Kingdom of Saudi Arabia IPO Participants Who are they?

An Overview of the Processes How long are the processes? Why are they needed? Sequence and timing?

........................................................... 7 Financial Printer .......................................................................................................................................... 9 Road Show Consultant ............................................................................................................................................................................................................................................................................................................ 3 Company Management ................................................ 9 4................................................................................................................................................................. 9 Six to Twelve Months before the Organizational Meeting ........................................................................................................................... 2................................... 8 Transfer Agent .............................................................................................. 11 One to Two Months after the Organizational Meeting .......................................................................................................................................................................................................... 4 Independent Accountants .............. 3 Securities Law in a (Tiny) Nutshell ........................... 9 Compensation Consultant.................................................................................................................................................................................................................................................................................. 8 TADAWUL ..................................................................................................................................................................................................................................................... 3 Roles of IPO Participants ........................................ 6 Research Analysts .................................................................................... 12 Three to Four Months after the Initial Submission Form Filing ........ 7 Other Participants ..................... 12 Page | 2 ........................ 9 Accounting Consultant ....................................................................................... 11 The Organizational Meeting .................................................................................................................................................................................. 4 Company Counsel .................................................................. Introduction ......... 3 Board of Directors and Board Committees ............................................................................................................................................................................................ 3............................................................................................... 5 Pre-IPO Stockholders ................................. 8 Virtual Data Room Provider . 10 Three to Six Months before the Organizational Meeting ................ 11 One to Three Months after the Initial Submission FormFilling ..............Contents 1................................................................ 7 Securities and Exchange Commission . 6 Managing Underwriters ........................................................................................................ 9 Investor Relations Firm .................................................................................. 7 Underwriters’ Counsel ........................................................................ 10 One to Three Months before the Organizational Meeting .................................................................................................................... Sequence and Timing of Events in the IPO Process ............................................................................... 8 Tadawul Depository ................... 9 Electronic Road Show Host ..............................................................................................

The typical roles of the IPO participants are described briefly in the following sections and elaborated on throughout this document. counsel. the size and composition of the offering. the CMA provides laws that: • • • • • Require registration of the sale of the shares in an IPO Require mandatory disclosure of business and financial information in a prospectus. and the selection of counsel and other advisors. board of directors. In the IPO process. Tadawul (the stock exchange on which the common stock) is to be listed.1. a road show consultant. The company’s CEO and CFO manage the IPO process for the company and serve as the liaisons between the board of directors and working group. The CEO and CFO are also the company’s primary contacts with the underwriters—these officers usually have developed relationships with the managing underwriters and their research analysts in the months leading up to the organizational meeting. the managing underwriters. Introduction This document focuses on who the participants are when a Company is preparing to go public and throughout the rest of the Offer process. the CMA. Many of these requirements apply to all securities offerings. not to mention colorful phrases such as “green shoe” and “red herring. Tadawul Depository. an electronic road show host and. Roles of IPO Participants The principal participants in the IPO process are the company’s management. Working with company counsel. They make recommendations to the board concerning fundamental matters such as the decision to go public. Securities Law in a (Tiny) Nutshell A brief overview of the principal tenets of the IPO registration process will help set the context for all that follows. for many companies. The CMA review of such disclosure. the CEO and CFO lead the company’s IPO preparations in the areas of corporate governance. Prohibitions on misrepresentations and fraud. In a nutshell. and public company education. The going-public process also involves a healthy dose of industry custom. and. and Civil liability and CMA enforcement for violations Layers of complexity and nuance accompany these concepts. while others are unique to IPOs. Supporting roles are played by a financial printer. and underwriters’ counsel. Company Management Company management is essential to the success of an IPO. a compensation consultant. from the planning stage to the organizational meeting and on through the closing public company education 2. of course. but at the most basic level they set the stage for the entire IPO process. a transfer agent. a virtual data room provider. and pre-IPO stockholders. executive compensation.” 3. research analysts. the CFO supervises the development of the company’s internal controls and coordinates accounting preparation with the independent accountants. an investor relations firm. independent accountants. the CEO generally Page | 3 . and an accounting consultant. the selection of managing underwriters. This section begins with a sketch of: • • • • the concepts that shape the entire IPO process the roles played by the principal IPO participants a high-level view of the timing and major steps in the IPO journey. The document will also cover the Sequence and Timing of Events throughout the IPO Process.

