Issues for In-House Counsel in the IPO Process
When it's time for your company's initial public offering of securities, a large team of lawyer, bankers, auditors, and other specialists will be assembled. Your role within this group may not be precisely defined, as outside counsel seasoned in securities law has likely been brought in to do the heavy lifting. You may even be a fairly new part of the team, having been hired near the start of, or in the middle of, the IPO process. Often it's up to you to decide what level of involvement you'll have and where best to spend your time. The following are some of the key issues in any IPO, with suggestions for in-house counsel's contributions to the work on them.
This is an issue more for the investment bankers than it is for counsel, but it will be of paramount importance to the company's executives. Fortunately, the interests of the company and the bankers are aligned on this issue, as the banks will be seeking a high price to generate high fees. As counsel you should take it upon yourself to worry about valuation in the event the IPO gets derailed through unexpected setbacks within the company, industry, or capital markets generally. That is, keep your eye on business operations that assure share value is maintained if there's a liquidity crisis during the IPO.
Your company's executives are probably anxious to see the IPO get through the SEC registration process as quickly as possible. Status inquiries are inevitable. Stay on top of where the process stands at any given moment so that you're able to keep your executives informed.
Prospectus Disclosure Language
Given SEC requirements, there's a lot to be concerned with here. Outside counsel experienced in dealing with the SEC can best negotiate the language to the agency's satisfaction, but in-house counsel need to pay particular attention, because they are the ones who will be living with it in the company's subsequent disclosure statements. At a minimum you need to be familiar with Regulation S-K, setting forth the prospectus disclosure requirements. It is also helpful to review disclosure documents from similarly situated companies that have been approved, and use them as a template.
Material Agreements Filed with the S-1
Often, in-house counsel will come under pressure from the underwriters' counsel to file more "material" agreements with the S-1. But like the language in the prospectus, the documents filed as material with the S-1 are going to influence future filings. Your goal should be to file only what is truly material and meaningful to investors. Even though you can apply for confidential treatment of certain key business terms in the agreements, generally those agreements, if material, are going to be available to the public, including competitors.
In the current age of high ratios of executive pay to average worker pay, it's bad enough that the S-1 reveals the compensation of the company's top executives. You don't want to add fuel to the fire by revising these numbers upwards at a later date. Make sure you have a solid understanding of executive compensation matters, especially change of control agreements.
If the registration process gets lengthy, the company may have material developments it needs to report in the prospectus. Your job as in-house counsel is to make sure outside counsel and the underwriters know what's going on within the company--positive and negative--because other executives frequently don't tell them.
The Quiet Period
To prevent jumping the gun, in-house counsel needs to closely monitor communications during the quiet period. You want to make sure press releases stick to the facts, are not out of line with past publicity practices, and do not mention the IPO.
If you're inclined to allow questionable claims and assertions from the marketing department to appear in the draft prospectus, the SEC and underwriters' counsel will probably take care of that for you. In fact, they're going to push a list of due diligence items you should include, and rightfully so. Be prepared to supply evidence to back up assertions in the prospectus, or get ready to redact. If there are gaps and omissions in the disclosures that are material to investors, you'll have to judge how thoroughly you're able to fill them in, given the time restraints that are often involved.