16-1

Chapter

16

Going Public

16-2

Sources Of Financing
Going Public Private Placement Bank Loan

16-3

Going Public
Advantages
Obtaining Equity Enhanced Ability To Borrow Enhanced Ability To Raise Equity Liquidity/Valuation Prestige Personal Wealth

Disadvantages
o Liability Risk o Expense o Regulation o Disclosure o Pressures To Maintain o Loss Of Control
16-4

Public Ownership
Initial Public Offering (IPO) Secondary Market SarbanesSarbanes-Oxley (2002)
16-5

SarbanesSarbanes-Oxley Timeline
Effective
July 30, 2002 August 29, 2002 January 26, 2003 April 26, 2003

Requirements
Prohibit personal loans to officers/directors. CEOs/CFOs return incentive-based incentivecompensation after erroneous financial report. CEOs/CFOs must certify annual/quarterly reports. Officers must make certifications regarding companys internal controls. Responsibilities for attorneys/audit firms increased. Disclosure requirements for offoffbalance sheets transactions tightened. Audit committees must: be independent directors, be responsible for compensation & oversight of certifying accountants.
16-6

IPOIPO- Fees
$ Accounting= $ Legal= $ Underwriters= $ Registration/Blue Sky/Filing= $ Printing Costs= $150,000+ $8,000-30,000 $8,0007 - 10% 0.02% $50,000-$200,000 $50,00016-7

Underwriter Expense
Company Sells To Underwriter At Discount Underwriter Sells To Market At Full/Offering Price
Company Shares Discount = 7-10% 7Share = $22.50

Underwriter

Sold = 100%

Share = $25.00

Public Offering

16-8

Private Placement
Less Disclosure Restrictive Covenant Liquidation Covenant QualificationsQualifications- SEC (1933)
Limited, Sophisticated Investors Same Information As Public Registration Holding Period Discounted 20 - 30%
16-9

Bank Loan
DebtDebtShort Or Medium Term Floating Interest Rate

Collateral/GuarantyCollateral/Guaranty- Tangible
Contracts Accounts Receivable Machinery Inventory Land/Buildings
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Other Debt Sources

Greater Flexibility Than Loans But Not As Much As Equity Equipment Leasing Mortgage Bankers Trade Suppliers Inventory/AR Financing Companies
16-11

Going Public Timing

Large Enough Company Earnings/Financial Strength Market Conditions Urgent Need Owners Desires/Needs
16-12

Underwriter Selection
Managing Underwriter Underwriting Syndicate

1. One Year Prior To Offering 2. Criteria

a. b. c. d. e. Reputation Distribution Capability Advisory Services Experience Cost
16-13

Registration Statement
I. II.
A.

All Hands Meeting- Establish MeetingTimetable/Responsibility Preliminary Preparation

Prospectus

III. Registration Statement (SEC)

B. Registration Statement (Form S-1, SB-1 or S- SBSBSB-2)
16-14

Prospectus
Narrative Form Cover Page Summary Company Description Risk Factors Use Of Proceeds Dividend Policy Capitalization Dilution Financial Data Business, Management, Owners Type Of Stock Underwriter Information Financial Statements (5 Yrs.)
16-15

Part II- Form S-1 IISRed Herring- Preliminary HerringProspectus Comment Letter- SEC LetterCorrections Pricing Amendment Blue Sky Qualifications- State QualificationsLaw
16-16

After Going Public

 Aftermarket Support- Underwriter SupportActions  Financial Community Relationship  Reporting Requirements
 Form 10-K (Annually) 10 Form 10-Q (Quarterly) 10 Form 8-K (Specific Events) 816-17

IPO Requirements
NYSE AMEX NASDAQ $4 M --$750 K $3 M $5 NASDAQ
(Small Cap.)

Net Tangible $40 M --Assets Stockholder --$4 M Equity PrePre-Tax $2.5 M $750 K Income Market Value $40 M $3 M Of Float Minimum Bid Price

$4 M $2 M --$1 M $3
16-18

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$3