educates the company about publicity restrictions while in registration. the often labyrinthine maze of securities law statutes. IPO preparations. for some matters. and review the relevant portions of the Form to be submitted to the CMA. Skilled company counsel can often make up for gaps in the knowledge and experience of other participants. are the company’s principal points of contact with the capital markets through earnings conference calls. and various other tasks. marketing. and underwriters’ counsel about the company’s business. while inexperienced company counsel will magnify the limitations of others involved. The senior human relations office assists in the development of public company compensation arrangements. controls. following the IPO. company counsel assists the company with “corporate housekeeping” and other IPO preparations. The controller helps develop the company’s internal controls. the managing underwriters. may serve as the company’s principal accounting officer. through committees—must make the threshold decision to pursue an IPO. support. Although it would be atypical for directors (other than the CEO) to attend drafting sessions. the board—directly or. Once CMA comments arrive. Other members of management serve important. ensure that appropriate policies. and an equally important patchwork of CMA interpretations. investor presentations. The CEO and the CFO conduct road show presentations and. respond to due diligence requests within their areas of expertise. depending on the CFO’s background. and manufacturing—help educate company counsel. The leaders of other business functions—such as research and development. management coordinates the company’s responses with counsel. the board should be afforded ample opportunity to review and comment on the Submission Form. approve various matters related to the IPO. and sign. company counsel guides the company through the entire IPO process. The general counsel participates in drafting sessions and works with outside counsel on due diligence. Company Counsel Company counsel coordinates the overall IPO process and the efforts of the working group. but less visible. and authorize the filing of. and other public communications. Both attend drafting sessions and help prepare the Submission Form. sales. and procedures are in place. and tendencies. Board committees also play integral roles in the IPO process. select the managing underwriters. since the CD&A describes the principles underlying the company’s executive compensation policies and decisions. coordinates the company’s responses to the due diligence requests of the managing underwriters. has the principal responsibility for preparation and revision of Page | 4 . once established. (As a practical matter. rules and regulations. the compensation committee should participate in the preparation of the CD&A itself. Public relations or investor relations personnel help manage the public communications associated with the IPO. preferences. practices. The compensation committee should review the CD&A for inclusion in the prospectus. Among other things. Among other tasks. oversee the preparation of the Submission Form. roles. should assist in the development of governance-related matters. responds to legal due diligence requests of underwriters’ counsel. while the CFO naturally gravitates toward financial and accounting matters. Board of Directors and Board Committees The board’s fiduciary duties and oversight responsibilities1 naturally extend to the IPO process. The audit committee should review the financial statements included in the Submission Form. reassess compensation programs in the context of becoming a public company.serves as the company’s chief evangelist and strategic visionary. Sometimes having the most IPO experience among all offering participants.) The nominating and corporate governance committee. establish an appropriate governance structure. advises the company regarding required notices and consents. supports the CFO in creating the company’s financial model and forecasts. the Submission Form. serves as a key contact with the independent accountants and.

or “bring-down.” comfort letter at closing. Independent Accountants In addition to its principal role of auditing the company’s financial statements and reviewing any interim financial statements that are not audited.the Submission Form and responses to CMA comments. guidelines. The audit firm also renders a “comfort letter” to the underwriters at the time the underwriting agreement is signed and an updated. coordinates arrangements with any selling stockholders. Company counsel also coordinates arrangements with the transfer agent and the Depository company. As part of the company’s IPO planning process. including potential liabilities. advises the company regarding IPO marketing restrictions. During the registration process. prepares public company charters. makes board presentations regarding the Submission Form and other IPO topics. leads the filing process for the Form to be submitted to the CMA and any amendments. helps directors and officers make their initial section 16 filings. and helps the company and board develop public company equity plans and other compensation programs. leads drafting sessions. helps the company identify required exhibits and prepares any needed request for confidential treatment. provides advice on appropriate accounting principles and identifies and addresses potential accounting issues. the audit firm confirms its eligibility to serve as independent registered public accountants. serves as the principal contact with the CMA and stock exchange for the offering. the company’s audit firm contributes to other parts of the IPO process. and often offers guidance regarding internal controls. and manages the closing. advises the company on compliance with Regulation S-X and other CMA accounting requirements. prepares and files the listing application with the stock exchange selected by the company for its common stock. the audit firm assists in the preparation of the financial portions of the Submission Form. Page | 5 . educates the company concerning the public company responsibilities and restrictions that will apply following the IPO. reviews and negotiates lockup agreements and the underwriting agreement. and other corporate governance materials for review and approval by the board. policies. and helps the company respond to accounting comments received from the CMA. advises management and the board regarding corporate governance requirements and best practices.

