NEW YORK STOCK EXCHANGE

IPO Guide

Legal

Accounting

Investment bank/depositary receipts

Transfer agent

Investor relations

Proxy solicitor

Insurance broker/risk advisor

Financial printer

Web-based communication tools

Publisher Timothy Dempsey Consulting publisher Brian Curran, NYSE Euronext Editor Carolyn Boyle Consulting editors Nicolas Grabar and Sandra L Flow, Cleary Gottlieb Steen & Hamilton LLP Production Richard Proctor The NYSE IPO Guide is published by Caxton Business & Legal, Inc 27 N Wacker Drive, Suite 601 Chicago, IL 60606 United States Tel +1 312 361 0821 Fax +1 312 278 0821 www.caxtoninc.com Printed by Bowne & Co, Inc ISBN 978-1-905783-45-8 The NYSE IPO Guide © 2010 Caxton Business & Legal, Inc Copyright in individual chapters rests with the co-publishers. No photocopying: copyright licenses do not apply. DISCLAIMER This guide is written as a general guide only. It should not be relied upon as a substitute for specific legal or financial advice. Professional advice should always be sought before taking any action based on the information provided. Every effort has been made to ensure that the information in this guide is correct at the time of publication. The views expressed in this guide are those of the authors. The publishers and authors stress that this publication does not purport to provide investment advice; nor do they accept responsibility for any errors or omissions contained herein. The NYSE IPO Guide contains summary information about legal and regulatory aspects of the IPO process and is current as of the date of its initial publication (June 14, 2010). Although the NYSE IPO Guide may be revised and updated at some time in the future, the NYSE does not have a duty to update the information contained in the NYSE IPO Guide, and the NYSE will not be liable for any failure to update such information. The NYSE makes no representation as to the completeness or accuracy of any information contained in the NYSE IPO Guide. It is your responsibility to verify any information contained in the NYSE IPO Guide before relying upon it.

The NYSE IPO Guide

NYSE IPO Guide

1

US companies NYSE Euronext 93 24 59 25 25 29 5.Preface Duncan Niederauer Chief Executive Officer. Morgan (b) Identifying investor relations services provider Thomson Reuters 2. Morgan 2. Morgan 4. marketing and sale J.P.4 Personal risk management Marsh Inc 75 10 45 46 46 77 78 78 1. Morgan (b) Anti-takeover defenses and other governance matters Cleary Gottlieb Steen & Hamilton LLP 2. Inc 73 5 37 74 9 10 41 (c) Related party transactions Cleary Gottlieb Steen & Hamilton LLP 6. NYSE Euronext Introduction: Advantages of NYSE listing NYSE Euronext 1.1 Investors. The IPO process 3.P.3 Trading and repurchases Cleary Gottlieb Steen & Hamilton LLP 33 34 5. Communications 4.5 Providing for employees Cleary Gottlieb Steen & Hamilton LLP 3. 92 non-US companies NYSE Euronext Appendix III: NYSE Amex listing standards NYSE Euronext Appendix IV: NYSE financial continued listing standards.2 Indemnification Marsh Inc 6.P.P.4 Share ownership mechanics Computershare Limited 35 (a) Ownership reporting by shareholders Cleary Gottlieb Steen & Hamilton LLP (b) Reporting by insiders Bowne & Co.2 Building financial reporting infrastructure KPMG LLP 2.P.3 Preparing a communications strategy FD 2. Morgan 3 3.4 Obligations affecting shareholders 70 Appendix V: NYSE Amex continued 96 listing standards Contributor profiles 97 73 2 NYSE IPO Guide . Managing risk 6.3 Communication mechanics (a) Investor relations tools Thomson Reuters (b) Other communication mechanics Computershare Limited 4.3 D&O liability insurance Marsh Inc 6.1 Litigation (a) Legal standards Cleary Gottlieb Steen & Hamilton LLP (b) Class actions and derivative lawsuits Marsh Inc 6.2 SEC registration Cleary Gottlieb Steen & Hamilton LLP 3. Morgan 1. Obligations of a public company 5.3 The prospectus Cleary Gottlieb Steen & Hamilton LLP 3.4 Designing the capital structure (a) American depositary receipts J.4 Foreign private issuers J. Why go public? 1.P.3 Going public without an offering 10 J. 90 US companies NYSE Euronext Appendix II: NYSE listing standards. Morgan 11 79 48 13 14 14 81 50 83 50 14 87 55 55 15 57 Appendices 89 Appendix I: NYSE listing standards.1 Reporting requirements Cleary Gottlieb Steen & Hamilton LLP 5. Morgan 1.P.1 Choosing advisors (a) Retention of advisors/service providers J. analysts and employees (a) Communications with the market FD (b) Research analysts Cleary Gottlieb Steen & Hamilton LLP (c) Employee communications FD 4.P.2 Potential issues J.2 Listing standards NYSE Euronext 63 64 94 70 30 5.2 The proxy statement and the annual meeting Georgeson Inc 4.1 Process timeline J. Preparing to go public 2.4 Underwriting.1 Advantages of conducting an IPO J.

Preface NYSE IPO Guide 3 .

raising $7. we strengthened our ability to develop our business both inside and outside China. SolarWinds and DigitalGlobe. raised $182. Another advantage is an increased public awareness because IPOs often generate publicity by making our products known to a new group of potential customers. The stock rose 13% on its first day of trading. nearly 58% of the technology companies that qualified to list on the NYSE chose to do so. Meanwhile.” Listing on the NYSE. NYSE is working hard in Washington. a homebuilding and real estate company that went public in 2007. CFO Alceu Duilio Calciolari notes the advantages of going public: “The financial benefit in the form of raising capital is the most distinct advantage.Preface As you contemplate the journey from private to public enterprise. MaxLinear and Calix. NYSE Euronext can assist further with professional advice from its client-service teams and extensive network of professionals. a developer and a commercial market technology supplier. It may surprise some to learn that 40% of NYSElisted companies are small cap (market capitalization below $1 billion). In the case of Gafisa. the challenges ahead might seem daunting. and there is a lot to do. Choosing your market is a long-term decision. Since 2007. NYSE’s ongoing 4 NYSE IPO Guide market transformation continues to more closely align it with the technology sector as a customer. We are grateful to our partners on the project. also provided “better access to the financial market and higher liquidity with lower volatility. including Rosetta Stone. In addition. but to the superior services. You will also create exciting new investment opportunities for individuals and institutions. “As an NYSElisted company. Chief Financial Officer (CFO) Yancey Spruill named several reasons for choosing the NYSE: “Brand. NYSE Euronext .” said Chairman Xiaogong Jia. The adoption of a new NYSE listing standard in late 2008 enabled growth-stage.” Companies from other emerging markets are also finding their way to the NYSE. and post offering. “Our IPO would not have been the same without the splendor and pageantry that goes with being listed on the NYSE. reputation and higher listing standards that are a good filter for company quality. “We were delighted to join the NYSE and gain access not only to US investors. have proven to be incredibly valuable for us. including our publisher and expert contributors who worked tirelessly on this publication.6 million in October 2007. with whom you will need to be transparent through good times and bad. such as Sensata Technologies. high-touch model – expanded our US listing venue options to companies of all sizes and maturity. might have to be satisfied. which raised more than $8 billion and listed simultaneously in Brazil and the United States. The IPO of Longtop Financial Technologies Ltd. president and chief executive officer. as an applied technology company. for a CFO. We look forward to working with you through your IPO journey and wish you success in obtaining this significant corporate milestone. Another Brazilian IPO was that of Gafisa SA. By accessing the US public equity market via your IPO. he says. Collectively. And should the going subsequently get tough. was the largest IPO ever conducted by a Brazilian company and the largest in the world since March 2008. raised $280 million in gross proceeds.” Spruill’s advice to those contemplating an IPO? “Get out ahead of the work flow early. who is also MaxLinear’s chairman. Duncan Niederauer Chief Executive Officer. making it possible for shareholders to take larger positions in our stock. global competitiveness and tax policies.” and the acquisition of the American Stock Exchange – rebranded NYSE Amex and now running on the same technology platform with the same high-tech. the capital was used to develop the company mainly through accelerated organic growth and M&A opportunities. venture-backed companies to list directly on the “Big Board. The offering. priced above its range and soared 34% on its first day of trading. NYSE Euronext has grown to become a leading marketplace for entrepreneurial companies of all sizes and sectors.” Beyond technology. if any.7 billion in IPO proceeds. he says that “the association with the NYSE brand is a strong positive with our customers and other stakeholders. A company that qualifies for listing can normally expect its shares to be admitted to trading within four to six weeks of filing its original listing application. the NYSE is experiencing an uptick in non-US IPOs. a provider of radiofrequency and mixed-signal semiconductor solutions for broadband communication applications. this is an additional full-time job. you will stimulate job creation and innovation while tapping an attractive financing option to fuel your company’s growth. Crucial to that success is the decision of where to list. Investor appetite for the 2009 IPO of Banco Santander (Brasil) SA showed confidence in the IPO market and Brazil. market quality and brand visibility that come with listing on NYSE Euronext markets. we hope to help you understand and navigate a complex process that will ultimately lead to a positive and successful IPO experience. I am excited about what the future holds – the creativity and entrepreneurial spirit that will drive the capital-raising process and help deliver untapped opportunities for issuers and investors worldwide. DC to represent listed companies on issues including corporate governance. 2010 IPO of MaxLinear. Your market will be a partner throughout your journey as a public company well into the future. It also provides support as an advocate on public policy and regulatory issues affecting all market participants.” said co-founder Kishore Seendripu. a leading software developer and IT services provider targeting the financial services industry in China. regulatory reform.” Meanwhile. This is in addition to many of the most visible tech IPOs of 2009. “The tools and support the NYSE provided as we headed into the IPO. For example. confidential review process to determine their eligibility and what additional conditions. a leading earth imaging and information company. NYSE continues to show leadership in listing growth-stage companies.” Now that the company is listed. the 2009 IPO of DigitalGlobe. The goal of this guide is to demystify the initial public offering (IPO) process.” Prospective listing applicants can avail of a free. especially portfolio companies of leading venture-capital and privateequity firms. For example. the March 24. the grandest and most historically rich bourse in the world. Early in 2010 NYSE listed some of the most important technology companies undertaking IPOs.

Introduction: Advantages of NYSE listing NYSE IPO Guide 5 .

marketing initiatives and more. They have parity with other orders in NYSE’s allocation model and may service customers using algorithms. closings and imbalances. 2. as well as corporate announcements and events. Meanwhile. ultrafast technology with the volatility buffer of human judgment. a market’s size and scope should also be considered when choosing a listings venue. Brussels. Floor brokers also use their booths as an “upstairs” trading desk to send orders to multiple markets. Today. On its exchanges in Europe and the United States.000 listed issues (excluding European structured products). Complementing the liquidity of other quote providers are SLPs: electronic. in Paris. NYSE Euronext offers a host of other visibility programs for its listed companies. DMMs serve as a buffer against market volatility. Hong Kong and Singapore. DMMs are among the most active trading firms on the NYSE. but also its customers around the world that are engaged in trading activities and operating exchanges. NYSE Alternext and NYSE Arca – represent one-third of the world’s equities trading. NYSE Market Access Center Another important factor to consider when choosing a listing venue is customer . such as times of market dislocation. NYSE Euronext continues to develop enhanced visibility services for European customers. To expand in the Middle East. investor or board meetings. NYSE Euronext and its affiliates have offices in Beijing. The NYSE is in the process of replacing the broker booths with modern trading desks to create a unified trading environment for upstairs and on-floor operations. it acquired a 20% stake in the Qatar Exchange. SLPs are trading firms deploying their own capital using proprietary trading models. when required. Lisbon. the most liquidity of any global exchange group. options. encourage market activity and help participants trade more efficiently. will offer one-stop access to liquidity with the highest levels of resilience and the lowest available latency (the time gap between trade placement and execution) to NYSE Euronext market participants.Introduction: Advantages of NYSE listing One of the most important decisions in the IPO process is choosing the right market for listing of the company’s securities. 3. NYSE Euronext trades equities. quote at the National Best Bid and Offer (NBBO) and facilitate price discovery during openings. NYSE Euronext is a global exchange operator with listings of 4. They have strong obligations to maintain an orderly market. New incentive-based quoting standards by issue have further increased the percentage of time and size the DMMs are at the NBBO. fixed-income and exchange-traded products. NYSE Euronext’s equities markets – the New York Stock Exchange. futures. and accountability. NYSE Euronext. which is further enhanced by supplemental liquidity providers (SLPs) and floor brokers equipped with new. one of the leading European derivatives exchanges and the world’s second-largest derivatives exchange by value of trading. NYSE Euronext is the only global exchange operator to own its own data centers. NYSE and NYSE Amex offer a combination of cutting-edge. Tokyo. it created the first international bell ceremony room. It operates six cash equities exchanges in five countries and six derivatives exchanges in six countries. Many listed companies return to the NYSE multiple times a year to use its facilities. NYSE Euronext also offers comprehensive commercial technology. The SLP program began in November 2008. one of the leading stock markets in the region. DMMs DMMs are at the center of the NYSE and NYSE Amex markets. Designated market makers (DMMs) add significant liquidity to the market. to expand in Asia. NYSE Euronext has built a universal trading platform that is being deployed to support not only its global exchange operations.000 companies from nearly 55 countries. New York and Paris – for analyst. This market structure establishes reliable price discovery at the opening. For example. including global investor conferences. in which NYSE Euronext has strategically invested $500 million. Many companies use NYSE Euronext’s global facilities – located in Amsterdam. The daily openings and closings also represent an opportunity for companies to elevate their own brand visibility. investor or board meetings. judgment. The NYSE features both a physical auction convened by DMMs and a completely automated auction that includes algorithmic quotes from DMMs and other market makers. algorithmic trading tools. the closing and during periods of volatility. The NYSE Euronext market model is designed to maximize liquidity. transfers. These brokers leverage their physical point-of-sale presence with information technologies and algorithmic tools to offer customers the benefits of 6 NYSE IPO Guide flexibility. initiatives and more. Global reach and visibility Beyond market structure and market quality. Several SLPs may be providing liquidity per issue. milestones. NYSE Euronext also operates NYSE Liffe. twin data centers in the greater New York and London metropolitan areas. 1. product launches. virtual investor forums and multimedia channels. increase liquidity and are obligated to maintain a fair and orderly market. highvolume members which are incentivized to add liquidity. As an innovative applied technology company in the financial space. London. connectivity and market-data products and services through NYSE Technologies. Beginning in 2010. which accounts for one-quarter of their activity. Floor brokers provide human expertise and value-added service to facilitate largersized institutional orders (block orders). Also providing liquidity on NYSE and NYSE Amex markets are trading floor brokers. With about 8. automation and anonymity with minimal market impact. Its footprint is broader than that of any other exchange group and it offers the most diverse array of financial products and services for issuers. as well as equity positions in the National Stock Exchange of India and India’s Multi Commodity Exchange. NYSE Amex. including the NYSE trading floor. investors and financial institutions. for analyst. where NYSE Euronext-listed companies can celebrate IPOs. with some firms choosing to locate their entire operations on the NYSE trading floor. The historic merger that resulted in the formation of NYSE Euronext created the world’s largest cash equities marketplace.

Successful companies require significant resources to build shareholder value. For example. NYSE Euronext has established FastPath. transparent and efficient. Fast-Path listing: gateway to the eurozone NYSE Euronext has also worked with regulators overseeing its markets in France. To facilitate this. Enlarge investor pool for global capital raising and attract greater visibility. companies listed or about to be listed on the NYSE or NYSE Amex can cross-list on NYSE Euronext’s European markets using their filings with the SEC. NYSE Euronext has sent numerous recommendations to regulators Recent Fast-Path transactions Company PartnerRe (Dec 09) Country Bermuda and lawmakers articulating companies’ views on existing or proposed rules and regulations. so companies can now avoid the need to draft and translate a separate Security Common shares Currency Euro Listing type Technical listing Purpose In connection with the company’s acquisition of NYSE Euronext-listed Paris Re in an all-stock transaction In connection with the company’s redomestication to Switzerland in 2009. particularly those designed to make markets more fair. Euronext regulators now accept documentation previously filed with the SEC to meet the EU Prospectus Directive requirements. Increase exposure to a broader investor base. Issuer advocate NYSE Euronext acts as an advocate for listed companies. the Netherlands. 5. Belgium and Portugal to make it easier for companies listed on its US markets to list on its European markets. a process that allows companies listed on the NYSE and other US markets to request admission for listing and trading on a European regulated market. which enables management to remain focused on its business objectives as a public company. with or without a simultaneous capital raising.Introduction: Advantages of NYSE listing service and the quality of products the marketplace offers. Create a tool for equity-based compensation for European-based employees and obtain greater visibility in Europe. It has actively encouraged a more flexible and principles-based application of the internal control provisions of SOX. prodded the SEC to accept International Financial Reporting Standards accounting standards as an alternative to US Generally Accepted Accounting Principles (GAAP). efficient and transparent markets – from short-sale trading issues to corporate governance reform. written comment letters to the SEC on behalf of non-US companies to oppose the shortening of the allotted time periods for filing financial statements in English and led the dialogue on mutual recognition of comparable regulatory regimes in foreign jurisdictions. from the cost of complying with the Sarbanes-Oxley Act of 2002 (SOX) to the difficulties of adhering to the United States’ intricate and idiosyncratic accounting rules. With Fast-Path. championing policies that are consistent with the values of fair. Provide European fund managers with a greater access to the company’s shares. Reduce compliance costs and promote liquidity. Weatherford International (Oct 09) Switzerland Common shares Euro Technical w/o capital raising Cliffs Natural Resources (April 09) US Common shares Euro Technical w/o capital raising Vale (July 08) Brazil ADS Euro Global offering to qualified investors Spin-off w/o capital raising Philip Morris International (March 08) US Common shares Euro Anheuser Busch (April 08) US Common shares Euro Transfer from LSE w/o capital Raising NYSE IPO Guide 7 . Consistent with the company’s growth and international diversification strategy. NYSE Euronext’s NYSE Market Access CenterSM is a full-service solution including global visibility and investor relations services. A number of issuers have elected to crosslist on Euronext to get closer to the European shareholder base and are inquiring about Asia as well. 4.

Transaction types available on Fast-Path are: • capital raisings (Form S-1 or F-1). the eurozone’s largest equity market. • branding and product visibility opportunities in all of NYSE Euronext’s European locations (London. A total of 50 companies are currently crosslisted on both NYSE and NYSE Euronext markets (as of December 2009). • euro-denominated acquisition currency. • spin-offs (Form 10). US GAAP and post-listing filings in English are both acceptable. easy and cost-effective access to listing and trading on NYSE Euronext. Paris. . the world’s largest source of capital. Documents filed with and reviewed by the SEC serve as the backbone for a listing prospectus. Fast-Path is valuable for any company looking to enhance its global profile. The overall process takes approximately five weeks once documentation is available. IV and V. To learn more about the NYSE and NYSE Amex listing standards. A FastPath listing provides a fast. Amsterdam. • commitment to a strategically important region (customer proximity. II. NYSE Euronext is the only exchange group offering a listing program with leading markets on both sides of the Atlantic for its listed companies. The result is quick. Recent transactions are outlined in the table on the previous page. support an international business or expand its non-US investor base. Cross-listed companies enjoy many benefits. and • technical listings (Form 10-K or 20-F). • a tool for employee stock purchase plans or equity incentive plans. commercial opportunities). SEC filings may be used to comply with the company’s ongoing obligations with Euronext regulators under the EU Transparency and Market Abuse Directives. easy and costeffective way to gain a presence in the European capital markets. • access to European investors and a diversified shareholder base. please see Appendices I. III. Documentation review by a European regulator usually takes 10 to 15 business days.Introduction: Advantages of NYSE listing prospectus to be admitted to trading in Europe. and • a facility for future capital raisings and/or M&A activity With Fast-Path. • media coverage which can enhance their global profile. issuers benefit from simplified periodic reporting obligations. Brussels and Lisbon). such as: • a simplified way to increase their visibility to business partners and investors in the eurozone. Fast-Path is available for SEC8 NYSE IPO Guide registered US and foreign (non-European Economic Area) companies already listed or about to be listed in the US markets. A Euronext listing can occur at the same time as a US IPO.

1 Why go public? NYSE IPO Guide 9 .

(a) Loss of privacy In order to comply with securities laws. • After the company has been public for one year. which owns 5% of Parent Company A.1 Advantages of executing an IPO When considering an initial public offering (IPO). underwriting and printing. which regulatory agencies. not only for the company. companies often need to completely revamp or expand their existing documentation policies.3 Going public without an offering It is possible to go public without conducting a simultaneous offering. accounting and auditing services. In addition. internal controls and enhanced financial disclosure. The IPO can be structured such that existing owners of the company can exit their position and receive proceeds for their shares. Typically. Further direct results include the following: • Once the company is public. In this transaction. although this is typically not recommended by an investment bank. (d) Cost Going public is a relatively expensive process. the company should evaluate the associated pros and cons. it can use its common stock to acquire other public or private companies in conjunction with. which are detailed below. (c) Branding event By listing on the NYSE. the existing owners have a public marketplace through which they can liquidate their holdings in a straightforward and orderly fashion at any time. To . Investor A may own Parent Company A for its other businesses which still reside in Parent Company A. or instead of. planning and executing an IPO is a time-consuming process that can distract management from the company’s core business. will receive 5% of the shares outstanding in SpinCo A. which can be costly and time consuming. once the company is public. In addition. the company will receive worldwide media coverage through the financial markets. 10 NYSE IPO Guide (d) Public currency for acquisitions Once the company is public. SOX compliance can be an incredibly time-consuming and costly process for a newly public company. which can assist the company in working through the salient issues. as well as the motivations for going public. (b) Liquidity event Listing on the NYSE has numerous benefits. public companies must regularly file various reports with the Securities and Exchange Commission (SEC) and other regulators. each existing investor in the parent company will receive shares in the spin-off entity pro rata to its ownership in the parent. If the company does not conduct a simultaneous offering. standalone business. raising additional capital. Furthermore. For example. as well as competitors. (c) Sarbanes-Oxley The Sarbanes-Oxley Act (SOX) was passed in 2002 as a reaction to a number of major corporate and accounting scandals. but also for its shareholders. if not years. ahead of time. these programs increase productivity and loyalty to the company and serve as a key selling mechanism when attracting top talent. as well as for additional personnel to handle expanded reporting and compliance activities and investor relations. it has access to an entirely new. incredibly deep and liquid source of capital for any future needs it may have. corporate governance. There are several advantages to going public. • Adding equity to the company’s capital-raising toolkit helps equip the company with the tools to achieve optimal capital structure. that part can function as a separate. public companies must disclose various forms of potentially sensitive information publicly. issuing equity-based compensation will allow the company to attract top talent without incurring additional cash expenses 1. research analysts at broker-dealers will begin to write reports on the stock and the company. In order to comply with disclosure requirements. In such a transaction. which cost investors billions of dollars and shook public confidence in the nation’s securities markets. which provide constant live coverage on publicly traded companies. SOX set new standards for public companies. it will be eligible to access the equity capital markets on demand via a more expeditious process through a shelf registration statement. there are also a few considerations which the company should evaluate prior to embarking on the IPO process. Private companies can operate without disclosing proprietary information in a public forum. market share and competitive position. (b) Regulatory requirements Correspondingly. Further.Why go public? 1. liquidity is generally preserved for the SpinCo. (a) Spin-offs A spin-off from an existing company occurs when a public listed company spins off a part of its business into a separate public entity listed on an exchange. 1. For example. Broader coverage across various sources will likely enhance the company’s visibility. incurring one-off and ongoing costs for legal counsel. By allowing employees to benefit alongside the company’s financial success. (e) Enhanced benefits for current employees Stock-based compensation incentives align employees’ interests with those of the company. can then access. repay debt or fund an acquisition. Investor A. its existing shares are listed on the exchange without being placed in the hands of new investors. including requirements relating to accounting.2 Potential issues While there are numerous advantages to going public. This evaluation process is best conducted in conjunction with an investment bank. and have no interest in SpinCo A and sell the shares it receives. with distinct characteristics from the parent company. The most successful companies with the smoothest IPO processes are those which begin to put in place the necessary regulatory and compliance requirements months. (a) Access to capital One of the most common reasons for going public is to raise primary capital to fund organic growth. Two examples of going public without an offering are spin-offs of existing companies and foreign issuers listing American depositary receipts (ADRs) in the United States. thus raising the profile of the company. but the investor churn may be considerable.

The tranche of shares that foreign issuers sell to US investors when going public typically takes the form of ADRs. This demand has been driven by a need for enhanced portfolio diversification. foreign private issuers can significantly improve their access to the US equity market. 1. NYSE IPO Guide 11 . 1980 1981 1982 1983 1984 1985 1986 1987 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 Source: Federal Reserve. Attracting US investors helps broaden and diversify a foreign issuer’s shareholder base. US acquisition currency: Because the ADRs used to raise capital in the United States are dollar denominated. For both institutional and individual investors. (a) Advantages For foreign issuers. Consequently. further increasing its appeal. by going public in the United States. Moreover. The stock is tied to the underlying international security and traditionally trades in tandem with that security. secondary and rights offerings. For some foreign issuers a US listing results in higher corporate governance standards. These instruments subsequently trade just like ordinary shares on the NYSE. a foreign issuer can increase its visibility not just in the US investment community. US shareholders are more likely to accept ADRs than foreign shares. Diversification of shareholder base and valuation support: By going public in the United States and maintaining a listing there. demand for foreign equities has grown appreciably among US institutional and individual investors alike. ADRs offer the convenience of dollarbased trading and dividend payments. foreign issuers can be at a significant disadvantage when competing for talent in the US labor market. 1980-1Q09 ($bn) 4743 4901 4786 4393 4662 5000 25% 20% 2678 2401 3000 15% 1000 0 19 17 17 26 26 44 72 95 129 197 198 279 314 544 628 777 1003 1208 1475 2000 10% 5% Ready access to world’s largest equity market: A US listing affords ready access to the world’s largest equity market. Absent these plans. US investors can more easily invest in a foreign issuer. a US listing can raise a foreign issuer’s corporate profile as well as capital. and typically the liquidity and trading of ADRs can be subpar as compared to traditional listings. but in the commercial and consumer markets that make up the world’s largest economy. going public in the United States has numerous advantages beyond an initial capital raising. which holdings of foreign equities can provide. which can enhance the investment appeal of a foreign issuer. they can eventually be used to make stock-based acquisitions of US companies. reducing the issuer’s dependence on investors in its home market for its capital needs. there are often fund limitations on ADRs similar to international investments. As the numerous rights offerings by both foreign and US issuers in 2009 have demonstrated. such access can be crucial to a company’s capital structure. the incremental demand that US investors can bring to bear on a foreign issuer’s shares helps drive its market valuation – and hence lowers its cost of capital – over the long term. US investment in foreign equities (ADR and local shares). which place limitations on trading in the ordinary shares of non-US companies.4 Foreign private issuers Through a US listing. The majority of US citizens own equities and tend to follow publicly traded companies. facilitating future capital raising through follow-on. (b) Foreign issuers listing ADRs A foreign company that is publicly traded on an international exchange can list ADRs on the NYSE without conducting an offering. ADRs also allow for the creation of direct purchase and dividend reinvestment plans. While the ADR will give the company incremental exposure to US investors. ADRs allow foreign issuers to establish stock purchase and option plans for USbased employees. another US stock exchange or in the over-the-counter market. Generally. ADRs are often the only way that certain institutional funds can invest in foreign issuers while complying with their investment charters. it is difficult to control the investor base in a spin-off transaction. September 2009 Stock-based compensation for US employees: Being dollar denominated. and a desire to tap into the higher economic growth rates found in many countries outside the United States – emerging markets in particular.Why go public? 2004 1853 1613 1375 1270 1516 1661 1958 2170 2189 2193 2520 2547 2524 2821 2966 3267 3406 3524 3941 4110 3625 4000 3941 4097 3265 this end. During the last decade. whereas during an offering process shares are strategically issued to those investors known to be interested in owning the name. Enhanced corporate visibility in the United States: Finally.

12 NYSE IPO Guide .

2 Preparing to go public NYSE IPO Guide 13 .

Preparing to go public 2. They are. drafting Form S-1. auditors. assists the company in shaping its investment thesis to be used while marketing the transaction. As the quarterback of the IPO. The bookrunner(s) are closely involved in diligence. The company should consider industry expertise. Accounting advisors provide useful skills. however. experience and resources to supplement the company’s accounting and controls functions. Although a Big 4 firm is typically recommended for 14 NYSE IPO Guide companies that are contemplating an IPO. Underwriters: The company should carefully choose its bookrunner(s). guides the company with investors while on the road and develops the optimal pricing recommendation for the company. preparing financial information subject to audit and supplementing its staff during the transition to becoming a public company. (b) Identifying investor relations services provider Public companies have a fiduciary responsibility to their stakeholders to maximize shareholder value. When selecting a third-party investor relations solutions provider. Company counsel: Company counsel work in concert with the company’s general counsel to represent the company’s legal interests throughout the process. The company should carefully consider the qualifications of all parties it hires. provide additional research coverage post-IPO and assist in market making once the stock is public. understanding and complying with evolving regulations while attracting investment capital and delivering solid results can be a challenge. The co-managers’ research analysts will also take part in all analyst diligence that is conducted. expertise in executing IPOs. reputation and fit with the company. The underwriters and lawyers will conduct in-depth diligence with the accounting firm around their relationship with the company and the integrity of the financials. This will help the company accurately identify key areas of risk and opportunity. The key advisors/service providers that the company and board need to evaluate and hire are company counsel. drafting Form S-1 and crafting lock-up and underwriting agreements. For companies that have filed an IPO or that have recently gone public. underwriters and insurance brokers. when selecting an auditing firm. and generally providing legal advice to the company throughout the process. given the importance of the advice they will provide throughout the process. distribution platform and marketmaking ability. The co-managers on an IPO are typically significantly less involved in the day-to-day advisory role for which the bookrunner(s) are responsible. The primary role of the co-managers is to underwrite additional shares in the offering. Understanding market dynamics: • Does the provider have access to the same information and analytics that drive institutional investment decisions? • Does the provider offer services in all global regions. it is important to choose a party that has appropriate industry and sector expertise. as well as deep insight into capital markets. among other factors. so an additional accounting advisor may be necessary. sectors. The Securities and Exchange Commission (SEC) requires three years of annual historical audited financials for Form S-1 and it is best for one firm to have conducted all of the audits. Ultimately. they must promote good corporate governance and implement effective disclosure practices. as well as a proven track record of executing the IPO process. involved in most (if not all) of the diligence conducted. Comanagers should be chosen based on their relationship with the company. The decision to hire auditors is incredibly important. investors and research coverage. tools and insight they need to navigate the investor relations landscape. Auditors should be hired well in advance of launching the IPO so that the financial statements have consistent prior year audits. creating the roadshow schedule. At the same time. companies often rely on third parties to provide the information. They are integrally involved in diligence. In selecting company counsel. To meet this challenge. industry expertise and market-making ability. including lawyers. crafting the marketing materials. Any third-party investor relations solutions provider selected should be focused on the dual aims of providing quick information and context about share developments and trends about the company.1 Choosing advisors (a) Retention of advisors/service providers A large team of professionals is typically involved in the initial public offering (IPO) process. given that they will be integrally involved in the company’s financial reporting for many years. The bookrunner(s) should be chosen based on their relationship with the company. auditors and underwriters. given the significant role that they play throughout the process. Auditors and accountants: The independent accountants are involved in performing an audit on certain of the financial statements prepared by management and providing comfort on certain elements derived from the company’s records subject to internal controls over financial reporting and included in Form S-1. pricing the transaction and supporting the stock in the aftermarket. the lead bookrunner(s) advises the company on all facets of the IPO process. the following criteria should be considered for each aspect of the company’s workflow. there are a number of boutique and regional auditing firms that are well regarded and talented. which will in turn help it retain and attract long-term investors that will ensure its valuation is closely aligned with its true economic worth. In many cases the company requires assistance in designing enhanced accounting processes and controls. The auditor may be unable to perform some of these elements under independence requirements. given the increasing attractiveness of emerging markets as a source of capital? • Does the provider have the institutional contacts to gather feedback on how the company is perceived in the marketplace? • Does the provider have a team of . also sometimes referred to as lead manager(s). this will help lower the company’s cost of capital. industry expertise.

The SEC has specific and complex rules regarding the financial statements and other financial information that must be presented in a registration statement for an IPO. while Form S-4 is generally used for the registration of debt or equity securities issued in relation to a merger or acquisition. Regulation S-X generally deals with financial statement form and content. trading in listed options and credit default swaps can often drive trading in equity and fixed income markets. The Securities Act and the related rules and regulations set out the requirements that the company must follow when making an offer to sell securities that do not meet one of the limited exceptions from registration. NYSE IPO Guide 15 . separate audited or unaudited annual financial statements for significant investments accounted for under the equity method that meet certain significance thresholds.Preparing to go public • analysts focused solely on the company’s sector to act as an extension of the investor relations team? Does the provider have clients across the sector and industry to provide information on key institutional analysts covering the sector. and enhanced disclosure of financial and operational metrics for companies in certain industries Companies that are classified in either of the following categories have modified reporting requirements: • ‘Smaller reporting company’. segment reporting for companies that are engaged in multiple lines of business or with operations in more than one geographic area. selected financial information (usually summarized from the company’s financial statements) for the past five fiscal years and most recent subsequent interim periods. unusual asset exchanges and debt restructurings. pro forma financial information giving effect to certain events such as significant business acquisitions/ dispositions. Form S-1 is the basic registration form used for a US company’s IPO. Some of the significant financial statement information that may be required includes: • • • Anticipating investor activity: • Is the provider able to give insight only on trading activity that has already occurred or can it help anticipate investor risks and opportunities? • What methodology or proprietary algorithms does the provider use to accurately identify and prioritize the prospective funds to target? • Is the provider able to provide insight into alternative strategies employed by non-traditional investors such as hedge funds? Increased volume in derivative markets. This framework includes the use of forms (in particular. generally applies to new issuers with an expected market capitalization of less than $75 million when their registration becomes effective. These forms specify the information that must be disclosed under Regulation SX and Regulation S-K. unaudited interim financial statements for the most recently completed interim period and the corresponding period of the preceding year. separate audited annual and unaudited interim financial statements for businesses that have been acquired or will probably be acquired that meet certain significance thresholds (described below). S-4 and S-11) for registrations of offers. supplemental schedules for particular industries and circumstances. key sector-based events and emerging capital market trends? stability to continue investing in and developing innovative solutions designed to help the company better manage its investors? 2. Form S-3 is generally used for the registration of securities by a company that already has securities registered with the SEC. Communicating with investors: • Does the provider have the investor relations experience to provide the company with proven best practices to incorporate in its investor relations communications strategy? • Does the provider have a distribution network that will ensure investors receive company communications without interrupting their workflow? • Does the provider offer the capability to control the creation and distribution of the company’s message? Measuring the impact of the investor relations program: • Does the provider have an integrated IR platform that can track the impact of outreach efforts? • Does the provider offer detailed reporting tools that gauge the impact of the company’s online communications and how they compare to those of its peers? • Will the provider help track the market sentiment created by company communications and actions of its investor relations program? Does the provider have the financial • • • • • • • audited annual financial statements for recent fiscal years. reorganizations. The registration statement and prospectus must contain financial statements and other financial information regarding the financial condition of the company and the results of its operations. while Regulation S-K generally deals with non-financial statement disclosures in the body of the registration statement.2 Building financial reporting infrastructure (a) Financial information An entity making an offering of securities registered with the SEC under the Securities Act of 1933 must file a registration statement and distribute a prospectus in connection with the offering. as defined by Item 10(f)(1) of Regulation S-K. Required disclosures include separate revenues and operating data for each segment. Forms S-1. financial statements of guarantors of securities being offered and affiliates whose securities collateralize the securities being offered. including real estate investment trusts or securities issued by other companies whose business is primarily that of acquiring and holding for investment interests in real estate. Form S-11 may be used for the registration of securities issued by certain real estate companies. S-3. the company may be required to present one to three years of audited financial statements. Depending on the significance of the acquisition.

The latest audited annual financial statements included in the prospectus cannot be more than one year and 45 days old. Accordingly. for the life of the company and its predecessor entities). an audited balance sheet as of a date within 135 days of the date of filing the registration statement is required. consent may be needed from that independent accountant to allow for inclusion of those financial statements and their audit report in the 16 NYSE IPO Guide registration statement. Any modifications to previously issued audited financial statements will likely require the independent accountant to perform additional procedures. if shorter. Selected financial information: Item 301 of Regulation S-K requires selected income statement and balance-sheet data for each of the last five fiscal years (or. The following discussion focuses on the SEC requirements for companies that do not fall into either of the above two categories. an interim income statement. If any of the audited financial statements required to be included with the registration statement were audited by a predecessor independent accountant. substantially all of the business (or a separately identifiable line of business) of another entity (or group of entities). Whenever updated interim financial statements are included. but the company’s underwriters might request them to be reviewed by an independent accountant prior to filing as part of their requested comfort letter procedures. and • the retrospective presentation of discontinued operations consistently across the periods covered by the financial information presented. segment information. Financial statements must comply with the SEC’s age of financial statements requirements before the SEC staff will commence review of a filing. but often are presented in a noncondensed format. Interim financial statements for the first and second quarters must each be updated after 134 days. The preparation of these financial statements often raises certain data collection. unaudited interim financial statements must also be included in the registration statement. • the treatment of changes in accounting policies or financial statement presentation that arise during the most recent period covered by the financial statements that may have a retroactive impact on the financial statements and other financial information presented for previous years. such as: • the need to re-evaluate existing accounting policies and consider expanding disclosures to comply with reporting requirements for public companies (eg. and the company’s own operations prior to the succession appear insignificant relative to the operations assumed or acquired) has been in existence. or in a series of related successions. Unaudited interim financial statements: Article 10 of Regulation S-X provides guidance on the form and content of condensed interim financial statements. Some additional details regarding these two categories and some of the differences in reporting requirements are outlined at the end of this chapter. and • statements of income. comprehensive income. or such shorter period as the company (and its predecessors – designation of an acquired business as a predecessor is generally required where a company acquires in a single succession. tax-rate reconciliation. Interim financial statements (also referred to as stub-period financial statements) must be included in the registration statement if the period between the date of effectiveness of the registration statement and the date of the latest audited balance sheet in the filing exceeds a specified number of days. The interim financial statements may be unaudited. Audited financial statements for the company and its predecessors must be accompanied by an audit report issued by independent accountants that are registered with the Public Company Accounting Oversight Board (PCAOB) and audited in accordance with PCAOB standards. as defined by Section 3b-4 of the Exchange Act of 1934. statement of comprehensive income and statement of cash flows must be included for the corresponding period of the prior year. Age of financial statements: Knowing the periods for which financial statements will be required to complete a particular financing is a critical step in planning an IPO. If the company has been in existence for less than one year. Interim financial statements for the third quarter must be updated 45 days after the fiscal year-end. The age of financial statements included in an IPO is measured by the number of days between the date of effectiveness of the registration statement and the date of the latest balance sheet in the filing. at which time audited financial statements for the recently completed fiscal year are required. The interim financial statements can be presented in a condensed format.Preparing to go public • ‘Foreign private issuer’. Interim financial statements include a balance sheet as of the end of the most recent interim fiscal quarter. generally applies to companies incorporated outside the United States that meet certain additional criteria. and the most recent interim period included in the financial statements (together with comparative information for the corresponding interim period of the prior year). The purpose of the selected financial data is to supply . statements of income. accounting and auditing issues. cash flows. shareholders’ equity and cash flows for the period between the latest audited balance sheet and interim balance sheet and the corresponding period of the preceding year. a company with financial statements covering the required number of years should revisit those financial statements and ensure that they are compliant with SEC requirements and recent SEC staff interpretations. Audited financial statements: Audited annual financial statements required to be included in the registration statement include: • balance sheets as of the end of the two most recent fiscal years. If more than 134 days have lapsed since the latest audited annual balance sheet. earnings per share and general compliance with Regulation S-X and SEC Generally Accepted Accounting Principles (GAAP) interpretations). changes in shareholders’ equity and comprehensive income for each of the most recent three fiscal years.

execution of letters of intent. approvals of the board of directors and/or shareholders and submission to appropriate government regulators for acquisition approval. and • cash dividends declared per common share. Three years of audited financial statements required. The number of years of audited financial statements required is determined by the size of the acquisition and its significance relative to the company. • total assets. considering such factors as progress of discussions among senior executives. • • The independent accountant that has audited these financial statements need not be registered with the PCAOB. The SEC has issued no formal or informal guidance on the standard of probability for business combinations. One year of audited financial statements required for a mathematical majority of the individually insignificant acquisitions. Reporting requirement No audited financial statements required. in addition to the advice of its securities counsel: • progress of the negotiations. However. in which case only two years of audited financial statements required. including costs incurred to date in pursuing the acquisition. • • agreements. • income (loss) from continuing operations. The acquired business (or multiple acquisitions of related businesses) exceeds 40% but not 50% for any of the three significance criteria. The test generally is performed using the company’s and the target’s most recent audited financial statements prior to the date of acquisition. such as cash and cash equivalent balances. Financial statements of an acquired business: If the company has made or is proposing to make a significant acquisition of a business. based on the following three significance tests under Rule 1-02(w) of Regulation S-X: • the amount of the company’s investment in the acquired business compared to its total assets. Whether a proposed acquisition requires inclusion of financial statements in a registered offering depends on the significance of the acquisition and whether the acquisition is probable. the determination is based on the preponderance of evidence supporting the conclusion that an acquisition is probable. The selected financial data may also include any additional items that would enhance an understanding of the company’s financial condition and trends in its results of operations. The acquired business (or multiple acquisitions of related businesses) exceeds 20% but not 40% for any of the three significance criteria. unless the business has under $50 million in revenues. The acquired business or any acquisition that is probable at the time of the IPO exceeds 50% for any of the three significance criteria (or securities are being registered to be offered to the shareholders of the acquired business). There have been multiple acquisitions of unrelated businesses whose significance is less than 20% individually but more than 50% for any of the three significance criteria when aggregated. the SEC views public announcement of a business combination as strong evidence of a probable acquisition. Two years of audited financial statements required. Generally. The company must assess the probability of an acquisition by considering factors such as the following. It must include: • net sales or operating revenues. and significance of required regulatory approvals. One year of audited financial statements required.Preparing to go public selected financial data which highlights certain significant trends in the company’s financial condition and results of its operations. • long-term obligations and redeemable preferred stock. The rules should be consulted as they contain specific instructions for modifying the calculation under certain circumstances. The table above summarizes the general rules for acquisitions that occurred more than NYSE IPO Guide 17 . extraordinary items and the cumulative effect of a change in accounting principle exclusive of amounts attributable to any noncontrolling interests). and the pre-tax income from continuing operations of the acquired business compared to the company’s pre-tax income from continuing operations (‘pre-tax income from continuing operations’ is income before income taxes. working capital balances and summary comparative income statements. it may need to include audited financial statements of the acquired business plus appropriate unaudited interim financial statements to comply with Rule 3-05 of Regulation S-X. • income (loss) from continuing operations per common share. execution of confidentiality General rules for acquisitions more than 75 days pre-IPO Acquisition criteria The acquisition does not exceed 20% for any of the three significance criteria. an investment that will be accounted for under the equity method or multiple acquisitions of related or unrelated businesses. unless the acquired business is a public company in the United States. conduct of due diligence procedures. the total assets of the acquired business compared to the company’s total assets. economic and legal penalties associated with failure to consummate.

