolio includes major financings across a range ofindustries, including mining, semiconductors, technology hardware andcomputing, Internet media, pharmaceuticals and life sciences.
Chris Hall focuses his practice on serving clients in the areas of corporatefinance, mergers and acquisitions and private equity. He manages complextransactions, including public offerings, for mid- market companies, and isadept at handling transactions having strategic importance to a company’sfuture or particularly difficult issues.David McShea focuses on the representation of high growth technologycompanies, public companies and venture capital firms. He has handlednumerous significant transactions including the initial public offerings ofAmazon and Zillow, mergers and acquisitions, public equity and debtfinancings, startup financings and venture capital financings. David has beenselected four times by Best Lawyers as ‘‘Lawyer of the Year’’ in Seattle incorporate law areas. He is a frequent speaker on startups, venture capital,IPOs and corporate governance.Contributing AuthorsWe gratefully acknowledge the contributions of the following Perkins Coiecolleagues:Danielle Benderly, PortlandDavid Clarke, SeattleNick Ferrer, SeattleTimothy Fete, Jr., DenverAllison Handy, SeattleDavid Katz, Los AngelesSean Knowles, SeattleStewart Landefeld, SeattleDavid Matheson, PortlandBobby Majumder, DallasAndrew Moore, SeattleSarah Rivard, SeattleLee Schindler, SeattleJohn Thomas, PortlandRoy Tucker, PortlandFaith Wilson, SeattleLior Zorea, Palo AltoWe wish to specifically acknowledge IPO Vital Signs, a product of CCH, aWolters Kluwer Company, for providing valuable statistics included in thisHandbook.The authors welcome your comments and suggestions via email:Sonny Allison: SAllison@perkinscoie.comJustin Bastian: JBastian@perkinscoie.comEric DeJong: EDejong@perkinscoie.comNora Gibson: NoraGibson@perkinscoie.comChris Hall: CHall@perkinscoie.comDavid McShea: DMcShea@perkinscoie.com
TABLE OF CONTENTSPerkins Coie LLPwww.perkinscoie.comPageAnchorage1029 W. Third AvenueSuite 300Anchorage, AK 99501Denver1900 Sixteenth St.Suite 1400Denver, CO 80202San Diego11988 El Camino RealSuite 350San Diego, CA 92130Beijing2 S/F South TowerBeijing Kerry Center1 Guang Hua RoadChao Yang DistrictBeijing, China 100020Los Angeles1888 Century Park EastSuite 1700Los Angeles, CA 90067San Francisco505 Howard StreetSuite 1000San Francisco, CA 94105Madison1 East Main StreetSuite 201Madison, WI 53703Seattle1201 Third AvenueSuite 4900Seattle, WA 98101New York30 Rockefeller Plaza22nd FloorNew York, NY 10112Shanghai16F, Hang Seng BankTower1000 Lujiazui Ring RoadPudong New AreaShanghai 200120BellevueThe PSE Building10885 N.E. Fourth StreetSuite 700Bellevue, WA 98004Boise1111 W. Jefferson StreetSuite 500Boise, ID 83702Chicago131 S. Dearborn StreetSuite 1700Chicago, IL 60603Dallas500 N. Akard StreetSuite 3300Dallas, TX 75201Palo Alto3150 Porter DrivePalo Alto, CA 94304Phoenix2901 N. Central AvenueSuite 2000Phoenix, AZ 85012Portland1120 N.W. Couch StreetTenth FloorPortland, OR 97209TaipeiTaipei 101 TowerSuite F, 45 FloorNo. 7, Section 5 Xinyi RoadTaipei, Taiwan 11049Washington, D.C.700 Thirteenth Street NWSuite 600Washington, D.C. 20005Chapter 1—Contemplating an IPO: Benefits and Costs of theIntroduction . . . . . . . . . . . . . . . . . . . . . . . . . . .Initial Considerations . . . . . . . . . . . . . . . . . . . . . .Costs of an IPO . . . . . . . . . . . . . . . . . . . . . . . . .Costs of Maintaining a Public Company . . . . . . . . . .Advantages and Disadvantages of Being Public . . . . . .IPO and Being Public. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Chapter 2—Picking the Players: Selection of Underwriters and Advisors .Top Questions to Ask When Selecting Underwriters . . . . . . . . . .A Note About Analyst Coverage . . . . . . . . . . . . . . . . . . . . . .The Role of Legal Counsel and Auditors . . . . . . . . . . . . . . . . .111234.991315Chapter 3—Building Your Foundation: Public Company Considerations andRequirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Organizational and Preliminary Matters . . . . . . . . . . . . . . . . . . .Basic Organizational Matters . . . . . . . . . . . . . . . . . . . . . . . . . .Accounting Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Liquidity Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Equity Compensation Programs . . . . . . . . . . . . . . . . . . . . . . . .Good Fences Make Good Neighbors—Anti-Takeover Considerations . .Common Anti-Takeover Protections . . . . . . . . . . . . . . . . . . . . . .Corporate Governance, Transparency and Oversight . . . . . . . . . . . .161616202324262932Chapter 4—Focus at the Top: The Board of Directors . . . . . . . . . . . . . . . . . .Corporate Governance and the Public Company Boardroom . . . . . . . . . . . .Assembling a Public Company Board . . . . . . . . . . . . . . . . . . . . . . . . . .Requirement of a Majority of Independent Directors . . . . . . . . . . . . . . . .Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Key Board Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Rules of the Road—Legal Responsibilities . . . . . . . . . . . . . . . . . . . . . . .Basic Board Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Securities Law Duties (and Liability) of Directors in Connection With an InitialPublic Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Indemnification of Directors and Officers and D&O Liability Insurance . . . . .3434343535364545Chapter 5—The JOBS Act: Emerging Growth Companies and the IPO On-RampIntroduction to the JOBS Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . .What Is an ‘‘Emerging Growth Company? . . . . . . . . . . . . . . . . . . . . .The On-Ramp: Benefits Available to EGCs in the IPO Process . . . . . . . . .Other IPO Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Other Benefits Available to Emerging Growth Companies . . . . . . . . . . .515152535858. . . .61.626263646567676970707172Chapter 6—The IPO and the IPO Process . . . . . . . . . . . . . . . . . . . . . .Overview of the Registration Process—the Pre-Filing Period, the WaitingPeriod, Effectiveness and the Post-Effective Period . . . . . . . . . . . . . .The Pre-Filing Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Filing the Registration Statement and the Waiting Period . . . . . . . . . .Effectiveness and the Post-Effective Period . . . . . . . . . . . . . . . . . . .Possible Dangers of Recent Private Placement . . . . . . . . . . . . . . . . .Learn and Tell: Fundamentals of Due Diligence and Disclosure . . . . . .Due Diligence: Getting a Head Start . . . . . . . . . . . . . . . . . . . . . .D&O Questionnaire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Backing Up the Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Getting Comfort From the Auditors . . . . . . . . . . . . . . . . . . . . . . .Underwriters’ ‘‘Business’’ Due Diligence . . . . . . . . . . . . . . . . . . . .Disclosure—Drafting, Filing and SEC Review . . . . . . . . . . . . . . . . .4648
PageSource of Disclosure Requirements—Form S-1, Regulation S-K and Rule 10b-5Regulation G: Beware of the Use of Non-GAAP-Based Financial Disclosure inthe Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Exhibits and Confidential Treatment . . . . . . . . . . . . . . . . . . . . . . . . . .Third-Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Listing on the Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Exchange Act Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Chapter 7—Publicity and Communications . . . . . . . . . . . . .The Pre-Filing Period—Don’t Jump the Gun . . . . . . . . . .Ongoing Communication of ‘‘Factual Business Information’’Permitted Announcements During the Pre-Filing Period . . .Testing the Waters by Emerging Growth Companies . . . . .Post-Filing—Written Offering-Related Communications . . .Press Releases and Other Offering Notices . . . . . . . . . . .Free-Writing Prospectus . . . . . . . . . . . . . . . . . . . . . .Updating Website and Consistency With Disclosure . . . . .Chapter 8—Kick-Off: The Organizational Meeting . . . .Prepare, Prepare, Prepare: The Strategic Advantage ofAgenda for the Organizational Meeting . . . . . . . .Offering Schedule . . . . . . . . . . . . . . . . . . . . . .Management Presentations and Discussion of Issues .Selecting a Printer . . . . . . . . . . . . . . . . . . . . . .868689919293939395. . . . . . . . . . . . . . . .the Over-Prepared Issuer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .979797101101102.8182848485.Chapter 9—Raising the Capital: Underwriting and Distribution . . . . . . . . .Timing the Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Amount to Be Raised; Price Per Share . . . . . . . . . . . . . . . . . . . . .Distribution of the Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Selling Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Lockups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Directed Share or ‘‘Friends and Family’’ Programs, and Other VariationsThe Underwriting Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . .Purchase and Sale of Shares—Basics and the ‘‘Green Shoe’’ . . . . . . . . .Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . .Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Closing Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Indemnifying the Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . .Underwriter Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ter 10—Price, Close and Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . .Conclusion of the Road Show and Effectiveness of the Registration StatementEvents Leading to Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .What Is Pricing and What Happens . . . . . . . . . . . . . . . . . . . . . . . . . .Upsizing the Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Closing and Closing Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . .Exercise of Over-Allotment Option . . . . . . . . . . . . . . . . . . . . . . . . . .Post-IPO Reporting and Compliance Responsibilities . . . . . . . . . . . . . . .120120120122124125126126Chapter 11—So Now You Are Public: Navigating the New Environment . . . .Maintaining a Public Company Boardroom . . . . . . . . . . . . . . . . . . .Board Committees: Requirements Generally and Under NYSE and NasdaqPhase-In of Committee Independence Requirements . . . . . . . . . . . . . .Committee Details and Responsibilities . . . . . . . . . . . . . . . . . . . . . .Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Compensation Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Nominating and Governance Committee . . . . . . . . . . . . . . . . . . . . .Key Public Company Governance Policies . . . . . . . . . . . . . . . . . . . .Corporate Governance Guidelines (NYSE) . . . . . . . . . . . . . . . . . . . .128128129130130130132133133134.PageCode of Business Conduct and Ethics . . . . . . . . . . . . . . . . . . . . . . . .Whistleblower Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Public Company Reporting and Disclosure . . . . . . . . . . . . . . . . . . . . .Periodic and Current Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . .The Annual Proxy Statement and Annual Report to Stockholders . . . . . . .The Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .The Annual Report to Stockholders . . . . . . . . . . . . . . . . . . . . . . . . .Voluntary Public Disclosure Under Regulation FD . . . . . . . . . . . . . . . .Insider Reporting and Trading Restrictions . . . . . . . . . . . . . . . . . . . .Section 16 Reporting Obligations of Directors, Executives Officers and 10%Beneficial Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Section 16(b)—Short-Swing Profit Liability . . . . . . . . . . . . . . . . . . . .Schedules 13D and 13G Reporting Requirements for 5% Stockholders . . .Rule 144 Restrictions on Trading Restricted and Control Securities . . . . . .Conflict Minerals Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . r 12—IPO as an Exit: Special Considerations for Private Equity and VentureCapital Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Time to Exit? Part I—Is an IPO Right for You? An Overview . . . . . . . . . . .Time to Exit? Part II—IPO as Stalking Horse, or the Only Way Out . . . . . . .Time to Exit? Part III—Getting Liquidity Post-IPO . . . . . . . . . . . . . . . . . .What Happens to My Eco
mentorship and leadership, and for serving as a role model of what it means to be a professional. (This page has been left blank intentionally.) About Perkins Coie With more than 1,000 lawyers in 19 offices across the United States and Asia, Perkins Coie LLP represents great companies across a wide range of
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entrepreneurs, providing insight regarding the origins of capital market gaps and the effects of capital constraints on firms. Policy infrastructure. Entrepreneurs and capital entrepreneurs can be at the table to assert their voices when lawmakers and regulators are forming policies that affect the functioning of capital markets for entrepreneurs.
A Guide to Resources for Maine Entrepreneurs Greetings. This guide is a starting point for entrepreneurs seeking resources in the state of Maine. It is also designed to help individuals and organizations that support and guide entrepreneurs and startups and are looking for ways to match resources with those in need.
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