Managing Underwriter (Lead Manager) The managing underwriter plays a central role in the IPO process. the lead managers schedule one-on-one and group meetings and coordinate the road show process. allocating shares. other than in Bookbuilding and stabilization activities. and advise the company on capital market conditions. selecting underwriters’ counsel. Based on internally developed valuation models and an assessment of market conditions. and syndicate covering transactions. especially if they are selling shares in the IPO. and all stockholders are typically asked to sign lockup agreements. The managing underwriter usually includes one or more lead managers and several co-managers. Waivers or amendments of investor agreements—such as a waiver of registration rights or an amendment to reduce the minimum offering price to trigger the automatic conversion of preferred stock into common stock—may also be needed. organizing the road show. based on investor interest and market conditions. They are the intermediary between the company and IPO investors. recommending the final price and size of the IPO. Large stockholders need to complete questionnaires and supply information for Submission Form and CMA purposes. In many cases. the managing underwriters help the company crystallize its business positioning for presentation in the Submission Form. Through extensive business due diligence (conducted by representatives of the managing underwriters and sometimes supplemented by outside investigative agencies). The lead managers can also help the company anticipate market expectations regarding financial reporting and other public company matters. legal due diligence (conducted by underwriters’ counsel). and help stabilize the market when the lockup agreements expire and additional shares become eligible for public sale. Drawing on their familiarity with the company’s industry sector and its competitors. The co-managers generally participate in the offering process. the managing underwriters enhance the accuracy and completeness of the disclosure in the Submission Form and help ensure that the prospectus will address investor questions and will serve as an appropriate marketing document for targeted investors. establishing the underwriting syndicate. and stabilizing the market after the offering. although in recent years the participation of co-managers—particularly if there are two or more lead managers— has been increasingly circumscribed. After assisting management in preparing for the road show. building the “book” of orders. the founders of the company and outside investors affiliated with board members control sufficient shares to dictate all necessary stockholders decisions by written consent in lieu of a formal stockholder meeting (with notice to non-consenting stockholders. The lead managers arrange the underwriting syndicate and make a recommendation. if required by applicable law). as to the final number of shares and price of the offering. the lead managers help the company set the estimated size and price range for the offering and can advise the company as to the market’s tolerance for the inclusion of “secondary shares” to be sold by existing stockholders. passive market making activities. Major investors often review the Submission Form and get involved with the underwriting arrangements. including any electronic road show presentation. are primarily responsible for the support and development of an active trading market in the company’s common stock following the IPO. The lead managers are responsible for advising the board. but other non-management stockholders usually do not play any role in the preparation of the Submission Form or other aspects of the offering process. the lead managers seek to maintain an orderly market through the use of techniques such as stabilizing transactions. and active participation in drafting sessions. penalty bids. Following the closing. Page | 6 . conducting due diligence on behalf of the underwriting syndicate.Pre-IPO Stockholders The company’s pre-IPO stockholders must approve various matters in connection with the IPO.