Rule 3-14(a) also requires certain variations from the typical form of income statement. If either of these tests is met. The SEC staff has noted that one element used in distinguishing a real estate operation from an acquired business subject to Rule 3-05 of Regulation S-X is the predictability of cash flows ordinarily associated with apartment and commercial property leasing. 80% and 90%. which addresses income-producing real estate operations such as apartment buildings and shopping malls. auto dealerships. separate financial statements of the investee must be filed. including an audit for certain periods. equipment rental operations and other businesses that are more susceptible to variations in costs and revenues over shorter periods due to market and managerial factors are not considered to be real estate operations. In such cases. An introductory paragraph is required stating the principal assumptions which have been made in preparing the statements of estimated taxable operating results and cash to be made available by operations. If the property is not acquired from a 18 NYSE IPO Guide • • related party. In either case. The required financial statements of the investee must be audited only for those fiscal years in which either of the above tests is met. Financial statements of an equity method investment: If the company holds an investment in unconsolidated subsidiaries or 50% or less owned entities accounted for under the equity method that exceeds significance thresholds as defined by Rule 3-09 of Regulation S-X. The acquisition or probable acquisition of real estate operations is subject to its own set of disclosure requirements under Rule 3-14 of Regulation S-X. depending on the level of reliance placed on these audited financial statements by the company’s principal independent accountant. golf courses. Rule 3-14(a) requires as follows: • Audited income statements must be provided for the three most recent fiscal years for any such acquisition or probable acquisition that would be “significant” (generally. two and one year(s) of financial statements for not less than 60%. which generally includes shopping centers and malls.Preparing to go public 75 days before the offering. An exception to the general requirements occurs when an individual or multiple acquisitions that exceed 50% of any of the significance criteria occur. hotels. the estimated taxable operating results shall be based on the rent to be paid for the first year of the lease. summary financial information as described by Rule 1-02(bb) must be presented in the notes to the financial statements. If the property is to be operated by the company. the estimated amount of cash to be made available by operations shall be shown. a statement must be furnished showing the estimated taxable operating results of the company based on the most recent 12-month period. this interpretation allows currently insignificant business acquisitions to be excluded from the financial statement requirements. of the constituent businesses of the issuer. applicable interim financial information that would be required according to the guidelines described in the “Age of financial statements” and “Unaudited interim financial statements” sections above must also be included. while still ensuring that the registration statement will include not less than three. motels. While compliance with this interpretation requires an application of SAB 80’s guidance and examples on a case-by-case basis. or will probably occur. If taxable net income per unit will become greater than the cash available for distribution per unit. within 75 days of the offering for which inclusion of financial statements is required. that fact and the approximate year of occurrence should be stated. if any. Significance of investees is evaluated under Rule 1-02(w) of Regulation S-X. that would account for 10% or more of the company’s total assets as of the last fiscal year end prior to the acquisition). If appropriate under the circumstances. only one year of income statements must be provided if certain additional textual disclosure is made. including such adjustments as can be factually supported. If the property is to be acquired subject to a net lease. Under Rule 4-08(g) of Regulation S-X. Insofar as practicable. the Rule 3-05 requirements will apply. the separate financial statements required shall be as of the same dates and for the same periods as the audited consolidated financial statements required to be filed by the company. a table should be provided disclosing the estimated cash distribution per unit for a limited number of years. if significant. Nursing homes. for any unconsolidated subsidiaries and 50% or less owned entities accounted for under the equity method that meet any of the three Rule 1-02(w) criteria at the greater than 10% but not more than 20% significance level. the remaining years can be unaudited. In addition. separate financial statements for the investee company may need to be filed with the registration statement. based on the following tests: • The company’s and its other subsidiaries’ investments in and advances to the investee exceed 20% of the total assets of the company and its subsidiaries consolidated as of the end of the most recently completed fiscal year. SAB 80 allows first-time issuers to consider the significance of businesses recently acquired or to be acquired based on the pro forma financial statements for the issuer’s most recently completed fiscal year. with the portion thereof reportable as taxable income and the portion representing a return of capital together with an explanation of annual variations. respectively. and • The company’s and its subsidiaries’ equity in the pre-tax income from continuing operations of the investee exceeds 20% of such income of the company and its subsidiaries consolidated for the most recently completed fiscal year. These audited financial statements may or may not be required to be audited by an independent accountant registered by the PCAOB. Staff Accounting Bulletin No 80 (SAB 80) provides a special interpretation of Rule 3-05 of Regulation S-X for IPOs involving companies whose operations have been built by the aggregation of discrete businesses that remain substantially intact after acquisition. . if audited financial statements are required.

historical financial information is adjusted in the pro forma financial information to reflect the transactions and the impact of the offering on the company’s capital structure All significant assumptions must be disclosed. If certain criteria are met. Pro forma financial information: Pro forma financial information may be required to assist investors in understanding the nature and effect of significant acquisitions that have occurred. geographic regions and major customers. and • for which discrete financial information is available. and • expected to have a continuing impact on the company (applicable only to the condensed income statement). If a business or assets are disposed of or planned to be disposed of after the latest balance sheet presented in the registration statement. In such cases. The company must provide required disclosure information about an operating segment if it meets any of the following thresholds: • Its reported revenue (including both sales to external customers and intersegment sales) is 10% or more of the combined revenue (internal and external) of all reported operating segments. of: • the combined profit of all operating segments that did not report a loss. • Its assets are 10% or more of the combined assets of all operating segments. Segment reporting: For companies that operate in multiple lines of business or geographic regions. It defines an “operating segment” as a component of an enterprise: • that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same enterprise). Guidance regarding pro forma financial information is provided in Article 11 of Regulation S-X. or • the combined loss of all operating segments that did report a loss. profitability measures and total assets for each of the last three fiscal years presented. book value or market value equals 20% or more of the principal amount of the secured class of securities being offered. dispositions. audited financial statements must also be filed for each affiliate whose securities collateralize any class of registered securities if the greater of the aggregate principal amount. par value. which includes separate revenues and operating results information for each major line of business or geographic region. ASC Topic 280 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements. unless the transaction is already reflected in that • balance sheet. “Segment Reporting” (ASC Topic 280) requires disclosures regarding segments for each year for which an audited statement of income is provided. customer type or class. Determining whether the company has multiple operating segments involves an assessment of how management runs its business. Pro forma adjustments related to the pro forma condensed balance sheet and condensed income statement must include adjustments which give effect to events that are: • directly attributable to the transaction. but before the effective date of the IPO. including revenues from external customers. in absolute amount. the effect of the disposal should be reflected in the company’s pro forma financial statements that are prepared in accordance with Article 11.Preparing to go public Financial statements of guarantors and for collateralizations: A guarantee of a public security (eg. Rule 3-10 of Regulation S-X requires each guarantor of registered securities to file the same financial statements required for the company in the filing. unless the historical income statement reflects the transaction for the entire period. a guarantee of a public debt or public preferred equity security) is itself considered a security that must be registered under the Securities Act. any pro forma adjustments for expected future cost synergies or other similar adjustments that are not specifically supported by the acquisition documents will generally not be allowed. reorganizations. • factually supportable. debt restructurings or other transactions contemplated in the prospectus. unusual asset exchanges. Rules 3-10 and 3-16 should be reviewed to determine the extent of financial information required to be included with the registration statement. unless a guarantor is newly acquired. Rule 11-01 of Regulation SX specifies the circumstances under which pro forma financial information is required in filings with the SEC and sets forth general guidelines for the content of that information. absent an applicable exemption. If any of the above situations is applicable. and a condensed pro forma income statement for the company’s most recently completed fiscal year and the most recent interim period of the company. the nature of the production process. requires those enterprises to report selected information about operating segments in their interim financial reports and also establishes standards for related disclosures about products and services. • whose operating results are regularly reviewed by the enterprise’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance. As a result. Article 11 requires: • a condensed pro forma balance sheet as of the end of the most recent period for which a consolidated balance sheet of the company is required. condensed consolidating financial information may be provided in lieu of separate audited financial statements. NYSE IPO Guide 19 . Under Rule 3-16 of Regulation S-X. distribution channels and applicable regulatory environment. Item 101(b) of Regulation S-K requires disclosure of certain financial information about industry segments. • The absolute amount of its reported profit or loss is 10% or more of the greater. additional disclosure data may be required to be presented. Financial Accounting Standard Board Accounting Standards Codification Topic 280. Aggregating two or more operating segments may be highly subjective and involves consideration of the similarities in the economic characteristics and in other factors such as the nature of the products and services.

inter-segment revenues. total assets attributable to that segment. advances or cash dividends without the consent of a third party (eg. • Schedule V – Supplemental Information Concerning PropertyCasualty Insurance Operations must be filed when the company. • Guide 5 – Preparation of Registration Statements Relating to Interests in Real Estate Limited Partnerships. Smaller reporting companies: Smaller reporting companies. These disclosures include revenues from external customers for each product and service or each group of similar products. as well as services and revenues by geographic area. the proportionate share of the company and its other subsidiaries in the reserves for unpaid claims and claim adjustment expenses of 50% or less owned equity method investees taken in the aggregate after inter-company eliminations shall be taken into account. lender. restricted net assets of consolidated subsidiaries are the amount of the company’s proportionate share of net assets of consolidated subsidiaries (after inter-company eliminations) which. The new guidance is provided in Item 1200 of Regulation S-K. • Guide 4 – Prospectuses Relating to Interests in Oil and Gas Programs. disclosure of items such as interest revenue and expense. Companies in specific industries. gathering and reporting financial information for operating segments may be significant. as of the end of the most recent fiscal year. For purposes of this test only. These . may have additional supplemental information requirements that vary from those listed above. disclosure for each segment must include revenues from external customers. including insurance. Each of these schedules contains additional financial information 20 NYSE IPO Guide that must be audited by the company’s independent accountant: • Schedule I – Condensed Financial Information of Registrant must be filed when the restricted net assets of consolidated subsidiaries exceed 25% of consolidated net assets as of the end of the most recently completed fiscal year. New guidance for disclosures for companies with oil and gas operations take effect for registration statements filed on or after January 1 2010. if not already provided as part of the reportable operating segment information. depreciation and related expense. allowance for doubtful accounts. a reconciliation to the company’s consolidated information and material changes to total assets. Industry guides: Item 801 of Regulation S-K sets out five industry “guides” requiring enhanced disclosure of financial and operational metrics for companies in certain industries: • Guide 3 – Statistical Disclosure by Bank Holding Companies. The schedule information may be provided separately or in the notes to the audited financial statements. revenues from external customers and a reconciliation to the corresponding consolidated amounts.Preparing to go public The company must disclose the factors used to identify the enterprise’s reportable segments. A first-time issuer should carefully consider the requirements for segment reporting and revisit its reporting obligations whenever it enters into new lines of business or where management begins to analyze its business in a new or a different way. ASC Topic 280 also requires certain enterprise-wide disclosures regardless of whether the company has multiple reportable segments. For interim periods. Supplemental schedules for certain transactions: Rule 5-04 of Regulation S-X requires that a number of supplemental schedules be provided for particular industries and under certain circumstances. • Schedule II – Valuation and Qualifying Accounts must be filed in support of valuation and qualifying accounts (eg. Real estate used in the business is excluded from the schedule. foreign government). The time and effort required in identifying. interests in real estate or interests in other companies a substantial portion of whose business is acquiring and holding real estate or interests in real estate for investment. regulatory agency. • Schedule III – Real Estate and Accumulated Depreciation must be filed for real estate held by companies with a substantial portion of their business involving acquiring and holding investment real estate. and • Guide 7 – Description of Property by Issuers Engaged or to be Engaged in Significant Mining Operations. may not be transferred to the parent company by subsidiaries in the form of loans. For purposes of this test. as reviewed by the company’s chief operating decision maker on a segment basis. allowance for inventory obsolescence) included in each balance sheet. its subsidiaries or 50% or less owned investees accounted for under the equity method have liabilities for property-casualty (P/C) insurance claims. a measure of profit or loss. its unconsolidated subsidiaries and its 50% or less owned equity method investees did not. • Schedule IV – Mortgage Loans on Real Estate must be filed by certain companies for investments in mortgage loans on real estate. The company must also report for each of its reportable segment a measure of profit or loss. Furthermore. • Guide 6 – Disclosure Concerning Unpaid Claims and Claim Adjustment Expenses of Property-Casualty Insurance Underwriters. exceed one-half of common shareholders’ equity of the company and its consolidated subsidiaries as of the beginning of the fiscal year. may be eligible for scaled reporting requirements. equity method investments and capital expenditures may be required under ASC Topic 280 if such amounts are included in the measure of segment profit or loss or in the determination of segment assets. in aggregate. as defined by Item 10(f) of Regulation S-X. The schedule may be omitted if reserves for unpaid P/C claims and claims adjustment expenses of the company and its consolidated subsidiaries. superseding the guidance of Industry Guide 2 – Disclosure of Oil and Gas Operations. including the basis of organization and the types of products and services from which each reportable segment derives its revenues.

the audited financial statements must be accompanied by an audit report issued by independent accountants that are registered with the PCAOB and audited • • • • • in accordance with PCAOB standards. if applicable. Some of the key differences in the requirements are as follows: • Audited financial statements are required only for the most recent two years if the financial statements presented are prepared in accordance with US GAAP. cash flows. The latest audited annual financial statements included in the registration statement must be as of a date not older than 12 months prior to the date the registration statement is filed. Under Rule 3-05. unless either of the two tests is greater than 30% as calculated on a US GAAP (or.Preparing to go public scaled requirements streamline and simplify the disclosure requirements to make it easier and less costly for smaller reporting companies to comply. If smaller reporting company status is achieved. it must reassess this status at the end of its second fiscal quarter in each subsequent fiscal year. This reconciliation is not required if the acquired business uses IFRS as issued by the IASB. A few of the key differences in financial statement requirements are as follows: • Audited annual financial statements – these include statements of income. The financial statement requirements for an initial registration statement of a foreign private issuer are found in Items 3. 17 and 18 of Form 20-F and in Regulation S-X. if applicable. Foreign private issuers may report in any currency. Summary: Planning an IPO is a complex undertaking that requires the compilation and collection of numerous financial statements and related information. This reconciliation is not required if the company uses International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Regardless. Financial statements of a significant equity method investment meeting the significance threshold of Rule 3-09 of Regulation S-X need not be reconciled to US GAAP (or. but summarized financial information must be disclosed. the registration statement may comply with the SEC’s scaled disclosure system. upon entering the system. however. A description of the differences in accounting methods is required. The scaled disclosure requirements are integrated into Regulation S-X (Article 8 for financial statement requirements) and Regulation S-K (for non-financial statement disclosure requirements). The SEC will waive this requirement in cases where the company can represent adequately that it is not required to comply with this requirement in any other jurisdiction outside the United States. The balance-sheet requirement is the same. a third year is required if the acquisition is greater than 50% significant and the acquired business had revenues of at least $50 million in its most recent fiscal year. or • has no public float and has annual revenues of $50 million or less. 8. • Audited financial statements for significant equity method investments – Article 8 does not require the filing of separate financial statements of investees as would be required under Rule 3-09. • Foreign private issuers may use GAAP other than US GAAP. except in cases where a majority of voting securities are directly or indirectly owned by US residents and either: • the majority of its executive officers or directors are US citizens or residents. a company qualifies as a “smaller reporting company” if it: • has a common equity float of less than $75 million. IFRS as issued by the IASB). • Financial statements for significant acquisitions – Rule 8-04 of Regulation S-X requires two years of financial statements for a business acquired by a smaller reporting company if the acquisition is greater than 50% significant. Under the rules. If the company fails to meet the test. but may need to reconcile to US GAAP. If a registration statement becomes effective more than nine months after the end of the last audited fiscal year. as contrasted to three years for large companies. or reconciled to. If the company uses GAAP other than US GAAP. and that complying with the requirement is impracticable or involves undue hardship. Foreign private issuer: A “foreign private issuer” is any company (other than a foreign government) incorporated or organized under the laws of a jurisdiction outside of the United States. the latest audited annual financial statements included in the filing cannot be more than 15 months old as of the date the registration statement becomes effective. IFRS as issued by the IASB) basis. A company registering common equity securities in an initial registration statement should calculate its public float as of a date within 30 days of the date it files its initial registration statement. • more than 50% of its assets are located in the United States. If the company qualifies as a smaller reporting company in an initial registration statement. Financial statements of an acquired foreign business need not be reconciled from local GAAP to US GAAP when the acquired business is below 30% for any of the Rule S-X 1-02(w) significance tests. the company must provide unaudited interim financial statements in accordance with. a transition to the larger company reporting requirements commences with the first quarter of the subsequent fiscal year. changes in shareholders’ equity and comprehensive income for the past two years. US GAAP (this reconciliation is not required if the company uses IFRS as issued by the IASB) covering at least the first six months of the year. The financial statement requirements differ in a number of significant ways from those of domestic US issuers. NYSE IPO Guide 21 . regardless of the significance levels. The public float is computed by multiplying the aggregate worldwide number of common equity shares held by nonaffiliates before the offering plus the number of common shares being offered in a Securities Act registration statement by the estimated public offering price of the common equity shares. or • its business is administered principally in the United States.

• enhance the training and skills of its existing workforce involving accounting and reporting requirements of public companies. investors will expect the company to implement the plans presented in the prospectus. identifying significant risk points and key mitigating controls. • evaluating the control environment. the following are some actions that the company should take in advance of the IPO: • Evaluate the current financial close process in light of post-IPO requirements and consider early implementation of an accelerated close timeline that will be required of an SEC issuer. and management must now consider how decisions affect a much larger group of stakeholders and be conscious of ensuring regulatory compliance. Chapter 5. such as: • assessing financial statement and general and specific fraud risks. The company can utilize external advisors to assist in gathering this information. and identify gaps. (b) Transition to being a public company The completion of an IPO marks the start of life as a public company.1 contains a more detailed discussion of the SOX compliance requirements. Many private companies have informal policies and procedures. but once an IPO is completed. • defining significant locations and business units. To help ensure investor – and market – confidence. and conducting final tests that support an assertion of effective internal controls over financial reporting. The company should consult the SEC rules and regulations. • Draft an accounting policy manual. After the registration becomes effective. One of the first challenges for a successful transition is adapting to the new. These requirements include quarterly certifications by executives and an audit report on the effectiveness of internal control over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002 (SOX). In anticipation of going public. entity-level controls.Preparing to go public Knowing what financial statements and other information will be required to complete a registration statement is a critical step in planning an IPO. including the gathering of disclosure information for notes to the financial statements Reducing the financial close cycle time will most likely involve changes in processes. but public companies should have documented accounting policies as a component of their internal control environment. • Evaluate the finance and accounting departments’ organizational structure and skill sets of key personnel in light of post-IPO reporting requirements. Budgeting and forecasting: After the IPO. New processes may need to be adopted. • develop or enhance its accounting and reporting policies and procedures. The transition to an established process can take time. It will also be required to file current reports on Form 8K after the occurrence of certain specified material events within four business days of the occurrence of the event. The company will need to: • prepare ongoing reports that provide financial and non-financial information at a level of detail and in a timeframe that generally was not required in the past. • identifying significant accounts and disclosures. . and general IT controls. to determine what financial information requirements might be applicable in its circumstances to allow for the planning of sufficient time and resources to complete the filing within manageable timeframes. Many private companies are unaccustomed to formal accounting closes for interim reporting periods and the strict reporting timelines for both quarterly and annual periods. Financial accounting department: The process leading up to filing of the registration statement requires the gathering of various financial information. a public company’s internal controls systems must comply with all regulatory requirements. 22 NYSE IPO Guide • • • • • • documenting processes involving major classes of transactions. the company will be subject to strict SEC reporting timelines for quarterly and annual reporting. Gaps can be filled by recruiting additional staff and providing training for current personnel. but it is imperative that these modifications be in place before the first Form 10-Q or Form 10-K is required. internal resources should be in place to support the ongoing reporting needs of a public company. Some of the transition areas that should be considered going forward are outlined below. providing preliminary assessment of effectiveness of design and operation of key controls. IT systems and possibly resources. typically as of the second fiscal year-end after the IPO. forecasting and financial modeling processes to reflect its operations as a standalone entity with public shareholders. • develop or enhance its budgeting. often more complex requirements of operating as a public company. The following are some of the organizational changes that the company should consider: • Review business strategies. Complying with Section 404 requires a significant investment of resources over several months to move through a project plan that includes a number of phases. forecasting processes and cost infrastructure in order to help ensure its competitiveness and meet shareholder expectations. and • change underlying business processes to meet appropriate metrics or bestin-class services. Controls and procedures: The level of investor confidence in the reliability of financial disclosures can be a key factor in a public company’s success. • develop a public entity organizational structure and recruit appropriate personnel to satisfy its public reporting requirements. • develop sufficient resources or processes to perform regular and consistent financial close and reporting processes to meet reporting requirements. as well as its auditor and other advisors. demonstrating consideration of the regulatory risks and environment. remediating missing and ineffective controls.

Design appropriate compensation programs which align and incentivize employee behavior and focus with the overall business strategy and key objectives. evaluating and obtaining an audit of internal control over financial reporting should not be underestimated. the company may need to implement new technology and systems or customize existing systems and reports. the company should consider taking steps to operate and report like a public company before the IPO becomes effective. priorities and resource allocation. The budget process should be flexible and have a short cycle time to accommodate market-driven changes. To achieve a more seamless transition. Forecasting should be a periodic update to the budget (and strategic plan) that reflects changes and impacts actually being experienced in the marketplace. measurable drivers and should closely involve operational managers. Creating standardized relationships between internal and external financial and operational sources can provide both insight and consistency in the forecasting process. Implementation of an integrated system providing both external and management reporting can provide timely.Preparing to go public • • • • Develop an investor relationship infrastructure and resources. Although implementation of forecasting is generally the domain of the finance department. XBRL: During 2009 the SEC issued new rules and related guidance that require public companies (both domestic and foreign private issuers) to provide their financial statements to the SEC in a separate exhibit to certain reports and registration statements in an interactive data format using Extensible Business Reporting Language (XBRL). A systems embedded approach to the financial reporting process can include automated key controls to reduce the overall number of controls IT strategy can be a key driver in accelerating the accounting close process through the reduction or consolidation of multiple general ledgers. financial targets and key assumptions. charts of accounts and reporting systems. Information technology plays a large role within the internal control structure and is an integral part of SOX compliance. modifying the existing system’s capabilities or building the case for an enterprise resource planning system may be warranted. Determine key performance indicators which will be used to communicate business performance to stakeholders that are in line with industry practices. forecasts should be operations may struggle with technology and system limitations in meeting the needs of a public company. In addition. external cost trends and industry averages can help quantify or even qualify expense forecasts. forecasting and financial modeling processes.” which make financial information more searchable on the Internet and readable by spreadsheet and other software. bottom-up process based on specific. The rules should be consulted regarding when initial compliance with the rule commences. but a company with an IPO that becomes effective during 2010 will be required to comply with the XBRL rules commencing with periodic filings during 2011. If the company does not have adequate sales forecasting. ownership of the process belongs with the recipients of the results. to ease the post-IPO transition. The plan establishes the framework for the annual budget. Technology considerations: Information technology is a critical enabler for the company in creating value and achieving financial reporting and regulatory compliance. updated semi-annually. with timing determined based on the size of the company’s public float. The XBRL rules also require public companies to post their XBRL filings on their corporate websites. For systems that have disparate interfaces or lack real-time reporting capabilities. Communication requirements to key stakeholders after the IPO about the performance of the company should be aligned with external reporting. and also identify a baseline to measure the company’s performance relative to the industry. This may require additional resources to ensure business processes are adapted to meeting IT system needs. but more frequent updates are preferable. all of the items in a financial statement are labeled with unique computer-readable “tags. With interactive data. The XBRL rules are being phased in over a three-year period beginning with fiscal periods ending on or after June 15 2009. The rules are designed to make it easier for analysts and investors to locate and compare data on financial and business performance in a standard format across all public companies. government regulators and other stakeholders. At a minimum. Greater use of IT systems can also enhance the budgeting and forecasting process and allow for the leveraging of information more effectively. The IT effort required for compliance with establishing. The actual results may prompt changes in strategies. industry trends or other third-party data to benchmark target sales numbers. Preparing for this change in status may require considerable time and effort. Similarly. Ideally. XBRL is not required for IPOs. (c) Summary Becoming a public company often requires management to make numerous improvements to business processes and the underlying systems as they react to the demands of investors. providing the top-down direction. Companies that have not adequately invested in technology and tools for financial reporting and business The company’s strategic plan should encompass both external and internal factors that span the entire organization. the subsequent year’s budgeting process should be embedded in the forecasting process during the latter part of the current fiscal year. The process should involve a focused. Develop or enhance budgeting. quality information. NYSE IPO Guide 23 . as this will be dependent on the timing of the IPO and the initial subsequent measurement date for determination of the company’s public float. with subsequent period forecasts reflecting the impacts of such changes. The annual budget should focus on key operational drivers of the business for both revenue and cost with key inputs from senior management. including operational management. it may consider using key performance indicators.

vision and values. Marketing materials and other customer communications – the company should review its marketing materials and customer communications to ensure that messaging and statistics are consistent with the language in the IPO registration statement. This is particularly important in today’s environment of intense speculation about the intention of private equity firms to spin off their portfolio companies. meticulously planning for the inevitable publicity surrounding day-one trading. industry analysts and other key stakeholders. as perceived by customers/clients. (b) Preparing for financial reporting Among the company’s most important tasks as it prepares to go public is the development of a comprehensive strategy to interface with a crucial new audience – the investment community. customer service representatives and others) to respond to external inquiries within the confines of SEC regulations and to forward questions outside their respective areas of responsibility to the appropriate communications representatives. Activities could include a series of reporter briefings (assuming an appropriate news hook). employees. management credibility and ultimately the valuation of its securities in the markets. Additionally. what information it will provide. Additionally. Key elements of an effective financial communications strategy include the following: • Consistency – investors will be looking for new information in every interaction with management. how it will report its financial results and what communications channels it will use. updates to executive biographies and the creation of company fact sheets. In particular. the company should review its press release strategies to maximize opportunities for a consistent flow of announcements during the quiet period (ie. In reality. content. Employee communications – as with any major change. In addition to reviewing the site for accuracy. More detailed recommendations on employee communications are included in Chapter 4. it is important that the site reflects the image the company wishes to convey. establish a baseline of new product/client announcements. preparation should begin well before the registration statement is filed to ensure consistent messaging and a strong baseline of communications before the “quiet period” begins. executive biographies. Preparing for an IPO includes establishing protocols for how the company will engage with investors. which can be posted to the website. which are now preparing amended filings. The IPO process will place the company under acute public scrutiny and set in motion a whirlwind of activity. so the company will be ready to go “live” by the time the IPO prices. Equally important. It is critical that preparations begin during the preIPO phase to allow adequate time for benchmarking and planning. Website – as many prospective investors and covering reporters will visit the company’s website.3 Preparing a communications strategy (a) Reviewing public perception and image There is a strong temptation to view IPO communications as a listing-day event. and any variations in messaging. Consistency in communications is paramount. investors and media will look as broadly as possible for further insight into the company. a review of 24 NYSE IPO Guide • • • boilerplate language. Employees may have questions about how the IPO will affect their jobs. an IPO can lead to employee uncertainty. While the real work in building these new media relationships begins after the quiet period. the company should consider adding information about its mission. the company should review any public commentary about its financial results or growth prospects to identify discrepancies between what previously was disclosed/anticipated and the information that will be presented in the upcoming SEC filings. The company’s communications review should include the following: • Media relations activities – the IPO will attract attention from an expanded media universe focused on performance. The way in which the company communicates to the financial markets significantly impacts its status in its industry. These materials will be important media and investor relations tools to bridge the gap when communicators are unable to speak directly with their constituents. tone or frequency/timing of communications can be seen as an indication of changes in the business or outlook that could affect the company’s stock price.Preparing to go public 2. it should train public-facing employees (eg. receptionists. that corporate information is easily accessible and that all data points are consistent with those provided in the IPO registration statement. yet the company must also allow sufficient flexibility to adjust to business conditions. key milestone updates and other news to avoid the appearance of “gun jumping” during the registration period). Key to this process is analyzing and benchmarking how industry-leading companies communicate to their financial . regulators. an online media kit. what new opportunities are available and whether they will be able to purchase shares. • Benchmarking – an important first step is establishing a framework for how the company will communicate to the financial community. the perceived value of its business. they must understand that compliance with disclosure rules and internal control requirements is everyone’s responsibility. its business and its competitive position. the company should ensure that key industry reporters accurately understand its business strategies and differentiators in advance of the filing. While the IPO prospectus will be the primary selling document for the offering. and for companies that filed registration statements before the market deteriorated. sales force. The company should therefore conduct a thorough assessment of its brand and reputation. as early as possible in the IPO process so that any remedial actions can be taken before it becomes constrained by quiet period rules. growth potential and other financial events. lists of historical accomplishments and other reference documents.

Preparing to go public

audiences. Investors, the media and other key stakeholders assign companies to peer groups against which they evaluate the company’s performance. It is therefore important to understand thoroughly the standards against which the company will be evaluated. This benchmarking study should encompass a full range of materials scrutinized by investors, including financial and regulatory filings, press releases and transcripts or webcasts of public events such as earnings conference calls, investor conferences and analyst events, and should include the timing of peer group reporting as well as content. As a general rule, the company will be judged on the completeness, quality and accuracy of the information package it provides to the financial community. Metrics – the company should identify early in the process the metrics and other information it plans to provide to investors post-IPO and consider whether this information can be included in the registration statement to provide additional consistency. Specific consideration should be given to the metrics that peers use to describe their businesses and provide guidance on future performance, as well as additional supporting material they provide. Understanding and accommodating these standards will keep the company in synch with what investors are accustomed to receiving from industry peers and demonstrate a commitment to open and honest communications. Additional financial and operating characteristics critical to understanding the nature and strength of the business can and should be provided. Non-financial disclosures – one of the most frequent and visible communication opportunities is the reporting of quarterly financial results. In addition to meeting SEC disclosure requirements, investors expect management to interpret results and provide additional commentary on business developments via the earnings release and conference call. These communications should go beyond the prescribed financials and the financial

metrics by incorporating business commentary, industry and segment trends and other non-financial information. Guidance – guidance continues to be a controversial topic within the investment and corporate governance communities. However, an important driver of equity valuation is the ability of investors to forecast future earnings and cash flows. How the company provides forward-looking commentary through guidance can significantly affect the valuation of its stock. Research has demonstrated that relatively frequent, accurate and granular guidance is associated with a lower cost of capital; yet the risk of not meeting expectations, a possible duty to update and potential liability concerns demand careful consideration. To be aligned with investor expectations, guidance policies of peers should be analyzed and factored into the decision. Online communications tools – the investor relations section of the company’s website is often the first landing spot for investors seeking more information about the company. As such, it should be user friendly, interactive and easily accessible. Visitors accessing the site must be supplied with the information they need to conduct initial due diligence on the company and help them advance their investment decisions about the stock. Information that can be dynamically updated regarding the business, key executives and strategy will help investors better understand the company and its future prospects. More detailed recommendations on communications are included in Chapter 4. Training – management teams without public company experience should be trained to communicate with investors within the regulatory framework. The market will respond favorably to executives who are forthcoming and open about their businesses. However, engaging with investors in real time subjects executives to the risk of making selective disclosures of material non-public information, which is prohibited under Regulation

F-D. It is critical for executives to understand the parameters of what they can discuss. Even as the company seeks to refine its communications strategies, it is important to understand that investors will look well beyond its direct investor communications for insight into its business prospects and investment potential. In addition to traditional investor relations, the company should consider its corporate and media communications strategy as part of an entire communications approach. This includes assessing news trends, building relationships with reporters, influential bloggers and industry analysts, and understanding how peer companies are portrayed in the media. Developing strategies for disseminating positive announcements and managing difficult news will pay long-term dividends, helping build the company’s brand, enhance its reputation, build management credibility and protect valuation. Companies must have the proper response mechanisms in place to address crisis situations quickly and effectively, including those crises that may occur while the company is still in the IPO quiet period. Planning, vigilance and transparency are the most effective investor relations tools a company possesses. By developing a comprehensive communications strategy that provides for consistent communications, meets (or exceeds) peer standards and provides required disclosures, the company can prepare, pre-IPO, to thrive in a public environment and adapt efficiently to the many surprises and challenges that will inevitably arise. 2.4 Designing the capital structure (a) American depositary receipts American depositary shares, commonly known as American depositary receipts (ADRs), facilitate foreign issuers’ access to the world’s largest equity market. The effectiveness of ADRs is why 158 foreign issuers have used this instrument to raise nearly $55 billion in capital (IPOs only) in the United States during the past decade alone. As of December 31 2009, 252 foreign issuers had ADRs listed on the NYSE. The effectiveness of ADRs for raising
NYSE IPO Guide 25

Preparing to go public

Capital raised using ADRs (by region – 2000 to 2010)

Capital raised using ADRs (by sector – 2000 to 2010)

60% – Asia-Pacific (29,927) 27% – Europe, Middle East and Africa (13,510) 13% – Latin America (6,444)

Diversified (122) 29% – Communications (15,569) 16% – Technology (8,817) 14% – Financial (7,774) 12% – Industrial (6,775) 11% – Energy (6,277) 9% – Consumer, non-cyclical (4,830) 6% – Consumer, cyclical (3,296) 2% – Basic materials (1,136) 1% – Utilities (688)

How ADRs are created: ADRs are normally created when the shares of a foreign issuer – either those currently trading in its local market or newly issued shares in connection with an offering of securities – are deposited with a depositary bank’s custodian in the issuer’s home market. The depository then issues to investors ADRs representing those shares. At any time thereafter, an investor can sell these ADRs in the secondary market (eg, the NYSE), or have the sponsoring depositary bank cancel the ADRs and receive the underlying ordinary shares that can be sold in the foreign issuer’s local market. Setting up an ADR program: Once a foreign issuer has chosen an ADR structure, it will work closely with a depositary bank to establish and maintain the ADR program. Timeframes and requirements for launching a program will vary. However, certain characteristics are common to any ADR structure. Setting the ADR-to-share ratio: Each ADR issued will represent a certain number of underlying ordinary shares held in custody in the foreign issuer’s home market. There is no official rule for setting the ratio for ADRs. However, the share prices of sector peers should be taken into consideration in order to establish a ratio that will result in an initial price per ADR that investors will perceive to be “attractive.” The ratio initially selected may affect the transaction costs that a foreign issuer’s investors will pay. For instance, since fees for issuance (and cancellation) are assessed in cents per ADR, an ADR that is priced “too low” can add incremental transaction costs for investors. Parties that work with the foreign issuer: Establishing an ADR program requires close coordination between the foreign issuer, its chosen depositary bank and each firm’s legal counsel. When raising capital in the United States, the issuer also relies on other advisors, such as accountants, investment bankers and investor relations firms. The chart opposite summarizes the roles and responsibilities of each program partner. On page 30 is a sample timetable for the

capital in the United States is due to their appeal to investors – these instruments are a convenient way to directly invest in international companies while avoiding many of the risks typically associated with securities held in other countries. For US investors, ADRs: • are easier to purchase and hold than a foreign issuer’s underlying ordinary shares; • trade easily and conveniently in US dollars and settle through established clearinghouses; • pay dividends in US dollars; • eliminate unfamiliar custody arrangements; and • provide notifications of corporate actions in English. ADRs allow institutional investors access to foreign securities without the burden of local custody arrangements or having to deal in other currencies. Also, many US institutional managers are required to buy ADRs to invest in foreign issuers, due to restrictions in their investment charters.
26 NYSE IPO Guide

In addition to facilitating capital raising in the United States, ADRs offer foreign issuers many other benefits, including: • shareholder diversification; • incremental investor demand that can drive market valuation; • a US acquisition currency; • stock-based compensation for US employees; and • enhanced corporate visibility in the United States. ADR structures: A Level III ADR program listed on the NYSE (or on another US stock exchange) allows a foreign issuer to realize all of the aforementioned benefits of ADRs, including raising capital from individual investors. Alternatively, capital can be raised from qualified institutional investors only via a private placement, known as a Rule 144A offering. A Level II ADR program allows a foreign issuer to list on a US stock exchange, but not raise capital. Under a Level I program, the ADRs are not listed, trading instead in the over-the-counter market.

Preparing to go public

establishment of a Level III ADR program. The deposit agreement: As a first step toward establishing an ADR program, the foreign issuer and its chosen depositary bank negotiate a deposit agreement. This contract details the legal relationship and obligations of the depositary bank and the issuer, describes the services the depositary and issuer will provide, and sets forth the rights of ADR holders and the fees they must pay the depositary bank. While some terms are standard, deposit agreement provisions may vary from program to program, depending on the legal requirements of the foreign issuer’s home market, the objectives of the depositary bank and individual issuer specifications. The deposit agreement includes provisions relating to the following: • deposit of the issuer’s shares; • execution and delivery of the ADRs; • issuance of additional shares by the issuer in compliance with applicable securities laws; • transfer and surrender of the ADRs; • setting of record dates by the depositary; • voting of the foreign issuer’s underlying shares (ie, the shares evidenced by the ADRs); • obligations and rights of the depositary bank and the holders of the ADRs; • distribution by the depositary of cash dividends, stock dividends, rights to acquire additional shares of the issuer and other distributions made by the issuer; • circumstances in which reports and proxies are to be made available to ADR holders; • tax obligations of depositary receipt holders; • fees and expenses to be incurred by the issuer, the depositary and ADR holders; • pre-release of ADRs; and • protections for the depositary and the issuer (ie, limitations on liabilities) ADR certificate: The ADR certificate (see specimen on page 31) is attached as an exhibit to the deposit agreement. A typical ADR certificate resembles an ordinary share certificate and contains the general terms and conditions of the ADR applicable to ADR holders.

Establishing an ADR program: roles and responsibilities of foreign issuer, depositary bank and other parties Custodian • Receive local shares in issuer’s home country. • Confirm deposit of underlying shares. • Hold shares in custody for the account of depositary in the home market. Depositary • Provide advice/perspective on type of program, exchange or market on which to list or quote. • Advise on ratio of depositary shares to ordinary shares. • Appoint custodian. • File Form F-6 if Level I, II or III program. • Review draft registration statement or offering memorandum, depending on type of program to be established. • Coordinate with all partners to complete program implementation steps on schedule. • Coordinate with legal counsel on deposit agreement and securities law matters. • Prepare and issue certificates and/or direct registration statements. • Solicit market makers (Level I ADR only). • Announce DR program to market (brokers, traders, media, retail/institutional investors via news releases and internet. Legal counsel (depositary’s and issuer’s) • Prepare draft deposit agreement (depositary bank’s counsel) and file required registration statements with the SEC. • Manage compliance with US securities laws, rules and regulations and perfect any securities law exemptions (if Rule 144A/Regulation S program) (issuer counsel).

Issuer • Provide depositary and custodian with notices of dividends, rights offerings and other corporate actions, including notices of annual and special shareholder meetings. • Ongoing compliance with stock exchange and SEC regulations, including disclosure and reporting (coordinating with legal counsel/accountants). • Execute US-focused investor relations plan.

