“The New Game Plan ForAn IPO”

“The New Game Plan ForAn IPO”

Brett White

Cooley Godward

May 19, 2001

Why Go PublicWhy Go Public

1. Growth Capital at Best Available Valuation

2. Currency for Future Acquisitions

3. Liquidity for Management and Other Shareholders

4. Validation of the Company

Why Not Go PublicWhy Not Go Public

1. Lose Ability to be Quick, Silent and Nimble

2. Big Drain on Management Time

3. Open Kimono to Competitors

4. Employee Recruitment and Retention More Difficult

Why Not Go Public (continued)Why Not Go Public (continued)

5. High Administrative Cost

6. Attracts Lawsuits of all Sorts

7. Can Cause Complacency; Lack of Focus

Can You Go Public?Can You Go Public?

It’s a tough market out thereMaturity of the company

Revenue and profitability expectations

IPO Pricings By QuarterIPO Pricings By Quarter

68

133144 144

136

102

133

56

24

0

20

40

60

80

100

120

140

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q

1999 2000 2001

# of

IP

O P

rici

ngs

IPO Pricing By Industry2000

IPO Pricing By Industry2000

Telecommunications

Computer Software & Services

BiotechnologyElectronics

Computer Hardware

Energy

Other (non-technology)

(122)

(87)

(12)(78)

(50)(41)

(21)

IPO Pricing By Industry1Q 2001

IPO Pricing By Industry1Q 2001

Energy

Drugs

Computer Software & Services

Electronics & Miscellaneous

Technology

Computer Hardware

Other (non-technology)

(8)

(6)

(1)

(3)

(1)(2)

Pre-IPO PlanningPre-IPO Planning

1. Legal Due Diligence Review

2. Review Capitalization Issuesa. Stock split (want to get into the “range”)

b. Authorized Capital

c. Automatic conversion of preferred stock

d.Rule 701 compliance

Pre-IPO Planning (continued)Pre-IPO Planning (continued)

3. Board of Directors Makeupa. Nasdaq listing requires three independent

members for audit committee

b. Underwriters may require other changes

c. Audit and Compensation Committees

4. Accounting Issuesa. Revenue recognition (SAB 101)

b. Cheap stock review

c. Option Repricings

Pre-IPO Planning (continued)Pre-IPO Planning (continued)

5. Delaware Reincorporation

6. Employee Stock Matters

7. Anything Else that Requires Stockholder Approval

8. Publicity

Choosing An UnderwriterChoosing An Underwriter

1. How interested are they?

2. Transaction experience

3. Industry capability

4. Distribution knowledge

5. After deal research and support

6. Preliminary valuations

The IPO ProcessThe IPO Process

1. Once you have chosen an Underwriter, you are now “in registration” and in the “quiet period”

2. Initial Organization Meetinga. Review the schedule

b.Discuss offering terms

c. Review legal issues

d.Accounting issues

e. Publicity issues; industry conferences

f. Directed shares

The IPO Process (continued)The IPO Process (continued)

3. Company Diligence Sessions and Draftinga. Management must be involved heavily

b. During this time, Underwriters conduct their customer and legal due diligence

The IPO Process (continued)The IPO Process (continued)

4. File Registration Statementa. Generally 4-6 weeks after Org. Meeting

b. You are now in the “waiting period”

5. Address Other Itemsa. Nasdaq Listing

b.Stockholder Approvals

The IPO Process (continued)The IPO Process (continued)

6. Obtain SEC comments (30 days after filing) and respond (usually one week or so)

7. Road Show (2-2½ weeks; respond to further SEC Comments)

8. Pricing the deal and going “effective”

SEC Hot IssuesSEC Hot Issues

1. Cheap Stock

2. Gun-Jumping

3. Revenue Recognition

4. Directed Shares

5. Stock Option Repricings

What Happens After IPO?What Happens After IPO?

1. Ongoing Reporting

2. Dancing with Wolves - Analysts