Underwriters’ Counsel The managing underwriters will retain an outside law firm to serve as counsel to the underwriters in the offering. the company meets separately (without investment banking personnel present) with the research analysts employed by the managing underwriters to help them understand the company’s business model and develop their own forecasts of the company’s future results. enabling them to draw inferences and derive insights from publicly available information that are not apparent to ordinary investors. before or after the initial filing. If necessary. and additional document review and other due diligence steps are taken in parallel. Typically focusing on a single industry. Underwriters’ counsel conducts a legal due diligence investigation of the company and advises the underwriters on legal issues affecting the offering. the CMA issues stop orders or brings enforcement actions for violations of the federal securities laws occurring during (or after) the IPO process. Participation in drafting sessions by underwriters’ counsel serves both of these roles. since the managing underwriters have a strong interest in avoiding miscues. coordinates syndicate arrangements with the lead managers. and they are allowed to express their views to investment banking commitment committees. Company counsel coordinates disclosure issues and publicity questions with underwriters’ counsel. but they may communicate with prospective investors if investment banking personnel and company management are not present. research analysts become very familiar with the companies they cover. Just prior to the road show each of these research analysts will hold “teach-ins” with the institutional sales forces (without the company’s involvement) to educate them about the company and the offering. Securities and Exchange Commission The CMA reviews and comments on the Submission Form for nearly every IPO. Moreover. and make investment recommendations.Research Analysts Research analysts write reports about the company and its stock. the CMA’s objective is to improve the quality of the disclosure in the Submission Form. including issues relating to CMA review of the underwriting arrangements and questions relating to the separation of investment banking and research functions. such as important due diligence and publicity matters and other unusual or significant offering issues. Other Participants Various other parties also play roles—some minor but nonetheless necessary—in the IPO process. Underwriters’ counsel prepares the underwriting agreement and other underwriting documents. the CMA provides interpretive guidance regarding accounting and legal disclosure requirements. Rooted in its mandate to protect investors. Page | 7 . Although selected by the lead managers. Following the road show—and assuming the CMA’s comments on the Submission Form have been satisfactorily addressed and any application for confidential treatment has been granted or withdrawn—the CMA declares the Submission Form effective so the offering can be completed. develop earnings estimates. Most investment banking firms also require underwriters’ counsel to clear significant changes to the firm’s form of underwriting agreement with in-house counsel. The CMA also reviews and grants requests for confidential treatment of eligible portions of required exhibits. in-house counsel will be deeply involved on regulatory and compliance matters affecting the underwriters. Upon request. handles CMA filings and any necessary follow-up leading to CMA clearance of the underwriting compensation. underwriters’ counsel represents the entire syndicate. and collaborates with company counsel on the closing. Underwriters’ counsel will consult with in-house counsel for the lead managers on non-routine offering issues. Research analysts are prohibited from soliciting underwriting business or participating in IPO road shows. During the IPO process.

Once a bank has reached agreement with the investor to pledge shares the bank electronically forwards the details to the depository. Tadawul provides for the opening of accounts at both the banks and the depository. The original certificate 3. The shares are automatically flagged and cannot be traded or pledged by another Bank. if available. Tadawul supports all types of corporate actions. Each investor must open either an account with a bank (this is referred to as a Member Account) or directly with the depository (this is referred to as a Global Account). For example. Tadawul provides for speedy settlement and clearing of trades with transfer of ownership by computer book-entry occurring immediately after a buy order and a sell order are matched. in accordance with the following conditions: a) If the agent is the buyer. The original power of attorney. at the Tadawul office 2. shares held in the depository are easily pledged. Pledged shares may only be released by the Bank that originally pledged the shares. a statement of all transactions and holdings. An increase in the number of shares resulting from a corporate action is immediately reflected in the account (or accounts) of the shareholder (investors do not have to collect or wait for the delivery of certificates). Buyer’s portfolio number 6. Investors receive from their bank on a regular basis. Tadawul automatically validates the availability of the shares. NOTE: Shares Ownership Transfer: 1. TADAWUL The company must list on the Saudi Stock Exchange. Tadawul supports the full range of depository functions.Financial Printer The company will need to hire a financial printing firm to typeset the Submission Form. Investors may only trade through the banks where he or she has opened accounts. cash dividends can be paid directly into the bank account designated by the investor. The presence of both buyer and seller. prepare electronic filings for submission to the CMA’s system and print the preliminary prospectus and final prospectus. A Copy of the national IDs for the buyer and the seller 4. Rather than waiting for checks. Transfer Agent The transfer agent and registrar records shareholder’s stock ownership and cancels and issues stock certificates (while retaining the actual stock certificates). A Copy of a bank draft issued to the seller for the amount of sold shares OR an evidence of money transfer from the buyer’s account to the seller’s account 5. or their agents. but an individual investor may only open one account with the depository. b) The power of attorney should specify clearly the shares to be transferred (number of shares and the corresponding companies names) c) The power of attorney should be valid and it should not be older than two years Page | 8 . Tadawul Depository Tadawul serves as a clearing agency for the settlement of securities trades and acts as a depository. the power of attorney should state clearly that the agent has the right to transfer shares ownership to himself. Investors may open several Member Accounts with several banks.

