Putting the House in Order
Thinking of Going Public? - Part II
BY JAMES W. SPINDLER
[Part I, published in our last issue, covered the selection of an underwriter, accounting firm and law firm in anticipation of an initial public offering ("IPO") --Ed.]
As you move your company towards its IPO, you can expect its documents to be reviewed by, among others, outside counsel, your accounting firm, and the underwriters and their counsel. Staff examiners and accountants at the Securities and Exchange Commission ("SEC") also will examine all documents filed as exhibits to the Registration Statement for the offering.
Therefore, you should begin to review and update your documents immediately. The following are some that should be checked by experienced counsel prior to the offering:
- Charter and By-Laws. Review for completeness and accordance with statutes. The charter (Articles of Organization or Certificate of Incorporation) should authorize sufficient shares of Common Stock to permit conversion of all convertible debt and convertible preferred stock, if any, and to permit the exercise of all outstanding stock options.
- Minute Books. Check minute books to see that (a) all important company actions were properly approved by a majority of the Board of Directors, (b) signatures of all directors appear on unanimous written consent actions, (c) meetings of directors and stockholders were properly noticed or notice waived. Your counsel can arrange for corrective actions where needed.
- Share Issuances. Check minute books and stock records to assure that all outstanding shares were properly authorized. Your Registration Statement will specifically describe all share issuances within three years prior to the SEC filing. Counsel should determine that all issuances, especially those within the last three years, fell under proper exemptions from '33 Act's registration requirements. In some cases, you may have to offer purchasers of shares the opportunity to rescind their purchases. Experienced counsel can advise you on the availability of federal and state exemptions for all offerings.
- Good Standing of the Company. At the closing of a public offering, the company must deliver certificates from state officers that the company has legal existence and enjoys good legal standing where it is incorporated. All required reports and tax returns must have been filed. Check with relevant state offices to reveal whether all filings were been made. Counsel can repair delinquent filings.
- Qualifications to Do Business. Counsel should determine in what states the company is qualified to do business and whether all required filings are current. Counsel should also investigate the company's means of doing business in other states to determine whether qualifications must be made in additional states.
- Contracts. Contracts that are important to the company's business must be described in the prospectus, and filed as exhibits with the SEC. Counsel should: (a) review all such contracts for proper legal form, (b) search for any defaults under any of the contracts, and (c) find and reduce to writing any significant oral contracts relating to the company.
You can save your company a lot of time, trouble and expense if your counsel begins the review process well in advance of efforts to arrange for a public offering.
Comment: Investing in competent corporate and securities counsel to review and update your company's documents early can play a critical role in a successful public offering for your company.
Thinking of Going Public (Part I)
© ASSOCIATION OF INDEPENDENT GENERAL COUNSEL 1994; (all rights reserved). This article is not intended as legal advice. Consult a qualified attorney for assistance concerning a specific issue or problem.