Accountants (Level II/III/Rule 144A/Regulation S ADRs only) • Prepare issuer’s financial statements in accordance with, or reconcile to, US GAAP. • Review registration statement or offering circular. Investor relations advisor/firm • Develop long-term plan to raise awareness of issuer’s program in the US. • Develop communications plan and information materials for launch activities (roadshow and presentations to investors, meetings with financial media etc). • Coordinate with issuer’s advertising and public relations teams on specific program plans to support and develop company image in the US. Investment banks/underwriters (Level II/III/Rule 144A/Regulation S ADRs only) • Advise on type of program to launch and exchange or market on which to list or quote. • Advise on ratio of depositary shares to ordinary shares. • Cover issuer through research reports/promote DRs to investors. • Advise on roadshows, investor meetings, investors to target. • Advise on capital market issues. • Where applicable, advise on potential merger/acquisition candidates, and other matters such as rights offerings, stock distributions, spin-offs andproxy contests. If concurrent public offering: • Advise on size, pricing and marketing of offering. • Act as placement agent or underwriter in offering. • Conduct roadshows with management/introduce issuer to institutional and other investors. • Line up selected dealers and co-underwriters for offering.
NYSE IPO Guide 27

Preparing to go public Sample timetable for establishing a Level III ADR program Action Establish and organize transaction team. • • • • • • • • • • • • Timeframes provided are indicative. organize direct purchase programs and establish employee ownership plans. Underwriter delivers cash • proceeds to issuer. Commit to file Form 20-F within 12 months (if not already being filed in conjunction with an existing Level II ADR). Resolve any and all matters involving registration and disclosure. Prepare Form F-6 and submit to SEC with deposit agreement. CUSIP number and ticker symbol. and sell ADRs. ADRs are listed and begin trading. price offering. Receive SEC comments on Form F-1 and other forms. • • • • I • • D • • L • A • IB IR • • • • 1 2 3 4 5 6 7 8 9 I0 11 12 13 14 Ongoing • • • • • • • • • • • • • • • • • • • • • • • • • • Closing. obtain DTC eligibility. Begin US roadshow and ongoing investor relations program: create communications materials. and prepare ADR certificates. The SEC generally provides comments on Form F-1 registration statements within 30 days of the date filed. target institutional investors. IB = Investment bank. depositary’s custodian receives underlying shares. Select ratio. L = Legal counsel (for depositary and/or issuer). Submit exchange listing application and agreement. Complete requirements for trading and settlement. Distribute press release and broker announcements to media and investment community Place tombstone advertisement. Regulator’s involvement and issuer’s program specifics may vary and can materially affect timing. Key to parties involved: I = Issuer. Receive SEC declarations of effectiveness on Forms F-1 and F-6. IR = Investor relations firm 28 NYSE IPO Guide . D = Depositary bank. Conduct roadshow meetings with US investors (group and one-on-one). Prepare and submit to SEC offering circular/prospectus and Form F-1. Negotiate deposit agreement. A = Accountant. and depositary delivers ADRs to syndicate. Print final prospectus. Receive approval. Execute deposit agreement. Underwriter conducts preliminary due diligence.

• Controlling changes to the board of directors – various charter or bylaw provisions related to changes in directors can make it more difficult for hostile bidders or dissidents to influence and control a board of directors. such as identifying independent directors. • Post-IPO changes may require shareholder approval. Board of directors and board committees: A public company’s board composition and structure are often very different from those of a private company. many of these protections may attract negative shareholder attention and proposals for change down the road. The company may wish to avoid other provisions that make it easier for an insurgent group to NYSE IPO Guide 29 . as well as certain registration provisions of this act. What percentage of shareholders are likely to be institutional investors compared to retail governance planning. these characteristics of the shareholder base will be an important element of investor relations. each elected for a three-year term. the stock exchanges. the purpose of a poison pill is to force potential bidders to negotiate with the target’s board of directors. require that the board of directors comprise a majority of independent directors within one year of listing. as they may take considerable time. These rights allow holders (other than a bidder) to purchase stock in the target or in the acquiring company at a steep discount (usually half price) if a hostile bidder acquires a certain percentage (usually 15% or 20%) of the outstanding shares. are exempt from most of these requirements except the audit committee rules. Governance matters have become a central focus of activist shareholders. the company should carefully consider the right mix of board member qualifications. In particular. which often benefit from stock price premiums in a takeover context. a foreign issuer must comply with the registration provisions and continued reporting requirements of the Exchange Act. and a larger board. The defenses an IPO company may consider include the following: • Poison pill (“rights plan”) – increasingly a focus of pressure from institutional shareholders. If the acquisition is friendly and the board approves the deal. as amended. This is the ideal time for the company to consider organizational matters more generally. with a typical classified or staggered board having three classes of directors. including anti-takeover defenses: • Changes after the IPO will be very visible. which evaluate a company’s governance structure in making shareholder voting recommendations. Although their terms and conditions vary considerably. the company will need to ensure that its governance structure meets SEC and stock exchange requirements. Under a typical poison pill or rights plan. including the NYSE. as discussed in Chapter 2. post-IPO. For more information about these requirements. with more than seven or eight members. should be initiated early in the process.6. For more information about the SEC registration and reporting requirements. the poison pill remains the most potent structural takeover defense. It is important that the company work closely with the underwriters to develop a properly balanced board and governance structure. and under the NYSE rules must also have compensation and nominating committees made up of independent directors. Anti-takeover defenses: Anti-takeover defenses are a key element of pre-IPO SEC registration: As a US-listed company. “Controlled companies. which may be difficult to obtain. as well as investment advisory firms such as RiskMetrics and Glass Lewis. but the company generally must be fully compliant within one year. In addition. governance document posting and potential filings. as well as related disclosure requirements. the company must have an audit committee meeting SEC and stock exchange rules on composition.” or companies with a majority shareholder. The company should also anticipate the make-up of its shareholder base. The rights usually have redemption provisions that permit the company to redeem the rights at a nominal price. subsidiary framework and capital structure. Beyond the required structures. and put in place a strong board and governance structure. Achieving the right balance is important. such as a finance committee or a public affairs committee. as are foreign private issuers. particularly in light of the current economic environment. independence and financial expertise. (b) Anti-takeover defenses and other governance matters Before going public. as well as “interlocking” relationships with other companies. as certain elements may impact investor interest and ultimately pricing. • Some governance requirements. please refer to Chapter 5. This dilutes the voting power of the bidder and makes it more expensive to acquire control of the target. implement desired changes to the company’s jurisdiction of organization.2. Other SEC and US tax rules also typically influence the composition of the compensation committee. Some of these governance requirements can be phased in following the IPO. only one-third of the directors are up for renewal at each annual meeting. in which decreased stock prices have heightened concerns about hostile takeovers. as too strong a defense profile may be disfavored by investors.Preparing to go public ADR certificate investors? Are there likely to be any hedge funds or shareholder activists? Going forward. the company issues rights to the existing shareholders. A US public company must comply with governance requirements imposed by stock exchange listing requirements and SEC rules. it may use this feature to redeem the pill or otherwise exempt the transaction. see Chapter 5. likely requiring disclosure. might warrant the formation of other standing committees. For example.

special approval. These provisions protect the lender or other contracting party. the company should review and clean up documents that contemplate a private company (eg. such as cumulative voting. The company’s compensation committee might consider hiring a compensation consultant to help structure new arrangements in light of the IPO. including for the issuance of stock of the company and its subsidiaries. an “interested shareholder” (generally a holder of 15% or more of the voting stock) is generally prohibited from engaging in a business combination with the company for three years after the holder became an interested shareholder. The company needs to 30 . voting power. with a strong focus by activist shareholders and investment advisory firms.Preparing to go public • • force changes in directors and thus gain control. Inc. Change of control provisions – a common feature of loan agreements and other significant contracts is a provision restricting a change of control of the company. and provisions allowing shareholders to remove directors without cause. particularly in restructuring efforts or friendly takeover transactions. the company should strongly consider putting into place a new equity incentive compensation plan or reviewing and revising any existing plans in light of its status as a public company. as a holder of more than 10% of the outstanding shares. majority voting provides for a more democratic process and has gained in popularity over the past several years. the company should review all of its employee compensation and benefits arrangements in light of the opportunities afforded by and the responsibilities resulting from the IPO. the company should make sure it has sufficient authorized shares for the shares to be issued if the pill is triggered. However. Supermajority voting – “supermajority” voting requirements may be imposed for mergers and other specified transactions between the company and an “interested shareholder. Thus. dividend or other rights or preferences without a shareholder vote. requiring a supermajority vote. In a recent case. the Delaware Chancery Court raised questions regarding the interpretation and validity of certain of these provisions. Charter and bylaw provisions can be used to limit the ability of the hostile bidder to call special meetings or bypass the meeting requirement altogether by the use of a written consent of the shareholders. While plurality voting generally increases the likelihood that management’s director nominees will be elected. Also. including at the board level if they cannot be eliminated. an 80% vote might be required to effect an acquisition of the company by a major shareholder. (a) Equity compensation Incentive plans: Having publicly traded stock opens up new avenues for compensating employees of the company.5 Providing for employees In preparing for an IPO. preference and rights of each series. San Antonio Fire & Police Pension Fund v Amylin Pharmaceuticals. The existence of blank check preferred stock allows the board to issue preferred stock with supervoting. the company may include in its authorized and unissued stock a certain amount of undesignated preferred shares. The plan should state the aggregate number of shares available to be issued under it. which can result in the election of a director with the support of only a small percentage of shareholders. Among the responsibilities is becoming subject to tax and securities laws that did not previously apply. Corporate housekeeping: In anticipation of going public. The company may also wish to consider provisions requiring shareholders to give adequate advance notice and supply information before their proposals are added to the agenda of a regular or special meeting. when an interested shareholder proposes a merger at any price less than the highest price paid for any share of NYSE IPO Guide • • • company stock by an interested shareholder. the compensation disclosure rules and Section 16 of the Exchange Act. if there is a poison pill. for example. Issuance of shares – the company should ensure that it has a sufficient amount of common and “blank check” preferred stock authorized under its charter. In many jurisdictions. Although a Delaware corporation can expressly elect in its charter not to be subject to this “freeze-out” statute. Any post-IPO plan should allow the company sufficient flexibility in terms of types of awards and their terms and conditions. instead of the more typical 50% or 66%. including Section 162(m) of the Internal Revenue Code of 1986. The major opportunity is the ability to compensate employees with publicly traded stock.” which may be defined. Business combinations with interested shareholders – under Delaware law. The company should carefully consider these provisions in its existing and proposed agreements. as well as making it less attractive to a potential acquirer. Shareholder action provisions – the company can improve its defensive posture by regulating the methods by which a hostile bidder can call for and obtain a shareholder vote on director elections or other proposals that may facilitate a takeover. A fair price condition may be incorporated into the supermajority provision. charter documents and shareholder agreements). as a contractual term that could affect the shareholder franchise. increase the number of directors without limit and fill board vacancies. it can be an effective anti-takeover defense. Similarly. as amended. to confirm that corporate formalities have been observed and properly documented. but reduce the company’s flexibility. it is important for the company to review corporate minutes and other records. The company should also consider whether to adopt a plurality or majority voting standard for director elections. The board will be authorized to issue preferred shares in one or more series and to determine and fix the designation. In connection with its IPO. 2. for example. NYSE rules generally require shareholder approval by majority of votes cast before issuing 20% or more of the outstanding voting power outside a public offering. resulting in an event of default if breached.

A plan that has been adopted and approved by the shareholders of the company prior to the IPO will also not require further approval by shareholders after the IPO to grant employee tax-favorable “incentive stock options” pursuant to Section 422 of the code until the earlier of 10 years from the date of adoption or amendment of the plan to add additional shares or change eligibility for participation. with any further adjustments necessary to maintain economic equivalency. the company will be subject to Section 162(m) of the Internal Revenue Code. both to confirm proper accounting treatment and. A plan that has been adopted prior to the IPO may take advantage of grandfather provisions under stock exchange listing rules. a 401(k) plan). Other plans: While not as commonly adopted in connection with an IPO as equity incentive plans.Preparing to go public consider carefully shareholder dilution concerns and estimated burn rates when determining this number. keeping in mind potential tax and accounting issues. a repurchase right upon termination of employment). or • the first shareholder meeting at which directors are to be elected after the end of the third calendar year following the year of the IPO. Performance-based compensation: Performance-based compensation is not subject to the deduction limit of Section NYSE IPO Guide 31 . following the IPO. if possible. (b) Section 162(m) of the Internal Revenue Code Following the IPO. Under Section 162(m). If compensation is paid by the company pursuant to a plan or agreement that existed prior to the company becoming publicly held and was disclosed in the IPO prospectus “in compliance with all applicable securities law”. enabling it to grant all of the stock reserved under the plan without seeking public shareholder approval of the plan until it either runs out of shares or is materially modified. determined in accordance with the Exchange Act’s executive compensation disclosure rules. Covered employees include the chief executive officer and the three most highly compensated officers of the company (other than the chief executive officer (CEO) and the chief financial officer) on the last day of the taxable year. with respect to stock options or stock appreciation rights. the company could consider making company contributions in stock or adding a company stock fund as an investment option. it should review the prior grants to ensure that no action is required (or that any action that may be required is taken) by the company to adjust the terms of the awards as may be necessary or appropriate. if the pre-IPO company is a limited liability company. • issuance of all employer stock and other compensation allocated under the plan or agreement. Pre-IPO plan adoption also provides an advantage under Section 162(m) of the code. the company may not take a deduction in its US taxes for compensation paid to a “covered employee” to the extent it exceeds $1 million for the taxable year (subject to certain exceptions). • material modification of the plan or agreement. so long as the grant occurred on or before the earliest of the specified events. directors and certain independent contractors under a compensatory plan on a short-form registration statement – Form S-8. should be approved by the shareholders of the private company. These grants would permit the employees to participate in the increase in value of the company following the IPO. The company should also carefully review its equity valuation methods with respect to pre-IPO grants. If the company has previously granted compensation to its employees in the form of equity awards pursuant to exemptions from registration under the Securities Act and Exchange Act. The company may wish to make equity grants in connection with the IPO to its executives and other employees. Any adoption of new plans or changes to existing ones should occur prior to completion of the IPO and. the compensation is not subject to the deduction limit until the earliest of the following: • expiration of the plan or agreement. For example. If pre-IPO awards were subject to conditions common to private company equity (eg. Adopting a stock purchase plan prior to an IPO provides grandfather benefits under stock exchange listing rules and Section 423 of the code similar to those for equity incentive plans. The company may also wish to hire a firm specializing in stock plan administration to handle the logistics of its equity compensation program. Form S-8 incorporates by reference company information from Exchange Act filings. In addition. This transition relief also applies to any compensation received pursuant to the exercise of a stock option or substantial vesting of restricted stock granted under such a plan or agreement. to confirm that they were granted with exercise prices equal to (or greater than) fair market value in light of Section 409A and Section 422 of the Internal Revenue Code. Transition relief: Section 162(m) provides transition relief for a company that becomes subject to Section 162(m) through an IPO (so long as such company was not previously part of an affiliated group that included a company with common stock registered under the Exchange Act). The company will need to determine the amount and the type of equity award. the awards should be amended to refer to common stock. and may be required to disclose the aggregate amounts and also specific amounts with respect to its named executive officers in the registration statement. The prospectus delivered to participants need not be filed with the SEC and primarily addresses the terms of the plan. Stock purchase plans may be designed to allow for employee favorable tax treatment under Section 423 of the code. if the company has a defined contribution plan for its employees (eg. the company could consider adopting a stock purchase plan permitting employees to purchase stock from the company through payroll deductions either at market price or at a discount. the company should consider deleting those provisions if they do not cease automatically in accordance with their terms. Form S-8: The company may register the sale of stock to employees. but either action must be very carefully reviewed prior to implementation. as discussed below. as well as a description of the plan.

To qualify as performance-based. the company should review any arrangements that may be considered direct or indirect loans or other extensions of credit by it to any of its executive officers or directors. When making its decision. and • precludes discretion to increase the amount of compensation payable that would otherwise be due upon attainment of the goal. a majority vote of shareholders before the compensation is paid. (d) Executive compensation and other arrangements The company should also review its executive employment. in its annual proxy statements. In addition. objective performance goals. • The material terms of the performance goal are disclosed to. it will eventually need its compensation committee to be comprised of outside directors for purposes of this performance-based compensation exception and to conform its plans and practices to the extent necessary. For more information about Section 16 filings. and approved by.Preparing to go public 162(m). (c) Section 16 of the Exchange Act Upon the IPO. if any. see Chapter 5. the company should keep in mind the detailed compensation disclosure that will be required both in the IPO prospectus and. and consider the pros and cons of adopting or amending those agreements in light of the company’s changed circumstances.4. including the performance goal criteria and the maximum amount of compensation a participant could receive during a stated period. and the following requirements must be satisfied: • Certain actions are taken by a board compensation committee consisting solely of two or more “outside directors” (as defined in Section 162(m)). severance and change in control agreements. and the intense scrutiny that disclosure will receive. • is objective such that a third party having knowledge of the relevant facts could determine whether it is met. • The performance goal: • is established in writing by the committee before 25% of the performance period has elapsed and in no event later than the 90th day of the performance period. Although a newly public company will initially benefit from the IPO transition relief. going forward. directors and officers (as defined in Section 16) of the company and 10% beneficial owners of company stock will become “Section 16 insiders” subject to the reporting and short-swing profit provisions of Section 16 of the Exchange Act. as these must be terminated prior to effectiveness of the registration statement filed with the SEC to comply with SOX. the compensation must be paid solely on account of the attainment of one or more pre-established. 32 NYSE IPO Guide . • is substantially uncertain to be achieved at the time it is established.

3 The IPO process NYSE IPO Guide 33 .

customers. including: • compensation disclosure and analysis for executives and board members. (a) Prior to official IPO process launch Decision to go public: The company should evaluate its internal readiness. • underwriting. auditors and underwriters. and other information: • any current or pending litigation. legal parties. The investment bank will conduct intensive business and financial diligence. • liquidity trends. The document details the following: • offering overview. • description of the security. and begin establishing internal controls compliant with the SarbanesOxley Act (SOX) and Securities and Exchange Commission (SEC) regulations. including the investment bank that will quarterback its IPO process and its company counsel for the offering. to determine whether it is ready to go public. roles and responsibilities for the IPO process so that everyone is on the same page. material contracts. (b) Week 1 Organizational meeting: All key constituents of the IPO should meet to discuss the offering specifics. financials (both historical and prospective). diligence. • taxation. The key workstreams are drafting. board composition and committees. • lock-up agreements for existing shareholders. state and federal laws and regulations. officers and executives. operations. including the company. the company should select a board of directors that is appropriate to guide the company through the IPO process. • a description of the company. depending on the timing of the IPO. and • composition of audit. Legal and other documentation: In addition to the prospectus. piggyback. • future operational trends. other documentation (including legal and financial) and marketing. competitive position and business strategy.1 Process timeline The process of planning and executing an initial public offering (IPO) is time intensive and typically takes 12 to 16 weeks from start to finish. • successes or failures of specific operations. • capital stock. the company and the auditors to draft and complete the following documentation: • underwriting agreement. the complexity of the transaction. Selection of advisors: The company should carefully select its IPO advisors. suppliers and any other relevant parties. procedures. and • other relevant issues of which the SEC and/or investors should be aware. preemptive. The meeting is typically held at the company’s headquarters or company counsel’s offices. Within this process. prepare audited financials (with an auditor that has a national office and experience executing IPOs). • industry overview. dividend or other rights currently in place. related party transactions detailing any material agreements in place. including: • three years of audited financial statements and select financial statement info for the previous five years. any litigation and compliance with local. completeness and truthfulness of the company’s registration statement.The IPO process 3. creditors or other related parties. and • capitalization table. • legal opinions. The legal parties involved (both company and underwriters’ counsel) will conduct legal due diligence. the investment bank (including the assigned research analyst) will have detailed discussions with the company. and • any additional relevant information. including: • analysis of historical financial results. focusing primarily on the company. Due diligence: The purpose of due diligence is to ensure the accuracy. timing. There is typically a large team of professionals involved in the IPO process. particularly where there may be actual or perceived conflicts. Due diligence is conducted by all relevant parties to ensure that all facets of the company and its marketing document are covered. growth strategy and key strengths. The exact time taken to complete an IPO can vary widely and depends on market conditions. workforce. and the company relies heavily on the investment bank to craft an appropriate marketing story. The investment bank will prepare an organizational book which details all of the aforementioned items. as well as the management team and key board members. The process can be broken down into the following stages. • financial statements. as well as looking at documentation associated with agreements with any of the aforementioned parties. including voting. the company’s readiness prior to embarking on the IPO process and many other factors. including industry position. growth trajectory and potential use of IPO proceeds. general corporate developments over the past few years. the entire syndicate is involved in the Form S-1 drafting process. • • • beneficial shareholder information detailing all current ownership of the company by 5% or greater holders. governance. • risk factors. nominating and corporate governance committees. 34 NYSE IPO Guide (c) Weeks 2 to 4 Drafting: The registration statement (or prospectus) that is created when going public is a Form S-1 filing and has the dual purpose of registering the securities with the SEC and acting as a marketing tool when selling the IPO to investors. focusing primarily on verifying the company’s legal records. key tasks. and . Internal controls: Once the decision has been made to prepare for an IPO. • management discussion and analysis (MD&A) of the company’s performance over the past three years. the company and underwriter’s counsel will work with the investment bank. • comfort letter. • expected sources of funding. • interim (“stub”) unaudited financial information for the current year. with 20 to 40 people attending. • use of proceeds for the offering. trends and how the company fits in. As such. including its main products and services. • capital and expenditures. compensation. • management.

industry trends and growth opportunities. competitive positioning and financial performance. even if the IPO is entirely secondary and the company will not sell any shares or receive any proceeds. It has three different aspects: • Regulatory – the registration statement must comply with detailed SEC rules governing its content and will be subject to intensive review by the SEC staff. • Continue valuation discussions. responding to SEC comments. all parties are continuously aligned and the valuation conversation immediately prior to launching the IPO is a relatively straightforward conversation. The preparation of the registration statement is a principal focus of the IPO process. • Liability protection – a materially misleading statement or omission can result in liability to purchasers for the company. while working closely with the company. Closing of the IPO. The second stage is the “waiting period” between filing and effectiveness NYSE IPO Guide 35 . • Finalize the directors’ and officers’ liability insurance program. SEC grants effectiveness on the Form S-1 registration statement. Legal documentation: Continue drafting legal documentation. the company should solicit interest from selling shareholders on any potential shares that they may want to sell as part of the IPO. Discuss offering structure: The company. The registration statement includes the prospectus which is provided to prospective investors and other material that is also publicly available. should determine the appropriate proceeds to raise in the IPO in order to be well capitalized for 18 to 24 months after the IPO. Valuation update with the investment bank: It is prudent to have relatively frequent valuation updates with the investment bank. • Continue drafting the roadshow presentation. (g) Weeks 9 to 12 • Continue filing Form S-1 amendments. The first stage is the “quiet period” before the registration statement is filed. in conjunction with the investment bank. launch and pricing of the transaction process with the SEC. • Finalize offering size and structure. (d) Week 5 Public filing: Form S-1 should be filed publicly with the SEC. hold discussions with the exchange and reserve a ticker symbol. The presentation is typically 20 to 30 slides in length and details the offering. including execution and delivery of all final legal documentation. including final roadshow presentation rehearsals. • Launch roadshow with management presentations to the investment bank’s equity sales force. depending on numerous factors. This way. (f) Week 8 Initial comments on prospectus from SEC: The SEC takes approximately 30 days to review the registration statement. which is part of the registration statement.2 SEC registration Before undertaking an IPO. • Continue drafting legal documentation. the underwriters and other participants. the company must file a registration statement with the SEC and the SEC must declare the registration statement effective. so particular care should be taken with the contents of the registration statement and the prospectus. and receiving incremental comment letters until the SEC is comfortable with the registration statement and has granted effectiveness. to create a short. asking for revisions to the document. is the central item in the marketing of the offering. • Finalize legal documentation. (e) Weeks 6 to 7 Roadshow presentation: While the syndicate of IPO advisors awaits comments from the SEC on the prospectus. the company’s products and services. detailed PowerPoint presentation to be delivered to investors while on the road. it is prudent to begin crafting the marketing story for the impending roadshow. which can take anywhere from two to six weeks. the length of the roadshow and which specific cities and investors to target as potential buyers of the IPO. • Finalize marketing strategy. rings the opening bell and hosts other key marketing events associated with being a public company. (a) Statutory framework The IPO process can be divided into three main stages based on the regulatory framework set forth in Section 5 of the Securities Act of 1933.The IPO process • press releases announcing the filing. when no offers may be made. Discuss marketing strategy: The company and the investment bank should decide which regions (on a global basis) it should visit on the IPO roadshow. (h) Week 13 • Finalize Form S-1. at which point it will respond to company counsel with a comment letter. including rehearsals with the chief executive officer (CEO)/chief financial officer (CFO). • Determine listing venue: Although not required. 3. The registration statement is the company’s responsibility. • Price the IPO. key selling points. • Marketing – the prospectus. • Conduct eight to 12 days of investor meetings. it is advised that the company determine whether it is eligible to list on the NYSE or other exchange. • Finalize the roadshow presentation. The investment bank will spearhead this process. (i) Weeks 14 to 16 • File Form S-1 with price range (‘red herring’). so it must effectively convey the arguments for investing in the company. The initial comment letter is the beginning of an iterative • The company begins publicly trading on the NYSE. In addition. particularly as market conditions change and as the company achieves key milestones throughout the IPO process. Legal documentation: Continue drafting legal documentation. Reconciling these three aspects of the registration statement is an important challenge for the IPO working group.

but need not be provided to prospective purchasers.The IPO process of the registration statement. (b) Gun jumping As this summary shows. and must not engage in communications and activities that might be viewed as impermissibly affecting the market for the securities to be offered. the staff reviews the registration statement. Since the price is not yet available. must be filed within two business days of pricing. and some additional disclosures required by the SEC’s forms. Form F-1 for a foreign private issuer or Form F-10 for certain Canadian issuers. SEC review of an IPO registration statement is very thorough. counsel and other experts. After that. when the shares can be offered. using the preliminary prospectus included in the most recent amendment of the registration statement. The company then has up to 15 business days after effectiveness to file the final prospectus reflecting the pricing and underwriting details. Violations of the restrictions on offers during each stage are sometimes referred to as “gun jumping” and can result in the SEC imposing a delay or “cooling-off period” to allow the effects of the impermissible offer to dissipate. the underwriting agreement. the amount of time required to reach effectiveness can vary widely. this final prospectus is filed in a “pricing amendment” just before the declaration of effectiveness. It is substantially complete. The staff usually provides the first comment letter within four to six weeks of filing. though usually every director signs. The principal sections of the registration statement are a simple cover page. These include charter documents. Occasionally. provides comments and requires that its comments be addressed to its satisfaction. During the quiet period. and the process of responding to the comments is a major driver of the timing of the IPO and often the content of the disclosure. subject to reviewing the implementation in the filing. its principal financial officer and its controller or principal accounting officer. the preliminary prospectus includes an estimated range for the final price. It may omit the price range. the prospectus (called Part I in the SEC’s forms) and Part II. by the company’s principal executive officer or officers. after the registration statement becomes effective. with final information on pricing and underwriting. The usual practice in an IPO is for the registration statement to be declared effective just before pricing.” because of the red legend on the cover indicating its preliminary nature – is the principal instrument for marketing the shares during the waiting period. consents from auditors. acquisitions and arrangements with suppliers or customers. employment arrangements. no offers may be made. whether written or oral.” For example. The “final” prospectus. except for the key points that are determined at the end of the marketing period: the price.” meaning that the preliminary prospectus. under some circumstances a discussion of the company’s business prospects could be construed as an offer and a discussion with a journalist who plans to publish could be construed as a written offer. These rules can take an IPO participant by surprise. 36 NYSE IPO Guide (c) SEC review and declaration of effectiveness The IPO cannot be completed until the registration statement is effective. Because the terms are so broad. Part II contains additional information that must be filed with the SEC and made public. The SEC staff is willing to provide this kind of guidance in advance. The first filing of the registration statement in an IPO is typically a “quiet filing. This is most common where there is a question of accounting or financial presentation that will shape the financial statements. It includes certain required undertakings on the part of the company that are required to implement SEC policies. employee benefit plans. though this is no longer required. The declaration of effectiveness is not actually required until the underwriters are ready to complete sales to investors. particularly because of the broad definitions given to the terms “offer” and “written. in their individual capacities. which can include a wide range of agreements relating to. which generally requires an affirmative declaration by the SEC staff. although publicly available. Difficult accounting comments can take months to resolve and can substantially change the information content of the prospectus. depending on the nature of the comments and the work required to resolve them. joint ventures. It is often delivered to investors as well. no written offers may be made except by means of the preliminary prospectus. Often a pre-filing conference leads to an exchange of letters to document the precise contours of the staff’s guidance. the actual proceeds. Before providing this declaration. but cannot yet be sold. after the marketing is complete and the IPO has been priced. offering participants must be careful to distinguish between permissible communications and illegal offers. for example. however. It must also be signed by a majority of the board of directors. They also include the company’s material agreements. or where an accommodation under the SEC’s rules will be needed. In some IPOs. but if so it must be amended to include a price range before the marketing can begin. During the waiting period. the law regulates offers as well as sales. Only after the SEC comment process is complete (or nearly so) does the marketing of the offering begin. The comments are provided in written comment letters. . a list of subsidiaries and opinions of counsel. The contents of the prospectus are discussed in Chapter 3. Only in the third stage. it may be useful to raise issues with the SEC staff before the first filing by requesting a pre-filing conference. The most important element of Part II is the requirement to file exhibits. can the shares also be sold. accompanied by a response letter explaining how the company has addressed the matters raised in the staff’s comment letter. The preliminary prospectus – often called a “red herring. (d) Contents of registration statement The registration statement for an IPO is on Form S-1 for a US issuer.3. signatures. licenses. is not actually sent to investors. The registration statement must be signed on behalf of the company and. Copies of the preliminary prospectus are distributed to the sales force of the underwriting and selling syndicate members and provided to prospective buyers. financing. The company’s response generally takes the form of an amendment to the registration statement. the underwriting commitments and related matters.

Registration fees are a major source of the agency’s funding and are established by the SEC based on annual revenue targets. For the SEC’s 2009-2010 fiscal year.” It usually describes the offering and briefly describes the company. the SEC has fleshed out what these requirements mean. It is not unusual in an IPO to pay additional fees during the process as the estimated dollar value is refined. the expectations of the SEC staff and market customs developed in prior IPOs. The summary description of the company is usually treated as the most important part of the prospectus from a marketing point of view. Prospectus drafting style: Under the SEC’s rules. the SEC makes it all publicly available a short time – generally 45 days – after the IPO. management and other issues. concise and understandable manner. EDGAR. An IPO prospectus must meet all requirements of the applicable SEC form (Form S-1 for a US issuer. The SEC will not refund fees if the total dollar value actually offered falls short of the amount registered. the level of detail is often much greater in an IPO prospectus than in the periodic reports of established public companies. Correspondence with the SEC staff concerning the registration statement is also filed through EDGAR. The public nature of SEC filings can present problems for the company. and tabular and bullet point presentations. It contains disclosure about the company’s business. there is some limited scope for innovations in organization or presentation based on the particular circumstances or investment thesis of the company. no double negatives. they stood at $71. paper “courtesy copies” are usually provided to the SEC reviewing staff. (f) Filing fees The company must pay a filing fee to the SEC at the time the registration statement is filed. because sometimes the exhibits or the comment correspondence includes material that the company would prefer to keep confidential. the company must amend the registration statement and pay additional fees. This is typically presented with a border around the margins of each page and is consequently often referred to simply as the “box. operations. Instead. 3. but it is important not to be surprised at the last minute by the need to pay additional fees. however. being balanced and complete. Form F-1 for a foreign private issuer). More generally. All issues must be resolved and the confidential treatment request must be complete before the acceleration of effectiveness of the registration statement. and avoiding any factual statements that cannot be substantiated. They are based on the aggregate offering price of the securities registered. no legal jargon. An overly cautious approach is not necessarily desirable either. In order to do so. definite. Discussions of the business outlook. but it is presented as a freestanding document and does not include the text of the form itself or even follow the order of items in the form. the registration statement is available to the public. However. concrete. NYSE IPO Guide 37 . and wholesale repetition of risks and qualifications is unnecessary. however. Although documents are filed electronically. under which the SEC staff will review a draft registration statement and complete the comment process on a confidential basis before the first filing. and they are accompanied by discussions of the factors that could cause actual outcomes to differ from those anticipated. Once it has been filed. so for a $100 million IPO they would amount to $7.130. the amount is based on good-faith estimates. but space does not permit an exhaustive review. The fee must accompany the initial filing. These kinds of “forwardlooking statements” are usually necessary.” and the cover page. Against this background. a longstanding exception for foreign private issuers. Summary “box”: The prospectus must include a summary. so that descriptions of the company’s beliefs and expectations will not be mistaken for statements of fact. summary section and risk factors section must follow “plain English principles. The SEC staff processes confidential treatment requests filed with IPOs concurrently with the review of the registration statement.3 Prospectus (a) Required disclosures The prospectus constitutes Part I of the registration statement used to register an IPO with the SEC and is also the central document used to market the IPO to prospective investors. On the other hand. all information in a prospectus must be presented “in a clear. or of the company’s future performance. There is. If public disclosure would result in competitive harm to the company. Instead. and may not cover everything the company considers sensitive.30 per million dollars. The financial printer will typically handle the mechanics of filing. The grounds for confidential treatment are narrow. financial condition. as is each subsequent amendment. everyday language. the back and forth between the company and the SEC is a matter of public record. must be handled with particular care.The IPO process (e) Filing and confidentiality The company must file the registration statement electronically using the SEC’s electronic document system. The SEC will not ordinarily review an IPO registration statement until it has been filed. with a focus on its most distinctive features. it may submit a request to the SEC staff for confidential treatment for portions of material contracts included as exhibits to the registration statement. back page.” In its rules and elsewhere. prospectus drafting should avoid bullish rhetoric and “puffery” by using neutral language. The balance of this section discusses some of the major elements of the prospectus. the organization of an IPO prospectus is typically based on a combination of the SEC’s form. so the company should take care not to overestimate. which is an account number obtained from the SEC for filing purposes. The financial and business information included in the prospectus is very similar in scope to what is included in an annual report on Form 10-K for a US issuer or Form 20-F for a foreign private issuer. but since the price and size of the offering are not yet known. the company must have a central index key number. but they are limited in scope to limit potential disclosure liability. As a result. They must be carefully worded. use of the active voice. including such features of good expository writing as short sentences. if the total dollar value actually offered exceeds the amount on which fees were paid. but it is not made publicly available immediately.

It must also include selected financial information covering five full years. senior management and advisors. and • number of employees.” the corresponding item for a foreign private issuer is called “Operating and Financial Review and Prospects. in the light of the circumstances under which they are made. These requirements are discussed in detail in Chapter 2. The discussion should be concise and well organized. not an exhaustive list of every conceivable risk. The requirements of the applicable SEC form do not limit what should be included in a prospectus. This discussion is ordinarily at the beginning. In addition to the financial statements themselves. This discussion must focus on the company’s ongoing requirements more than on its past performance. and it varies widely in scope and breadth. “Management’s Discussion and Analysis of Financial Condition and Results of Operations. It takes its name from the beginning of the cumbersome title used in the SEC’s rules. if any. Complementing the financial statements. as set forth in five industry guides. and methods of distribution. Risk factors: A prospectus must set forth under the caption “Risk factors. MD&A must address several other specifically mandated disclosures. • related party transactions (see Chapter 5. dilution resulting from the offering. The prospectus must also include a capitalization table. • dependence on single customers or suppliers. This discussion must zero in on the major drivers of financial performance and on the factors that might cause future results to differ from those in past periods. This summarizes the company’s capitalization as of a recent date and shows how the capital structure will be affected by the IPO and the application of the IPO proceeds. its funding requirements and its anticipated sources of funds. Some established issuers take the position that there are no risk factors. • intellectual property. the MD&A explains the company’s performance and its financing to investors “as seen through the eyes of management” (as the SEC has put it). including a table of contractual obligations and a discussion of any offbalance sheet arrangements. It then goes on to describe the business in full. not misleading. there is a required section providing selected financial information going back five years and there is also a summary in the summary box. • directors. information from the financial statements is often accompanied by other key statistics about the company’s operations or performance. • Discussion of results of operations – • there must be a detailed comparative discussion of results for each of the past three years and any subsequent interim period. casualty insurers and mining companies must supply . It should include a discussion of the most significant risk factors for the company. • material effects of the regulatory environment. Management’s discussion and analysis: Management’s discussion and analysis (MD&A) is among the most important disclosures in the prospectus. depending on the age of the audited financial statements. if the company has been in existence that long. a general rule under the Securities Act requires the company to include such further material information.The IPO process Financial information: The prospectus must include audited financial statements and.” right after the summary box. but most of the content of the discussion is based on common sense and on a review 38 NYSE IPO Guide of what other comparable companies have covered. • competitive conditions.3. the MD&A must address any known ways in which future performance could differ and identify trends and uncertainties that may affect the company going forward. It should discuss each segment separately if material to an understanding of the business as a whole. including the proposed use of proceeds. if any. In addition. A typical IPO prospectus provides the most important financial information three times. often described as its strengths and its strategy. In particular. and should avoid boilerplate. changes in financial condition and results of operations. In the selected financial information and the summary. • sources and availability of raw materials. • material legal proceedings. underwriting arrangements and selling shareholders. Business of the company: The business section of the prospectus sets forth a straightforward discussion of the company’s business and operations. with headings that adequately describe each risk described. Three elements are the core of every MD&A: • Overview – there should be a synthetic discussion of the most important issues affecting the company’s past and future economic performance.4). In addition to discussing performance in past periods. • terms of the shares being offered. unaudited interim financial statements. Discussion of liquidity and capital resources – there must be a full discussion of the company’s liquidity. but an IPO prospectus invariably includes this section. the most significant factors that make the offering speculative or risky. Industry guides: The SEC requires special disclosures from companies in certain industry sectors. • research and development expenditures. In addition to the information expressly required to be included. as may be necessary to make the required statements. The forms specifically contemplate the following topics: • principal products produced and services rendered. MD&A serves to provide investors with the information necessary to understand the company’s financial condition. Other matters: The following additional topics concerning the company must also be addressed in the prospectus: • dividend policy. This section usually begins with a brief overview and continues with a presentation of the company’s distinctive features. The SEC’s forms provide broad guidance on how to do this. and • principal property. The prospectus will include a description of the offering. banks and bank holding companies.” but is still referred to as MD&A.

Financial printer: A financial printer should be selected early in the IPO planning stages. they provide the foundation for applying best disclosure practices and building the confidence of investors. A review of comparable disclosure and issues raised in comment letters can help identify the significant disclosure issues of relevance to the company’s offering and may provide a roadmap for how best to address these issues. the accuracy and completeness of the prospectus are essential goals for other reasons as well. It involves determining what comparable issuers disclose in their prospectuses and periodic reports. but underwriters. Controlling shareholders may also be liable. The core working group reviews. A further discussion of the risk of liability facing directors and officers is set out in Chapter 6. a robust due diligence exercise is required under a formal internal approval or commitments process designed to protect against reputational risks and to meet other institutional goals. the core working group distributes an advance draft of the registration statement to all directors and key officers and. Judicious borrowing from comparable sources provides a helpful shortcut in what can otherwise be an arduous process. An IPO may require the participation of constituents in multiple countries and time zones. such as necessary third-party consents and waivers for the transaction. as the registration statement nears completion. Although these additional goals are important. These drafting sessions are often conducted at in-person meetings. its directors. This defense is often referred to as the “due diligence defense. Underwriters and their counsel usually draft the plan of distribution. and equipment that is accessible 24 hours a day. analytical techniques. Similar reputational concerns apply to directors and shareholders. though they can also be held by videoconference or conference call. the company’s counsel will take the lead in reflecting any such changes in the registration statement. In addition. (c) Due diligence investigation The process of verifying that the information in the prospectus and the registration statement is materially complete and accurate is broadly referred to as “due diligence. several factors should be considered. The financial printer should make use of technology tools to streamline delivery of the project. In choosing a financial printer.” The applicable liability NYSE IPO Guide 39 . The financial printer should have a sufficiently broad and secure distribution network. and what issues the SEC staff has raised in comment letters to such issuers. Customer service should be reliable and capable of supporting a deal of international scope. directors and officers may assert a defense if they performed a reasonable investigation and believed the registration statement and prospectus were materially accurate and complete.The IPO process enhanced disclosure subject to the requirements of the guides. • process requested changes to the registration statement until the final draft. A foreign private issuer may involve both local counsel and US securities counsel. The company itself faces strict liability. depending on the circumstances. the financial printer should be equipped to handle annual compliance and future transaction needs. the company’s counsel. it is the role of the financial printer to: • work with the company to ensure that the registration statement is formatted in the way required by the SEC and any other regulatory institutions. the due diligence process is driven by the risk of liability. working with company personnel. due diligence can help identify business issues that need to be addressed. For the company and its personnel. which describes contractual and regulatory aspects of the IPO. such as the description of the company’s strengths and strategy that leads off the summary box. also to selling shareholders and other key shareholders. usually falls to the company’s counsel. Following the IPO. For underwriters. any selling shareholders and the underwriters. In addition to advancing the draft. Compiling the information necessary to comply with the industry guides can be a substantial undertaking requiring specialized expertise (b) Drafting process Drafting logistics: Primary responsibility for drafting the prospectus. The benefit of using the same financial printer for future needs is that it reduces the time required for data collection and ensures that former project knowledge is properly applied.” While the guiding purpose is to limit the risk of liability. the underwriters and their legal counsel. ‘Benchmarking’ is an important aspect of the drafting process. The underwriters should satisfy themselves that the company has established adequate procedures for collecting and evaluating comments on the document from those persons to whom it has been furnished. However. • prepare EDGAR-suitable versions of documents that need to be submitted electronically to the SEC on the company’s behalf. Sometimes underwriters and their counsel also prepare first drafts of sections that will be key to the marketing effort. the company’s auditors. comments and participates in drafting sessions that include representatives of the company and its auditors. Drafts of the registration statement will undergo several revisions over the course of the due diligence period and as comments from the SEC staff are incorporated into the document. At the beginning stages of the process. The parties that may be liable if there are material misstatements and omissions in the prospectus and registration statement (including documents incorporated by reference) include the company. This is particularly important for MD&A and for any forward-looking statements that are included in the registration statement. other than the financial statements. and • print and distribute hard copies of the preliminary prospectus and final prospectus. which may require making use of best practices in manufacturing concepts. the drafting sessions serve as a core component of the due diligence process by allowing the core working group to go meticulously through all content of the prospectus After the bulk of the due diligence has been conducted. process management and standardized procedures. An underwriting firm has a vital reputational interest in the soundness of the company’s business plan and a disclosure document that completely and accurately describes the risks associated with that plan. the officers who sign the registration statement.

