1. Going Public Chapter 16

2. Going Public What does it mean to “go public”? What does it mean to “go public”? Initial Public Offering Initial Public Offering

3. Advantages Obtaining New Equity Capital Obtaining New Equity Capital Enhanced Ability to Borrow Enhanced Ability to Borrow Enhanced Ability to Increase Equity Enhanced Ability to Increase Equity Liquidity & Valuation Liquidity & Valuation Prestige ad Personal Wealth Prestige ad Personal Wealth

4. Disadvantages Potential Loss of Control Potential Loss of Control Public Exposure Public Exposure Money and Time Money and Time Sarbanes-Oxley Sarbanes-Oxley Costs Costs

5. Costs of Going Public Average cost= $500,000 Average cost= $500,000 SEC Reports SEC Reports Accounting fees Accounting fees Legal fees Legal fees Underwriter Underwriter Underwriter’s discount Underwriter’s discount SEC fees-.02% SEC fees-.02% NASD fees-.01% NASD fees-.01% Printing costs Printing costs

6. Alternatives to Going Public Private Placement of Securities Private Placement of Securities Restrictive covenants Restrictive covenants Liquidation covenants Liquidation covenants Bank loans Bank loans Drawbacks Drawbacks

7. Timing of Going Public Is Company Large Enough? Is Company Large Enough? What is Amount of Earnings and Strength of Financial Performance? What is Amount of Earnings and Strength of Financial Performance? What are the Market Conditions? What are the Market Conditions? How Urgent is the Need for Money? How Urgent is the Need for Money? What are the Needs and Desires of Owners? What are the Needs and Desires of Owners?

8. Underwriter Selection Start the “Process” Start the “Process” Select Managing Underwriter Select Managing Underwriter Will develop a syndicate Will develop a syndicate Mutual contact/referrals Mutual contact/referrals What should you look for? What should you look for? Reputation Reputation Experience Experience Cost Cost Distribution Capacity Distribution Capacity Advisory Services Advisory Services

9. Registration Statement & Cost Next Step= Planning Meeting Next Step= Planning Meeting Length of time for registration process Length of time for registration process Common hold-ups Common hold-ups Registration Statement Registration Statement Prospectus Prospectus Registration statement Registration statement Securities & Exchange Act Securities & Exchange Act Form S-1 Form S-1

10. The Prospectus Cover Page Cover Page Preliminary Preliminary Final Final Table of Contents and Executive Summary Table of Contents and Executive Summary Introduction Introduction Risk Factors Risk Factors Use of Proceeds Use of Proceeds Dividend Policy Dividend Policy

11. The Prospectus Capitalization Capitalization Dilution Dilution Financial Data Financial Data Business Business Management & Owners Management & Owners Capital Stock Capital Stock Underwriter Information Underwriter Information Actual Financial Statements Actual Financial Statements

12. Prodcedure Red Herring Red Herring Comment Letter Comment Letter Pricing Amendment Pricing Amendment

13. Other Issues Legal Issues Legal Issues Quiet period Quiet period Length Length Why? Why? Blue-sky Qualifications Blue-sky Qualifications State laws State laws Effects Effects

14. After Going Public Aftermarket Support Aftermarket Support Relationship with Financial Community Relationship with Financial Community Reporting Requirements Reporting Requirements 10-Q 10-Q 8-K 8-K Sarbanes-Oxley Sarbanes-Oxley Proxy Solicitations Proxy Solicitations

15. Myths In this market, high-tech is the name of the game In this market, high-tech is the name of the game If you’re doing OK, don’t worry about the aftermarket If you’re doing OK, don’t worry about the aftermarket The analysts will follow you through think and thin The analysts will follow you through think and thin The young entrepreneurial companies will continue to get the spotlight this year The young entrepreneurial companies will continue to get the spotlight this year

16. Myths You need to be profitable to get a high valuation in this market You need to be profitable to get a high valuation in this market Of course, you want to be the next Netscape Of course, you want to be the next Netscape During your IPO, you’re the center of attention During your IPO, you’re the center of attention Somebody knows where the IPO market is headed Somebody knows where the IPO market is headed