a compensation consultant can advise the company on prevailing practices in areas such as executive severance and change-in-control agreements. Overall timing can vary widely. Among other tasks. many IPO companies—especially those companies whose management have never led an IPO—can benefit from a road show consultant. Compensation Consultant With the requirement to include a CD&A in the prospectus and an increasing focus on executive compensation matters by regulators and investors. however. Investor Relations Firm In light of the publicity restrictions that apply to an IPO. and the market must be ready for the company. as market conditions can change several times (negatively or positively) during the course of the IPO process. Total elapsed time: twelve to eighteen months. 4. and the offering typically is completed after another three to four months. Without both. Services offered by road show consultants range from professional writing and graphics capabilities to enhance the PowerPoint slides to presentation skills coaching for company management. however. Electronic Road Show Host Most IPOs include an electronic road show. The reality is that the company must be ready for the market. It is. an investor relations firm can provide professional assistance in developing the company’s ongoing investor communications programs and specific messaging in the context of important corporate events. depending on numerous factors within and outside the company’s control. there can be no IPO. After the IPO. many IPO companies now retain a compensation consultant. The Submission Form usually is filed one to two months later. board compensation. or for a company not to devote at least two to three months to IPO preparations in advance of the organizational meeting. to close an IPO in less than four or five months after the organizational meeting. Nor is the outcome of the IPO process certain. the company spends six to twelve months in some level of preparations before holding the organizational meeting that launches the formal process. Road Show Consultant Although the managing underwriters will assist the company in preparing for the road show. It is unusual. which is usually hosted by one of several vendors who provide this service and arranged by the managing underwriters.Virtual Data Room Provider Many IPO companies retain a financial printer or other vendor to establish and host a virtual data room to facilitate due diligence. such as acquisitions. some companies find it helpful to retain an accounting consultant to supplement the company’s internal accounting expertise. often possible to compress the phase prior to the organizational meeting. and stock plans. The length and uncertainty of the IPO process have several implications: • It is difficult to achieve the optimal timing for the offering. A substantial amount of management time and attention is diverted from normal business operations for an extended period of time. for example. Accounting Consultant When novel accounting issues arise during the company’s IPO preparations or CMA review. Page | 9 . In a typical IPO. and the company controls only half the equation. an investor relations firm’s role in the IPO process is ordinarily confined to road show assistance and helping set up the investor relations portion of the company’s website that will go live after the IPO is priced. Sequence and Timing of Events in the IPO Process The IPO process is not quick. and help design public company compensation programs.

as the level of IPO preparations picks up. and recruit new directors if any are to be added prior to the IPO. educate management about public company responsibilities and restrictions. identify and address outstanding loans to executive officers or directors. consider the composition of the board of directors and board committees. change-in-control and severance agreements. consider cheap stock issues. including the need to: • • • • • • • • • ensure the availability of all required financial statements. review arrangements with officers (employment. The first consequence listed above is unavoidable and simply means the company may need to delay an offering if market conditions become inhospitable or may have to push very hard to complete the IPO during a market window. begin to develop the internal control over financial reporting requirements. Three to Six Months before the Organizational Meeting This phase involves a mix of planning and implementation. commence the corporate housekeeping process. address any other accounting issues. but the company—guided by counsel—should: • • • • • • Page | 10 begin to develop corporate governance policies and practices. establish relationships with investment bankers and research analysts at targeted firms. Following is a high-level outline of what transpires during the IPO process: Six to Twelve Months before the Organizational Meeting After selecting new (or confirming incumbent) company counsel and independent accountants. develop disclosure controls and procedures. and confirmation of offices and titles). including internal staff and outside advisors. evaluate the need for additional financing prior to the IPO closing and assess the availability of exemptions from registration. During this time period. IPO activities do not yet dominate management’s time. and .• The company incurs significant legal and accounting expenses in advance of—and even in the absence of—receiving any IPO proceeds. The company should plan for the other two consequences by building a deep management team before embarking on the IPO process and by budgeting sufficient resources to pay offering expenses as incurred. assemble the IPO team. including changes in accounting policies and practices that will need to be implemented in order to report as a public company. consider the treatment of other related person transactions. the company attends to longer-range items during this phase of the IPO process.