D&O questionnaires. and • involvement of specialized counsel. • informal meetings with key members of management. the company might wish it had disclosed? Financial and business due diligence: Financial and business due diligence involves extensive review and discussion of the company’s historical financial information.The IPO process standards – and some subtleties applicable to the liability of particular IPO participants – are discussed more specifically in Chapter 6. • preparation and review of forecasts. the board of directors and key committees. projections and other data. • review of industry information and disclosure regarding comparable companies (eg. The list should be used as a checklist and aid to organizing the due diligence process. rather than an inflexible set of bureaucratic requirements or limits for the due diligence investigation. business plans. additional information may be gleaned and inconsistencies identified by asking different members of management the same questions. Although the investment bankers and their staff will conduct the lion’s share of the financial due diligence. • discussions with key customers. It is generally carried out through: • formal due diligence sessions with key members of management. correspondence and other communications with supervisory and regulatory authorities. where appropriate. Specific questions about the business should be asked. Identifying potential problems: The due . auditors’ letters to management. with the benefit of hindsight.1. Corporate governance due diligence: Underwriters and their counsel typically review the company’s corporate governance policies and SOX compliance programs. • “sensitivity” analysis. • closing documents. • review of securities analyst reports. existence of the company and material subsidiaries. Moreover. The negative comfort letter generally says that nothing has come to the attention of counsel that would cause counsel to believe that the registration statement or prospectus is false or misleading in any material respect. or Rule 10b-5 letter. research reports on industry and competitors. including: • charter documents of the company and its material subsidiaries. • third-party reports. trade publications). During the preparation process. where appropriate (eg. • the independence of the board of directors. including officer certificates. underwriters and their counsel should conduct extensive interviews with 40 NYSE IPO Guide management. materials relating to pending litigation. and other documents that may further the legal due diligence investigation. • filings. Legal due diligence will often involve the following: • discussions with company personnel about the company’s legal affairs. SEC filings and annual reports of other companies in the same industry. Specialized consultants may be called upon to assist in the investigation where the nature of the business or a particular issue warrants it. The due diligence investigation provides counsel with the basis for these letters and the letters in turn form part of the due diligence process on which offering participants rely. Back-up data for industry data and statistics should also be requested and reviewed. operations. it may be helpful to review document request lists for companies in the same industry or from the same country. • • • • • materials relating to intellectual property. • the company’s policy on handling whistleblower complaints. and matters relating to the securities themselves. and materials prepared for board and committee meetings. exemptions to the code and past waivers. a year or two from now. public authority certificates such as certified charters and good standing certificates. They may also address compliance with material contracts. • drafting sessions. • facility visits. • the company’s code of ethics. current business. patents and trademarks. • meetings with auditors and auditor comfort letters. • material contracts. including counsel’s litigation letters to auditors. among many other matters. and • document review by the company’s and underwriters’ counsel. • minutes of meetings of shareholders. and forms of contracts. • the company’s document retention policy. to understand the financial status of the company and identify possible problems presented in the financial statements. including shareholders’ agreements and joint venture agreements. including licenses. the due diligence process requires an organized approach to verifying the information in the prospectus and registration statement and to asking questions about the company. creditors and investors. mining rights or regulatory matters). Legal due diligence: Underwriters’ counsel will generally take the lead in conducting legal due diligence by preparing a document request list that exhaustively identifies materials they wish to review. suppliers. issues of intellectual property. Opinions usually cover such matters as observance of corporate formalities. In practice. and • non-audit services provided by the company’s independent auditors. In carrying out business due diligence. it is important for the lawyers to be actively involved in the process. Issues to be considered may include: • the company’s disclosure controls and procedures and internal controls. Legal opinion and negative comfort letter: It is typically a condition to closing the IPO that counsel for the company and the underwriters provide both a legal opinion and a negative comfort letter. Key general questions to explore at the beginning of the process include the following: • What are the strengths and weaknesses of the company’s business plan? Is its management capable of executing the plan? • What internal or external events or trends could jeopardize success? • What is there that.

Not only is inspection limited to the hours of operation of the host. marketing and sale (a) Underwriting Advising the company: There are many complexities in an IPO process. including primary versus secondary component. NYSE IPO Guide 41 . User support – it should be possible to make changes and address questions immediately. or early termination provisions. the bookrunner(s) will determine the most important regions to visit with the goal of reaching the largest number of high-quality investors which will become meaningful long-term shareholders for the company. because it results in a change in the company’s share ownership. • roadshow presentation and investment thesis development. • co-manager selection.) Rapid deployment – top-tier providers should be able to provide the tools to create indexes in minutes. states or countries.The IPO process diligence process also aims to identify potential impediments to the transaction. and will assist the company in effectively communicating those messages to investors. Examples include upcoming expiration or renewal dates. • Leading technology – the ideal solution should integrate leading technology. given that participants may be spread across several cities. • exchange selection. including: • IPO sizing. and enable document review in real time as documents are captured. • comparable company selection. • Project management expertise – • • • • • • • • • confidentiality is paramount. agreements with or among the company’s shareholders (eg. the marketing message that the company uses during the IPO is critical to its initial success as a public company. and • marketing strategy and roadshow logistics. to save time. • valuation. Global production facilities – choosing a provider with document-scanning facilities in cities around the world will ensure that accelerated document capture is quick and efficient. Intuitive interface – this should be simple enough that next to no training • is required and users can quickly find documents. Simplified user rights – management of user rights should allow for easy restriction and access functionality quickly and easily. • leverage levels and overall capitalization structure post-IPO. document notes and Q&A capabilities enhance the collaborative efforts of reviewer groups. Paper data room v virtual data room: A secure repository for the documents to be reviewed during the due diligence process is critical. The “virtual data room” provides an excellent solution to the challenges presented by a traditional paper data room. Virtual data rooms can offer secure. Shaping the investment thesis: Perhaps the most important contribution that the bookrunner(s) make during the IPO process is helping the company shape its investment thesis. multi-location data hosting with zero-downtime network guarantee. processed and posted. or other important contracts or governmental authorizations. support industry standards and work with globally accepted data formats. the bookrunner(s) will also develop a cohesive investor marketing strategy for the company. Security – security processes on application. 3. Marketing the transaction: While developing the marketing materials. Moreover. (A SAS 70 Type II service auditor’s report includes the service auditor’s opinion on the fairness of the presentation of the service organization’s description of controls that had been placed in operation. In order to maximize the success of the offering. SAS 70 Type II. webbased access documents. but review of documents for out-of-town participants is inconvenient.4 Underwriting. allowing investors to quickly absorb the equity story and evaluate their investment decision. the use of a virtual data room eliminates the need for travel and increases efficiencies by making documents available around the clock. The process should also identify risks to future financial performance or competitive position and limitations on operational or financial flexibility. and the service auditor’s opinion on whether the specific controls were operating effectively during the period under review. not days. Collaboration tools – tools such as email alerts. in customer or supplier contracts. government authorizations. Data management – multiple file uploads should be possible. The paper data room has obvious limitations. or IP licenses. staff and infrastructure. for all users and in multiple languages. database replication at multiple locations and a core competency in handling sensitive financial and business information are critical. the bookrunner(s) will become well versed in the company’s strategy and key selling points. Through intensive diligence and drafting sessions. pre-emptive or registration rights). From the Form S-1 that is filed with the SEC to the roadshow presentation that is delivered to investors. and parallel access for each of the review groups. the suitability of the design of the controls to achieve the specified control objectives. Provisions of this kind may exist in financing documentation. particularly in convenient PDF format. Expanded rights management – this should be robust enough that the data room owner can administer the site for those seeking complete control. Examples include contractual rights of another party that the IPO could trigger or modify.” It is in this room or rooms that hard copies of proprietary business documents and financial data are made available for inspection. as is the provider’s ability to understand the transactional business environment and assign project managers that are educated and experienced in the specific transaction at hand. The following points can be important factors in selecting a virtual data room provider: • Established track record – the provider should have proven technology and a strong customer-focused background. Site customization – there should be enough flexibility to customize the site to the owner’s specific requirements and to integrate corporate branding. The Form S-1 and the roadshow presentation are the two most important marketing documents. The company’s legal firm may host a “paper data room.

and can take the format of either a formal management presentation of the roadshow slides with subsequent Q&A or simply informal Q&A. its strengths and areas for development. After each investor meeting. upon pricing. via NetRoadshow. the roadshow typically launches with a management presentation to the bookrunner(s) sales force. • The equity capital markets team sits between the investment banking team and the syndicate. Minneapolis. • Texas (Dallas. Baltimore). depending on the investor’s familiarity with the prospectus and/or the roadshow slides. the bookrunner(s) will work with the company to determine the length and scope of the roadshow. speaking directly with investors regarding questions or 42 NYSE IPO Guide • concerns. Europe is generally the . sales and trading. The syndicate coordinates with sales in entering investor orders into the book. all materials are taken down and no longer accessible by any parties. They work closely with the traders in order to determine supply and demand and execute trades for the investors. This team will be the key point of contact for the company throughout its lifecycle for any investment banking advice or assistance it may need. The memo is used as a “cheat sheet” by the salesperson when speaking to investors and gives him or her sufficient background to answer general questions before moving on to more in-depth questions that will require the assistance of the research analyst. Once the appropriate equity value range is determined. The co-managers’ research analysts will also take part in all analyst diligence that is conducted. • London. The coverage team will act as a liaison with the company and the equity capital markets professionals. Houston).com. and to identify specific investor targets. developing the roadshow and marketing strategy. • Boston. A typical roadshow day involves: five to seven one-on-one meetings and/or conference calls. a group breakfast and/or lunch. Several weeks prior to launching the roadshow. capital structure and many other issues. Once the prospectus has been filed with the price range on the cover. Both systems make the management slides available during the marketing period only. including on the IPO. the sales force person responsible for covering each respective account will follow up with the investor to get feedback on the meeting. It is also required by the SEC to make similar information available to retail investors via retailroadshow. modeling/valuation and whether it is inclined to place an order. where only the management slides are available. The sales force act as the front line of the investment bank in dealing with investors. the team will be or become experts on the company. • Within most equity capital markets groups lies a syndicate function. which is the main point of contact during the roadshow. (c) Book-building process The goal of the investment bank is to convert accounts into the order book as early as possible. The bookrunner(s) will use a combination of comparable companies’ values. • Mid-Atlantic (Philadelphia. mergers and acquisitions. liaises with research to collect public-side feedback. Role of the co-managers: The co-managers on an IPO are typically significantly less involved in the day-to-day advisory role for which the bookrunner(s) are responsible. which typically falls in the high teens. a system by which the investment bank makes these documents available to relevant investors utilizing a password-protected system. and coordinates with the sales and trading functions on market and investor color. Key players in the investment bank: • The investment banking coverage team consists of industry experts who typically own the client relationship. They are. The roadshow typically consists of some combination of the following cities/regions globally: • New York. where the company (accompanied by representatives from the bookrunner(s)) conducts a series of one-onone and group meetings with investors that will potentially purchase the shares being offered in the IPO. involved in the majority (if not all) of the diligence conducted. The bookrunner(s) handle all roadshow logistics for the company. the bookrunner(s) will advise whether the company should execute a reverse stock split to come up with an IPO price range. (b) Roadshow The roadshow is the pivotal portion of the IPO process. and • Hong Kong/Singapore. • West Coast (San Francisco. and research functions. Seattle). the scope of the business and the desires of the management team. as well as its overall vision and strategy. Kansas City. the bookrunner(s) will keep the company apprised of market conditions and trading valuations of its key comparables. The bookrunner(s) will also create an internal sales force memo that will be used by the sales team. however. soliciting feedback on the transaction (both qualitative and quantitative). As such. broad market conditions and recent IPO value to determine the appropriate value for the company. • Frankfurt/Milan. Investors have access to the management presentation (audio and video). • Mid-West (Chicago. provide additional research coverage post the IPO and assist in market making once the stock is public. acting as a liaison between the private and public sides. and ultimately assisting in a pricing recommendation. The primary role of the comanagers is to underwrite additional shares in the offering. depending on the size of the IPO. as well as any subsequent equity issuance that is desired. as well as the roadshow slides. who will be the captains of the IPO process. and travel to the next day’s city • • • Each investor meeting typically lasts approximately 45 minutes. as well as the subsequent implications for the proposed company’s IPO valuation. Denver). Salt Lake City. the company. calling clients in order to schedule meetings. its needs. debt. The roadshow typically lasts eight to 12 days. This team advises the company on all of the execution-related decisions. Los Angeles.The IPO process Developing the price: Prior to being mandated and throughout the IPO preparation process. and ultimately entering orders. among other things.

as well as the investment bank. while the actual shares that the investment bank will look to allocate is known as allocable demand. the board establishes a pricing committee to formally approve the offering. investors will fall into two camps: those without a price limit (“market order”) and those that have scaled orders at various prices. the stabilization agent is the investment bank chosen to open the trading in the stock post the offering and to provide support to the stock price.” which is the percentage of investors with which the company held a roadshow meeting that converted into orders. The amount of price sensitivity in the book is another key benchmark. for example. determining exactly which accounts to allocate stock to and how much. The overall demand in the order book is known as gross demand. the NYSE will coordinate a time at which the newly public stock will officially open. the syndicate “breaks” prior to the market open the day after pricing and allocations are communicated to each of the individual investors. In addition. The goal of the allocation process is to create a high-quality. either positively or negatively. new issuance activity and the performance of recent precedent transactions will have an overall effect on the company’s IPO price. The goal of the investment bank is to get as many market orders as possible in order to maximize price for the company. A scaled order by Investor B. investors will know that the demand for the offering is high and that their order will likely be cut back. Key points are emphasized to investors throughout the roadshow in order to indicate the strength of the order book and therefore the success of the IPO.The IPO process first region met during a roadshow and European accounts can come into the order book early in the process. The IPO will officially close three days after the first trading day of the stock (T+3). allocable demand and price sensitivity in the order book – the investment bank will communicate the price/share recommendation to the company and give the pricing committee time to deliberate on the recommendation.000 shares at $18. The stabilization agent may commit capital to provide liquidity in the common stock market if the stock or market comes under pressure immediately after the offering. For example. The designated market maker is responsible for opening the stock at that time. Additionally. the legal documentation will become official and the IPO will officially be closed. the investment bank will “scrub” the demand to identify which orders are “real” versus those that have been placed to “game” the allocation process. trading and closing The pricing meeting which takes place on the last day of the roadshow typically includes the company and key selling shareholders. On pricing day. as well as gross demand. The ultimate goal of the pricing recommendation is to achieve the best possible price for the company while allocating to the highest-quality shareholder base and ensuring that the investor base is achieving attractive valuation and will receive an IPO first day trading performance on the first and subsequent days of trading. indicating that the management team has successfully told a compelling story to investors on the road. all of the funds will be wired. the hit ratio/success rate from these meetings and key feedback themes. At that point. (d) Pricing. while still balancing appropriate value for the investors and achieving a first day trading “performance” of approximately 15%.000 shares at $17 and 500. $18 and potentially even above the filing range. Market conditions during the roadshow and the performance of the overall market and the company’s peers will affect how much demand and what price investors will come in at. would indicate 1 million shares at $16. The market will look to the stabilization agent as the syndicate bid in trading support for the offering. 750. On the first trading day. When the offering is oversubscribed. $17. Another key metric of success for the company is the “hit ratio. The greenshoe provides the stabilization agent with immediate capacity to buy in the secondary market up to 15% of the shares offered if the stock price should fall below the offer price. key beneficial shareholders and the investment bank that the stock trades well in the aftermarket. Once the company and its pricing committee have formally agreed on an IPO price with the investment bank. and can also utilize the greenshoe option granted by the company to stabilize the offering in the aftermarket. in contrast. NYSE IPO Guide 43 . the order stands at 1 million shares at $16. long-term focused shareholder base for the company. the stock will officially be transferred. if the IPO filing range is $16 to $18 per share and Investor A has a market order of 1 million shares. When pricing a deal. thus helping to stabilize the price in the aftermarket.” which details the number of shares in the order book versus the number of shares being offered. After reviewing the roadshow summary – which includes an overview of accounts with which management met. In advance of the offering. the majority of orders will come in the last two to three days of the roadshow. Key terms include “level of subscription” or “subscription rate. numerous factors that occurred over the roadshow are taken into account. When the book begins to build. the investment bank begins the allocation process overnight. The goal of the company and the investment bank is to achieve as high a hit ratio as possible. but typically the retail component is not relevant to the overall pricing mechanics as retail investors do not drive pricing. It is in the best interests of the company. Once allocations to each account have been agreed upon by the investment bank and the company. For most IPOs. Retail orders are also important to the order book.

44 NYSE IPO Guide .

4 Communications NYSE IPO Guide 45 .

its performance within the current economic climate and the issues surrounding the industry as a whole. and • protect management’s credibility and reputation within the financial community. they rely on management to protect their investment and keep them informed on the status of the business. • identifies areas of potential misunderstanding of the company’s positioning/prospects. transparency and corporate governance structure. the volume of incoming inquiries and demands on management time and attention will likely escalate. it must make the same information available to all investors. the company should conduct research that: • ascertains the investment community’s current views of the company. this determination can be difficult when there is uncertainty about the future or a wide range of variability around potential 46 NYSE IPO Guide outcomes. Once refined. as well as the flow of outgoing information. This requires a commitment of management to engage the financial community in a credible. Since investors have no role in the operations of the company. management must determine whether a development or change in outlook is material and must be reported. The company’s operating performance will be an important driver of value creation. Accordingly. content and delivery mechanism of each communication. necessitating careful attention to the timing. analysts and employees (a) Communications with the market While an initial public offering (IPO) marks a significant milestone in a company’s history. management team. Disclosure guidelines and processes: As the visibility and sponsorship of the company increase. during which they will not meet with or talk to investors. When companies have reported results and are ready to resume meeting with investors.1 Investors. Specifically. the company can tailor messages – and. intangible factors such as investors’ confidence in the business model. All these intangibles are greatly influenced by how the company communicates to the financial community. tone of voice or the inability to respond directly to a question – at the awkward time when the company’s results are known by management. among other things. this requires management to provide access to material information simultaneously to all investors. they generally not only file the earnings information with the Securities and Exchange Commission (SEC). but also broader communications “best practices” that can be more complex and demanding. Based on these findings. minimize the cost of equity capital) over time within the context of both the company’s performance and macro-economic and industry trends. what information is allowed to be communicated and which members of management or the investor relations team are authorized to speak for . From management’s perspective. the company’s shareholders are placing a bet on its future success. but in no event after the later of 24 hours or the commencement of the next day of trading. These messages should build on those developed in the pre-IPO phase to dispel any lingering concerns or misperceptions about the company’s positioning in the market. but also post it to their investor relations websites to ensure equal access for all interested parties.1(b). their belief in management’s ability to execute the stated strategy and their perceptions of the company’s credibility. in some cases. ideal communications provide a roadmap to the future and then maintain an ongoing flow of information about the company’s progress in achieving its goals. but not yet reported publicly. In practice. This quiet period mitigates the risk of inadvertently communicating sensitive or non-public information – through body language. market opportunities and growth strategies is critical for ensuring that the value drivers are well articulated and consistently delivered across its communication vehicles and channels. Furthermore. In developing this message platform. To ensure consistency of message and protect against improper disclosure. One key example of how Regulation F-D affects financial communications is the decision by many companies to instate an earnings “quiet period” in the weeks leading up to the reporting date. and • compares its own communications efforts with those of the peer group to identify areas that may require further explanation going forward.) Developing a strong platform: Essentially. Developing and maintaining a core message platform that clearly communicates the company’s goals. it is important for the company to make that information public promptly. It is important to understand that all audiences are interconnected and information flows freely among them. it is imperative that the company accurately understands investors’ perceptions. This policy should include guidelines on when the company will speak to investors. the goals of investor communications are to: • optimize the value of the company’s equity (or conversely. and that investors may act on information or perceptions that exist in any domain. it is only the beginning of an ongoing process of building value for its shareholders. it is strongly recommended that management establish at the very beginning a formal disclosure policy and protocols to manage incoming inquiries about financial and investment topics. Regulatory parameters for communicating to investors: Communications strategies must accommodate not only the information that must be filed with the Securities and Exchange Commission (SEC) under securities regulations. strategy and prospects.Communications 4. Regulation F-D defines “promptly” to mean as soon as reasonably practicable. This argues for close coordination between all people charged with speaking to the public. Regulation F-D (Fair Disclosure) provides that if management discloses material non-public information to some investors. (Regulation F-D is discussed further in Chapter 4. However. If an inadvertent disclosure of material non-public information does occur. key messages should permeate all communications targeted to investors. In particular. the actual financial disclosures – to move perceptions closer to the desired state. financial markets in their role as a discounting mechanism assign value to the company’s future earnings and cash flows supported by. honest dialogue.

if so. Press releases– even routine company announcements have the ability to impact the company’s stock price. rather than focusing on the long-term strategy and value creation. If the announcement will impact the company’s expectations for the quarter or year. As investor relations teams work to establish the meeting schedule for the period immediately after the IPO quiet period is lifted. and of their obligations to maintain the confidentiality of material non-public information. yet achievable and realistic so they can be met consistently. In addition to ensuring reliable.Communications the company. Clearly explaining complicated information and. All employees should be made aware of these guidelines. The related SEC filing – Form 10-Q or Form 10-K – is more formal and much more extensive. • Investor meetings – there are multiple forums in which management can personally engage investors: • non-deal roadshows. These targets should then be supplemented with appropriate longterm investors that did not participate in the roadshow. discuss how it will affect the company going forward and respond to questions. Setting expectations: The company’s success will be measured by execution against expectations. press releases should tie news events to the company’s stated strategy and demonstrate momentum and progress against its long-term objectives. and • company-sponsored events such as analyst/investor days on-site to showcase the broader leadership • • team and company facilities. management cannot meet with all the best firms and the best contacts at any one event. Expectations can be established by providing quantitative and qualitative guidelines such as growth targets. It is critical to effectively balance quiet period restrictions with the desire to set a strong precedent for transparency and good corporate governance. While many companies mistakenly believe that earnings that beat expectations will propel their stock price forward. these issues also should be addressed in the announcement. what constitutes the proper timing of the announcement and the forum for discussing it. the benefits are often short lived. Once these parameters are established. Regardless of the format. margins and market share over varying timeframes. It is important for newly public companies to understand that results outside the anticipated ranges – be it on the upside or the downsides – can significantly impair management credibility for effectively communicating with The Street and potentially lead to a misperception that the company’s results will be unpredictable or volatile. Companies are increasingly using webcasts to expand the live and ondemand global attendance at such events. while others make it later (particularly for year-end results). Whenever possible. rigorous communications. accuracy. the company must carefully consider whether a variance from expectations is material enough to warrant proactive disclosures and. consistency and timeliness. Importantly. this will help to reduce the risks of liability that can arise from any materially false. explain growth strategies and develop relationships with investors. disclosure policies should be designed not only to manage the flow of information. misleading or incomplete public disclosures. followed by one-onone or small group breakout meetings for more detailed discussions. how its strategy is succeeding and what investors can expect in terms of future performance. For many IPO companies. These important communications provide an opportunity to demonstrate openness and candor through the way that management speaks to the company’s successes and challenges. as appropriate. as they encourage shorter-term investors to bet on the company’s ability to beat Street estimates. These expectations need to be sufficiently ambitious so as to demonstrate a robust business. the priority should be to meet underweighted current investors and “on the fence” targets which did not buy at the offering. some companies make it concurrently with the earnings release. • sell-side brokerage firm and investment bank investor conferences. neither of which is constructive for the stock’s valuation. Depending on the importance and complexity of the announcement. Forums for communicating with investors: There are a number of important forums for conveying the company’s investment and business propositions and maintaining an ongoing dialogue with investors: • Quarterly earnings – reporting earnings to investors is perhaps the most important medium for providing commentary about the business to the financial community. The typical earnings process includes a press release with financial data. and all press releases should be developed with an eye toward what the content means for the business and how the news will be perceived by the investment community. Building these relationships creates a new level of potential buyers of the stock when “bridge” institutions or insiders want to sell their shares. These allow management to provide additional color on the event that prompted the announcement. when possible. or an advisory directing investors to the company’s website for details. but also to ensure its quality. the initial earnings period brings unique challenges as they find themselves reporting results for the first time while still in a quiet period. these meetings provide valuable opportunities to contextualize financial results. as well as a conference call and Q&A with institutional investors. allowing investors to pose questions NYSE IPO Guide 47 . The guidelines should be reviewed regularly. depending on the visibility into and predictability of the business. it may also be necessary to hold a conference call or webcast for the investment community. where the company meets with institutions in one-on-one or group meetings. often with a group presentation. Yet even under the best conditions. Effective preparation is critical to ensure that management has anticipated investor questions and can either proactively or reactively address issues.

passionate. creating downward pressure on the stock price and increased market volatility.Communications • • that can be addressed in real time bolsters management’s credibility and mitigates the risk of misunderstandings. not legally required. Finally. effective media relations strategies can influence investment decisions and provide a reputational cushion in difficult times. It is. Whether it is positioning financial results or underscoring themes related to management strength and market position. these communications present potential legal risks that must be managed in order to preserve the benefits of dialogue with analysts. Management should not participate in the preparation of analysts’ reports. Good relations with analysts are very important. Conclusion: An investor once said. The ideal target group consists of longterm investors that have a track record for investing in the company’s industry and whose portfolio holdings have business and financial characteristics similar to those of the company. However. there is an ongoing need to replenish the pipeline by identifying and courting new investors. authentic conversations via social media forums and blogs. information – especially that which is market moving – flows through it rapidly and it has a long institutional memory. company officials may not disclose it selectively – for example. when divulging material nonpublic information. An ideal mix of analysts would include quality bulge-bracket firms that add credibility and cache to the company’s profile. If the company does disclose corporate information (voluntarily or otherwise). management should strive to secure research coverage by non-syndicate analysts. Investors that are poorly informed about the company or whose investment style is at odds with the investment thesis are more prone to sell their positions. monitor changes in the composition of the shareholder base and engage holders in dialogue to help keep them informed about the business and anticipate their future actions. more than 5 million people participate in live. (b) Research analysts Financial analysts play a key role in securities markets. and publicly held companies regularly brief them and answer their questions to help them understand company results and business trends. management should take responsibility for managing the investor base and targeting potential new holders. who will be viewed as more impartial. consistent and open communications with investors are instrumental in achieving an appropriate valuation and high regard for the company’s management. Beyond these efforts. natural attrition of shareholders as portfolio managers shift assignments and market conditions change. exclusively to securities analysts – but rather must make the information available to the general public. In order to increase visibility among the buy side. Rule 10b-5 of the Securities Exchange Act of 1934 requires that those disclosures neither contain misleading statements of material information nor omit material facts necessary to make the statements made not misleading. and open communication with the market is encouraged by exchange rules and.” The financial community can be remarkably perceptive and insightful. while also bolstering credibility through commentary by objective third parties. “We don’t shoot the messenger. because there is potential Rule 10b-5 liability if company officials become so “entangled” with a report that the report can be attributed to the company. It is essential that online media strategies are executed with the same level of foresight and legal supervision as traditional media strategies. we shoot the cheerleader. combined with strong tier-two regional firms that take a more active role in analyzing and covering the company. Social and online media – media influence has been extended further as social media takes a more prominent role in companies’ communication strategies – and particularly in the investor relations strategies of companies in technology-centric industries and those with larger retail investor bases. Once public. Ongoing diligence is required to identify the most important holders. however. it is crucial to ensure that the investment style. The key provisions of Regulation F-D are as follows: • The regulation applies to communications with market Managing the shareholder base: Since investors have differing perspectives on what creates value in the markets. there is a 48 NYSE IPO Guide . Financial. While there will likely be interest from the company’s covering analysts to market the company to prospective investors. but they also come with serious responsibilities in terms of disclosure requirements and the assumption that companies will continue to communicate through good times and bad. Furthermore. Regular. These communications channels allow companies to engage directly with stakeholders. Although Regulation F-D does not apply to foreign issuers. among other things. if those officials could be found to have gained a personal benefit from the selective disclosure. holding period and industry focus of the company’s shareholder base are aligned with. many of them look to Regulation F-D for guidance as a matter of best practice and because it reduces their risk of potential liability under Rule 10b-5. unavoidable. Each day. Selective disclosure can lead to liability for the company and for company officials themselves for insider trading by persons receiving the disclosure. Managing the company’s shareholder base is an active process. Regulation F-D: In August 2000 the SEC adopted rules that prohibit US issuers from selectively disclosing material nonpublic information to market professionals and generally to security holders. as a practical matter. the company should develop sell-side sponsorship to generate independent financial models. All US issuers that file periodic reports with the SEC under the Exchange Act are subject to the regulation. determine an appropriate multiple that will help drive the long-term valuation of the company and market the investment story to the buy-side investment community. its business model and the investment proposition. business and trade media – print and broadcast media allow the company to communicate information to a much wider audience.

employees or agents of the company who regularly communicate with market professionals or security holders. even one that is open to the public. To avoid entanglement. this can be done by permitting the public. The regulation applies to communications by senior officials and officers. If disclosure contains nonGAAP financial measures. The regulation does not apply to communications with. • Do not disclose material non-public information to analysts unless the information is disclosed to the public at the same time. investment advisors and managers. do not comment except to correct errors of fact. A disclosure is intentional if the company knows or is reckless in not knowing that the information being disclosed is both material and non-public. but it is the subject of extensive case law and SEC guidance in other contexts. Disclosure at a shareholder meeting. “Materiality” is not further defined in Regulation F-D. Violations of Regulation F-D are subject to SEC enforcement actions. If asked about a matter that has not previously been disclosed. unless: • you set out the assumptions on which the forecast is based. If the company wishes to make public disclosure of material nonpublic information by means of a conference call or webcast. including the date. Refrain from responding to analysts’ inquiries in a non-public forum unless it is certain that the response does not include material non-public information. among others. or by similar means. SEC personnel have indicated that they look for egregious violations involving the intentional or reckless disclosure of unquestionably material information. that they are “in the ballpark” or other words to similar effect. Public disclosure for purposes of Regulation F-D can be made by filing or furnishing Form 8-K or by disseminating the information through a method or combination of methods that is “reasonably designed to provide broad. It focuses on what the SEC believes to be the core problem – selective disclosure to those that will trade on that information or prompt others to do so. with the required reconciliation. rating agency representatives. by webcast or broadcast. on the company’s website and include the location of the website in the presentation. To avoid reconciliation of non-GAAP financial measures in public presentations given orally. subject matter and dial-in information for the call. “No comment. media representatives. and with security holders that will reasonably foreseeably trade on the basis of the disclosed information. The regulation applies to selective disclosures of material non-public information. They also do not result in ineligibility for short-form registration or the Rule 144 safe harbor for resale of securities. If materials distributed (electronically or in hard copy) during a public presentation contain non-GAAP financial measures. employees and government officials. Posting information to the company website is also sufficient for most companies if they regularly use the website for that purpose. • Make each presentation to analysts on the basis of a prepared text that has been reviewed by senior executives and by counsel. the information is posted in a manner calculated to reach investors and it remains posted for a reasonable period of time so that it can be absorbed by investors.” If requested by an analyst to review a research report. non-exclusionary distribution of the information to the public. Do not make specific forward-looking statements. Whenever the company makes an “intentional” disclosure of material non-public information. The enforcement actions also confirm that the SEC will look to market reaction as an indicator of the materiality of selective disclosure. and investment companies). Whenever the company learns that it has made a non-intentional selective disclosure. legal advisors and investment bankers). Review public statements to identify any non-Generally Accepted Accounting Principles (GAAP) financial measures.” The most common method is by press release.Communications • • • • professionals (broker-dealers. • you indicate the factors that could NYSE IPO Guide 49 . resulting in several enforcement proceedings. One significant similarity among the enforcement actions is that visible and sometimes dramatic changes in stock trading price and volume occurred in the aftermath of the selective disclosures. and the presence of the press at an otherwise non-public meeting does not render the meeting public. advisors in a relationship of trust or confidence with the company (eg. and the SEC has stated that a very significant market reaction to selectively disclosed information requires public disclosure of that information. include a presentation of the most directly comparable financial measure calculated and presented in accordance with GAAP and a quantitative reconciliation of the two measures. The SEC has aggressively investigated cases under Regulation F-D. to participate in any call with analysts during which • • • • • • material non-public information may be discussed. is not sufficient if the meeting is not webcast or broadcast by electronic means. telephonically. provide the most directly comparably GAAP financial measure. on reasonable advance notice. simply say. simultaneous public disclosure is required. Do not comment in any way on an analyst’s forecasts or judgments. but do not give rise to Rule 10b-5 liability or private causes of action. be cautious about distributing analysts’ reports or including hyperlinks to them on the company’s website Avoid favoring one analyst over another. it must make public disclosure of that information promptly (generally within 24 hours). including by saying you are “comfortable” with them. provide the most directly comparable GAAP measures and provide the required reconciliations in close proximity to the non-GAAP financial measures. Some practical guidelines are as follows: • Designate one company executive to communicate with analysts. time. it must give adequate public notice.

Employees should be educated about the rationale for a public listing. you make the statements to the public at the same time. “I made a big sale today” or “Business has been picking up lately”) can take on additional meaning for the company’s new financially minded stakeholders. • Sarbanes-Oxley regulations require public companies to maintain transparency and accountability in documenting financial controls. the company should designate and train a very limited group of spokespersons. and employees must understand that even casual comments made to outside parties (eg. US public companies must provide the financial community with equal and timely access to financial and operational data. know they are still important and valued members of the team. regulators and financial and business media. government regulations and other regulatory agency policies. IPOs are potentially disruptive from a cultural standpoint. To allow shareholders to cast their votes. blogs and other social media channels that accelerate the speed with which employee comments can reach a seemingly endless universe of potential recipients. all parties – the company. The steps contemplated in the first two points above can be effected by referring to a filed document that contains the relevant information. many companies can no longer provide employees with the same level of access to financial and operational data they might have received in the past. Employees need to understand there will be a zerotolerance policy on these issues. • To maintain consistency in their communications with the market and avoid any inappropriate disclosure of material non-public information. (b) Timeline A number of important events in the preparation for and lead-up to the annual meeting require compliance with state laws. The annual meeting requires considerable planning.2 Proxy statement and annual meeting (a) Annual meeting requirements and preparation Holders of common stock. The listing provides an opportunity to remind employees of their responsibility to protect sensitive data. the broker distributor/proxy solicitor and the financial printer. and you are always prepared to evaluate the need to update the statement when circumstances change. employee stock purchase plans). Scheduling diagrams show the major regulatory requirements. and even more routine corporate announcements will assume increased importance. employee actions have the potential not only to affect the company’s corporate reputation. including client/customer information. the company must realign its people around its go-forward strategies and growth prospects. by virtue of their ownership interest in a corporation. Employees need to understand this new reality. To manage this transition. Engaging them as part of the IPO process creates a culture of understanding that helps ensure clear and consistent communication with all other stakeholder groups. Employees should be instructed to forward all external inquiries to these trained communicators and investor relations representatives. Annual meetings offer a once-a-year opportunity to communicate with shareholders face to face and to approve certain corporate actions and company changes critical to the company. Executives and staff of private companies often are accustomed to receiving financial and operational data that can no longer be shared under SEC regulations after the company goes public.Communications • • prevent the forecast from being realized. However. its transfer agent and its broker . and – perhaps most critical – what new responsibilities the company must assume as a publicly traded entity. (c) Employee communications Employees are the company’s most valued ambassadors. and some employees will be asked to take on modified roles. these processes will be established well ahead of the IPO. This risk has been exacerbated as employees engage in 50 NYSE IPO Guide online chat rooms. Key considerations that affect how the company interacts with its employees during the IPO period and beyond include the following: • It is critical for employees to understand securities laws and SEC regulations prohibiting insider trading or tipping – particularly if they are given opportunities to participate in the offering. In many instances. The company will now issue quarterly and annual financial reports. all US states require that issuers hold annual shareholder meetings where shareholders can cast their vote either in person or via proxy. and have confidence that the company will continue communicating with them as openly and honestly as possible going forward. Compliance with SEC and exchange rules needs to be a company-wide effort. The company will determine when an annual meeting should be held based on its fiscal year end. how it can benefit them (eg. the SEC. (c) Phase one: preparation Notification: To ensure a smooth annual meeting. new career opportunities. financial analysts. the Depository Trust Company (DTC). starting at the end of the fiscal year through the annual meeting date. but also to subject both the company and employees to risk and liability from inappropriate disclosures. performance statistics and any other information not available to the general public. Unfortunately. 4. • In compliance with Regulation F-D. whose role is to discuss business and financial results with the public. Under the watchful eye of investors. Depending on the state of incorporation notice. The annual meeting responsibilities flowchart overleaf outlines the primary functions that should be performed during the annual meeting season. requirements for an annual meeting will vary. while simultaneously preparing them for new communications constraints. as well as the parties responsible for those functions. preparation and coordination with several parties: the transfer agent. brand and stock price. are generally entitled to one vote per share on certain corporate matters on policy decisions.

* Day 0 +5 days post record date +7 days post record date +45 days post record date Record date. Broadridge daily voting begins. Mail notices for notice and access option. Deliver materials to proxy solicitor. NYSE IPO Guide 51 . Review first draft and cover design of annual report. achieving successful voting percentages may become more difficult. Street search: The street search is an SECmandated process and should be initiated at least 20 business days prior to the record date. Begin phone number look-up. Confirm annual meeting material transportation logistics. copywriting and printing/posting of annual report. proxy card and Form 10-K. equity plans or shareholder proposals) should especially consider retaining a professional proxy solicitation firm to help negotiate the proxy process. Conduct annual meeting. Conduct reminder mailing. A professional solicitation firm can help navigate the maze of tactics. proxy card and Form 10-K. Suggested action items and timeline post record date Days after record date 0 5 5 5 5 5 10 10 20 30 30 30 35 35 40 45 50 Action item Begin shareholder composition and contact list. During the street search process. Begin typesetting and EDGAR conversion of proxy statement.Communications Suggested action items and timeline before record date Days before record date 100 90 60 30 25 20 Action item Begin design. Receive final inspector of election report. Notify stock exchange of record date. Mail date. 15 10 5 Receive preliminary search results from banks and brokers. Print annual report. re-authorize third-party agents (broker distributor. Keep in mind some of the current issues. Analyze the need for a proxy solicitor: With recent changes to NYSE regulations. Receive final search results from banks and brokers. multiple levels of share ownership and ever-changing regulations. Notice and inquiry – work with proxy solicitor to discuss printing and EDGAR requirements for proxy statement. Decide whether you will need a proxy solicitation campaign based on vote projections. the broker distributor/proxy solicitor will contact Broadridge and other institutional holders to determine how many annual reports and proxy statements will be printed for the proxy mailing. • If the company is a current registered user of security position reports via the DTC website. procedures and challenges involved in soliciting proxies. Receive first ADP vote. distributor/proxy solicitor – must clearly communicate with each other. which have made proxy solicitation more complex and hence more crucial in addressing these controversial issues. Companies with non-routine ballot items (ie. Web hosting of materials: Since January 2009 all companies soliciting proxies under SEC rules are required to post annual meeting materials to the Internet and notify shareholders of availability. Proxy advisor report issued. A broker distributor/proxy solicitor is typically responsible for this function. Receive NOBO and registered tape. Order NOBO and registered tape. Annual meeting.* Finalize master ballot. Ensure that the transfer agent provides a web hosting service that meets all SEC requirements for shareholder privacy protection and accessibility of materials. Mail notices for notice and access option. Prepare draft of meeting script. such as increased influence of activists and thirdparty advisory firms.* Begin shareholder composition and contact list. It is recommended that the company work with a proxy solicitor to perform this search. Mail proxy materials. Conduct broker search. Below are some of the initial steps that should be taken for the annual meeting: • Submit letter of instruction to DTC. proxy solicitor) to electronically receive the reports from DTC. Complete shareholder composition and contact list. Begin phone calls. meeting ballot and affidavit of mailing.

