the lifecycle of a company - intelligize

The Lifecycle of a Company

2

We will be following a fictional company,

Biobotanical Therapeutics, through its life cycle:

1. Taking the company public

2. Producing required periodic reports

3. Going through a possible M&A transaction

4. Ceasing to be a publically traded company

Agenda

About Our Company3

Biobotanical Therapeutics is a

California based pharmaceutical company.

While currently privately held, it would like

to expand its research and development as

well as hire new scientists to address strong

customer demand for its products.

About Our Company4

The money needed by the company is more

than its existing investors can provide.

Biobotanical Therapeutics decides that

its best course of action is to go public.

The company’s management must first

find an investment banker who will agree

to underwrite the offering.

Morgan Stanley agrees to underwrite the

deal for Biobotanical Therapeutics.

About Our Company5

01.From Private to Public

Going Public

• It is now time to file an S-1 (Registration Statement).

• This document gives potential investors details

about the company and the offering.

• This offering must comply with the Securities Act

of 1933, which governs security offerings.

7

Form S-18

“Truth in securities law”

• Provides investors with all material information concerning all securities offered

for public sale.

• Prohibits misrepresentation, deceit, and other fraud in the sale of securities.

• Prohibits any security from being offered or sold to the public unless it is

registered with the SEC or is exempt from registration.

The Securities Act of 19339

• Provides disclosure of material facts about the

company and the securities it proposes to sell.

• Requires accuracy of the facts.

• Enables investors to make a realistic appraisal

of the company.

• The first filing is also known as the “red herring.”

Purpose of Registration Statement10

Registrations MUST include:11

• A description of the company’s properties and business.

• A description of the security to be offered for sale and its relationship to the company’s

other capital securities.

• Information about the management of the company and their compensation arrangements.

• Financial statements audited by an independent public accountant.

• A discussion of financial condition and operating results by management.

Who must file…12

• US and foreign companies or governmental issuers

who sell securities in the US securities markets.

• However…there are certain exceptions:

- Offerings restricted to residents of the state where the

issuing company is organized and doing business.

- Securities of municipal, state, federal, and charitable

institutions.

- Offerings of “small business investment companies”

made in compliance with SEC regulations.

Registration Statement Composition13

Part I Information required in the

Prospectus includes:

- Risk Factors

- Use of Proceeds

- Description of the Company’s Business

- Financial Statements

- Plan of Distribution

- Description of Securities to be Registered

Part II Information not required in the

Prospectus includes:

- #13: Other Expenses of Issuance & Distribution

- #14: Indemnification of Directors & Officers

- #15: Recent Sales of Unregistered Securities

- #16: Exhibits & Financial Statements Schedules

- #17: Undertakings

Note:

- Depth of disclosure varies from company to company.

- Prospective Investors are given entire S-1 EXCEPT front page and Part II.

Risks14

The risks associated with investing in a

Registered Securities Offering:

There is no guarantee to

the accuracy of the facts.

It does not protect against the

sale of stock in risky, poorly

managed, or unprofitable

companies.

Registration does not

imply that the SEC

approves of the issue.

Intelligize Solution15

Search

S-1’s at

provision/

clause level

SEC Staff Review17

• The SEC may request that the company make

minor changes or disclose additional information.

• The company will need to submit at least one

amended filing.

• Must also directly respond to the SEC’s comments.

• The comments of the SEC will become

publicly available.


Linked

follow-up

chain

Analysis on the Intelligize Solution19

Topical

breakdown of

SEC review

Road Show20

• Issuer presentation of securities to potential buyers.

• Management travels across the country

(sometimes internationally) to meet with prospects.

• Intended to generate excitement and interest

in the issuance or IPO to follow.

Setting the Price21

• The investment bank sells the shares to the money managers.

• Deducts its fee (typically 7% in an IPO).

• Gives the rest to the company going public

(to be sold to public).

