466 Making Key Strategic Decisions
- The ability of the under writer to distribute the stock on a broad enough
geographical basis that all constituencies having an interest in the com-
pany have an opportunity to participate in the public offering. - Whether the underwriter employs well-known securities analysts within
the company’s industry, whose views are valued within the investment
community.
Finally, the team selects two investment-banking firms as managing un-
der writers. A Letter of Intent, outlining the terms of the proposed public of-
fering, is then prepared and signed by the company. Among other matters, this
Letter of Intent will obligate the company to pay certain expenses of the un-
der writer, whether or not the IPO is successful.
One of the managing under writers takes the lead in organizing the IPO
process. First, a date is fixed for an “all hands organizational meeting.” This
important meeting will be attended by the managing under writers, the lawyers
for the under writers, the company management, the lawyers for the company,
and the certified public accountants who will prepare the SEC-specified fi-
nancial statements. At the organizational meeting:
- It is decided that shares of voting common stock will be sold; it is ex-
pected that Vulture Partners will convert its preferred stock into common
stock effective upon the public offering. - All parties are assigned specific responsibilities with specific deadlines.
- A timetable for the offering is established, generally encompassing a 12-
to 16-week period from the date of the organizational meeting to a clos-
ing of the public offering. - The parties discuss the selection of a financial printer, and the company
later will interview and negotiate price with a printer who is experienced
in printing SEC filings and causing those filings to be effected electroni-
cally through the SEC’s electronic filing system (called EDGAR). - The managing under writers present a “due diligence checklist” which is a
list of numerous facts to be gathered and documents to be produced by
the company; it is the task of the under writers to perform “due diligence”
to make sure that all facts are uncovered. The diligence process is out-
lined and materials for the checklist are contained in the NASD’s “Due
Diligence Examination Outline,” annexed to this chapter as Appendix A. - The participants discuss the addition of “antitakeover provisions” to the
corporate structure of the company; when a company becomes publicly
held, there is the possibility that third parties might attempt to obtain a
controlling financial interest or voting interest. The under writers are of
the view that certain antitakeover provisions are inappropriate, as they
limit the likelihood of a legitimate takeover of the company at a high
price and therefore work against the interest of the stockholders. Man-
agement expresses an interest in taking reasonable steps to preserve cur-
rent control. Antitakeover provisions may include: staggering the board of
directors so that all directors cannot be replaced at once; limiting