Coordinate with employee plan providers and trustees for file and voting instructions. Receive voted proxies from registered shareholders for tabulation. Provide security position report and omnibus proxy listing. and notice documents if notice and access mailing alternative is being used. Provide voting results to client. Deliver proxy material to all mailing agents. Send proxy materials to beneficial shareholders.Communications Annual meeting responsibilities flowchart Issuer Issuer or transfer agent Transfer agent DTC Broker distributor proxy solicitor Broker/nominees Broadridge Declaration of meeting and record date. Annual shareholder meeting. 52 NYSE IPO Guide . Arrange for web hosting of annual meeting materials (required for all issuers Jan 1 2009). Mail broker search card. Respond to broker search request. Print proxy cards with company text and shareholder information. Determine whether to utilize the notice and access proxy mailing alternative. Mail proxy material and notice and access documents (if notice and access mailing alternative is being used) to registered shareholders. Supply proxy materials to brokers/ nominees to Broadbridge. Arrange for printing of proxy statement and annual report. Collect search information. Collect and count from beneficial shareholders. Notify all applicable parties of meeting dates.

this form should be available at all times in the event the need arises. Implementing this process also requires a consent mailing to shareholders 60 days prior to the proxy mail date (SEC Rule 14a3 under the Exchange Act for proxy materials). Electronic voting also reduces the postage costs associated with proxy voting by eliminating the need to return the voted proxy card. The voting percentage may appear low until the first votes from shares held in street name are received from Broadridge. it is recommended that a vote review be conducted approximately two weeks prior to the annual meeting. and • proxy committee ballot – a form that allows the proxy committee to formally vote the shares for which proxies have been submitted. Electronic voting option: Check with the transfer agent to ensure it provides electronic voting services to complement the traditional method of paper proxy voting. which governs how brokerage firms may vote their clients’ undirected shares. See Chapter 4. Votes of beneficial shareholders are NYSE IPO Guide 53 . which offers printing and postage cost savings (SEC Release Nos 33-7233. If the voting results appear to be lagging. Mailing: See Chapter 4. Changed regulations: On January 1 2010 NYSE Rule 452. 34-36345.2(f). 33-7288. the location of the voting boxes on the proxy card must be in the correct space so that the transfer agent’s scanners can accurately read the voting marks. it is reasonable to assume that a similar return will be obtained for this meeting. the SEC permits issuers to mail one set of materials when two or more shareholders with the same last name live at the same address. Internet and telephone-based voting affords shareholders convenience and the immediate recording of votes. Consents may be promoted via hard-copy communications such as the proxy card. either separately or as part of the proxy materials. Broadridge mails and votes proxies on behalf of almost all banks and brokers.4 for more detail on beneficial versus registered holders. This ensures that all parties understand their roles at the meeting. Householding: To further reduce the number of printed annual reports and proxy statements required. Consent to electronic document delivery: Shareholders are offered the opportunity to access their documents electronically.Communications Electronic distribution of materials: The SEC allows for issuers to electronically distribute annual meeting materials to shareholders that have consented to such delivery. Have available during the meeting: • shareholder ballot – the form that allows a shareholder to vote his or her shares at the meeting. a more proactive effort by a proxy solicitation firm may be warranted. (e) Phase three: annual meeting and vote tabulation Annual meeting: Some important logistics concerning the annual meeting should be borne in mind in order to avoid potential problems: • Annual meeting script review – provide a copy of the script to the transfer agent and inspector of elections a few days before the meeting. For example. and 33-7856. • Required documents – have available before the meeting: • inspector’s oath – a statement by the inspector of election that he or she will perform the duties impartially and to the best of his or her ability. 33-7289 and 34-37183. Notice and access: The SEC allows issuers that have posted proxy materials to the Internet to send holders a simple notice providing information on how to access the materials – without prior consent for electronic delivery. The transfer agent or proxy solicitor will assist with the design and printing of the proxy card to increase accuracy and reduce the risk of non-compliance with the print specifications. the majority of the company’s outstanding shares are held by beneficial holders in “street” name. To remain on target for achieving the desired quorum percentage. Issuers must provide hard-copy sets of materials on request (SEC Release Nos 34-55146 and 34-56135). The company may be able to view real-time vote tabulation online if the transfer agent offers this service and is asked to perform the final tabulation. Vote tabulation and reporting: In general. was amended to prevent brokers from voting their clients’ shares on board of director elections unless specific direction (a proxy card) is given by their client. While shareholders infrequently vote by ballot. The transfer agent or other proxy service provider selected by the company will tabulate the votes of registered and beneficial shareholders. review with the transfer agent and/or proxy solicitor the specific types of numbers/voting results that will be read during the meeting. • Results review – prior to the meeting. The transfer agent tabulates the shares voted by registered holders directly. Have available after the meeting: • certificate of vote tabulation – a document that shows the final vote results. It is also recommended that written rules of conduct and an agenda be established at this time. If approximately the same vote return is received as in prior annual meetings. Shareholders can also sign up for electronic delivery of materials when they vote online. the mailing and voting services provided by Broadridge are critical to the voting results. 34-4278). • affidavit of mailing – a document attesting to the date on which the mailing commenced from the mail house. The first vote tabulation from Broadridge is typically submitted electronically to the transfer agent 10 to 15 days prior to the annual meeting. proxy statement and annual report. Thus. (d) Phase two: proxy mailing Form preparation and printing: There are design specifications for proxy forms. The SEC requires that a notice of the internet availability of materials be sent. • record date shareholder file – a report that lists shareholders holding shares as of the record date that are entitled to vote at the meeting. 34-37182. This now makes the vote on directors a non-routine item.

so it can efficiently reach the largest number of holders and target those most likely to be persuaded to vote favorably. Professional proxy solicitation firm versus in-house: Most public companies in the United States work with professional proxy solicitors. (f) Proxy statement and solicitation Approximately less than 30% of shareholders vote in response to initial proxy material distributions. the corporate legal counsel and the corporate financial. The three major proxy advisory firms are RiskMetrics Group. high-profile individuals. Rule 14a-13(a) of the Exchange Act requires that the company send a “notice and inquiry” or “search card” to all agents and participants known to be holding shares of record of the company’s voting securities. following the guidelines of proxy advisory firms alleviates the research burden and provides clear reasoning on voting practices. brokers. but essentially a public company’s most broad and direct investor relations communications tool. Proxy solicitation team: Whether using a proxy solicitation firm or managing the shareholder outreach in-house. it is reasonable to assume that the company is on track for a similar return for this meeting. proxy solicitation is becoming more complex and more necessary.Communications tabulated by the street-side proxy services provider. the corporate secretary can help position the messaging on the proxy statement – not just an SEC requirement. investor and public relations staff. bank and individual accounts. the corporate secretary and corporate legal counsel should confer with a proxy solicitation firm. the company should send out the notice and inquiry as soon as practical. LLC and PROXY Governance. a proactive effort by a proxy solicitation firm may be warranted. A solicitor may simply consult on best practices of corporate governance that lead to favorable vote outcomes or may manage the entire solicitation and outreach to all holders: broker. To determine whether an issue is controversial or to obtain a vote projection. With recent changes to regulations and the growing influence of proxy advisory firms. A proxy solicitor can analyze the shareholder base. Meeting with investors regularly to understand their priorities and concern will help address potential conflicts before the annual meeting. For some institutional investors. corporate governance practices are top of mind for most shareholders and there are few indications this will change any time soon. with all the different layers and complexity of ownership. multiple levels of share ownership and ever-changing regulations. With the increasing influence of activist elements. proxy material mailing 54 NYSE IPO Guide house and printer. banks and brokers holding shares for holders in street name). the process of locating and reaching the actual holders is best managed by a proxy solicitation firm. The notice and inquiry includes questions so the proxy materials can be managed in compliance with SEC rules and regulations. The transfer agent. If the company has received approximately the same vote return as in prior annual meetings. the members of the company generally responsible for the solicitation are the corporate secretary. Registered and beneficial holders’ vote totals are provided by proxy service firms to the inspector of election for reporting at an annual meeting. If the voting results appear to be lagging. The information contained in the statement must be filed with the SEC before soliciting a shareholder vote on the . This needs to be done well before the messaging on the proxy statement: it should be done on a continual basis as the company’s and market situations change. If the transfer agent tabulates the final votes. Persons and entities entitled to vote at a shareholder meeting are those whose names appear on the company’s books as registered holders or beneficial holders of voting securities at the close of business on a specific date declared by the board of directors (the “record date”). Because most shares are held in nominee names (banks. Today. Not all exchanges have the same timelines for the notice and inquiry. and employee equity plan management provider will each have a role. The first vote totals for beneficial holders are typically submitted electronically to the company’s transfer agent 10 to 15 days prior to the annual meeting. Third-party proxy advisory firms: Thirdparty proxy advisory firms provide guidelines to institutional investors on how to vote their shares. proxy agents). Inc. As with any voting campaign – witness recent successful political campaigns – it is important to identify the target and focus resources accordingly to maximize the likelihood of a positive outcome. voting percentage may appear low until the first votes from shares held in street name are received from beneficial holders. Targeting: Where a proxy solicitation campaign is launched. but the NYSE requires listed companies to furnish the notice and inquiry at least 10 calendar days prior to the record date for an annual or special shareholder meeting. Lewis. then drive the campaign efforts accordingly. “Notice and inquiry”: This is essentially the beginning of the shareholder outreach. the advisory firm will also vote their proxy along with their published recommendations. especially if there is a contentious proposal or issue at stake or the company is performing below industry peers financially. Because Rule 30b1-4 of the Investment Company Act requires that most registered management investment companies disclose how they vote their proxies. Executing an effective campaign: With a shareholder analysis. This means that governance practices should align with holders’ (as well as proxy advisory firms’) expectations. Glass. achieving successful voting percentages is becoming a more challenging task. That said. The proxy solicitor can assist in providing the correct content and format for the notice and inquiry. & Co. Proxy statement: The SEC requires that the company send shareholders a proxy statement prior to a shareholder meeting. the proxy solicitation firm will need to determine the composition of the shareholder base. whether it is to manage one aspect of the solicitation or to manage the complete proxy solicitation campaign. also known as a shareholder analysis. proxy agents (eg. which may transmit the beneficial vote count directly to the company’s transfer agent.

The company’s proxy solicitor will usually assist in the preparation of the proxy statement. while 90% of institutional investors find that a company’s website influences their perception of that company. • Add summary information. and • compensation of directors and auditors. online investor kits. Many companies use this real estate to highlight recent news. analytics and workflow solutions designed to increase the effectiveness of its investor management program. remember the little details such as offering printer-friendly functionality. Solicitation of banks. The transfer agent or proxy solicitor should be able to provide solutions that meet with the notice and access requirements. Because an effective disclosure program should not be limited to what is required by law. as well as how it differs from key competitors. With best-in-class investor relations tools. the company can gain global reach. here are a few best practices to address the most common needs of visitors to the investor relations website: • Use the investor relations home page to tell investors why they should invest in the company. a dedicated investor relations section should be created on the corporate website. • the issues to be voted on at the annual meeting. To succeed. • As an IPO. brokers and proxy agents may vote all securities registered on the books of the company at the close of business on the record date in their own name or nominees’ names (for brokers and proxy agents. • analyze competitive and industry intelligence. Proxy statements must disclose all important facts about the issues on which shareholders are asked to vote. 80% of retail investors now have access to the Internet in their homes. and • measure the effectiveness of outreach and communications efforts. the overwhelming majority of securities voted by individual holders will be voted by proxies returned in proxy return envelopes. • If hyperlinks to outside information are included. Be transparent and compliant: Prior to the Form S-1 filing. clearly labeled. Thomson Reuters research has also found that 75% of institutional investors access investor relations websites at least on a weekly basis. Include links to other sections of interest directly from the investor relations home page. • Confirm that the website can handle a considerable amount of traffic. According to the SEC. anticipate investor behavior. set up a separate section NYSE IPO Guide 55 . • Include the prospectus.3 Communication mechanics (a) Investor relations tools As the company transitions to a public entity. the company should leverage the information. make sure they are clearly labeled. To make the website easy to use. Form 8-K.Communications election of directors and the approval of other corporate action. • provide the investment community with increased transparency into the organization. Companies interested in all the details and rules of a solicitation should obtain “The Manual of Solicitation of Proxies” published by the Society of Corporate Secretaries & Governance Professionals. The transfer agent or proxy solicitor will provide assistance on the proper way to transmit materials and record votes from this group. the company can monitor and understand factors impacting its share price. While some holders will attend the shareholder meeting and vote by ballot. Web hosting needs: Because shareholder material must be available on a publicly accessible website other than the SEC’s EDGAR. ownership information and company fundamentals on the investor relations site. With this investor relations website. and all securities for which voting authority has been properly assigned to them by another. offering a section dedicated to disclosure information. 4. Section 16 filings). To help establish a positive perception. Emphasize what the company does that is valuable from an investor’s point of view. meet regulatory requirements and provide a rich multimedia experience to investors looking to access up-to-date information about the company. it is even more important for the investor relations team to: • comply with regulations. such as: • the time. analyst estimates. brokers and proxy agents: Banks. • monitor what analysts are saying about the company and its peers. • communicate the company’s story to employees and the investment community. Form 10Q. communicate with key stakeholders and measure the impact of its investor relations program. Individuals may vote securities in person or by proxy. • the positions on the board of directors to be voted on and background descriptions of director candidates. company materials must be hosted in accordance with SEC regulations. broker conference presentations and their current stock price. • Use a vanity URL to make the investor relations website easy to find and remember. Consider outsourcing the development. • Don’t promote some outside information sources over others. Form 10-K. not beneficially owned by them). breaking out press releases by year. here are a few guidelines to follow: • Keep the website current and accurate. upcoming webcasts. And link to the site from the company’s corporate home page. Solicitation of individual holders: Individual holders are entitled to vote all securities registered on the books of the company at the close of business on the record date in their own name(s) and all securities for which voting authority has been properly assigned to them by another. filings information (eg. to provide investors with a quick overview. hosting and maintenance of the investor relations website to a third-party provider with the experience and investor knowledge to incorporate best practices and the ability to distribute website updates to the investment community. date and location of the meeting. categorizing SEC filings and making them searchable.

The model should be transparent and proven. Also partner with a third party which has the distribution network to make updates available to investors on the platforms they use as part of their daily workflow. To further reinforce the company’s commitment to corporate integrity. interpretation of earnings results and more. prospectus and more. The interview should be customized to allow stakeholders’ perceptions of the company’s value creation strategy and key messages to be benchmarked. a partnership with a third-party provider which has the institutional contacts to conduct detailed interviews may help to reveal how the company is perceived in the marketplace. Consider including credit ratings. work with a provider that consolidates transcripts on a single platform. • qualitative feedback about company presentations made during industry conferences. If investors are sought from various global regions.Communications • • • • • on the investor relations website for historical information that may not be included in the prospectus. Once the company is public. expectations for performance. Establish a web page dedicated to proxy information where interactive. industry and sector. To deepen knowledge of the company’s industry and sector. and • information about sector specific sellside analysts and institutions obtained from daily interactions with the institutional community. Include corporate debt information and give fixed income analysts the benefit of rich information and easy access. View unbiased summaries and transcripts of competitors’ earnings and conference calls to learn how they are guiding analysts. Also offer investors a way to order hard copies of the proxy materials through the investor relations website or toll-free number. Create a dedicated corporate governance section of the investor relations website to promote corporate integrity and regulatory compliance.” summary fundamentals. meaning that the financials are presented in the same format across the company. NYSE IPO Guide Promote the investor relations website as the main source of investor information by including the URL in all press releases. earnings reports or industry conferences. it will also become important to identify current investors at risk of selling their shares in the company. The transcripts can also help to anticipate questions from analysts and investors. Work with a provider that offers a proven and back-tested ownership model incorporating key factors that will help accurately identify both risks and opportunities across the investor base. To facilitate such comparisons. To be effective. also offer an anonymous web-based forum for employees to submit suggestions. HTML and PDF versions of all proxy materials can be posted. ask questions or report an issue. Gather intelligent information As the company’s corporate story and the key messages to communicate to the investment community are developed. In addition to ensuring that the company is meeting regulatory disclosure requirements. • intelligence on institutional money flows within the sector to help understand how current buying and selling patterns may impact the stock’s value and trading dynamics. webcasts and periodic reports. Company fundamentals should be analyzed to determine how the company’s financials compare with those of its peers. Disclose compensation information found in the Form 10-K and proxy filings on the investor relations website. Also understand how peers are perceived by the sell side. but searching through individual sites can be time consuming and inefficient. the company should communicate key messages and competitive differentiators to the 56 . In such cases. Access broker research and estimates to learn what the sell side is saying about the company and its competitors – although research on the company may not be available until coverage is initiated by one or more brokers. use “standardized. highlight the key disclosures in the corporate governance section of the investor relations website as well. ensure that the site can accommodate all languages. posting information online will help save on printing and mailing costs. tap into experts and information sources that can provide: • timely and accurate news on marketmoving developments within the sector. To be fully transparent. To accelerate knowledge gathering. it is important to understand the competitive landscape and key developments across the industry and sector. converse anonymously with the submitter and maintain a record of each exchange. committee charters and code of conduct. just as equity analysts are given. and maximize investor confidence. debt maturity schedule and information pertaining to asset-backed securities. CUSIP look-up. • updates on upcoming events within the sector – analyst days. Shareholder email addresses obtained for distributing proxy materials should be used solely for such purpose. • monthly. The information posted on this section should include the governance guidelines. valuation metrics. Ensure the historical information is clearly dated. Take active steps to immediately distribute updates and new information posted on the site to the investment community. Most companies post their call transcripts on their website. it should be possible to view all submissions. Ensure that the section on which the proxy materials are posted does not infringe on the anonymity of those accessing it through cookie postings or other ways of virtually collecting user information. sector-focused feedback from the institutional community which could highlight recent trading patterns. such as pending transactions. Utilize RSS feeds and email alerts so investors can be alerted when new content is available. facilitating an understanding of why specific funds are likely to buy or sell the company’s shares. and should be dynamic to adjust to evolving market conditions. This information can also be used to identify any disconnects between what the company is saying and what the institutional investment community is hearing. Communicate the company’s story to internal and external stakeholders: Armed with unparalleled insight into competitors. debt analyst coverage.

In a study conducted by the Corporate Executive Council. In general. To ensure compliance with Regulation F-D (Fair Disclosure). measure the impact of communications through detailed analytics. If a perception study was conducted ahead of the communications. engaging and measurable means of reaching a global audience. Q&A and survey functionality of the webcast player to gather audience feedback. While foreign private issuers are not subject to the SEC’s proxy rules. work with a webcast provider that offers a platform which allows easy control of who can attend the webcast. But the investment community is not the only audience that should be targeted. (b) Other communication mechanics The SEC requires that all US public companies provide proxy materials prior to a shareholder meeting. publish all planned disclosures to the online calendar and enable visitors to the site to download these events into their own planners or to receive email reminders of these events. The ideal provider can further expand the reach of the company’s message by distributing the webcast directly to the desktops of institutional and retail investors. bears or rotators attend the webcast? • What was happening in the market on the day of the webcast? • How was the company’s message perceived by the investment community? What sentiment did it generate? • What action(s) are investors likely to take in response to the company’s message? Coupled with comprehensive analytics on attendees – such as when individual attendees signed on and off the webcast – it is possible to effectively gauge how well the company’s message resonated with the internal and external audiences. This “annual meeting record date” is also referred to when determining which holders should receive dividends. Links within the webcast to supporting material such as press releases and financial information further reinforce the key messages. Proxy materials may include: • a proxy statement (described in Chapter 4. while mitigating any selling pressures. and • the annual report/Form 10-K The company’s transfer agent often distributes and collects the necessary proxy materials for the company and sends them to registered shareholders directly. but they remember 50% of what they see and hear. which then subsequently distribute them to beneficial holders. include a video or photos of the presenters within the webcast. Webcasting offers a cost-effective. To determine which shareholders should be sent proxy materials. the company should refer to a list of the shareholders that held stock on a certain date. In another study. productive and successful. employees cited the most important driver to their commitment to the firm as a company’s ability to lay out a clear vision of its strategy and direction that is linked to their day-to-day lives. Post both the archive and transcript on the investor relations website. To ensure that the communication is efficient. a notice-only mailing or a combination. include subtitles or translate the content into multiple languages. A Watson Wyatt study found that firms with highly effective communications delivered a 47% higher total return to shareholders. to allow sufficient time for shareholders to review and act. Where global investors are sought. If the company elects to send a full set of proxy materials. which are current owners of company stock? • Did any bulls. when announcing key corporate actions and developments. For investors holding shares through an intermediary such as a broker.Communications investment community. Use the detailed reports and metrics to modify the message as needed and to develop follow-up communications plans. To maximize viewership of the webcast. To accommodate different time zones. the company must provide the proxy package to the intermediary in sufficient time to NYSE IPO Guide 57 . • a proxy card for registered holders or a voting instruction form for beneficial owners. Towers Perrin highlighted that companies with high employee engagement had a 19% increase in operating income and almost a 28% growth in earnings per share. To introduce senior executives to the investment community. When selecting a webcast provider. foreign private issuers listed on the NYSE are required to solicit proxies from their US shareholders. Work with a webcast provider that can generate a report following the webcast with answers to key questions such as the following: • How did the webcast attendance compare with those of the company’s peers? • What has been the impact of the webcast on the price and coverage of the company’s stock and that of its peers? • Of those who attended the webcast. The company provides materials to proxy service providers selected by brokers. interviews with the institutional investment community following the webcast will help identify any change in market perceptions of the company. Webcasting offers an effective means of communicating the corporate strategy to employees. use webcasting as the means of communication. This information can also help to shape outreach efforts to actively target prospective investors. it must both file with the SEC and send out to shareholders a complete set of proxy materials approximately five weeks before the shareholder meeting. making them easy for investors to view at their convenience. leverage message analytics that can help track and monitor investor feedback and sentiment related to the announcement. archive the webcast and transcribe the content. communicating with employees is just as important.2(f)). further empowering them to be the brand stewards of the company. The company may mail either a full set of proxy materials. Measure the impact of communications: In addition to knowing who attended the live webcast and who downloaded the archive from the investor relations website. inquire about its proprietary distribution networks. Also leverage the polling. Also provide viewer-controlled PowerPoint slides that reiterate the key messages being presented. • a notice of internet availability. Research shows that people remember only 10% of what they read and 20% of what they hear.

known as “householding. and benefit the environment by eliminating paper used in printing and energy resources used in shipping. DTC passes on the voting rights to the brokers and banks through an omnibus proxy. registered shareholders present at the meeting may also be able to vote from a handset. Based on the last two years. The company can also choose to include the notification of internet availability with a traditional proxy mailing to holders – the “full-set delivery” option – informing them of the online location of the materials. as well as for shareholder privacy protection. on average. Proxy voting: The proxy materials also include a proxy card or. However. In addition to the voting methods outlined above. The company must thus provide the other notice information to these intermediaries or their agents in advance of the 40-day mailing deadline. Instead. Beneficial shareholders then return the voting instruction form to inform their brokers to vote their shares as indicated. if available. such as authentication and encryption.” including prohibiting the website from installing “cookies” that may be used to identify the shareholder and requiring that tracking features on the website be disabled. there will be a very tight window for beginning the process. to cast their vote during the course of the meeting. See Chapter 4. while maximizing the rate of shareholders voting. For beneficial holders. To help reduce the number of printed annual reports and proxy statements required. Internet and telephone voting also reduce the postage costs associated with proxy voting by eliminating the need to return the proxy card or voting instruction form. This approach may allow the company to reap some of the cost-saving and environmental benefits of using a notice-only mailing. Voting rights for beneficial holders are assigned to DTC. Cede & Co. such as California. the company will have to estimate to how many shareholders will want to receive paper copies – the “fulfillment rate” – with the decision based on historical data. as defined by the SEC. but reach out to beneficial holders to find how they want their shares to be voted via a voting instruction form. The company must reimburse intermediaries for associated costs. Effectively. Because the notice contains essential information on how to vote. This may require segregating those pages from the rest of the company’s regular website or creating a new website.4 for more detail regarding beneficial versus registered holders. if available. internet and telephonebased voting may be provided to shareholders for added convenience and quick tabulation of votes. As an additional option. free of charge. in the case of street voters. should be reviewed in detail when assessing solutions from vendors. The website providing access to proxy materials – which must be different from and in addition to the SEC’s EDGAR website – must meet certain requirements for accessibility of materials. By checking the appropriate boxes and then signing. shareholders asking for paper copies has been in the 1% to 3% range. The company must provide full sets of proxy materials upon request to shareholders. dating and returning the proxy card. While the SEC requires the company to provide a method of voting as of the date when the notice is sent. Notice-only mailings save the print and mail cost of sending full proxy materials in hard-copy format. the SEC permits the company to mail only one set of materials to a single address when two or more shareholders with the same last name live at that address. the company may choose to perform a second mailing containing the same notice and a proxy card 10 days or more after the first mailing. such as mergers or acquisitions. it prohibits the inclusion of a proxy card with the notice. or with a physical ballot. registered shareholders can cast their votes. a voter instruction form. it must create and file a Notice of Internet Availability of Proxy Materials (DEFA14A) at least 40 days before the annual meeting. The brokers and banks retain voting rights. Beneficial holders cannot vote at the 58 NYSE IPO Guide meetings in person unless they obtain a legal proxy from their broker or bank. which allows shareholders to vote their shares. For companies incorporated in a state.” also requires a mailing to shareholders 60 days prior to the proxy mail date. where the record date may be not more than 50 days before the event.Communications ensure that the intermediary can meet the 35-day target for sending shareholder mailings. as street-side holdings are recorded on the company register in DTC’s nominee account. The company may elect to send a onepage notice document to holders – the “notice-only” option – informing them of the online location of the proxy and annual meeting materials. SEC-required content: In addition to the requirements above. current SEC regulations require that all notices contain a prominent legend containing the exact language specified by the SEC. The SEC allows companies to include . Notice and access: As of January 1 2009. intermediaries such as brokers must prepare their own notices and customize them to provide information on how clients can provide voting instructions to the intermediaries. the SEC’s “Internet Availability of Proxy Materials” rules – commonly known as the “notice and access” or “e-proxy” rules – require that issuers and registered investment companies soliciting proxies provide access to an electronic version of their proxy materials on a public website and send notice of the materials’ availability with the URL to access the materials. The notice-only option is not allowed for proxy votes regarding business combinations. If the company selects the notice-only option. This notice must also be mailed to shareholders at least 40 days before the meeting date. Implementing this process. The company may choose to send a full set of paper materials to some holders and use the notice-only option for others for the same meeting. The privacy requirements stipulate that the materials must be hosted “in a manner that does not infringe on the anonymity of a person accessing that Web site. the voting process is more complex. fewer shareholders vote if they receive a notice-only mailing rather than a full-set mailing. The proxy materials must be sent via first-class mail within three days of receipt of the request. This notice can be a separate item or can be included in the proxy package mailing. Security features for the electronic voting site.

• stock option issuance. Over time. Recordkeeping and the transfer agent: Transfer agents maintain a record of ownership. including Forms W9. As of 2002. toward the reduction of paper certificates. can also be delivered to shareholders via electronic delivery. If it does not elect to be a NOBO. including sending: • proxy materials. Transfer agents’ responsibilities also include the transfer. such as during an online voting process or via email campaigns to shareholders with email addresses on file. the broker is required to give it the opportunity to designate itself as an OBO or NOBO. A registered shareholder. such as address-change confirmations. including shareholder communications such as proxy statements and annual/quarterly reports. 1099-B. Additionally. long supported by the SEC. issuance and cancellation of the company’s shares. The company must receive positive consent from the shareholder to send proxy materials to the shareholder electronically. tax forms and press releases. and • company information. W8BEN and 1099-DIV. in “book entry. shareholder consent for electronic delivery may be promoted via hard-copy communications such as the proxy card.” The vast majority of shareholders are beneficial shareholders.4 Share ownership mechanics (a) Beneficial and registered shareholders There are two types of shareholders: “registered” and “beneficial.Communications supplementary materials with the notice that provide additional information about proxy materials and voting. Delivery preferences and electronic delivery: The notice and access rules require that shareholders be offered an opportunity to indicate a future preference for email or internet communication. while brokers maintain the records of beneficial shareholders. it is often referred to as keeping the shares in “street name. By “objecting.W8BEN and 1099. If the company wishes to maximize shareholder enrollment in electronic delivery. Other core duties of a transfer agent include: • dividend payments. The company. • statements with details of holdings and or/transactions. • direct stock purchase/dividend reinvestment plan administration. it will often by default be listed as an OBO. NOBOs waive this right and may be contacted directly by the company. bank nominee or other third-party nominee. Book entry has many advantages: it allows for a faster and more efficient transfer of shares. When a shareholder opens a brokerage account and has its securities put in street name.” or with printed certificates. • letters confirming other transactions. such as statements. as well as paper copies. Lists for an company’s NOBOs may be requested from an intermediary. eliminating the need to store pre-printed engraved certificates. All beneficial shareholders’ shares are held in book entry. and shareholders will continue to receive information via the method they choose until they change their preferences. then keeps the records of ownership for the shareholder and provides services such as transferring shares. Printed certificates and book entry: Shares can be held either electronically. • escheatment and lost shareholder search and report filing. including: • statements with details of holdings and or/transactions.” is a person. • restricted stock transfers. Registered shareholders’ holdings may be in book entry or certificated form. beneficial owners are also designated as objecting beneficial owners (OBOs) and non-objecting beneficial owners (NOBOs). • tax reporting.” OBOs shield their identity from the company and may be contacted by the company only via a third party. and • communication with shareholders on behalf of the company. the company may send annual meeting materials via an email with hyperlinks to view the company’s annual report and proxy statement online. Additional shareholder communications: In addition to proxy-related communications. or its transfer agent. • annual meeting services. 4. also known as a “shareholder of record. • tax forms. the company may send other routine communications to its shareholders. and mitigates the risks of holding and losing paper certificates. Book entry is also necessary for “dematerialization” – a movement. including contact information. including W9. proxy statement and annual report.” A beneficial shareowner has stock held in the name of an intermediary such as a broker. Although transfer agents are commonly associated with the transfer of shares of common stock. they may also handle other types of securities whose ownership is registered. • tax forms. and NYSE IPO Guide 59 . such as the holder’s broker. Consent may also be solicited through other means. This can be expected to help reduce the costs associated with printing and warehousing more materials than needed or with rush printing of additional copies to meet fulfillment needs. Electronic delivery allows for quick access to voting materials for shareholders and also provides for significant cost savings in comparison to the printing and mailing of paper documents. When shares are kept in this manner. of the company’s registered shareholders. paying dividends and coordinating shareholder communications. Other company communications. the company can use this information to fine-tune its printing and mailing requirements to more specifically match shareholder preferences. group or other entity that holds shares directly in its own name on the company register. the company also has the option of producing print-on-demand certificates: physical certificates that can cost effectively be printed with low print volumes. • issuance for secondary offerings. If a shareholder consents to receive materials electronically for future mailings. and must not use an email address provided by a shareholder for any purpose other than to send a copy of proxy materials to that shareholder. such as bonds One of a transfer agent’s primary duties is assisting registered shareholders and fulfilling their requests for transferring their shares.

Transfer agents are additionally required by Internal Revenue Service (IRS) regulations to track and report the dividend income and share sale activity they facilitate on behalf of issuers via Form 1099 reporting. Dividend reinvestment plans allow registered shareholders to purchase additional shares without having to go through a broker. • posting. transfer agents have been subject to federal regulation by the SEC in accordance with the Exchange Act. keeping track of stock issuance and ownership is a considerable task in today’s increasingly complex regulatory environment. The duties of a transfer agent and registrar may be performed in-house. with fractional shares applied to the holders account in book entry form. Transfer agents additionally act as a registrar. • retention of records. counterfeit and stolen securities. Transfer agents in most cases act as the company’s paying agent for dividends. in addition to other data security requirements. As a result. today these duties are frequently performed by the transfer agent alone. the seller will receive it instead. such as paying out interest to bondholders. However. such as transfer agents. the ability to market to specific groups. Transfer agents must comply with all applicable rules of the SEC and other regulators. Alternatively. the stock exchanges or the National Association of Securities Dealers. the transfer agent will generally issue shares in book-entry form and send statements to the shareholders. Holders that acquire stock before the exdividend date will be entitled to receive the dividend. Dividend reinvestment plan shares may be purchased through the plan on the open market or issued by the company from treasury or reserve. transfer agents maintain records of the total authorized shares outstanding and track the issuance and cancellation of shares. including those pertaining to abandoned property and privacy. which then distributes the funds to DTC. Payment agents may also make other distributions on the company’s behalf. Funds for dividends paid to beneficial holders are first sent by the company to the transfer agent. While previously the duties of a registrar were segregated from those of a transfer agent. Share issuance: In addition to shares issued during an IPO. Some agents provide advanced purchasing options for shareholders to buy shares. Which method the company should choose depends on the respective importance of various factors. • prompt response to inquiries. If it is a stock rather than a cash dividend. employee equity compensation services and corporate action services. The dividend reinvestment plan can either be sponsored through a transfer agent program. Registered shareholders are then sent their funds by the transfer agent. in most companies with widely held share ownership. When the company declares the dividend. Inc fixes the “exdividend date. semi-annual or quarterly basis. or the option to offer easy and inexpensive access to the company’s shares. transportation and destruction of certificates. Transfer agents and registrars are appointed by resolution of the board of directors. must also comply with regulations designed to prevent fraud in connection with missing. Issuance in paper certificate form is still an option. Dividends must be declared by the board of directors each time they are paid. which does not require SEC registration. Holders that purchase a stock on its ex-dividend date or after – with the trade settling postrecord date – will not receive that dividend payment. the company may . in addition to enabling them to reinvest their dividends. including online account access. • evaluation of internal accounting controls. depending on the plan design. to help ensure that the company does not issue more shares of stock than have been authorized. These data security requirements also extend to industry participants’ employees. capital dividends may also be paid out of return on capital.Communications • letters confirming other transactions. • accuracy of recordkeeping. lost. such as the flexibility to use original issue shares or treasury shares to raise capital. but is rare in today’s environment. Dividends may be paid in cash or in equity (shares of stock). who must be fingerprinted and undergo background checks. it sets both: • a “payable date” – the date on which holders are paid the dividend. Once the record date is set. so that shareholders’ dividends may be automatically applied to the purchase of additional shares of stock of the corporation. receiving and holding funds from the company and then disbursing the funds. Activities that are governed by these regulations include: • turnaround times for processing. which in turn forwards the funds electronically to the brokers for distribution to the shareholders. transfer agents must be prepared to handle associated periods of peak transfer volume. 60 NYSE IPO Guide Transfer agents are also subject to the laws of the states of incorporation for both the company and its shareholders.” normally two business days before the record date. The company may choose to sponsor a dividend reinvestment plan. more than 90% of issuers outsource this function to a commercial transfer agent. In this capacity. Transfer agents must also work with the IRS to work to resolve incorrect taxpayer identification numbers and begin/cease tax withholding as directed by the IRS where appropriate. • safeguarding of funds and securities. and • a “dividend record date” – the date on which shareholders must be on the company’s books as a shareholder to receive the dividend. Given wide fluctuations in trading volume and shareholder inquiries. or be registered directly with the SEC. by either electronic funds transfer or check. including strict requirements for the accuracy and timeliness of processing shareholder transactions. such as purchasing shares on a regular schedule utilizing electronic fund transfers. Since the mid-1970s. (b) Dividends and other corporate actions Dividends: Dividends are payments representing a portion of the company’s profits paid to shareholders out of the company’s current or retained earnings. and • searches for “lost” shareholders. Securities industry participants. Dividends are typically paid on an annual. such as addresschange confirmations Transfer agents may also provide additional services for shareholders and issuers.

converting debt securities into equity securities. For the FAST system. shareholders can cost-effectively purchase shares directly from the transfer agent instead of opening a brokerage account. The transfer agent or broker can then use deposit and withdrawal-bytransfer orders to debit/credit these accounts: the balance on the transfer agent’s books is increased and decreased by on a daily basis. Deposit or Withdrawal by Custodian (DWAC) – DTC’s DWAC program is used to transfer shares for company holdings such as for stock options and employee plan shares. NYSE IPO Guide 61 . A waiver plan. offers a controlled opportunity for raising capital without the costs of traditional underwriting. as applicable. the sum total of shares for that issue held by the broker. and • if employing a transfer agent. DWACs offer the advantage of real-time share movement but are manually intensive to process. via their brokers or transfer agents. paying proceeds due. DTC was established to reduce the volume of physical stock certificate transfers necessary for the trading of securities. and broker accounts are adjusted accordingly by DTC. on the transfer agent’s books. established as an addition to the FAST system in 1996. deposit and withdrawal services more quickly and efficiently. if an investor wanted to buy shares in a company and enroll in a dividend reinvestment plan. To process transactions and to “participate” in DRS. in instances where capital is needed.” Participants then may request a debit and corresponding credit to their DTC accounts to enact a transfer. resulting in debits and credits to FAST accounts. employ one that is a “limited participant” of DTC and operates in the DTC Direct Registration System. the investor first had to buy shares from a broker. a direct stock purchase plan has a set limit on the maximum dollar amount per investment. DRS also enables shares to be transferred electronically to and from the transfer agent and the broker community. unless specifically requested otherwise by the investor. • (c) Transferring shares and voting procedures Transferring shares: The Depository Trust & Clearing Corporation. stock options and company awards. inviting equity security holders of the company to subscribe to new issuance of additional debt or equity. a subscription agent. collecting shares surrendered from shareholders and making payments for the shares at a • • • • pre-determined price. and the transfer agent. who may participate and the purchase limit. which enables agents to provide electronic transfer. enables shares to be held on records of the transfer agent in book-entry form. Post-IPO mass issuances are known as secondary offerings: proceeds go to the company and dilute the ownership position of shareholders for existing shareholders. In addition. exchange agents must receive and replace the stock of the new or acquiring company and replace it with the stock of the new or acquiring company or cash. they must: • have bylaws authorizing the use of book-entry shares. the company may waive the dollar limitation – hence the term “waiver” plan. and • default all withdrawal-by-transfer requests to “S” for statement. which matches up the instructions and accepts the DWAC transaction. DTC holds eligible securities for financial institutions such as brokerage firms and banks. including as: • a tender agent. acquisition or capital reorganization. Prior to the advent of direct stock purchase plans. The exchange agent function is often performed by the company’s transfer agent. such as employee stock purchase plans. However. Previously. through its subsidiary DTC. and • transfers of shares to a transfer agent account from street name. The • transfer agent and the company must meet specific DTC criteria in order to utilize FAST. In this manner DTC facilitates share transfers on behalf of shareholders. through the following methods: • transfers of shares to street name from a transfer agent account. is a repository through which stocks are transferred electronically between brokers and agents and which provides electronic storage and clearinghouse services. issuers must: • participate in a surety program to initiate DRS Profile Modification System transactions through DRS. Corporate actions: In the case of a corporate action such as a merger. • arrange for their securities to be on the DTC’s FAST and PROFILE systems. a paying agent. holding an asset on behalf of a first party for delivery to a second party upon specified conditions or events. Brokers maintain corresponding books representing their shareholder accounts. collectively referred to as “participants. the transfer agent may act in many different roles. and represents. in most cases in conjunction with a direct stock purchase plan. subsequent to an IPO. Through a direct stock purchase plan. The limit allows the company to control the investment in new shares. which initiates the transaction. The company controls the key elements of the program. a conversion agent. Direct Registration System (DRS) – DTC’s DRS system. or an escrow agent. DTC establishes an account with the transfer agent for each issue. Transfers can be accomplished through the following three DTC systems: • Fast Automated Securities Transfer (FAST) system – in 1975. including the minimum price the market shares must meet or exceed before new shares are issued. To do so.Communications choose to issue additional stock. This account is registered to Cede & Co. Normally. The company may also offer a discount to the shares’ current market price to entice additional share purchases. Companies may also issue shares through a direct stock purchase plan. All new issuers must be “DRS eligible” as of January 2007. DTC introduced the FAST system. Other activities by the company may require issuance. book-entry shares could be held only in the name of the broker on DTC’s FAST system or through a dividend reinvestment plan. DTC’s nominee. The company may perform DWAC transactions by providing instructions to the broker.

records must be maintained in case an individual shareholder. such as with the national change of address product of the US Postal Service. such as an abandoned bank account. In all cases shareholders’ property may be escheated only after a period of inactivity passes on the account or asset. the shareholder of the property also be considered to be “lost. such as for dividend payments. After due diligence requirements have been satisfied.” as well as the type of shareholder action that constitutes a valid contact. and to ensure either that shareholder property is not turned over to the state unnecessarily or that the applicable property is escheated as required. The information provided in this section refers specifically to the escheatment of stock and the associated cash of registered shareholders.” defined by the SEC as having two successive pieces of mail returned. varies in length by each state. usually by third-party vendors for shareholder-paid fees. Some agents make preliminary reports for common stock dividends. which maintains a database on behalf of the SEC. The company and its transfer agent must conduct various due diligence mailings and database searches prior to the property being escheated. When a stock certificate is presented for transfer. returned stock certificates. prior to escheatment of property.Communications Processing paper certificates: If a shareholder loses a stock certificate. in order for the transfer agent to issue new shares.” This property may be considered unclaimed based on the age of on outstanding check or unissued credit or due to inactivity on an account. Lost shareholders. DC and other US territories require that financial institutions. In order to keep records as up to date as possible. . issuers and their transfer agents report when property is deemed to be “unclaimed” or “abandoned. Other types of transactions that do not result in a change in ownership include combining or splitting certificates into larger or smaller denominations. Escheatment – the process of transferring abandoned property to the state or territory – can apply to any type 62 NYSE IPO Guide of holding. in either certificated or book-entry form. attempts to retrieve the property. un-cashed checks and returned checks available for review prior to the escheatment deadline. The shareholder must pay a fee to the transfer agent and present an open-penalty surety bond. which indemnifies the company and transfer agent. abandoned property and escheatment: The 50 United States. This “dormancy period. the old certificate must be cancelled and new shares issued. Medallion guarantees protect shareholders by preventing unauthorized transfers and potential investor losses. A “transfer” is the industry term for a change in the registered owner of stock. They also limit the liability of the transfer agent that accepts the certificates. Most transfer agents facilitate the bond purchase process for the shareholder for convenience. which is a guarantee by the transferring financial institution that the signature is genuine and that the financial institution accepts liability for a forgery. the transfer agent must determine that the registered owner has properly assigned the ownership of the security presented for transfer and that the certificate is authentic. The shareholder can reclaim the assets by contacting the individual state directly. consolidating like accounts and converting shares held via certificate to book-entry form. per SEC Rule 17ad-17. Some states also require that. A more in-depth “deep search” to find lost shareholders and the owners of abandoned property may also be undertaken prior to escheatment. at the discretion of the company. After property has been escheated. as required by the states or the SEC. at a later time. The lost certificate is reported to the Securities Information Center. some transfer agents may choose to perform regular database searches for changed addresses. Records must be kept carefully by the transfer agent to comply with lost shareholder and escheatment regulations. the company and its transfer agent file unclaimed property reports with the states and the property is turned over to the states. Puerto Rico. Brokers can then reference this database when a certificate is presented to ensure the certificate is valid. Washington. The certificate presented must be secured by a medallion guarantee. utilizing a third-party surety provider.