determine material contracts that must be filed. efforts intensify as IPO preparations begin to demand a substantial portion of management’s time and attention. including stock plans. and the desired mix of institutional and retail investors. Company counsel will now be deeply involved. 5% stockholders. hear in-depth presentations from management regarding the company and its business. hold a pre-filing conference with the CMA to resolve any novel accounting or legal issues that might impede the IPO One to Three Months before the Organizational Meeting In this phase. and identify the portions for which confidential treatment will be sought. managing underwriters. and the independent accountant will: • • • • • • review the basic IPO terms. circulate questionnaires to directors. evaluate the company’s registration rights and IPO participation obligations. review quiet period restrictions and the company’s publicity plans. officers. file the Submission Form and any confidential treatment request with the CMA. and discuss the business section of the draft Submission Form. establish an external communications policy and avoid false start issues. obtain signed lockup agreements. prepare for due diligence by the underwriters and underwriters’ counsel. ensure availability of electronic versions of those contracts. and submit a listing application to Tadawul Page | 11 . respond to due diligence requests from the underwriters and underwriters’ counsel. company counsel. if available One to Two Months after the Organizational Meeting This is the busiest phase of the IPO process for the entire working group and a period of intense activity for management and company counsel as they: • • • • • • • • • • participate in drafting sessions. review the Submission Form with the board and obtain board approval. review prior stock issuances and option grants and remedy any deficiencies. identify required amendments or waivers under financing documents or other contracts. and selling stockholders to elicit required information. the IPO working group—management. and select the lead managers and/or co-managers The Organizational Meeting At an all-day organizational meeting. negotiate the underwriting agreement. continue public company preparations. continue drafting the Submission Form and prepare the prospectus cover artwork. underwriters’ counsel. apply to Tadawul for a common stock listing and reserve a trading symbol. arrange for D&O insurance prior to closing and consider indemnification agreements. discuss the proposed timeline and timing considerations. review and revise the company’s website. including the anticipated size and composition of the offering and over-allotment option.• if necessary. discuss due diligence arrangements. consider takeover defenses. with the working group’s input. consider board and executive compensation matters. particularly the business section. as the company needs to: • • • • • • • • • • • • • begin drafting the Submission Form.

management prepares for the road show (with assistance from the lead managers). public company preparations are concluded. preliminary prospectuses are printed. and company counsel: • • • • • with the working group’s input. Three to Four Months after the Initial Submission Form Filing In this final phase of the IPO process. the CMA declares the Submission Form effective the offering is priced. the co-managers are selected (if not chosen before the initial Form S-1 filing). and the closing is held seven days later Page | 12 . the comfort letter is delivered and the common stock begins trading. respond to additional due diligence requests and update responses to the original requests.One to Three Months after the Initial Submission Form Filling After a lull of roughly thirty days. and continue public company preparations Also during this period. the following occur: • • • • • • • • • • CMA comments are cleared. the underwriting agreement is signed. and educate the sales forces of the managing underwriters concerning the offering. acceleration requests are filed with the CMA. and the lead managers organize the underwriting syndicate and selling group. prepare internal sales memoranda describing the company and its investment highlights. during which the company awaits the CMA’s initial comments. finalize arrangements with any selling stockholders. CMA clearance of the underwriting arrangements is obtained. finalize the underwriting agreement. the road show is conducted. revise the Submission Form in response to CMA comments (typically three to five cycles over approximately two months). any remaining due diligence requests from the underwriters and underwriters’ counsel are addressed. with a typical process consisting of 50 to 100 presentations in ten to fifteen cities in the United States and Europe over a period of two to three weeks. a registration statement is filed with Tadawul to register the common stock. management.

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