5 Obligations of a public company NYSE IPO Guide 63 .

As noted above. The periodic reports contemplate a system of “integrated disclosure. In many cases a non-accelerated filer will also qualify as a smaller reporting company.” in which portions of the various reports may be incorporated by reference into other reports to avoid repetition. Incorporation by reference from proxy statement: Most of the required disclosure about the company’s management and governance arrangements. as shown in table 1 below. Incorporation by reference is also a concept that permits more streamlined disclosure for securities offerings. Disclosure controls and procedures: Disclosure about management’s evaluation of the effectiveness of disclosure controls and procedures. with scaled-back information requirements. is also required. see Chapter 2. The reports required for a US company differ somewhat from those required for a foreign private issuer. Form 10-K must include a management report on the effectiveness of internal control over financial reporting (ICFR) and a related auditors’ attestation.1 Reporting requirements (a) Ongoing reporting requirements After the initial public offering (IPO). the company will be a non-accelerated filer for the first year. the company must file regular “periodic” and other reports with the Securities and Exchange Commission (SEC) in accordance with the requirements of the Securities Exchange Act of 1934.” or the market value of the voting and non-voting common equity held by non-affiliates. Foreign private issuer • Annual reports on Form 20-F or Form 40-F • Current reports on Form 6-K Table 2 Reporting category After at least 12 calendar months of reporting. keeping the information current and eliminating the need to include detailed disclosure about the company in a prospectus for an offering. The thresholds to enter and Table 1 US company Periodic reporting: • Annual reports on Form 10-K • Quarterly reports on Form 10-Q Current reporting: • Current reports on Form 8-K Shareholder meetings and proxy solicitations: • Proxy statements • Rule 14a-3 “glossy” annual report exit these reporting categories are different from those used for the initial determination. This is illustrated in table 2 below. which is largely based on the size of its worldwide “public float. in particular after the company has been public for at least a year and is eligible to use a registration statement on Form S-3 or F-3 for public offerings. without any transition period. as described in more detail below. This incorporation by reference is not required. as described in more detail below.3). with several important differences. Certifications: The company’s chief executive officer (CEO) and chief financial officer (CFO) must certify Form 10-K. as well as the use of the proceeds from the IPO. A non-accelerated filer must file Form 10-K no later than 90 days after the end of the fiscal year. Existing and future reports that the company files with the SEC will be incorporated into Form S-3 or F-3. For more information about the financial statements that are required for the company’s various reports. This deadline shortens to 75 days for an accelerated filer and 60 days for a large accelerated filer. The timing and some of the required content of these reports will depend on the company’s reporting category.2. as of the last business day of the most recent second fiscal quarter. The contents of Form 10-K are largely similar to the IPO prospectus. but is very common in US company reports. outlined below.Obligations of a public company 5. (b) Reporting for US companies A US company must file an annual report on Form 10-K with the SEC after the end of each fiscal year. Unresolved SEC staff comments: An accelerated or large accelerated filer must include disclosure of any unresolved SEC staff comments on its periodic or current reports that the company received at least 180 days before the end of the fiscal year. see Chapter 5. particularly Form 10-K and the proxy statement. following an IPO. including the detailed disclosure of executive 64 NYSE IPO Guide . including at least one Form 10-K: • Large accelerated filer • Accelerated filer Non-accelerated filer $700 million or more $75 million or more (but less than $700 million) All others Public float Stock repurchases and use of proceeds: The company must disclose its stock repurchases (for more information. as described in more detail below. Internal control over financial reporting: Beginning with the second Form 10-K filed by the company.

Although e-proxy procedures are less expensive. In contrast to any interim financial statements included in the IPO prospectus. which requires disclosure about fees paid to the auditors. unaudited interim financial statements included in quarterly reports on Form 10-Q must be reviewed by an independent accountant prior to filing. is typically incorporated by reference from the proxy statement.” For proxy solicitation purposes. as well as for other information the company considers important for investors. This deadline shortens to 40 days for accelerated and large accelerated filers. but more typically is a separate “glossy” report with pictures and other investor-friendly information. changes in internal control over financial reporting (but not a full assessment as in Form 10-K). Form 10-Q largely consists of interim financial statements and the related MD&A. the annual report (also known as the “Rule 14a-3 annual report”) must contain audited financial statements. including the detailed disclosure of executive compensation arrangements and the compensation discussion and analysis. if any) and voting procedures. unlike in some other jurisdictions. A non-accelerated filer must file Form 10-Q no later than 45 days after the end of the fiscal year. This process is known as “notice and access. so most companies prepare an annual proxy statement. and information about code of ethics compliance and waivers. This can be Form 10-K. many companies still choose to physically mail these documents to shareholders. and CEO and CFO certifications. The company must furnish a proxy statement to shareholders before soliciting voting authority for a matter submitted to shareholder vote. NYSE IPO Guide 65 . see Chapter 5. • the entry into or amendment or termination of a material definitive agreement. Some companies choose to combine the two. • costs associated with exit and disposal activities. Form 8-K is also used for information disclosed to ensure compliance with Regulation F-D (Fair Disclosure). among other things. recent SEC “eproxy” rules permit the company to post proxy materials on a publicly accessible website and mail only a notice to shareholders. the proxy statement and annual report had to be mailed to all shareholders. As for Form 10K. stock prices and dividend payments. The stock exchange listing rules typically require a listed company to hold a regular annual shareholder meeting. management’s discussion and analysis (MD&A). however. Current reports on Form 8-K: The US securities laws generally do not require current reporting of all material company events. which is also often used for other investor relations purposes. The proxy statement must contain information about the shareholder meeting. for which the material terms must be described together with a table summarizing all of the company’s equity compensation plans. and the NYSE recently eliminated the need for a press release about the posting in most cases. The more common. for which the company will solicit proxies. Instead. in addition to SEC and stock exchange requirements. Until recently. creating a “wrap” for Form 10-K to create the “glossy. The most common item on the meeting agenda is the election of directors. It also includes disclosure about effectiveness of disclosure controls and procedures. results of shareholder votes. or material impairments.2). • a significant acquisition or disposition of assets (which may also require pro forma financial information). but now permit website posting. unless the company is buying or selling securities or makes other disclosure for which information about the material event is needed to make that disclosure complete and accurate.Obligations of a public company compensation arrangements. If the agenda includes the election of directors. legal proceedings and company stock repurchases. In this case the proxy statement will contain much of the same disclosure about the company’s management and governance arrangements that was included in the IPO prospectus. a US company must file a current report on Form 8-K with the SEC only for certain specified events and generally within four business days. a stock performance graph and a list of the directors and executive officers. There are also several items that were not included in the IPO prospectus. as well as a brief description of the company’s business. as well as information about risk factors. day-today events that trigger this reporting include: • an earnings release or other information about historical results of operations and financial condition. and • various governance items. the matters to be considered (including shareholder proposals. amendments to charter documents and amendments to or waivers of the code of ethics. The company should be sure to consider any requirements imposed by its charter. XBRL: The financial statements contained in Form 10-K must also be filed in an exhibit using the Extensible Business Reporting Language (XBRL) interactive data format (see Chapter 2. including officer and director compliance with Section 16 filings (for more information. the proxy statement must be accompanied or preceded by an annual report. the financial statements must also be included in XBRL format. • unregistered sales of equity securities or material modifications of the rights of security holders. a US company will be subject to the proxy rules under the Exchange Act. selected financial data and disclosure about market risk. and the adoption or amendment of equity compensation plans. Quarterly reports on Form 10-Q: A US company must file quarterly reports on Form 10-Q with the SEC after the end of each of the first three quarters of each fiscal year.4).” The stock exchanges also used to require a physical mailing of an annual report to shareholders. bylaws or state law. Other typical agenda items include the approval or ratification of the company’s auditors. Proxy statement: Following the IPO. primarily for investor relations purposes. • the creation of a material direct financial obligation or a contingent off-balance sheet obligation or a related triggering event. such as the departure or election of directors and executive officers.

(c) Reporting for foreign private issuers The primary report for a foreign private issuer is the annual report on Form 20-F. April • Press release announcing Q1 earnings call/webcast (c 1 week in advance). Foreign private issuers also need not file Form 10-Q or Form 8-K. • Notify shareholder proposal proponents of eligibility or procedural defects in proposal (within 14 days of receiving proposal). acquisitions. • Send directors’ and officers’ questionnaires to board members and executive officers (for proxy preparation). • Q4 earnings release and Form 8-K. • File “glossy. • Q1 earnings release and Form 8-K.Obligations of a public company Press releases: In addition to SEC reporting requirements. at least 40 days before annual meeting if using e-proxy “notice and access”). by May 10). (Canadian companies may also use Form 40-F. May • File Q1 Form 10-Q (no later than 40 days after quarter end – that is.) Foreign private issuers are not subject to the proxy rules and need not prepare a proxy statement. by November 9). major management changes and any substantive items of an unusual or non-recurrent nature. in the M&A context) or provide information helpful to a competitor. • File Form 10-K (no later than 60 days after fiscal year end – that is. • Q2 earnings release and Form 8-K. • Q3 earnings release and Form 8-K. although the NYSE encourages use of a press release. The company may generally exercise judgment as to the timing of a public release on corporate developments where disclosure would endanger the company’s goals (eg. • File and post/mail definitive proxy (no later than 120 days after year end if incorporated into 10-K. September • September 30 – Q3 quarter end. • June 30 – Q2 quarter end. • Q4 earnings call/webcast. March • File preliminary proxy with SEC (unless contains only certain specified matters). August • File Q2 Form 10-Q (no later than 40 days after quarter end – that is. under NYSE rules. Stock exchange rules typically require timely disclosure of material events beyond those covered by Form 8-K. February • Submit SEC no-action requests to exclude shareholder proposals from proxy (at least 80 calendar days before definitive proxy filed). stock splits. at least 10 calendar days before definitive proxy filed. November • File Q3 Form 10-Q (no later than 40 days after quarter end – that is. June • Annual shareholders’ meeting. • December 31 – year end. but review may take up to 30 days). and • act promptly to dispel unfounded rumors that result in unusual market activity or price variations. October • Press release announcing Q3 earnings call/webcast (c 1 week in advance). but can instead submit reports on Form 6-K to provide information that they provide to investors under their home country rules or otherwise. 66 NYSE IPO Guide . December • Deadline for shareholder proposals (120 days before date of prior year’s proxy statement). • March 31 – Q1 quarter end. These announcements may be made by any method that constitutes compliance with Regulation F-D (discussed below). July • Press release announcing Q2 earnings call/webcast (c 1 week in advance).” if incorporated by reference into Form 10-K. tender offers. by March 1 or 2). It was these rules that in part drove the issuance of press releases to announce annual and quarterly results. a listed company is expected to: • release quickly to the public any news or information that might reasonably be expected to materially affect the market for its securities. For example.4). by August 9). which most companies do generally as a matter of good investor relations (see Chapter 4. the stock exchanges impose reporting requirements on listed companies. although they often choose to publish a “glossy” annual report in addition to Form 20-F. and print/ post on website. dividend announcements. • Q2 earnings call/webcast. • Q1 earnings call/webcast. Examples of events that NYSE expects would result in prompt disclosure include annual and quarterly earnings. Sample summary annual reporting cycle for US large accelerated filer (calendar year end) January • Press release announcing Q4 earnings call/webcast (c 1 week in advance). • Q3 earnings call/webcast. mergers.

it must promptly correct the statement. Current reports on Form 6-K: A foreign private issuer must submit current reports on Form 6-K with any material information that is. but mere posting on the company website often will not suffice. and because of Regulation F-D. Information that triggers these SEC rules is referred to as “non-Generally Accepted Accounting Principles (GAAP) financial measures. More stringent requirements apply if the company uses non-GAAP financial measures in a report filed with the SEC or in an earnings release. and • a reconciliation (by schedule or other clearly understandable method) of the differences between the non-GAAP financial measure and the most directly comparable GAAP measure. both because of potential insider trading liability (see Chapter 6. as well as information about stock repurchases and use of the proceeds from the IPO. Regulation F-D does not apply to communications with media representatives. an English summary will suffice. In any event.” Form 6-K is a very simple form. legal advisors and investment bankers). although it does apply in the private offering context. it must make general public disclosure of that information at the same time. XBRL requirements are also being phased in for the financial statements contained in Form 20-F. consisting simply of a cover and signature pages to which the relevant information is attached. nonexclusionary access to the information. the company must be very careful when it communicates with individual investors and research analysts (see Chapter 4.Obligations of a public company Annual report on Form 20-F: Form 20-F must be filed with the SEC within six months of the close of each fiscal year. but instead must be filed “promptly. is management’s report on the effectiveness of ICFR and a related auditors’ attestation. Foreign private issuers are not required to comply with Regulation F-D. public webcast (announced in advance) or other means designed to provide broad. It also does not apply to communications made in the context of a registered public offering of securities. As a result of these concerns. advisors in a relationship of trust or confidence with the company (eg. This disclosure may be made by Form 8-K. This requirement was imposed as a result of Section 404 of the Sarbanes-Oxley Act of 2002 (SOX) and is often referred to as “Section 404 reporting. In 2012.1). • publicly available as a result of a filing with any stock exchange on which its securities are listed. forward-looking statements may need to be updated if circumstances change and the statements become inaccurate or misleading.” or even “SOX reporting” (although the act provided for much more than this). or in the proxy statement. Separately. Although Regulation G may not apply in some cases to disclosures by foreign private issuers that do not use US GAAP. The information need not be in English. not misleading. this period will be shortened to four months. such as information about the code of ethics and other governance information. the more stringent requirements for a report filed with the SEC apply to foreign private issuers. Many of the key differences are the same as for Form 10-K: disclosures about controls and CEO and CFO certifications. Currently. For other information.” Use of non-GAAP financial measures in a public statement (whether written or oral) is subject to Regulation G. government officials and employees. Rule 12b-20 under the Exchange Act: As noted above. annual or interim financial information and information sent directly to security holders. such as material modifications of the rights of security holders and changes in accountants. ICFR: ICFR is a set of processes designed to provide reasonable assurance of the reliability of financial reporting and the preparation of financial statements in NYSE IPO Guide 67 . Unlike Form 8-K.” Non-GAAP financial measures: Special disclosure rules apply when the company presents certain financial information in a way that is different from the financial statement presentation. Even if accurate when made. Perhaps the best-known element of that framework. or • distributed to shareholders. the company’s public disclosures must include any additional information “as may be necessary to make the required statements. As with Form 10-K.1). press release. although many do so voluntarily or look to it for guidance as a “best practice. management is also required to report on the effectiveness of disclosure controls and procedures. Form 6-K does not have a specific deadline. rating agency representatives. which requires that the disclosure be accompanied by: • a presentation of the most directly comparable financial measure calculated and presented in accordance with the company’s generally accepted accounting principles (GAAP). the contents of Form 20-F are very similar to the IPO prospectus. Selective disclosure and Regulation F-D: The company should take care to avoid selective disclosure of material non-public information to market professionals and to investors under circumstances in which it is reasonably foreseeable that the recipient will trade on the basis of the information. persons who expressly agree to keep the information confidential. Foreign private issuers are also generally required to comply with the stock exchange rules requiring prompt disclosure of material events discussed above. in light of the circumstances under which they are made. Other differences from the IPO prospectus include items that a US company reports on a current basis on Form 8-K.” Duty to update: If the company discovers that a public statement was inaccurate or misleading when made. the company should be careful about making forwardlooking statements and consider whether they may need to be updated over time. Regulation F-D requires that if the company discloses material non-public information. the US courts are split on whether a duty to update exists. often accompanied by considerable cost. (d) Disclosure controls. internal controls and certifications One of the most significant challenges for the company after going public is the required control framework and related disclosures. or is required to be: • made public in its home country. and the CEO and CFO are required to certify the company’s periodic reports. but a full English translation is required for press releases.

These are controls and procedures designed to ensure that information required to be disclosed in the reports that the company files or submits under the Exchange Act (discussed above) is recorded. who must include statements about them in their certifications (discussed below). each periodic report containing financial statements filed by the company must be accompanied by a statement by the company’s CEO and CFO (or equivalent thereof) certifying that: • the report fully complies with the requirements of the Exchange Act. and • the information contained fairly . and the CEO and CFO. or caused such disclosure controls and procedures to be designed under their supervision. and • any fraud (whether or not material) involving persons having a significant role in the ICFR of the company. A newly public company typically need not comply with the Section 404 reporting requirements until its second Form 10-K after the IPO. The starting point for creating a system of disclosure controls and procedures should be an inventory of the company’s existing practices. and typically includes: • the principal accounting officer or controller. • presented in the report their conclusions about the effectiveness of the controls and procedures based on that evaluation. the CEO and the CFO are responsible for establishing and maintaining disclosure controls and procedures and ICFR for the company. but will be required to do so starting with its first Form 10-K for a fiscal year ending on or after June 15 2010.Obligations of a public company accordance with GAAP. and • a statement that the auditors of the financial statements included in the report have issued an audit report on the effectiveness of ICFR. Form 10-Q or Form 20-F must include statements by the CEO and CFO. have disclosed to the audit committee and the company’s auditors: • all significant deficiencies and material weaknesses in the design or operation of ICFR which are reasonably likely to adversely affect the company’s ability to record. and management and the auditors may not conclude that ICFR is effective if there are one or more material weaknesses. a non-accelerated filer need not provide the auditors’ report. • a statement identifying the framework used by management to evaluate the effectiveness of ICFR. the CEO and the CFO. processed. process. and • disclosed in the report any change in the company’s ICFR that occurred during its most recent fiscal quarter (the fourth fiscal quarter in the case of an annual report) that has materially affected. Once Section 404 reporting is required. but disclosure controls and procedures cover both financial and nonfinancial information. The auditors’ report must also be included in Form 10-K or Form 20-F. • evaluated the effectiveness of the disclosure controls and procedures as of the end of the period covered by the report. • the principal risk management officer. Management must evaluate and disclose the effectiveness of disclosure controls and procedures regularly (US companies must do so quarterly and foreign private issuers annually). CEO and CFO certifications: As a result of SOX. These procedures must be designed by. The company should develop its disclosure controls and procedures in consultation with its auditors and outside counsel. the company’s periodic reports must include two types of CEO and CFO certifications: Section 302 certifications and Section 96 certifications. • the general counsel or other senior legal officer with responsibility for disclosure matters. certifying that: • he or she has read the report. and have: • properly designed the disclosure controls and procedures. They will overlap with ICFR. 68 NYSE IPO Guide As for ICFR. summarize and report financial information. the financial statements and other financial information fairly present in all material respects the financial condition. each Form 10-K. and • the chief investor relations officer. based on his or her knowledge. based on their most recent evaluation of ICFR. results of operations and cash flows of the company as of and for the periods presented in the report. who must include statements about them in their certifications (discussed below). Under Section 906. US companies must also disclose material changes in ICOFR in Form 10-Q. These certifications must reproduce the required statements exactly – they may not be changed in any respect. disclosure controls and procedures must be designed by. Disclosure controls and procedures: The company must also maintain disclosure controls and procedures. summarized and reported in a timely and accurate manner. the company’s ICFR. including a statement as to whether ICFR is effective. or persons performing similar functions. • an assessment by management of the effectiveness of ICFR as of the end of the most recent fiscal year. This committee is responsible for considering the materiality of information and determining disclosure obligations on a timely basis. Disclosure controls and procedures should generally be documented in writing and tailored to reflect the operations of the company and its particular risk profile. Any material weaknesses in ICFR must be disclosed. the • • • report contains no material misstatements or omissions. Under Section 302. • based on his or her knowledge. or is reasonably likely to materially affect. the company’s Form 10-K or Form 20-F must include a management report containing: • a statement of management’s responsibility for establishing and maintaining adequate ICFR for the company. the CEO and the CFO. or under the supervision of. even if the change appears inconsequential in nature. although certain portions of the certifications will not be required until the company is subject to Section 404 reporting. Many companies choose to create a disclosure committee as part of their disclosure controls and procedures. or under the supervision of. Currently. and ensure their compatibility with the company’s internal controls and other compliance policies and procedures.

” Examples of such actions include obtaining permits. or • The payment was made for a reasonable. or if the person has a firm belief that they exist. the World Bank). paying the reasonable expenses of a non-US official who comes to the United States for a demonstration of a company product). it is subject to the anti-bribery provisions regardless of any other tie to the United States. The first rule prohibits all persons from directly or indirectly falsifying any book. or of any government department. The SEC has adopted two rules intended to promote compliance with the FCPA. It further prohibits candidates for foreign office from doing any of the following to obtain or retain business for or with. or for or on behalf of any such public international organization. but enforcement authorities likely will expect companies to be particularly vigilant when active in industries (eg. processing visas and providing police protection. the financial condition and results of operations of the company. A grease payment is a payment whose purpose is to facilitate or expedite “routine governmental action. agency or instrumentality (eg.Obligations of a public company presents. who include: • officers and employees of a foreign government. The FCPA also has two affirmative defenses: • The payment at issue was lawful under the written laws of the foreign country. Enforcement and penalties: The FCPA is enforced by the US Department of Justice NYSE IPO Guide 69 . accurately and fairly reflect the transactions and dispositions of the assets of the company. The other set of provisions. (e) Foreign Corrupt Practices Act A significant source of new compliance requirements for the company following an IPO is the Foreign Corrupt Practices Act (FCPA). record or account of any company subject to the FCPA. or • any person acting in an official capacity for or on behalf of any such government department. and bars directors. officers and persons acting under their control from coercing. records and accounts that. requires the company to keep accurate books and records. Exclusions from FCPA: The FCPA contains an important exception: it permits so-called “grease” payments. and to devise and maintain an adequate system of internal accounting controls. A person is considered to “know” of improper payments if circumstances exist. the oil business) or geographical areas (eg. pay. or • use their influence with a foreign government or instrumentality thereof to influence any act or decision of that government or instrumentality. certain countries in Africa) known for corruption. The types of payments described above cannot be made or offered through a third party if the payor knows that all or a portion of the payment would be made or offered to a non-US official. prohibits the bribery of non-US government officials. for the promotion. or of a public international organization (eg. Accounting provisions: The FCPA requires the company to maintain books. gift or anything of value to a foreign official. One set. The FCPA comprises two sets of provisions. The anti-bribery provisions apply to any acts of the company involving US interstate commerce. the accounting provisions. The accounting provisions also apply to subsidiaries when the company owns or controls more than 50% of the voting power of the subsidiary. and • recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. agency or instrumentality. in reasonable detail. any person: • influence any official act or decision. a state-owned enterprise). promise to pay or authorize the payment of any money. and to maintain a system of internal accounting controls. demonstration or explanation of a product (eg. “Routine government action” does not include a decision by a nonUS official to award new business or to continue business with a particular company. indicating that the prohibited conduct is substantially certain to occur. Anti-bribery provisions: The FCPA prohibits the company from using US interstate commerce to corruptly make an offer. in all material respects. The nature of those red flags varies depending on the circumstances. bona fide business purpose. to accountants in connection with audits of the company or examinations of the company’s financial statements or SEC filings. Conscious disregard or deliberate ignorance of known circumstances that should reasonably alert one to the high probability of a bribe can lead to liability. manipulating. such as travel and lodging expenses. These procedures are designed to eliminate the ability of companies to conceal unlawful payments (although the accounting provisions can be violated if no bribery is involved). a foreign political party or an official thereof. a tax rate lower than one allowed by law). This system must be sufficient to provide assurances that: • transactions are executed in accordance with management’s authorization and recorded as necessary to permit the preparation of financial statements in conformity with the applicable criteria and maintain accountability for assets. misleading or fraudulently influencing the auditors if the person engaging in the conduct knew or should have known that doing so could render the company’s financial statements materially misleading. • fail to perform their official duties or secure any improper advantage (eg. The company may be deemed to “know” of improper payments to intermediaries even without actual knowledge of a bribe. If the company is located or has its principal place of business in the United States. or direct business to. The second rule generally bars the company’s directors and officers from making material misstatements. If the company ignores warnings or “red flags” indicating that its funds were being used to bribe foreign officials. or with parties that have a history of ethical problems. the company may be subject to prosecution. Individual directors or employees of the company that are US citizens or residents are subject to the anti-bribery provisions regardless of any other connection with the United States. or omitting material facts from statements they make. • access to assets is permitted only in accordance with management’s authorization. the anti-bribery provisions.

3 Trading and repurchases Many public companies repurchase their shares from time to time – for example.2 Listing standards When a company’s shares are listed on the NYSE or NYSE Amex. (a) Financial and distribution standards The NYSE and NYSE Amex have established quantitative and qualitative standards for initial listing of US and nonUS companies. In the past few years.000 fine for each violation. the company may instead effect a single purchase of a “block” of securities. please refer to the complete requirements outlined in the New York Stock Exchange Listed Company Manual. disclosure policies and corporate governance practices designed to promote integrity and accountability. The company can avoid the tender offer rules by conducting repurchases of its equity securities either through customary market transactions or in individually negotiated private transactions (in either case. Once companies fall below continued listing standards. to offset dilution from stock option exercises or generally to return value to shareholders. differ from NYSE requirements. • Volume – the total volume of repurchases by the company or any affiliated purchaser on any given day must not exceed 25% of the trading volume for the security. (b) Stock repurchase programs Another concern when the company repurchases its stock is that this will be viewed as market manipulation (see Chapter 6. When settling FCPA cases in recent years. but they have not yet been finalized. 5. Alternatively. which can be referenced at http://nyseamexrules. should be carefully structured so as not to give rise to potential liability under the US securities laws. or to the NYSE Amex Company guide.nyse. distribution and governance requirements. the company must make all repurchases either through one broker or from one dealer. while companies may be fined up to $25 million for each violation.nyse. different standards are applicable to different types of issuers. fact-specific inquiry. in accordance with the provisions of Rule 10b-18 discussed below). the size of the penalties imposed for FCPA violations has significantly increased. once each week. Penalties can be severe: • Accounting provisions – if convicted of knowing violations. and in particular when conducting a program of repurchases over a period of time. $800 million against Siemens in 2008. including opening the tender to all holders of the class of the securities sought in the offer and paying the same price to all holders whose securities are purchased. which can be accessed online at http://nysemanual. • Maximum price – no repurchase should occur at a price exceeding the higher of the last sale price for the securities and the current bid price for the securities. for each violation. • Anti-bribery provisions – convicted individuals may be sentenced to up to five years’ imprisonment and up to a $250. In addition. certain of the corporate governance requirements can be phased in. Whether a stock repurchase constitutes a tender offer depends on a complex. However. Governance requirements for NYSE Amex listed companies. as applicable. If the company does conduct a tender offer.1 for further discussion about market manipulation and related liability). $579 million against KBR and Halliburton in 2009. investors can expect compliance with ongoing financial standards. The safe harbor provided by Rule 10b-18 is not available at any time during which the company is engaged in a “distribution” of its securities in the . Rule 10b-18 requires the following: • Single broker or dealer – on a given day. The company employing the individual may not pay this fine on the employee’s behalf. Listed companies must meet continued listing standards on an ongoing basis.com/lcm. for a company listing in conjunction with an IPO. whichever is greater. including a $44 million penalty against Baker Hughes in 2007. The company must comply with corporate governance requirements at the time of listing and throughout the life of its listing. As with the quantitative standards. The SEC recently proposed some relatively technical adjustments to these requirements. as well as sales of the company’s stock by directors. 5. including the alternative listing standards for non-US companies included in Appendix II. companies generally adhere to the provisions of Rule 10b-18 when repurchasing stock. individuals may be sentenced to up to 20 years’ imprisonment and fined up to $5 million for each violation. contact the NYSE or NYSE Amex directly. These too are outlined on page 74. The financial standards for operating companies listing on the NYSE or NYSE Amex are summarized on the chart on page 73. • Timing – no repurchase should be effected at the opening of the stock exchange on which the stock lists or within the last half-hour of trading on that stock exchange. designed to accommodate smaller companies. Rule 10b-18 under the Exchange Act provides a safe harbor from this liability. As a result. the company must meet NYSE or NYSE Amex corporate governance listing standards. it must comply with extensive disclosure and other obligations. the Department of Justice has frequently required companies to hire an FCPA compliance monitor that periodically reports to the government on the company’s efforts to improve its anticorruption policies. (a) Tender offers Any tender offer by the company for its equity securities is subject to Section 13(e) of the Exchange Act and Rule 13e-4 thereunder.Obligations of a public company and the SEC.com/amex/com panyguide. (b) Governance requirements In addition to these quantitative listing standards. and $400 million against BAE Systems in 2010. To learn more about the NYSE and NYSE Amex financial. Convicted companies may be fined $2 million or twice the applicable gross gain or loss. Standards reflect the different types of issues and issuers. generally they are afforded a period of time 70 NYSE IPO Guide to return to compliance. officers and other affiliates. the comprehensive rulebook for listed companies. Please see the appendices for more details. These repurchases.

$75 million revenues in the most recent fiscal year. $50 million shareholders’ equity. spin-off or company listing under the affiliated company standard) or $100 million (all other listings). A company falls below compliance if the parent/affiliate no longer “controls” the company or such parent/affiliate falls below continued listing standards and the company’s global market cap falls below a $75 million 30-day average and at the same time it has less than $75 million in shareholder’s equity. all years positive. or • its global market cap falls below a $100 million 30-day average. with at least $2 million in each of the most recent two fiscal years and positive amounts in all three years.1 million publicly held shares. Shares held by directors. and ii) a market value of publicly held shares of $40 million (in the case of an IPO. $25 million aggregate cash flow (as adjusted) for the last three fiscal years. A company falls below compliance if its global market cap falls below a $50 million 30-day average and at the same time it has less than $50 million in shareholders’ equity. *The company must have an IPO stock price or a public market price at the time of initial listing of $4.00 per share and will fall below continued listing requirements if its stock price falls below $1. NYSE IPO Guide 71 . holders of 100 shares) and 1. or • its global market cap falls below a $75 million 30-day average. Standard 2 Option A Valuation/ revenue with cash flow A company falls below compliance if: • its global market cap falls below a $250 million 30-day average and at the same time it has less than $20 million revenues over the most recent 12 months. 12 months’ operating history. $75 million total assets. $500 million global market cap. with at least $5 million in the most recent fiscal year and $2 million in the next most recent fiscal year. Standard 2 Option B Pure valuation/ revenue test $750 million global market cap (IPO valuation or three-month average). Standard 4 Assets/equity $150 million global market cap. At the time of original listing the company must have: i) 400 round-lot holders (ie.Obligations of a public company NYSE original listing standards* Standard 1 Earnings $10 million aggregate pre-tax earnings (as adjusted) for the last three fiscal years. Standard 3 Affiliated company $500 million global market cap. or $12 million aggregate pre-tax earnings (as adjusted) for the last three fiscal years. The company is subject to immediate delisting proceedings if its global market cap falls below a $15 million 30-day average. officers or their immediate families and other concentrated holdings of 10% or more are excluded in calculating the number of publicly held shares. NYSE continued listing standards* A company falls below compliance if its global market cap falls below a $50 million 30-day average and at the same time it has less than $50 million in shareholders’ equity.00 on a 30-day average. A company falls below compliance if: • its global market cap falls below a $375 million 30-day average and at the same time it has less than $15 million revenues for the most recent fiscal year. Parent or affiliated company is a listed company in good standing. $100 million revenues over the most recent 12 months.

10% or greater). A typical accelerated share repurchase involves the combination of a buyback of common stock from an investment bank.000 shares during the six months prior to listing.Obligations of a public company NYSE Amex original listing standards Requirement Standard 1 Section 101(a) $4 million $750. controlling stockholder or other concentrated (ie. United States. director.. • Less than 300 public shareholders. Option 3 requires a daily trading volume of 2. which typically borrows the shares from investors. • A market value of publicly held shares of less than $1 million (over 90 consecutive days). Accelerated share repurchase plans: The company may use accelerated share repurchase plans to buy back shares from the market. or • $6 million and losses in the five most recent fiscal years. and does not protect against liability under Rule 10b-5 if the company repurchases its securities while in possession of material non-public information.000 Two years n/a n/a *Public shareholders and public float do not include shareholders or shares held directly or indirectly by an officer.000.000 Option 3 – 400/500. a market value of publicly held shares of $15 million. • $4 million and losses in three out of the four most recent fiscal years. 400 round-lot shareholders. affiliated or family holdings. OR total assets AND total revenue of $50 million each in most recent fiscal year or two of the three most recent fiscal years. A company that falls below any of the above will continue to be deemed in compliance with listing standards if it meets the following requirements: • Market capitalization of $50 million. $3 $20 million Minimum stock price Market value of publicly held shares History of operations Public shareholders/publicly held shares* $3 $3 million $3 $15 million $2 $15 million n/a Option 1 – 800/500. 72 NYSE IPO Guide .000 in last fiscal year or in two of the last three fiscal years n/a Standard 2 Section 101(b) $4 million n/a Standard 3 Section 101(c) $4 million n/a Standard 4 Section 101(d) n/a n/a Stockholders’ equity Pre-tax income Market capitalization n/a $50 million • $75 million. The company’s periodic reports must also include specific disclosure about all of its stock repurchases over the period covered by the report. • 1.000 Option 2 – 400/1.1 million shares. and a forward contract with the investment bank on the NYSE Amex continued listing standards A company will be below continued listing requirements if it has: • Stockholders’ equity less than: • $2 million and losses in two out of the three most recent fiscal years.000 publicly held shares. • Less than 200. or • total assets and total revenue of $75 million each (in most recent fiscal year or two of last three fiscal years). The company will often disclose planned repurchase activity in its periodic reports or earnings releases and may be required to disclose significant repurchase transactions by press release.

Securities acquired by a nonaffiliate in a private transaction are also considered restricted securities for a period of up to one year. First. Accelerated share repurchase plans allow the company to exchange a fixed amount of money for shares of its stock immediately. This resale must occur at least 90 days after the effective date of the IPO. • Current public information – the company must have timely filed all required reports with the SEC. although it can be terminated at any time. sell or hold shares of company stock is a candidate for a Rule 10b5-1 plan. such as a tender offer or business combination. (c) Rule 10b5-1 plans As discussed in Chapter 6. In some cases when using Rule 144. including officers. some shareholders may be able to file instead on Schedule 13-G. In that case. including its management. directors. One exception is for shares obtained pursuant to a written compensatory plan or contract. The company cannot benefit from the Rule 10b-18 safe harbor when using accelerated share repurchase plans. is to enter into a Rule 10b5-1 plan. The plan must have been adopted in good faith during an open trading window and without knowledge of material non-public information. including any plans or proposals the acquirer may have for future purchases or sales of target stock or for any changes in the target management or board of directors. Documents relating to the financing of the acquisition and any contemplated extraordinary transaction involving the company must be filed as exhibits to the Schedule 13-D filing. are considered “restricted. an affiliate must file Form 144 with the SEC and the stock exchange on which the securities trade. and • the nature of any arrangements to which the acquirer is a party relating to the target’s securities. and the related SEC regulations. It may also be modified only at those times. In the event of a contest for control. each person (or group of persons acting together) acquiring any voting equity securities registered under the Exchange Act as a result of which such person or group beneficially owns more than 5% of such securities must file with the SEC. 5. A Rule 10b5-1 plan is a contract to purchase or sell securities established prior to any trades. because the rule protects only traditional openmarket stock repurchases and not the forward contracts upon which such plans are based. • Volume limitation – in any threemonth period. • the source and amount of funds used to acquire the securities.Obligations of a public company company’s common stock. within 10 days of the 5% threshold being crossed. Anyone that is routinely exposed to material non-public information that a reasonable investor would use to buy. in advance of the company’s earnings release). This includes the company itself. or any major corporate transaction affecting control of the target.4 Obligations affecting shareholders (a) Ownership reporting by shareholders After the IPO. One way to conduct trades in the company’s securities during a “blackout” window (eg. The insider may not influence the person or entity responsible for executing the plan. sales by the affiliate may not exceed the greater of 1% of the company’s total outstanding shares or the average weekly reported volume in the securities on the exchange during the four weeks preceding the sale. The company’s management usually encounters these requirements in two ways. Settlement of the forward contract is indexed to the company’s common stock. with the following requirements: • Holding period – the affiliate must hold the shares for at least six months before resale. Schedule 13-D requires disclosure of: • the identity of the acquirer (or each member of the group). This liability could apply to a transaction by the company or its officers. directors and 10% shareholders under Section 16 of the Exchange Act. filings under these requirements occasionally provide important information about transactions by major shareholders. directors and large shareholders that directly or indirectly control management or policies of the company. Schedule 13-D filers: Pursuant to Sections 13(d) and 13(g) of the Exchange Act. Schedule 13-D filings can be quite long and complex. a report on Schedule 13-D. These requirements are in addition to those applicable to officers. As discussed below. directors and controlling entities. which requires less information. Rule 701 under the Securities Act allows resale under Rule 144 without any holding period. if shorter. the company’s major shareholders (or groups of shareholders acting together) will be required to comply with certain reporting and other requirements under the Exchange Act. Second. (d) Resales by affiliates Company securities held by affiliates. there can be litigation challenging NYSE IPO Guide 73 . and must send copies to the company and relevant exchanges.1. • the purpose of the acquisition.” and resales must either be registered with the SEC or be effected pursuant to an exemption. transferring the risk of changes in the share price to the investment bank and generally permitting immediate accounting recognition of the repurchase for earnings per share purposes. and large shareholders. a company with a controlling or principal shareholder will often monitor that shareholder’s compliance with these requirements. directors or other insiders. officers and other employees. which is generally an investment bank. for the period since the most recent Schedule 13-D filing). Rule 144 under the Securities Act is a common exemption used by affiliates to resell their company securities. insider trading liability is triggered by the sale or repurchase of a company’s shares by a party that trades while aware of material non-public information about the company. • Manner of sale – the sale must be made through a broker-dealer or in certain other specified transactions through a stock exchange. without risking violation of the prohibition against insider trading. • the amount and percentage of target securities held by the acquirer and details about transactions in such securities during the 60 days prior to filing of the Schedule 13-D (or.

Summary of Section 16 for foreign private issuers: Directors and officers of a US company with a class of equity securities registered under the Exchange Act. as of that year-end. but it need not amend its Schedule 13-G or file a Schedule 13-D merely by reason of a change in its intentions or plans. and the identity of the persons on whose behalf it owns the securities or that compose an acquiring group. in its view. the filing must generally be amended annually. Thereafter. and beneficial holders (whether or not US holders) of more than 10% of any class of equity securities of such company. • the basis for its eligibility to use 74 NYSE IPO Guide • • Schedule 13-G. It must also amend its filing “promptly” if it acquires beneficial ownership of more than 10% of the subject class of securities. the amount and percentage of target securities that it holds. Thereafter. depending on the circumstances. Schedule 13-G filers: An existing shareholder that already owns more than 5% of the company at the time the shares are initially registered is required to file a report on Schedule 13G within 45 days of the end of that calendar year. officers and large shareholders of foreign private issuers. generally must file reports regarding their ownership of such securities. will generally be required to file disclosure reports under Section 16(a) of the Exchange Act regarding changes in their beneficial ownership of the company’s shares within two days of the transaction on the SEC’s EDGAR system. They are also subject to short-swing profit recapture provisions designed to recapture for the benefit of the company profits realized on purchases and sales of equity securities registered under the Exchange Act within any six-month period. Any acquisition or disposition of 1% or more of the relevant class of securities is deemed material for this purpose. in the view of the SEC. while a lesser change in holdings may be material. It must convert to reporting on Schedule 13-D within 10 days of its ownership percentage increasing by more than 2% in any 12-month period. provided that they have acquired shares in the ordinary course of business without the purpose or effect of changing or influencing control of the company: • a “qualified institutional investor” that falls within certain specified categories of institutions. and especially of statements describing the acquirer’s purpose and plans. The reports must also be available on the company website. A non-qualified passive investor must file its Schedule 13-G within 10 calendar days of crossing the 5% threshold. it can outsource the filings to a financial printer that has the resources and experience necessary to ensure that these filings meet the tight SEC deadlines. and is prohibited from purchasing any additional shares or voting the securities subject to the Schedule 13-D filing until 10 days after the filing. The principal disclosures required by Schedule 13-G include: • the identity of the holder. subject to certain conditions.” including executive officers. the selection of one particular purpose from – the previously disclosed options. A qualified institutional investor generally need not file its Schedule 13-G until 45 days after the end of the calendar year in which the acquisition occurred. and • a “non-qualified passive investor” that does not fall within the specified categories but beneficially owns less than 20% of the shares. are its “executive officers” for Section 16 and proxy purposes. Comparable non-US institutions may be permitted to report their beneficial ownership on a short-form Schedule 13-G to the same extent as their US counterparts. an additional amendment to the nonqualified passive investor’s report on Schedule 13G must also be filed “promptly” to reflect any increase or decrease in beneficial ownership of more than 5% of the class of subject securities.Obligations of a public company the accuracy of the filing. After it exceeds the 10% threshold and so long as its percentage of beneficial ownership remains below 20%. In connection with the IPO. It can be challenging to manage all of the moving parts included in filing Forms 3. There are two other types of investors that may report on Schedule 13-G instead of Schedule 13-D. both a qualified institutional investor and a non-qualified passive investor must convert to a Schedule 13-D within 10 days of their intentions being no longer passive and are prohibited from purchasing any additional shares or voting the securities subject to the Schedule 13-D filing until 10 days after the filing. They will also be subject to the “short-swing profit recapture” provisions under Section 16(b) of the Exchange Act designed to limit their ability to reap profits from any purchases and sales within six months of each other. the shareholder must amend its report within 45 days of the end of each calendar year to reflect any changes. including a change in – or. Filers often try to preserve as much flexibility as possible by describing a wide variety of options. directors and investors owning over 10% of the shares of the company. These requirements do not apply to directors. Alternatively. 4 and 5 with the SEC. and only if it remains above the 5% threshold at the end of the calendar year. (b) Reporting by insiders Certain “insiders. If a non-qualified passive investor increases its ownership above 20%. The company can take complete control of the filing process by utilizing a web-based filing solution which allows it to file the forms directly from its own computers. the company should determine who. Section 16(c) of the Exchange Act and the rules thereunder generally prohibit such insiders from effecting short sales and taking short positions in derivative securities with respect to the company’s shares. in the reported information. and thereafter within 10 days of the end of any month in which its interest increases or decreases by more than 5% of the class. Schedule 13-G requires much more limited information than Schedule 13-D. A report on Schedule 13-D must be amended “promptly” (which can mean almost immediately in some circumstances) in the event of a material change in the information disclosed in the schedule. it must file a Schedule 13-D within 10 days. Similarly. It must also be amended within 10 days of the end of the first month in which the qualified institutional investor’s direct or indirect beneficial ownership interest exceeds 10% of the class. Excerpts on other Section 16 information: A number of transactions in securities in .

parent. father-in-law. brotherin-law. • in which the company participates. Definition: The SEC defines a “related party transaction” as: • any individual or series of transactions. whether or not the option has been exercised. NYSE-listed companies must adopt a code of business conduct for officers and employees that address conflicts of interest. the related person’s interest in the transaction with the company. including any financial transaction. it needs to be careful about so-called “related party transactions” because they can present potential or actual conflicts of interest and create the appearance that decisions are based on considerations other than the best interests of the company and its shareholders. the company is prohibited from making loans to directors or executive officers. if the information is being provided in a proxy statement. Once the company conducts its IPO. the holder of an option convertible into securities within 60 days will be deemed. tarnishing the legitimacy of management and damaging valuation of the company’s securities. For example. For purposes of beneficial ownership. including Form S-1. • Auditors care – auditors are obligated to have sufficient understanding of the company’s business activities to assess whether the company’s disclosures on related party transactions are adequate. however. If such derivative securities are. subject to certain conditions. Thus. convertible into or exercisable for more than 10% of a security. They can call into question whether the company puts the best interests of the company and its shareholders first. Rule 16a-10 does not apply in the reverse. • Shareholders care – related party transactions signal a possible conflict of interest to investors. Every transaction during such month must be reported. As a result. In addition. stepchild. and any person (other than a tenant or employee) sharing the household of such people). daughter-in-law. and • any immediate family member of the people listed above (ie. derivative securities owned by an insider which are. step-parent. mother-in-law. the approximate dollar value of the transaction and any other information regarding the transaction that is material to investors in light of the circumstances of the particular transaction. for the purposes of Section 13(d) (and determining a person’s status as an insider under Section 16(a)). Accounting requirements dictate NYSE IPO Guide 75 . such holder will also be deemed an insider of the company of such security subject to the reporting obligations under Section 16(a). • any beneficial owner of more than 5% of any class of the company’s voting securities. spouse. any child. an exemption from the short-swing profit recapture provisions of Section 16(b) does not automatically provide an exemption from the reporting requirements of Section 16(a). pursuant to Rule 16a-3(f)). arrangement or relationship. Reasons for concern: The company should care about related party transactions for a number of reasons: • It makes good business sense – related party transactions may involve terms that are not as competitive as might otherwise be achieved.Obligations of a public company which an insider has a pecuniary interest are exempt from reporting under Section 16(a). but also securities underlying derivative instruments convertible into or exchangeable for securities. An insider must file Form 4 with the SEC and with each national securities exchange on which any security of the company is listed within 10 days of the end of each month in which any reportable change in position occurs with respect to any security as to which it has a direct or indirect pecuniary interest. securities regulations require detailed disclosure on these transactions in proxy statements. A “related person” includes: • any director or executive officer of the company. The disclosure must cover such information as the name of the related person and the basis on which the person is a related person. changes in beneficial ownership pursuant to transactions that are exempt from short-swing profit recapture under Section 16(b) are generally reportable on Form 5 rather than Form 4 (although certain of such transactions must be reported on Form 4. annual reports and registration statements. For example. To the extent that an exemption exists from the reporting requirements of Section 16(a) in respect of any transaction in a security. Any such loans would have to be unwound prior to the company’s IPO. an increase or decrease in the number of securities held as a result of a stock split or stock dividend applying equally to all securities of a class and an acquisition of securities pursuant to a dividend or interest reinvestment plan are exempt from reporting under Section 16(a).000. the short-swing profit recapture provisions of Section 16(b) likewise do not apply to such transaction (see Rule 16a-10). • where the amount involved exceeds $120. • any nominee for director. a person can be deemed to own beneficially not only securities owned directly by such person. son-in-law. and • in which any related person had or will have a direct or indirect material interest. preventing the company from best accomplishing its financial or strategic goals. • Stock exchanges care – the listing rules of the various stock exchanges require the company to think carefully about related party transactions. within 60 days. for the company to do business informally with family members or without giving due consideration to whether certain transactions are done at an arm’s-length distance. • Some related party transactions are prohibited – under the securities laws. sibling. • The SEC cares – the SEC identifies disclosure regarding related party transactions as integral to a materially complete picture of financial relationships with the company. or sister-in-law of such people. to indirectly beneficially own the underlying securities. within 60 days. convertible into or exercisable for more than 5% of a security will create a reporting obligation under Section 13(d) with respect to the underlying securities. even if acquisitions and dispositions during such month even out. (c) Related party transactions It is not uncommon. For example. pre-IPO.

corporate structure and operating style. their employment and relationships with charitable organizations. Consider the impact of such arrangements on disclosure and governance standards. The company may also consider instituting independent information-gathering procedures. they do suggest that it may be appropriate to include the following: • Types of transactions covered by the policies and procedures – the company should consider what makes most sense given its business requirements. the company and its lawyers should do the following: • • • • • Review both existing related party arrangements and any plans for new ones as soon as possible. Compensation exceeding $120. Audit rules set forth specific auditing procedures on how to determine the existence of related parties and transactions with them. with any updates. the company should nevertheless attempt to set forth objective business criteria against which the related party transaction can be reviewed. Develop written related party transaction policies and procedures. Usually the audit committee is charged with this task. using the sources of information described above to check whether their status changes. • Application of information – the company may consider developing a related party master list to be distributed. For example. and the company on the other. The company may also develop a “watch list” of potentially related persons. these arrangements will generally have to be disclosed. their family members and the company. Clear policies are also essential to provide directors and officers with guidance on related party transactions and how the company will deal with them. the company should establish when the responsible persons will review related party transactions. but it may also make sense for the nominating and corporate governance committee to be responsible for matters relating to directors. which may include periodic review of news articles or internet searches. For example. it may be preferable to integrate related party transactions policies with such existing policies. If the company already has a code of conduct or other policies addressing this issue. company procedures need to ensure that the information presented to them is sufficient in scope and quality: • Sources of information – the first source of information should be the related parties themselves. to the relevant members of management such as the CFO and business unit and department leaders responsible for purchasing or selling. Unwind loans to directors and officers before the initial IPO registration statement is filed with the SEC. so the company may consider developing a nepotism policy. Although the securities laws do not mandate the specific features of the policy. Also. Although the securities laws do not require that policies and procedures be in writing.000 paid to executive officers must be disclosed if not approved (or recommended for approval) by the compensation committee or a group of independent directors performing that function. Although subsequent review may be acceptable. . how to examine identified related party transactions and how to respond to management’s representations that a transaction was consummated at arm’s length. Tasks: In preparing for IPO. The securities laws require the company to have a related party transaction policy and describe it in certain filings. In order to enable board members or delegates to make informed advance decisions on related party transactions. approval or ratification of related party transactions. the SEC is especially sensitive about transactions involving family members. best practice mandates written policies. insiders and their close relatives on the one hand. How to deal with the issue: The company should develop policies and procedures for the review. shareholder listings and other potential sources of information. These audit procedures are quite detailed and can involve a review of the company’s board minutes. • Standards to be applied pursuant to the policies and procedures – policies should hold all related parties to the same standards as third parties. directors and officers should have an ongoing obligation to inform the company in advance of any potential related party transaction and to provide updates of parties related to them. Although there may be situations where a limited market makes it difficult to establish what the terms and manner of settlement of a particular transaction would be with a third party. Confirm that the compensation committee approves all elements of compensation paid to executive officers. Also. • The persons (or groups of persons on the board of directors or otherwise) 76 NYSE IPO Guide who are responsible for applying such policies and procedures – the company should consider the board committee responsible for administering the policy. it pays to be aware of “hotbutton” issues when describing the types of transactions covered. the directors’ and officers’ questionnaire should capture basic information about transactions between directors and officers. proxy information and other material filed with the SEC. Furthermore. best practice mandates prior review. Identify arrangements between officers.Obligations of a public company certain disclosures about related party transactions.

6 Managing risk NYSE IPO Guide 77 .

the corporate laws of the individual states impose basic “fiduciary” duties on directors and officers. The shareholder derivative suit provides a means by which a private litigant can enforce duties on behalf of the company. with these duties being owed to the company itself and its shareholders. state securities laws are unlikely to provide a basis for the nationwide class actions or other large-scale proceedings that have marked securities litigation under the federal securities laws. Directors and officers can be held liable to the company for violations of these duties. The individual states have securities statutes that are analogous to the federal securities law statutes. which apply in connection with purchases and sales of securities. if they are found to have violated this provision. Market manipulation – transactions in the company’s own securities could raise concerns about the possible manipulation of the market price. In approximately 35 states. Directors must act in good faith. state securities laws and state corporate law of fiduciary duty. and the company. as do the available defenses based on the defendant’s exercise of reasonable care or the plaintiff’s non-reliance on the disclosure. or request relief to compel or to stop certain actions. officers owe similar fiduciary duties as directors. The precise liability standard and burdens of proof vary among statutes. the Securities and Exchange Commission (SEC) may bring criminal or civil penalties against the company. Decisions made on an informed basis. Manipulation would expose the company to a variety of civil and potentially criminal liabilities. Defendants who are convicted in criminal proceedings face substantial fines and. who follow the rules promulgated by the applicable agency. including fines and imprisonment. in the case of individuals. The principal areas under which litigation arises under the federal securities laws are as follows: • Disclosure liability provisions – several specific provisions of the federal securities laws impose liability for written or oral statements about the company or its securities that contain a material misstatement or make a material omission. both written and oral. records and accounts which. the company will be protected by the “business judgment rule. • Criminal – only the Department of Justice can institute federal criminal proceedings. directors and other employees are the federal securities laws. Types of proceedings: Remedies and sanctions for improper securities activities can be sought in three basic ways: • Civil (including class actions and derivative suits) – private parties seek to recover losses allegedly suffered as a result of the defendant’s conduct. its directors and officers.1 Litigation (a) Legal standards Sources of liability: The main potential sources of liability for public companies and their officers. including press releases and annual reports to shareholders. Rather. Liability for corporate disclosures: The security laws do not impose a general duty to disclose material information about the company. They must refrain from selfdealing. sellers must show they exercised reasonable care to avoid liability. registration of offers and sales. Officers also may owe a duty to keep the board informed.Managing risk 6. such disclosure is required only when there is a legal duty to do so. usurping corporate opportunities and receiving improper personal benefits. All US states (other than New York) have statutes that allow investors to sue to rescind transactions or recover damages when securities are sold by means of materially misleading offering documents. with the care of a prudent person and in the best interest of the company. However. The SEC regularly uses this as a basis for enforcement proceedings. including a number with a significant investor base. This catch-all anti-fraud provision has been widely used in securities litigation by private parties and the SEC alike. of material fact in connection with the purchase and sale of any security.” Generally. None of these mechanisms is exclusive and a party may be forced to defend against more than one type of proceeding. terms of imprisonment. For certain violations of the federal securities laws. but also to any information released to the public by the company. Rule 10b-5 broadly prohibits fraudulent and deceptive practices and untrue statements or omissions. Depending on the specific provision. but generally not with regard to securities fraud or misrepresentation. in good faith and in the honest belief that the action was taken in the best interests of . may also bring civil actions to force the defendant to give up illegally obtained profits or pay monetary penalties. class actions). or to compel or stop certain actions. Officers with greater knowledge and involvement may be subject to a higher standard of scrutiny and liability. Rule 10b-5 applies not only to documents filed with the SEC. accurately and fairly reflect the transactions and dispositions of its assets. • Administrative – government agencies bring administrative proceedings before administrative judges. in reasonable detail. Government agencies. and private parties may also rely on these laws to assert claims for damages or rescission. This duty arises in connection with the purchase and sale of securities. Finally. its officers and directors and other parties who control the company may be subject to civil or criminal penalties. the company 78 NYSE IPO Guide • is required to make and keep books. Directors have two fundamental fiduciary duties: the duty of care and the duty of loyalty. • “Books and records” requirements – under the Exchange Act. such as the SEC. Federal law preempts state law to a degree in certain areas (eg. The most important of these are Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. the SEC may bring administrative proceedings to impose civil penalties or an order to bring immediate halt to allegedly improper conduct. • Anti-fraud provisions – the company and others may face liability under broadly worded statutes and regulations addressing fraud in the securities markets.

in particular sections of the Securities Act of 1933. Meanwhile. The intent of the Securities Act is to prevent fraud in securities offerings and to assure that investors receive full disclosure in connection with the offer and sale of securities by the company.Managing risk whether in registered or private offerings or in secondary market trading. This happened to a new issuer in July 2008. • • Trade only in “window periods” in compliance with any internal procedures. The Department of Justice. • Develop and promote a written policy and code of ethics with clear guidelines prohibiting insider trading and addressing general standards of conduct. officers and other management. (b) Class action and derivative lawsuits Imagine the shock if the newly public company were to be served with a federal securities class-action lawsuit within 10 days of the IPO. where damage and settlement proceeds go directly to shareholders allegedly harmed. including directors. • It establishes behavioral and professional expectations for . Claims made against directors and officers under these statutes are frequently brought as class action litigation. the SEC and many other agencies are more lenient on companies with effective compliance programs when making charging decisions and assessing penalties. So when managing risk in a newly public company. after all important corporate developments have been disclosed to the market. • Conduct periodic training on contemporary regulations. directors. Section 11(a) of the act states that a person that purchased a security covered by a registration statement (eg. A compliance program protects the company and management in three major ways: • It reduces the chance that employees will engage in criminal misconduct. it imposes a high standard of conduct on directors and officers of the company. not just bonuses and incentive compensation. the Exchange Act and SOX. • mandating forfeiture of certain chief executive officer (CEO)/chief financial officer (CFO) bonuses and profits in connection with restatements. officers and employees should observe the following guidelines: • Do not trade when aware that a material event or trend is developing or will occur. Trade pursuant to a Rule 10b5-1 plan (see Chapter 5. an IPO and secondary public offering of equity or debt) may recover damages from. • Develop robust compliance programs. This liability risk is mitigated by conducting appropriate due diligence prior to the initial public offering (IPO) and establishing robust internal reporting and disclosure controls and procedures in connection with ongoing reporting obligations. As such. the company should observe the following guidelines: • Only trade during “window periods” tied to the release of the company’s interim and annual earnings reports and other material information and the public filing of such information with the SEC and the relevant securities exchange. most securities claims are filed within three years of an IPO and there is a significantly higher probability that a class action will arise if an IPO is involved. and • creating civil and criminal penalties for false certifications by officers of periodic reports. Liability relating to insider trading: Insider trading liability arises under Rule 10b-5 when a party trades the company’s securities (or “tips” others to do so) while aware of material non-public information. it can help mitigate the consequences for the company. • If employees do break the law. among others. • giving the SEC the authority to seek equitable relief for the benefit of investors. requirements and developments for all employees. • giving the SEC the authority to bar persons from serving as directors or officers of public companies in cease and desist proceedings. These provisions include: • giving the SEC the authority to freeze possible “extraordinary payments” to directors. The company and its directors and officers can be liable for material misstatements and omissions in public disclosures. the company and its directors and officers who signed the registration statement if the registration statement: • contained a misstatement of material fact. officers. it is critical to understand the primary civil liability exposures faced by directors and officers. To reduce the risk that trading by those parties in its securities may be claimed to violate the prohibition against insider trading. protection of confidential information and whistleblowing.3). Corporate compliance programs: A corporate compliance program is a written and operational commitment to companywide compliance with all applicable laws. but is not yet ripe for disclosure. which it has invoked to seek disgorgement of all compensation received after alleged occurrence of fraud. The number of insider trading enforcement actions by the SEC has increased steadily over the last five years and it is expected that this aggressive enforcement trend will continue. In fact. agents and employees during the course of an investigation involving “possible” violations of the federal securities laws. allowing the company to set standards in advance and facilitating termination of employees for misconduct when rules are not followed. expanded areas of personal exposure for directors and executive officers and created new criminal provisions. There are also statutes that may have industry-specific application. Direct class actions: The primary exposure for directors and officers of US-listed companies continues to come from federal securities laws. or • omitted to state a material fact that either was required to be stated or was necessary in order for the registration statement not to be misleading (this includes anyone who has consented to be a director of the company and is named as a director in the registration NYSE IPO Guide 79 Sarbanes-Oxley provisions: The SarbanesOxley Act of 2002 (SOX) enhanced the SEC’s enforcement powers. employees. • Do not selectively disclose material non-public information to others.

Moreover. In general. related party transactions. however. When monetary settlements or damages are involved. including making any untrue statement of material fact or omitting a material fact in the company’s filings. the director or officer must demonstrate that he or she had. counsel and other experts to provide input and guidance. generally the “business judgment rule” shields their decision by presuming that in making the decision. Marion Circuit Court. The duty of care focuses on the decision-making processes. acted in good faith and honestly believed that the decision was in the best interests of the company and its shareholders. in particular companies whose director and officers might be deemed to be control persons following the IPO. Loyalty issues arise when a director has a conflict of . sufficient grounds to believe that the disclosure statements were true or that material statements were not omitted. • Duty of loyalty – directors and officers owe the company and its shareholders a duty of loyalty. As discussed earlier. If the misstatement or omission occurred in a part of the registration statement passed upon by an expert. Rule 10b-5 liability is broader than Section 11 liability as applied to the directors and officers of the company. Section 80 NYSE IPO Guide 15 provides that any person who is deemed to control any person found liable under Section 11 or 12 will share liability for the damages imposed on the controlled person. at times. such awards generally go to the benefit of the company itself and not directly to shareholders. 2003 WL 21396449 (Del Ch June 17 2003)). Until recently. They must act on an informed basis and in a manner that they reasonably believe to be in the company’s best interests. plaintiffs’ lawyers must demonstrate “scienter.” which is an intention by a defendant director or officer to defraud. Actions may be brought against the company and/or its officers or directors by private parties. Shareholder derivative suits can be brought in multiple jurisdictions and may. To the extent appropriate. Marion County. Case No 49D130202CP000348. after reasonable investigation. Indiana (December 31 2002)). misappropriation of corporate opportunities and corporate waste: • Duty of care – directors and officers owe the company and its shareholders a duty of care. directors and officers may avoid liability if they are successful in establishing their own defense. Shareholder derivative lawsuits usually settle in tandem with outstanding class action litigation and are often called “companion” or “tagalong” cases. Rule 10b-5 involves broad liability and includes statements or omissions in the company’s Exchange Act filings (eg. they must act in good faith and in the reasonable belief that their actions are in the best interests of the company. Forms 10-K. derivative actions rarely resulted in substantial monetary recoveries. but may also include excessive officer compensation. Inc v National Union Fire Insurance Company. Turning to the Exchange Act. 272 F3d 908 (7th Cir 2001). Companies undergoing an initial public offering might seek such affirmative coverage. When directors are accused of breaching their duty of care. While the company is strictly liable for violations of Section 11. not just those who have signed the registration statement). Again. Conseco. The two broad bases of shareholder derivative liability include the duty of care and the duty of loyalty. the directors and officers were informed. option plan violations. involve inconsistent outcomes (In Re Oracle Corp Derivative Litigation. the decisions have generally been interpreted by some practitioners of D&O liability to distinguish between coverage for the company (or issuer) and coverage for individual directors and officers. proxy violations. Shareholder derivative suits: Another frequent source of liability and expense is what is commonly called a “derivative suit. the board of directors should retain financial advisors. within the last two years there have been a number of derivative actions with settlements exceeding $50 million. The rule makes illegal any practice to defraud investors.” These are lawsuits by shareholders on behalf of the company against individual directors and officers for violations of state and common law fiduciary duties owed to the company and other wrongdoing.Managing risk statement. 10-Q and 8-K). Inc v Federal Insurance Co. If the misstatement or omission occurred in a part of the registration statement not passed upon by an expert (eg. To help avoid liability. the effect of the collective decisions may affect the nature and breadth of D&O insurance coverage afforded to the company and such coverage may require modifications to assure affirmative coverage for potential violations of Sections 11 and 12. exercising the degree of care that an ordinarily prudent person in a similar position would exercise. A series of related court decisions have been the subject of controversy and discussion related to whether a directors’ and officers’ (D&O) liability insurance policy covers certain losses as a result of violations of Section 11 (Level 3 Communications. a director or officer need merely show that he or she had no reasonable grounds to believe that that portion was materially untrue or omitted to state a material fact. D&O insurance coverage for individual defendant officers and directors is generally viewed not to be endangered by these decisions. Taken together. However. the purposes of which are to strengthen protections for investors and enhance shareholder value. the objective of this legislation is to increase the information available to public company investors through the implementation of disclosure requirements and to prevent unfair practices in US securities markets. regularly attend board meetings. There is no requirement under Section 11 to show that directors and officers intended to defraud investors. directors and officers generally should be proactive and attentive. A related but separate issue is whether D&O insurance policies should also include affirmative coverage for violations of Section 15 of the Securities Act. discussed in more detail below. the SEC or the Department of Justice. Most shareholder derivative suits are resolved through payment of fees to plaintiff’s counsel and by the company’s adoption of certain corporate governance and management reforms negotiated between the company and the plaintiffs. meaningfully evaluate alternatives and deliberate as a board with adequate and complete information. an auditor’s report).

Managing risk interest or lacks independence with regard to a particular business decision or personally profits from an opportunity at the expense of the company. Settling securities class actions can be costly. To understand when indemnification is permitted by the company. plaintiffs’ attorneys’ fees and expenses make up approximately one-third of the settlement value.9% Accounting 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Note: Other cases include IPO laddering. To help avoid liability. All 50 states provide for corporate indemnification and address situations where the company may indemnify its officers and directors. In evaluating claims of breaches of fiduciary duty. That represents a slight decrease on 2008. Sixty one of the 215 filings to November 30 2009 – approximately 30% – involved allegations related to the credit crisis.4% probability that it will face a securities class action lawsuit in a given five-year period. an MMC company. An understanding of such trends ultimately impacts decisions concerning directors’ and officers’ liability (D&O) insurance. Through November 30 2009 the median settlement was $9 million. Annual filings on average over 2008 and 2009 are on pace to be above the average level of 230 over the 1997 to 2004 period. and situations where the company must indemnify its officers and directors. median settlement values have remained under $10 million. for example.0% Breach of fiduciary duty 3. compared to an average of $12 million in the pre-SOX period.0% Customer/vendor issues 1. It is important to note recent trends in securities class action litigation.2% Company-specific earnings guidance 2. mutual fund timing and analyst cases.5% “Ponzi” scheme 20. Since the enactment of the Private Securities Litigation Reform Act of 1995. 6. 12. an affiliate of Marsh Inc and a unit of Oliver Wyman Group. the court will inquire into the decision-making process. After the passage of SOX in 2002.2% Product/operational defects 4.3% Industry-related NYSE IPO Guide 81 . For example.8% Merger integration issues 10. in 2007 18% of securities class actions involved an IPO. indemnification of officers and directors is governed by the law of the state of incorporation.) In 2008 federal securities class-action filings hit a five-year high. class action lawsuits settlements are on average 35% higher. Through November 30 2009 there were 215 federal securities class action filings. look to the company bylaws or charter. the statute Allegations in federal filings (Jan 1 2007 – Nov 30 2009) Percentage of federal filings by sector and year (Jan 1 1996 – Nov 30 2009) 600 Projected Other cases 500 “Ponzi” scheme cases Cases related to credit crisis Number of federal filings 400 Options backdating cases Standard cases 300 26. Typically. an increase of $1 million on the 2008 median. including the appropriate limits to purchase and the nature of coverage to seek and can add insight into premium trends. and 2009 was no exception. the average settlement value for the year was also $42 million. In Delaware. increasing 37% to 259 – the highest level since 2002 – driven by the surge in litigation related to the credit crisis. Excluding settlements of $1 billion and the 309 IPO laddering suits. but may at certain times also evaluate the substance of the business decision to determine fairness to the company and its shareholders. an increase from $31 million in 2008. (Note: The information that follows is provided by NERA Economic Consulting.2% Insider trading 200 100 7. where approximately 40% of the total filings related to the credit crisis. interested directors should disclose conflicts and opportunities to other directors and abstain from deliberations and voting on such decisions. the average settlement has been almost $29 million.1% Other 12. Frequency and severity of securities class action suits: The average public company faces a 6.2 Indemnification Generally. And if an IPO is involved.

the director or officer may be able to seek payment directly from insurers. The Delaware statute authorizes the company to indemnify directors and officers only for expenses incurred by them in defending shareholder derivative suits brought by or on behalf of the company. In other words. Be mindful of features in the company bylaws. 2000 WL 286722 (Del Ch 2000). meaning a director or officer is not necessarily entitled to indemnification unless the company charter or bylaws contain necessary authorizing language to permit indemnification. Notably. If the company is either unwilling or unable to indemnify a director or officer for expenses. rendering the debt owed to the company meaningless. From whom does a director or officer seek indemnification? In short. depending on the nature and breadth of insurance coverage under the company’s directors’ and officers’ liability insurance policy under insuring agreement A of such policy (commonly called “side A”). a corporation may (but need not) indemnify a director or officer only “if such person acted in good faith and in a manner reasonably believed to be in or not opposed to the best interest of the corporation. but on a periodic basis as well. conditions. and often does. The Delaware statute does not authorize indemnification of settlements or judgments in such actions. damages or settlement amounts. it is mandatory that the company indemnify that individual for the costs and expenses. The company bylaws.” In the criminal context. if so. It is important for directors and officers of public and non-public companies to seek counsel on and understand the indemnification provisions and/or indemnification agreements to which they will be subject. such as authorizing language permitting indemnification to the maximum extent permitted by law. a committee of disinterested (nondefendant) directors or independent legal counsel in a written opinion. Three examples of hostile provisions are: • a provision that fails to obligate the company to reimburse a director’s or officer’s claim for costs and expenses for enforcing the company’s obligation to indemnify. which would prevent directors and officers from being indemnified for fees and expenses incurred by them in successfully prosecuting any indemnification action (see Cochran v Stifel Financial Corp.Managing risk merely authorizes indemnification. The company may. In the absence of specific provisions related to who evaluates and approves requests for indemnification. and • whether a director or officer may be indemnified in a particular case and. When must the company indemnify its directors and officers? Section 145(c) of the 82 NYSE IPO Guide Delaware General Corporation Law requires a corporation to indemnify a director or officer when the person to be indemnified has prevailed with respect to a claim against him or her. the Delaware statute does not eliminate liability for conduct not taken in good faith or for breach of a director’s duty of loyalty. exclusions and limits that are purchased by the company. depending on the exact terms. a director or officer must also have had no reason to believe his or her conduct was unlawful in order to be indemnified. No CIV A17350. Like Delaware. Does the company have to advance the costs and expenses required to defend against a claim made against a director or officer? This is one of the most important issues to understand and with which to be comfortable. The rationale is that if the company indemnified the directors or officers for amounts they owed to the company. incurred in connection with the claim. the decision is generally made by a majority vote of disinterested (non-defendant) directors. The ability of the company to . Almost all states have adopted statutes that limit the liability of directors – and. provide broader indemnification protections. and • a provision which limits indemnification to actions to which the indemnified party is a defendant. including attorneys’ fees. and • acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of the law. Notably. Indemnification is never selfexecuting. Even if a director’s or officer’s conduct is of the type that can be indemnified. the result would be a return of funds back to the company. Delaware corporations may structure their certificates of incorporation to limit the liability of their directors to situations involving: • breaches of their duty of loyalty (including improper personal benefit) to the company and its shareholders. charter and any corporate indemnification agreement between a director or officer and the company will govern: • who evaluates and approves requests for indemnification. it depends. Review of the provisions and/or agreements should occur not simply prior to an IPO. Several common questions that arise regarding indemnification follow. the ability of a director or officer to seek timely reimbursement directly from insurers may differ significantly. in some instances. charter or corporate indemnification agreements (or the absence of features) that impair one’s rightful claim to indemnification proceeds. • a provision that forces a director or officer to bear the burden of proof to demonstrate entitlement to indemnification. To what extent is an individual’s liability limited as a matter of law? The state in which the company is incorporated will determine the extent to which a director’s or officer’s liability is limited as a matter of law. many states allow companies in their charters to limit or eliminate the personal liability of directors for damages in claims by the company and its shareholders (Section 102(b)(7) of the Delaware General Corporation Law). What is the nature of the conduct required for the company to indemnify its directors and officers? Under Section 145(a) of the Delaware General Corporation Law. the ability of the company to indemnify him or her may be limited or prohibited by state statute. whether such director or officer may receive an advancement from the company to pay for expenses incurred in defending oneself. officers – under state law. if the director or officer defends the claim on the merits and is vindicated of any wrongdoing.

and may directly influence both the nature and quality of the defense presented by directors and officers. Rights to advancement are governed under a combination of state law and bylaws of the company. it serves to highlight the potential importance for directors and officers to consider separate indemnification agreements with the company that specifically address advancement of expenses. Directors and officers need to understand the basic coverage and limits of their particular policies. if true. that intent does not confer immunity. While most boards take their responsibilities seriously and try to execute them properly. and are separate and distinct from the obligation of indemnification. including provisions that prohibit modifications to such an agreement without the written What is the structure of the D&O policy post-IPO – typical “ABC” policy example Covered claim against directors and officers Covered claim against corporate entity Indemnification No Yes Side C Side A Side B Insured corporate entity as a defendent (securities claims only) Insureds Directors and officers Insureds Corporate balance sheet Personal assets Corporate assets Corporate assets D&O insurance Insuring agreement A: individual insureds D&O insurance Insuring agreement B: corporate reimbursement of individual insureds D&O insurance Insuring agreement C: corporate entity coverage (for securities claims only) consent of the director or officer. including attorneys’ fees. Thus. and • the bylaws cannot be amended retroactively to impair those rights. They also afford a significant degree of protection for certain financial obligations of the company. Specific attention needs to be paid to other conditions that may have to be met in order to receive timely advancement. As a result of this dual protection. Most D&O insurance policies for public companies provide financial protection to more than just individual directors and officers. Because the determination as to whether an officer’s or director’s conduct is indemnifiable generally cannot be made until the end of a claim or proceeding.3 D&O insurance It is clear that companies and their boards of directors may well face lawsuits at some point. For example. their interests and those of the company may diverge. also called “side A. Some policies also require that the insured report the claim to the insurer within the policy period (or within a brief window of time thereafter). Although Delaware has since amended its corporations code to reverse the effect of Schoon v Troy Corp.Managing risk advance defense costs in a timely manner to its directors and officers is critical in attracting independent directors because the cost of defending a lawsuit is immediate and substantial. Most D&O insurance policies have one or more of the following three basic insuring agreements: • Side A: personal asset protection for officers and directors – insuring agreement A. D&O policies are generally written on a “claims-made” basis.” covers a loss incurred by individual NYSE IPO Guide 83 . in addition to doing everything possible to execute their responsibilities properly and effectively. it is important for companies that are relying on indemnification bylaws to make certain that: • the bylaws include language stating that the rights of directors and officers to advancement of legal expenses vest upon commencement of service. to defend against a claim for something that. • these rights are contract rights. directors and officers must be aware that at certain times. Section 145(e) of the Delaware General Corporation Code permits (but does not require) a corporation to advance defense costs. a right to advancement of defense costs may be broader and less restrictive than an individual’s right to indemnification. the making of a claim against the insured during the term of the policy – not the occurrence of injury or damage – is the operative threshold event to which the policy responds. particularly if claims are made that may approach or exceed the shared limits of liability for all the insureds taken as a whole. 6. those charged with corporate governance must also protect themselves with D&O insurance. Shareholders and other stakeholders – often prompted by an aggressive plaintiffs’ bar – will sue when they see themselves as having been wronged. A note of caution: in light of the recent Delaware court decision in Schoon v Troy Corp (948 A 2d 1157 (Del Ch 2008)). would be an indemnifiable claim. but only if the claimant submits to the company a written undertaking to repay the amounts advanced if it should be determined that he or she is not entitled to indemnification. Under such policies.

Frequently. As a result.Managing risk • • directors and officers resulting from claims for which the company has not indemnified them. including innocent directors and officers. In this context. Conduct exclusion: Almost all D&O policies contain exclusions barring coverage for certain “bad conduct” by directors or officers. Side B: corporate reimbursement insurance – insuring agreement B. • criminal acts. A deductible or retention also applies for claims made under side C. Severability imposes a limit on the extent to which the knowledge of one individual insured is imputed to the company and other insured individuals. For example. the company should seek a policy that is not rescindable for any reason. The effect of this is that a single policy limit protects both the personal assets of directors and officers and certain financial obligations of the company. Companies also frequently purchase additional. As a result. while maintaining coverage for innocent insureds. rule or law. Priority of payment provisions: Unlike many other types of insurance. scope and magnitude – may provide insurers with increased leverage to rescind a D&O insurance policy. Each exclusion can. sometimes the knowledge of specific officers (eg. accounting restatements – depending on their nature. Generally. philosophical predispositions. be limited as much as possible. a D&O insurance policy often contains a provision which states that no insured person’s knowledge will be imputed to any other insured and limits the identified individuals whose knowledge will be imputed to the company (as an insured itself). dedicated limits of side A coverage in addition to the shared limits. commonly purchase a D&O insurance policy where a single limit of liability is shared equally among all three insuring agreements. Some of the key concepts are discussed below. A deductible or retention applies for claims made under side B. balancesheet strength and the broader protection afforded individual officers and directors. Rescission of an insurance policy by an insurer may result in severe consequences for the company and its directors and officers. it is important to consider enhancements to a policy so that the conduct of any one insured director or officer will not be imputed to any other insured. the company’s periodic securities filings and financial statement under the Exchange Act and registration statements under the Securities Act are expressly made part of the application for D&O insurance. Generally. they include: • intentionally dishonest acts or omissions. although “pure” final adjudication language provides broad protection for individual directors and officers. Rescission: Material misrepresentations or non-disclosure of material information in the course of the application process for a D&O insurance policy may result in the insurer seeking the drastic remedy of 84 NYSE IPO Guide . (a) D&O policy provisions Certain provisions in a D&O policy may affect the extent to which the policy responds favorably to protect individual directors and officers. • willful violations of any statute. it could result in the depletion of limits. Insureds should consider seeking a more clearly defined parameter for determining when a conduct exclusion may apply. also called “side B. • fraudulent acts or omissions. and ideally should. including considerations related to premium pricing. the CEO and CFO) may be imputed to all other insured individuals and to the company itself. It is also important to clarify the point at which coverage exclusions apply or are triggered. A successful rescission results in all or a portion of the D&O insurance policy being null and void and. • an insured’s obtaining an illegal profit. severability simply relates to the question of whether the knowledge of a limited number of covered officers or directors will result in a loss of coverage for all the insureds named in a policy (including the company itself). However. Certain D&O policies today can be negotiated to make certain insuring agreements non-rescindable. Companies purchase these additional limits for a number of reasons. This can be troublesome because of the ambiguity involved in interpreting what “in fact” actually means.” protects the company against a loss resulting from securities claims made directly against it. Certain policies state that the exclusions apply if the excluded conduct “in fact” occurred. ultimately. This remains a critical issue for directors and officers because coverage for all insured persons (including innocent insureds) could be rescinded if the specified officer had knowledge of facts not disclosed in an application for D&O insurance. traditional A number of different structural variations in building a policy may meet the particular demands of a public company and its officers and directors. leaving less in available limits to protect non-defendant directors and officers. Policies stating that the exclusions apply only if the excluded conduct occurred in connection with a “final adjudication” of the underlying claim generally better protect directors and officers. Rescission results when the insurer voids coverage under the policy for all insureds and returns the premium paid by the company. For example. rescinding coverage. also called “side C. Severability of the application: Rescission raises the concept of severability.” protects the company against a loss incurred by the company in indemnifying an officer or director for claims made against him or her. however. results in a loss of coverage for all named insureds on the policy. Claims of inaccurate or incomplete disclosure in such filings incorporated into the application for insurance may be the basis for claims made by insurers that the application was materially false or misleading. Side C – insurance agreement C. Many companies. depending on the structure of the program. and • an insured’s obtaining an illegal remuneration. a director or officer need not pay a retention or deductible in the event side A insurance proceeds are sought if the company is unable to indemnify the individual director or officer directly. This should limit the elimination of coverage to the individual directors or officers who actually committed the excluded conduct. As another – and perhaps better – alternative.

Under this circumstance. Conduct not in “good faith” and “reasonable belief”: The company may indemnify a director or officer only if such person acted in good faith and in a manner that he or she reasonably believed to be in. side-A coverage may apply as long as the conduct of individual directors and officers also complies with the limitations and exclusions of the insurance policy. claims made against an individual director or officer may be insurable so long as the conduct of such individual also complies with the limitations and exclusions of the insurance policy. many public companies today purchase a variation of Side A insurance often referred to as Side A DIC (the “DIC” refers to the “difference in conditions” provisions that are contained in this type of insurance policy). insurance may respond to protect individual directors and officers. As a result. In such circumstances. However. Refusal by board to indemnify: If the board or other authorized designee either declines in writing to indemnify an individual or fails to make or initiate a determination to indemnify an individual. sometimes this provision may have unintended consequences. The SEC’s view is that such indemnification is against public policy. Side A DIC insurance could be called upon to provide directors’ and officers’ coverage. However. A properly constructed D&O policy generally is meant to provide a level of protection for individual directors and officers in the event the company’s indemnification obligation inadequately protects them. the company might choose not to indemnify a particular director or officer NYSE IPO Guide 85 . the SEC does not regard the maintenance of D&O insurance as against public policy. before claims against the company are satisfied. Since the company and the individual directors and officers are “insureds” under a D&O policy. Although not yet insolvent. but chooses not to. A delay in payment may adversely affect timing or funding of a settlement of such a claim. “Insured v insured” exclusion: Many D&O policies contain a so-called “insured v insured” exclusion. in a traditional D&O policy. Public policy prohibition against indemnification: Indemnification for claims related to registration of securities and anti-fraud provisions of the federal securities laws (and other federal statutes such as the Racketeer Influenced and Corrupt Organizations Act and antitrust laws) may be precluded by public policy. even where the company pays the premium. a situation may arise in which a number of concurrent claims are made against the company and its individual directors and officers. In a circumstance where the board or other authorized designee declines to indemnify an individual as described above. For example. If the securities class action suits are settled before the shareholder derivative actions. As a result. which bars coverage for a claim brought by one insured against another. For example. but it may be subject to a retention or deductible depending on the structure of the program. it will approach the “zone of insolvency. In such circumstances. the insurer often will first seek the application of a “self-insured retention” (in other words. insurance may respond to protect individual directors and officers in such circumstances where indemnification from the company is prohibited as a matter of public policy. a priority of payments provision requires that the claims against the individual directors and officers be satisfied first. B and C) insurance described above.Managing risk D&O policies protect two distinct sets of beneficiaries: the company and the company’s individual directors and officers. (b) D&O insurance and indemnification Directors and officers no doubt find it especially troubling when the company is financially able to indemnify them. a deductible) that under ordinary circumstances would not apply. Side A DIC insurance provides broader coverage and is often purchased in addition to and in excess of the traditional D&O (Sides A. the best interests of the company. Many directors and officers incorrectly assume that in such a circumstance.” where officers and directors may owe certain fiduciary duties to creditors. However. if the company is permitted to indemnify an officer or director. This is sometimes called a “presumptive indemnification” requirement. a suit brought by an individual director against the company or by the company against individual officers or directors may be excluded. Typically. Delaware generally does not allow indemnification of settlements or judgments in an action brought by or on behalf of the company unless the court permits such action. insurers may delay payment of any proceeds under the policy for a securities claim until settlement of the shareholder derivative action. the selfinsured retention may be substantial. acts that do not satisfy the “good faith” and “reasonable belief” standard may not be indemnified by the company. or not opposed to. This could include shareholder derivative suits (settlements of which may not be indemnifiable by the company) and securities class actions (settlements of which are indemnifiable). To avoid a circumstance where an individual insured might be personally responsible to pay a retention. Because there is a limit of liability for D&O insurance programs. Outlined below are some specific circumstances where an individual officer or director may expect such protection. Directors and officers should seek clarification from their insurance brokers and counsel on the extent to which their D&O insurance policies allow directors and officers to access the policy proceeds in the event the company is able but unwilling to indemnify them. In some cases. Derivative suit judgments or settlements: The ability of the company to indemnify its officers and directors for judgments or settlements resulting from a shareholder derivative action may be significantly limited or prohibited by statute in the company’s state of incorporation. the self-insured retention would have to be paid by an officer or director prior to accessing any proceeds of a D&O policy. Near insolvency: Should the company approach insolvency. situations may arise in which insurance proceeds may have to be prioritized among the insured parties. the company’s D&O insurance policy would respond. but chooses not to or simply ignores their request.

coverage issues. to strategize on D&O program design options. placing the affected officer’s or director’s interest behind the interests of secured creditors and on par with other unsecured creditors awaiting payment or settlement. It is important to understand the . The following is a suggested timeline for meeting key milestones in the process of obtaining D&O coverage. This structure involves a shared limit of liability that protects the company and its directors and officers. Just as important is the ongoing monitoring of the financial condition of the company’s partner insurers. timeline and cost. the proceeds of the policy may be deemed an asset of the “estate” and subject to an automatic stay. depending on location and magnitude. Moreover. Alternatively. excluding nonindependent board members and officers. and can be tailored to meet the specific needs of the company. in the context of US bankruptcy laws. a submission can be made to the underwriters. Recent turbulence affecting the financial condition of insurers has raised concerns regarding insurer stability. These meetings typically take place during the roadshow detailed in Chapter 3. retention and insurers: The company should consider several questions before selecting the limits and structure of its D&O policy. If a very large claim is made against the company. combined with calls and/or face-to-face meetings with the underwriters. regulatory and coverage issues associated with D&O exposures outside the United States to ascertain whether exposure exists. assuming that such indemnification of an officer or director was warranted and proper. what might it cost to settle? What limits and structures do the company’s peers purchase? How can the balance between coverage. selection of carriers. it is recommended that the company meet with its insurance brokers and outside counsel. If there is some risk that the company may avail itself of the protection of US bankruptcy laws. Filing of Form S-1: Once the company’s registration statement is filed. limit and price be optimized? What is the overall financial stability of each insurer on the program? How can the program address exposure for foreign directors and officers? tax. limits. Choosing a D&O policy structure. Constructing a D&O liability program leading into an IPO is a dynamic process. Meetings with underwriters: It is generally expected that representatives of the company will meet with the underwriters. The obligation to indemnify may be deemed an unsecured obligation. Key issues to understand would include identifying any issues related to: • how limits in the policy are either allocated or prioritized to coverage other than coverage of claims made against a director’s or officer’s personal assets. Being beneficiaries of D&O insurance. it will be useful to seek an explanation from the company’s insurance broker and counsel as to how the company’s D&O insurance policy may respond to a number of potential issues. Analysis of the company’s susceptibility to securities class actions and projections of realistic settlement amounts can provide greater confidence in limit decisions. dedicated coverage may also be purchased solely for independent directors of the board. It is an opportunity for the insurers to better understand the company’s financial and operating condition and its prospects. before a premium quotation will be given for a D&O policy. limit analysis. Actual insolvency or bankruptcy: The company either may be insolvent or. One potential solution is to purchase additional limits of coverage dedicated solely to protect individual directors and officers. will allow the insurers to assess the company’s D&O risk profile.Managing risk for fear that such act may be a breach of fiduciary duty owed to creditors of the company or may be the subject of an order by a bankruptcy trustee to return such proceeds. and to speak directly with management about corporate governance issues and concerns. making the decisions on which insurers to partner with more challenging. For example. and to achieve an optimal balance that properly reflects the values of the company and its directors and officers. may be unable or unwilling to indemnify an officer or director if the bankruptcy trustee determines that such indemnification is either unwarranted or improper. many companies purchase policies that protect both the company and the individual directors and officers for non-indemnifiable claims. Insurance may respond if limits of the policy are not otherwise eroded. An indepth comparative analysis of an insurer’s creditworthiness and financial strength is a precursor to an assessment of the company’s counterparty risk. it may exhaust the limits made available to individual directors and officers. • whether the design of the company’s D&O insurance program is such that directors or officers will not be subject to a retention or deductible if the company is permitted to but fails to indemnify such an individual. The goal is to understand the choices and tradeoffs. The submission. (c) Timing the D&O liability insurance purchase for an IPO A D&O policy for a newly public company becomes effective on the date of the company’s securities trade. D&O strategy meeting: In the month leading into filing of Form S-1. Selecting the right level of limits is now more science than art. including the following: • How susceptible is the company to a class action lawsuit? • If the company suffers a class action 86 NYSE IPO Guide • • • • lawsuit. the entire board of directors or certain key members may need to be engaged. Peer benchmarking data is one thing to consider in choosing the right amount of insurance. One of the more complex and evolving areas of D&O coverage involves subsidiaries located outside the United States. which would include the draft Form S-1. There are a number of solutions to address such exposure. if needed. either in person or by teleconference. some of which may impact the company’s choice of primary insurer. and • what – if any – language exists in the policy to waive an automatic stay as regards the company’s policy. The process and timeline leading up to the commencement of the policy period differ depending on the situation.

4 Personal risk management An IPO will certainly have an impact on your professional life. customized coverage. bodily injury or property damage lawsuits. • Valuables – most standard insurance polices have low dollar limitations for . By working with a broker that specializes in addressing the risks associated with the high-networth lifestyle. life insurance can supply an income-taxfree benefit to the trust free of estate tax. Personal property: As you acquire wealth. Not all insurance policies provide for appropriate replacement costs in their loss settlement provisions. family and lifestyle. Many ultrawealthy individuals and families find they benefit by working with a personal risk manager that can provide comprehensive resources to properly align protection for their property. Wealth transfer: It is important to evaluate the IPO’s impact on your estate plan. insurance brokers – sometimes working in concert with outside counsel – provide the company’s management and/or board with detailed comparative analysis to allow the company to ultimately make a number of decisions on the nature of its D&O program. but it will also have a considerable effect on your personal lifestyle. and/or • unwise dissipation by heirs. A personal excess liability insurance policy is designed to protect against multimillion-dollar settlements resulting from personal injury. exotic or collector vehicles require specialized insurance. Benefits of a broker: When wealthy individuals accumulate new property and non-liquid assets. it’s likely you will acquire high-end property and assets. comprehensive coverage. Properly drafted and executed wills and trusts can protect your assets from taxes and creditors. Protecting yourself and your business: There’s no doubt that you are now looking to the future with the anticipation that your business and family will long benefit from all of your hard work. Specialized coverage can help properly protect these assets and investments. Key areas of risk to consider include the following: • Homeowners – high-value homes are often built with unique materials and features.” making you a target for expensive lawsuits. The insured carried only $5 million in excess liability insurance. the court awarded a $20 million judgment to the bicyclist. Although there was no indication that the driver acted irresponsibly. However. Many wealthy individuals choose to fund trusts with assets as well as with life insurance. Careful planning in this manner can allow wealth and assets you’ve created to pass to NYSE IPO Guide 87 D&O strategy meeting Information to underwriters Initial feedback from client Underwriter Narrow field calls and of underwriters meetings Bind public company D&O policy Underwriter calls and meetings Analysis: Once quotes have been submitted to the insurers. Your increased public prominence may lead some to believe you have “deep pockets. limits. Those risks come from: • significant taxes at your death. innovative solutions and access to broad. Owned by a trust outside the estate. Binding of insurance: Once decisions have been made by the company. The complexity of a high-networth lifestyle requires a new way of thinking about risk and customized solutions to help address it. you will benefit from expertise. Additionally. protection for each is often purchased as needed with a local agent. And because you and your company will now be more prominent. letting your teenage child drive your car and serving on a board of directors are among everyday activities that can expose you to legal liability. Consider a recent example. including the appropriate structure. (a) Protecting yourself and your assets Personal liability: Entertaining guests at your home. working with various agents or brokers in different states generally leads to gaps or overlaps in coverage. art and other collectibles. coverage and insurers. Consulting with a personal risk management expert can help you set appropriate liability limits for your lifestyle. it is imperative to have total coordination between your business estate plans. Coordination of the two will help protect the business and ensure continuity of the legacy you have created. the distinctive aspects of high-value items require specialized solutions that often are not available through local agents. It is critical to evaluate the risks inherent in your business and in your estate plan. retentions. Now is the time. 6. • Automobiles – luxury.Managing risk Timeline -45 to 0 days 0 days Initial S-1 filed 30-40 days Comments from SEC 35-50 days Amended S-1 filed 45 to 60 days Roadshow 60-75 days IPO loss of high-value items such as jewelry. insurance brokers will execute those decisions to build the D&O program and bind the insurers in time for the company’s securities to begin trading. meaning his family’s financial situation may be severely harmed for years to come. liability. their divorcing spouses and creditors. including the risks in transferring wealth to succeeding generations. in which the teenage son of a wealthy business owner was involved in an automobile accident with a bicyclist. however. to consider the effects that events beyond your control – such as death and disability – may have on your business.

These are just some of the concerns that may arise as a result of your new wealth. You even may be able to combine protection for your business with an agreement designed to reward a vital employee for continued employment. Key person: You may be the “brains behind the business.Managing risk your family intact and free from risk of liquidation for the payment of estate taxes. would your business suffer? Key person insurance helps you cover additional costs when such a situation arises.” but you also may have irreplaceable employees. 88 NYSE IPO Guide . If something unexpected happened to a key employee. Again. you may benefit greatly by working with a personal risk manager to design the right protection for your family and your business.

Appendices NYSE IPO Guide 89 .

(b) Shares held by directors. spinoffs. acquisitions made in the United States or other similar means. For a more complete discussion of the minimum numerical standards applicable to US companies.nyse. spinoffs and carveouts.Appendices Appendix I: NYSE original listing standards. in the case of a spinoff. officers or their immediate families and other concentrated holding of 10% or more are excluded in calculating the number of publicly held shares and market value of publicly held shares. US companies Domestic listing requirements call for minimum distribution of the company’s shares within the United States. carveouts. Distribution of shares can be attained through US public offerings. in the case of an IPO/carve-out. (c) Global market capitalization for existing public companies is represented by the most recent three months of trading history in the case of the pure valuation/ revenue test. the distribution ratio as priced. the as-priced offering in relation to the total company’s capitalization. affiliates All other listings Stock price criteria All issuers must have a stock price or IPO price of at least $4 at the time of listing Financial criteria Must meet one of the following standards: Alternative #1 – Earnings Aggregate pre-tax income for the last three fiscal years Minimum in each of the two most recent fiscal years Positive amounts in all years Or Aggregate pre-tax income for the last three years Minimum in the most recent year Minimum in the next most recent year Alternative #2a – Valuation/revenue with cash flow Global market capitalization (c) Alternative #2b – Pure valuation/revenue test Global market capitalization(c) 400 US Revenues (most recent fiscal year) 1. the measurement is at a “point in time” for an existing public company.000 Alternative #3 – Affiliated company For new entities with a parent or affiliated company listed on the NYSE $40 million Global market capitalization(c) $100 million Operating history 12 months $500 million $75 million $750 million Parent or affiliate is a listed company in good standing. This chart is to be used for an initial evaluation only. as well as minimum financial criteria. For all other standards.00 of the Listed Company Manual. see Section 102. $150 million $75 million $50 million $60 million $500 million $100 million Revenues (most recent 12-month period) Adjusted cash flow: Aggregate for the last three years All three years must be positive $25 million 90 NYSE IPO Guide . Parent or affiliate retains control of the entity or is under common control with the entity Alternative #4 – Assets and equity Global market capitalization(c) Total assets $10 million Stockholders’ equity $2 million Real estate investment trusts Stockholders’ equity Closed-end funds and business development companies (BDCs) $12 million Market value of publicly held shares(b) $5 million $2 million $60 million (also require a total market cap of $75 million for BDCs) (Continued on page 93) (a) The number of beneficial holders of stock held in “street name” will be considered in addition to the holders of record.100. it is represented by the valuation of the company as represented by. or.com/lcm. which can be accessed at http://nysemanual. Distribution and size criteria Must meet all three of the following: Round-lot holders(a) Publicly held shares(b) Market value of publicly held shares:(b) IPOs. For IPOs.

the appropriateness for listing of special purpose acquisition companies (SPACs) with no prior operating history that conduct an initial public offering if the following criteria are met: Proceeds held in trust upon IPO Fair market value of acquisitions Aggregate market value Market value of publicly held shares 90% 80% of net assets $250 million $200 million Additional considerations In addition to meeting the minimum numerical standards listed above. other factors must necessarily be considered. Thus. The NYSE is committed to listing only those companies that are suited for auction market trading and that have attained the status of being eligible for trading on the NYSE. The company must be a going concern or be the successor to a going concern. on a case-by-case basis. or circumstance that makes the listing of the company inadvisable or unwarranted in the opinion of the NYSE. condition. Such determination can be made even if the company meets the standards set forth above. NYSE IPO Guide 91 .Appendices Appendix I continued Special purpose acquisition companies The NYSE will consider. the NYSE may deny listing or apply additional or more stringent criteria based on any event. The NYSE has broad discretion regarding the listing of a company.

The NYSE will work with each company to determine which standards are best suited to that entity.nyse. see Section 103. B or C: A – 400 US round-lot shareholders B – 2.01 of the Listed Company Manual.200 total stockholders and 100. This chart is to be used for an initial evaluation only.000 Worldwide Domestic May satisfy either A. For a more complete discussion of the minimum numerical standards applicable to non-US companies. Both standards include distribution and financial criteria. A company must qualify for both the distribution and financial criteria within that particular standard.000 shares monthly trading volume (most recent six months) C – 500 total stockholders and one million shares monthly trading volume (most recent 12 months) 1. non-US companies The NYSE offers two sets of standards – worldwide and domestic – under which non-US companies may qualify for listing.1 million Publicly held shares Market value of publicly held shares IPOs.5 million $100 million n/a n/a $40 million $100 million (Continued on page 95) 92 NYSE IPO Guide .com/lcm. which can be accessed at http://nysemanual.Appendices Appendix II: NYSE original listing standards. Criteria Distribution Requirements Round-lot holders Total stockholders 5. carveouts and spinoffs All other listings 2.

Appendices Appendix II continued Criteria Financials Requirements Earnings Aggregate pre-tax income for last three fiscal years Minimum pre-tax income in each of two most recent fiscal years Or Aggregate pre-tax income for last three years Minimum in the most recent fiscal year Minimum in the next most recent fiscal year Valuation/revenue test May satisfy either A or B A – Valuation/revenue with cash flow test Global market capitalization Revenues (most recent 12-month period) Aggregate cash flow for last three fiscal years $500 million $100 million $100 million $500 million $100 million $25 million (positive amounts in all three years) n/a n/a n/a n/a $12 million $5 million $2 million $100 million $10 million Worldwide Domestic $25 million $2 million (positive amounts in all three years) Minimum cash flow in each of two most recent fiscal years B – Pure valuation/revenue test Global market capitalization Revenues (most recent fiscal year) Affiliated company For new entities with a parent or affiliated company listed on the NYSE Global market capitalization At least 12 months of operating history Affiliated listed company is in good standing Affiliated listed company retains control of the entity $25 million $750 million $75 million $750 million $75 million $500 million Yes Yes Yes $500 million Yes Yes Yes NYSE IPO Guide 93 .

please refer to the complete requirements outlined in the NYSE Amex Company guide.000 shares for previous six months.nyse. distribution and governance requirements. Criteria Original listing standards Standard 1 Pre-tax income1 Market capitalization $750.000 shares publicly held and average daily trading volume of 2. OR 400 public shareholders and one million shares publicly held. as follows. 1 Required in the latest fiscal year or two of the three most recent fiscal years.Appendices Appendix III: NYSE Amex original listing standards NYSE Amex has established certain quantitative and qualitative standards for initial listing of US and foreign companies. which can be referenced at http://nyseamexrules.000 shares publicly held. 94 NYSE IPO Guide .com/amex/companyguide.000 n/a Standard 2 n/a n/a Standard 3 n/a $50 million Standard 4 n/a $75 million OR At least $75 million in total assets and $75 million in revenues $20 million Market value of publicly held shares Minimum stock price Operating history Stockholders’ equity Distribution $3 million $15 million $15 million $3 n/a $4 million $3 2 years $4 million $2 n/a $4 million $3 n/a n/a 800 public shareholders and 500. To learn more about NYSE Amex quantitative. 500. OR 400 public shareholders.

When a company falls below any criterion.com/lcm. $15 million For companies that listed under the pure valuation with cash flow/revenue test Average global market capitalization over a consecutive 30 trading-day period is less than and Total revenues for the most recent 12 months are less than $20 million or Average global market capitalization over a consecutive 30 trading-day period is less than $250 million $75 million NYSE IPO Guide 95 . which can be accessed at http://nysemanual. special-purpose acquisition companies. US companies The NYSE has both quantitative and qualitative continued listing criteria. See Section 802.nyse. The NYSE has separate criteria for closed-end funds.00 over a consecutive 30 trading-day period Numerical criteria for capital and common stock For companies that listed under the “earnings” standard or “assets and equity” standard Average global market capitalization over a consecutive 30 trading-day period is less than and Total stockholders’ equity is less than or Average global market capitalization over a consecutive 30 trading-day period is less than $50 million For companies that listed under the pure valuation/revenue test Average global market capitalization over a consecutive 30 trading-day period is less than and Total revenues for the most recent fiscal year are less than $50 million or Average global market capitalization over a consecutive 30 trading-day period is less than $375 million $15 million $100 million For companies that listed under the affiliated company test The listed company’s parent/affiliated company ceases to control the listed company or such parent/affiliated company itself falls below the numerical criteria.01B of the Listed Company Manual. the NYSE will review the appropriateness of continued listing. see Section 802.Appendices Appendix IV: NYSE financial continued listing standards. as well as the procedures followed when a company falls below any of the continued listing criteria. Price criteria Average closing price of a security is less than $1. The following is a summary of the NYSE’s financial continued listing standards.00 of the Listed Company Manual. and average global market capitalization over a 30-day trading period is less than $75 million. bonds and preferred stocks. For a more complete discussion of the NYSE’s continued listing standards. real estate investment trusts.

• Less than 200. a market value of publicly held shares of $15 million.000 publicly held shares • Less than 300 public shareholders • A market value of publicly held shares of less than $1 million (over 90 consecutive days) 96 NYSE IPO Guide . OR total assets AND total revenue of $50 million each in most recent fiscal year or two of the three most recent fiscal years. 400 round-lot shareholders.Appendices Appendix V: NYSE Amex continued listing standards NYSE Amex continued listing standards A company will be below continued listing requirements if it has: • Stockholders’ equity less than: • $2 million and losses in two out of the three most recent fiscal years. • 1.1 million shares. • $4 million and losses in three out of the four most recent fiscal years • $6 million and losses in the five most recent fiscal years A company that falls below any of the above will continue to be deemed in compliance with listing standards if it meets the following requirements: • Market capitalization of $50 million.

Contributor profiles NYSE IPO Guide 97 .

Ms Flattum was an attorney at Latham & Watkins in Los Angeles specializing in corporate finance. Mr Grabar is a member of the Bar in New York and has been admitted to practice in France. Her corporate governance practice includes advising companies on their disclosure obligations and governance matters. and is the chair of the Financial Reporting Committee of the New York City Bar Association. Ms Flattum received her JD from Georgetown University Law Center and her BS in business from the University of Southern California. Ms Flattum was a vice president in the wealth management group at Alliance Bernstein.com Anne Barber Director of Marketing Anne. Nicole Puppieni and Carsten Fiege provided invaluable assistance in preparing materials for this guide. Cleary Gottlieb associates Catherine Skulan.Flattum@Bowne. including the representation of US and international issuers. Femi Austin.bowne. 98 NYSE IPO Guide . All of the associates focus on corporate and financial matters. In recent years Ms Barber coordinated the publication of Bowne’s Canadian guidebook series covering securities laws and compliance regulations in Canada. Ms Barber joined Bowne in 1986 and has also held various sales and customer service positions throughout her career. leading Latin American companies. Colleen Harp. Mr Grabar chairs the annual PLI program on foreign issuers and US securities regulation. Based in the New York office. Based in Vancouver.com Anne Barber is the director of marketing at Bowne & Co. primarily representing bulge-bracket investment banks in initial public offerings (IPOs) and high-yield deals. Sandra L Flow Partner sflow@cgsh. the Sarbanes-Oxley Act and listing standards of the NYSE and Nasdaq. BC. Prior thereto. IFLR1000. Inc. including US securities law applicable to foreign issuers and reporting regulations.com Susan Flattum is the director of marketing of Bowne & Co. where she is responsible for the marketing and business development efforts of the western region of Bowne. as well as the representation of large reporting companies.Contributor profiles Bowne & Co. Prior to working at Bowne.Barber@Bowne. Fortune 100 companies and global investment banks. She has also advised a number of companies on issues relating to financial statement restatements. Ms Flow became a partner in 2004.com Nicolas Grabar Partner ngrabar@cgsh.clearygottlieb. He specializes in the telecommunications and natural resource sectors. Susan Flattum Director of Marketing Susan. He has extensive experience in international financings in public and private markets. Ms Barber received her sales and marketing management diploma through the Sauder School of Business at the University of British Columbia. Chambers USA and Chambers Latin America recognize him as one of the world’s best capital markets lawyers. Cleary Gottlieb Steen & Hamilton LLP One Liberty Plaza New York NY 10006 United States Tel +1 212 225 2000 www. Inc. Inc 55 Water Street New York NY 10041 United States Tel +1 212 924 5500 www. Chambers Global. Based in the New York office. as well as underwriters. where she is responsible for the marketing and business development efforts in Canada and the US central region of Bowne’s Capital Markets and Compliance Division. She is a member of the Bar in New York. in a variety of Securities and Exchange Commission (SEC) registered and private securities offerings.com Nicolas Grabar focuses on international capital markets and securities regulation.com Sandra Flow’s practice focuses on capital markets transactions and corporate governance. and are based in New York. and domestic and cross-border listings. and has advised on acquisitions and restructuring. he became a partner in 1991. including compliance with SEC requirements.

the largest of Computershare’s businesses in the United States. trade processing and systems.com Charlie Rossi is the executive vice president of Client Services at Computershare Investor Services. Mr Rossi maintains a high profile in the stock transfer industry. manage their corporate reputation. MA 02021 United States Tel + 1 781 575 2000 www. Equity Services jay. the impact of Financial Accounting Standard 123(R) on valuation models and portfolio decisions. Shannon Stucky Vice President. He was also a portfolio manager with The Bank of New York. Mr Rossi’s role at Computershare includes a focus on client relationships. restructure. Mr McHale has presided over numerous complex business integration projects. United States Tel +1 212 850 5600 www.mchale@computershare.com Jay McHale President.com Since joining FD in March 2007. he was the chief operations officer for Harris Investment Management. overcome crises and emerge as thought leaders. He earned a BS in finance from DePaul University and an MBA in finance from the University of Chicago. Charles V Rossi Executive Vice President.fd. BankBoston and EquiServe. He has over 25 years of experience in corporate stock and mutual funds operations management at Boston Financial. Prudential and Mutual of America. Inc Wall Street Plaza. represented Constellation Energy. As a member of the US leadership management team. divestitures and reorganizations. prospects and industry issues. He received an MBA in finance from New York University’s Stern School of Business and a BA in sociology from the University of Pennsylvania. He spent more than 20 years as an equity research analyst and portfolio manager before joining FD in 1998.Contributor profiles Computershare 250 Royall Street Canton. Shawmut Bank. he is charged with building on Computershare’s excellence in the transfer agent industry.stucky@fd. where in addition to ongoing operations. with a focus on the firm’s North American Capital Markets Communications Practice. managed communications for the Chapter 11 bankruptcy filings of Fairfield Residential LLC and Tropicana Entertainment.rossi@computershare.mccoun@fd. Shannon Stucky has been instrumental in developing and executing communications programs supporting clients’ efforts to raise capital. Mr McHale’s roles also included direct management of the shareholder services and trust divisions at Bank of Montreal/Harris.com Gordon McCoun is vice chairman of FD. MF Global and RiskMetrics Group. Prior to joining FD. Teva Pharmaceutical Industries and the Chicago Board of Trade in M&A assignments. Regulation F-D. He is the current president of the Securities Transfer Association. emerging trends in sell-side research coverage and financial disclosure and corporate governance. Throughout his 29 years of experience in the financial services industry. and continues to position the business as the premier service provider in the marketplace. Mr McCoun was a vice president in the equity research department at Brean Murray & Co.com Jay McHale is president of Equity Services. Client Services charles. Mr McCoun has published white papers and client memoranda on topics relevant to capital markets issues such as the increasing importance of cash dividends.com Gordon McCoun Vice Chairman gordon. Ms Stucky has supported the initial public offerings of Sensata Technologies. he has introduced several innovative service offerings amid a challenging regulatory and financial environment. director and national representative of the Northeast Securities Transfer Association. he was responsible for portfolio accounting.computershare. which is a member of the Shareholder Communications Coalition. Prior to joining Computershare in August 2007. and supported AIG Worldwide Life during the announcement NYSE IPO Guide 99 . To date. FD A Member of FTI Consulting. He is also an active member of the industry’s Joint DRS Committee and is a past president. Special Situations Practice shannon. Citibank. 88 Pine Street New York NY 10005. including significant acquisitions.

and First Data in its $7 billion merger with Concord EFS. among others. where he contributed to the firm’s financial planning and analysis function.com of AIG’s plan of restructuring. He earned a BA in political science from George Washington University and an MBA in finance from The American University in Washington. shareholder proposals. 100 NYSE IPO Guide . Berkeley.com Scott Kozak joined FD in 2004 and currently serves as a vice president based in the Chicago office. he was a vice president at DF King & Co for 10 years. Mr Drake served as vice president and director of US research and senior analyst for Institutional Shareholder Services (now renamed as RiskMetrics).georgeson. Prior to joining FD. investor activism. restructurings. she oversees FD’s training and professional development program across the Americas and assists with thought leadership activities emanating from the Special Situation Practice. a proxy solicitation firm that was acquired by Georgeson in 1998. Aetna Inc in its $8. including Openwave Systems Harbinger Capital Partners. Mr Spedale has done extensive work in developing successful campaign strategies in communicating with security holders. corporate governance and compensation issues. DC with dual degrees in economics and international relations. Ms Stucky worked with the Torrenzano Group. He led a team of research analysts producing proxy research reports for institutional clients. He graduated cum laude from American University in Washington. Capital Markets Communications Practice scott. Value Act Capital v Acxiom Corporation. Prior to joining Georgeson in 1997. He also represented Bank One Corp in its $55 billion merger with JPMorgan Chase. from the University of California. Image Entertainment. unsolicited takeovers. DC. Prior to that. Mr Drake supervises a staff of seasoned professionals. 26th Floor New York NY 10038-3650 United States www.Contributor profiles FD continued Georgeson Inc 199 Water St. He specializes in special situations. He has extensive capital markets and financial communications experience. A 2003 graduate of Ohio University’s EW Scripps School of Journalism. David Drake President ddrake@georgeson. with particular emphasis in the industrials. among others. a pre-eminent proxy solicitation firm. from the University’s Honors Tutorial College. and has extensive responsibilities designing and implementing internal training and development programs. as well as firm-wide knowledge share collaboration initiatives. proxy contests.com Joseph Spedale is a senior member of the Georgeson M&A Advisory Group. basic materials. Mr Kozak also contributes significantly to FD’s Thought Leadership Committee. magna cum laude. Joseph F Spedale Executive Vice President and Chief Operating Officer jspedale@georgeson. Previously. proxy contests. earned with honors. proxy contests and other shareholder issues. Scott Kozak Vice President. He also works directly with clients to help them obtain favorable shareholder vote results on friendly mergers and acquisitions. business services. Mr Drake is a frequent speaker and writer on proxy fights. Ms Stucky holds a BS in journalism. restructurings and corporate governance consulting. Mr Kozak also received a certificate in finance. unsolicited takeovers. Additionally. compensation plans and other corporate governance matters. which drafts capital markets-related white papers on emerging industry trends. Inc v Lions Gate Entertainment Corp and PeopleSoft Inc v Oracle Corp. driving ongoing thought leadership and transaction communications programs for industry-leading clients.com David Drake is president of Georgeson.kozak@fd. Mr Spedale was president and chief operating officer of Kissel-Blake. many with more than 20 years of experience. advising them on corporate transactions. During his 30-year career. Mr Kozak worked as a financial analyst at RCM Capital Management. He has worked on numerous contested campaigns. real estate and healthcare sectors. including friendly mergers and acquisitions.8 billion merger with US Healthcare.

Contributor profiles

J.P. Morgan & Co 383 Madison Avenue, 28th Floor New York NY 10179 United States

1 Chase Manhattan Plaza, 58th Floor New York NY 10005-1401 United States

560 Mission Street, 20th Floor San Francisco, CA 94115 United States

David Topper Vice Chairman, Investment Banking, New York (Madison Ave) david.j.topper@jpmorgan.com David Topper joined J.P. Morgan in 2005 as co-head of equity capital markets and is a vice chairman of investment banking and chairman of the Equity Commitment Committee. Since joining J.P. Morgan, Mr Topper has worked on a long list of highprofile financings across many sectors, including technology, financial institutions, retail and energy. Prior to joining J.P. Morgan, Mr Topper spent 22 years at Morgan Stanley, where he was co-head, managing director and chairman of the Equity Commitments Committee from 2001 to 2005. Prior to that, Mr Topper was responsible for equity capital markets coverage of the media and telecommunications sectors. Before joining the Equity Capital Markets Group, he held senior leadership positions in fixed-income derivatives, corporate coverage, mergers and acquisitions and high-yield capital markets. Mr Topper holds a BA from Duke University and an MBA from Stanford University. Kevin Willsey Head of Global Equity Capital and Derivative Markets, New York (Madison Ave) kevin.d.willsey@jpmorgan.com Kevin Willsey began his career with J.P. Morgan in 1989 working in the firm’s Mergers and Acquisitions Department, before moving to the Equity Capital Markets Group in 1994. He was named managing director in 1997 and in 1999 was named head of equity capital markets for J.P. Morgan. Mr Willsey’s capital markets career has involved capital-raising assignments for clients in the United States, Europe, Asia and Latin America. He has managed a wide range of financing mandates for clients, structuring and executing IPOs, follow-on equity offerings, convertible security offerings and structured derivative solutions for clients

across all industry sectors. He has managed many of J.P. Morgan’s most important equity financing mandates, including the $19.7 billion IPO of Visa; the $12.6 billion equity offering for Wells Fargo in connection with its acquisition of Wachovia; GE’s $12.2 billion equity offering in 2008; and CVRD’s $12.2 billion equity offering. In 2008, J.P. Morgan’s Equity Capital Markets Group was named “Global Equity House” and “Americas Equity House” by International Financing Review. Ivan M Peill Vice President, Investor Relations, New York (Chase Manhattan Plaza) ivan.m.peill@jpmorgan.com Ivan M Peill is a vice president in the investor relations advisory services team of J.P. Morgan’s Depositary Receipts Group. He has 14 years of investor relations experience. Prior to J.P. Morgan, Mr Peill was an advisor at Georgeson & Co, Thomson Financial and Capital MS&L, where he counseled issuer clients from a variety of industries and of varying market capitalizations. His expertise also includes financial media relations. Mr Peill advises J.P. Morgan depositary receipt clients on various aspects of investor relations, such as investor relations strategy, investor communications, targeting and institutional ownership. In addition, he is the editor of J.P. Morgan’s DR Advisor Quarterly, a publication focused on investor relations and other issues important to DR issuers. He also writes papers on regulatory developments. Mr Peill holds an MBA with honors from Fordham University and is a member of the National Investor Relations Institute.

Michael Millman Managing Director, Head of Technology, Media and Telecommunications Equity Capital Markets, San Francisco michael.millman@jpmorgan.com Michael Millman is a managing director and head of J.P. Morgan’s Technology, Media and Telecom (TMT) Equity Capital Markets Group. Mr Millman spearheads the firm’s equity capital-raising services for TMT clients globally. Mr Millman joined J.P. Morgan in 1996 and oversees a variety of equity mandates including structuring and executing IPOs, follow-on offerings, convertible security offerings and equity private placements. He has managed many of J.P. Morgan’s most important equity financing mandates. He has strategic relationships with buy-side institutions, financial sponsors and venture firms. Mr Millman holds a BA in economics/statistics from Rutgers University and an MBA from Columbia University.

NYSE IPO Guide

101

Contributor profiles

KPMG LLP 345 Park Avenue New York NY 10154-0102 United States Tel +1 212 758 9700

303 East Wacker Drive Chicago IL 60601-5212 United States Tel +1 312 665 1000

500 East Middlefield Road Mountain View CA 94043 United States Tel +1 650 404 5000 www.kpmg.com

Aamir Husain Partner, New York ahusain@kpmg.com Aamir Husain is a partner in the firm’s New York office, where he is the leader of the IPO advisory practice. He has more than 17 years’ experience providing capital markets advisory services to global private equity funds, investment banks and other strategic investors. Mr Husain provides technical and project management advice on complex accounting and finance reporting issues associated with the SEC registration process, IPOs, Rule 144a debt offerings, carve-outs and conversions to and from international financial reporting standards (IFRS) and US Generally Accepted Accounting Practices. He has extensive experience in cross-border transactions and has assisted major international institutions in the United States, Europe and Asia list on the NYSE. Mr Husain has worked on over 20 IPOs. He received his BA from Boston University and is a member of the American Institute of Certified Public Accountants and the Institute of Chartered Accountants in England and Wales. Michel Meara Director, New York mmeara@kpmg.com Michel Meara is a member of KPMG’s Transaction Accounting Services Group and a director in the firm’s New York office. He has worked on a variety of equity offerings, including IPOs and other SECregistered offerings. Mr Meara regularly advises public companies on financial reporting and regulatory issues, including SEC filings, restatements, IFRS conversions, post-merger integration and the redesign of financial reporting processes. Prior to joining the Transaction Accounting Services Group, he held financial management positions in Fortune 1000 companies, where he was responsible for SEC reporting and corporate financial
102 NYSE IPO Guide

reporting areas. Mr Meara received his BBA from the University of Texas at Austin and his MBA from Thunderbird. He is a member of the American Institute of Certified Public Accountants. Brian Heckler Partner, Chicago bheckler@kpmg.com Brian Heckler leads KPMG’s Transaction Advisory Services Group and is a partner in the firm’s Chicago office. He specializes in financial accounting and reporting matters for public companies registered with the SEC. Mr Heckler provides services for IPOs, spin-offs, sales of minority interests, joint venture formations and debt financings. He formerly was a partner in the firm’s Department of Professional Practice and was a professional accounting fellow at the SEC. David Hori Managing Director, Silicon Valley dhori@kpmg.com David Hori is a member of KPMG’s Transaction Accounting Services Group and a managing director in the firm’s Silicon Valley office. Mr Hori specializes in transaction or special event-based advisory services, including IPOs, business combinations, spin-offs, financial restatement assistance, IFRS conversions and technical on-call accounting. Mr Hori advises companies on a variety of SEC reporting matters. He formerly was a senior manager in the firm’s Department of Professional Practice.

Contributor profiles

Marsh 1166 Avenue of the Americas New York NY 10036 United States

99 High St Boston, MA 02116 United States

345 California Street, Suite 1300 San Francisco, CA 94104-2679 United States www.marsh.com

Stephen Dascole Senior Vice President, Private Client Services Practice, New York steve.dascole@marsh.com Stephen Dascole leads the asset protection consulting and insurance services offered to high-net-worth individuals and families throughout the Private Client Service Practice’s Western region. Mr Dascole has more than 30 years of experience in the insurance industry. He spent the first 20 years of his career with Marsh Private Client Services and rejoined Marsh in 2007. He holds a bachelor’s degree in marketing from St John’s University. Eugene C “Tripp” Sheehan Managing Director, US D&O Practice Leader, Boston eugene.c.sheehan@marsh.com Eugene “Tripp” Sheehan is responsible for the directors’ and officers’ liability product line for Marsh in the United States. Previously, he led the New York Metro Financial and Professional Practices Group (FINPRO) division. He began his career with Marsh in 1993. The FINPRO product lines include directors’ and officers’ liability (D&O), pension trust liability, fidelity, employment practices liability, internet/ecommerce liability, intellectual property, litigation buy-outs, merger and acquisition facilitation products and related professional liability coverage for commercial and financial institutions. Mr Sheehan is a founding member and current chairman of Marsh’s Global D&O Advisory Board and a member of the FINPRO Operating Committee. Mr Sheehan began his insurance career in 1986 as a D&O underwriter for Chubb & Son, Inc in San Francisco. Before that, he spent a year as a marketing manager for the Los Angeles Clippers and was a basketball training site manager for the 1984 Summer Olympics. He received a BA in economics from the University of California in 1984.

David Hong Managing Director, Financial & Professional Practices Group, San Francisco david.hong@marsh.com David Hong is the Bay Partnership practice leader of Marsh’s FINPRO. He is a senior client advisor specializing in directors’ and officers’ (D&O) liability. He advises clients on D&O insurance design, coverage and related corporate governance issues. Mr Hong joined Marsh in 2004, prior to which he was a securities attorney for nine years in New York and San Francisco, specializing in mergers and acquisitions, public and private debt and equity placements, corporate governance and securities compliance. In his nine years as a securities lawyer, Mr Hong has been the general counsel for a software and communications company and was an attorney with Morrison & Foerster LLP. He acts as an advisor and broker for companies in a variety of industries, including technology, manufacturing, transportation and aerospace and defense. Mr Hong graduated with a JD from Georgetown University Law Center and is admitted to practice law in New York and California. He earned a BA from Columbia University. Kate Sampson Senior Vice President, FINPRO, San Francisco kate.sampson@marsh.com Kate Sampson joined Marsh in 1996 and is a senior D&O client advisor in Marsh’s San Francisco office. Her clients include both public and private companies and large private equity firms. Ms Sampson routinely advises private equity and venture-backed companies on D&O liability issues and risk associated with initial public offerings. She is recognized as an industry expert regarding transactional risk insurance products (representations and warranties insurance, tax insurance and contingent

liability insurance), and private equity insurance products. She also serves as growth leader for Marsh’s FINPRO products for the Western United States. In this capacity she works with clients, prospects and Marsh offices, leading and coordinating the growth efforts of FINPRO for a variety of solutions including D&O, employment practices liability and personal liability insurance. Ms Sampson earned degrees in economics and political science from the University of Massachusetts, Amherst.

NYSE IPO Guide

103

forging strategic alliances. He has also held a variety of management positions focused on delivering sales results. venture capital and legal communities to attract new listings. He is also responsible for the NYSE’s relationship with the investment banking. NY 10005 United States Tel +1 212 656 2400 Thomson Reuters 3 Times Square New York NY 10036 United States www. Mr Warner was head of the global business development team within the Corporate Services business. private equity. strategic alliances. closedend funds and real estate investment trusts listing on the NYSE or NYSE Amex. Mr Warner is responsible for commercial strategy and policy. venture fund formation and venture capital representation.000 companies – including 90% of the Fortune 500 – with solutions that increase the efficiency and effectiveness of business decision-making across the investor relations.thomsonreuters.warner@thomsonreuters.100 companies in Canada. public relations and corporate communications functions.com Eric Warner is the commercial manager of the investor relations business offered by the Corporate Services division of Thomson Reuters. Thomson Reuters is the world’s leading source of intelligent information for businesses and professionals. Eric R Warner Vice President – Investor Relations Services. business intelligence. structured products. Before joining NYSE Euronext.Contributor profiles NYSE Euronext 11 Wall Street New York. with operations in 100 countries. implementing training and integrating acquired companies.com Scott Cutler Executive Vice President and Co-head of US Listings and Cash Execution scutler@nyx. In this role. Corporate Services eric. including IPOs for operating companies. focused on mergers and acquisitions. He graduated with a BS in economics from Brigham Young University and earned a JD from the University of California. Prior to his current role. Mr Cutler has an extensive background in investment banking and corporate securities law. Hastings College of Law. 104 NYSE IPO Guide .com Scott Cutler is responsible for the Americas listing business and manages the NYSE’s relationship with over 2. He was also a corporate securities lawyer at Cooley Godward. In addition. IPOs. The Corporate Services business of Thomson Reuters provides more than 6. Latin America and the United States. he oversees the capital markets business. Mr Warner holds a BA from the University of Massachusetts at Amherst and an MBA from Northeastern University. partnerships and operational execution related to services and solutions targeted to investor relations professionals in the Americas. he was an investment banker focused on technology at SG Cowen & Co and Thomas Weisel Partners.

NYSE EURONEXT. NYSE ALTERNEXT. NYSE Euronext and its affiliates do not recommend or make any representation as to possible benefits from any securities or investments.com NYSE NYSE AMEX NYSE EURONEXT NYSE ALTERNEXT ©2009 NYSE Euronext. TRADING VENUES AND PLATFORMS SERVE COMPANIES OF EVERY SIZE FROM EVERY INDUSTRY AROUND THE GLOBE AT EACH STAGE OF THEIR DEVELOPMENT. and which may differ from actual results. WELCOME TO NYSE EURONEXT. 2009. NYSE AMEX. . are subject to significant risks and uncertainties. PROVIDING ACCESS TO INVESTOR CAPITAL VIA THE MOST LIQUIDITY OF ANY EQUITY EXCHANGE GROUP IN THE WORLD. All rights reserved. THE NEW YORK STOCK EXCHANGE. OUR UNRIVALED POSITION AT THE CENTER OF GLOBAL COMMERCE AND OUR ARRAY OF SERVICES. NYSE EURONEXT IS THE PREEMINENT DESTINATION FOR LEADING BUSINESSES. Investors should undertake their own due diligence regarding securities and investment practices. All data as of September.THE LISTING DESTINATION OF THE EXCHANGING WORLD. No part of this material may be copied. THIS IS THE EXCHANGING WORLD. This material may contain forward-looking statements regarding NYSE Euronext and its affiliates that are based on the current beliefs and expectations of management. nyx. photocopied or duplicated in any form by any means or redistributed without the prior written consent of NYSE Euronext. or third-party products or services.

Sign up to vote on this title
UsefulNot useful