02.Regulating a Public

Company

Corporate Reporting23

• Public companies must file annual and other periodic reports

to update the information contained in their original filings.

• They must send these reports to shareholders upon

request and make them available on their website.

“The Exchange Act” / “The ’34 Act”

• Requires that investors have access to current financials and other pertinent

company information on a regular basis.

• Regulates corporate reporting, proxy solicitation, takeover bids and tender

offers (Williams Act), insider trading and registration of exchanges,

associations and broker dealers.


Common forms required under “The ‘34 Act”

• Forms 3,4,5 - Director/officer/owner

disclosure forms

• 10-K - Annual report

• 10-Q - Quarterly report

• 8-K - Announce major events

• DEF 14A - Definitive proxy statement

Securities Exchange Act of 193425

• 20-F - Registration Statement/Annual

report for foreign issuers

• 40-F - Canadian annual report (10-K)

In Depth: Form 10-K26

1. Filed annually within a

specified time period after the

end of the fiscal year.

(Filer timetables differ due to

“status”…“large accelerated”,

accelerated” etc.)

2. Contains:

• A synopsis of a company’s

past, present, and

future activities.

• Audited financial reports.

• A comprehensive list of

material agreements in

effect at the time of the filing.


• Annual financial statements must be audited.

• Lists the title of all listed securities and their exchange on the

cover, also the number and class of securities outstanding.

• It is a uniform disclosure document.

• It is the baseline document for finding past contracts

and agreements incorporated by reference.

In Depth: Form 10-Q28

1. Filed 3 times per year.

2. Contains unaudited

financial information.

3. Used to discuss the

company’s financial

standings in an ongoing

manner.


1. The purpose of the 8-K is to

disclose an “extraordinary

event” that occurs between

reporting periods.

2. It is to be filed or furnished

within 4 business days after

the triggering event for

most items.

3. It is structured with 9

sections and 32 items.

4. Issuers may file a single

Form 8-K to disclose one

or more required items.


Easily select

your form type


Search for

market standard

language

In Depth: Proxy Statement32

1. Sent to all shareholders

with the issues that will be

voted on at the annual

meeting.

2. Contains a voting ballot in

case a shareholder is

unable to attend.

3. Discloses all material facts.

4. Gives shareholders an

opportunity to vote “yes” or

“no” on important corporate

issues.


Search Proxy

at provision/

clause level

Rule 14a-8 of “The ‘34 Act”

• A shareholder can submit a Proxy proposal if the shareholder

has continuously held at least $2000 in market value or 1% of a

company’s securities (whichever is less) for at least one year by

the date of submitting the proposal.

• The company can attempt to exclude these proposals from the

Proxy. It must have its counsel send a request to the SEC in the

form of a No-Action Letter with the reason for exclusion.


In Depth: No-Action Letter35

An SEC letter indicating that no

civil or criminal action will be taken

against an individual engaging in

a particular activity.

Sent in response to a written

request for clarification when the

legality of the activity in question

is not well-established.


Search Proxy

at provision/

clause level

03.The End of a Company

• The economy has entered a recession and the

price of the company’s stock has gone down.

• Demands for these products and services fall

sharply as Biobotanical Therapeutics begins

to experience financial difficulties.

• Plans are made to issue a press release

announcing a large loss in profits for the year.

Profit Loss38

• The SEC investigates a member of Biobotanical

Therapeutics’ board of directors. Knowing that the

share price would drop as a result of the press

release, the board member sold a large percentage

of their shares prior to the announcement.

• This is considered illegal insider trading.

• The board member is forced to resign.

Insider Trading39

• Buying or selling a security while in possession of

material nonpublic information about the security.

• This falls under Rule 10b5-1.

• Material information may include, but is not limited to:

- An impending takeover

- Introduction of a new product

- Appointment of a key executive

- Bankruptcy

- Any activity that could have either a positive or negative

effect on the firm’s stock price

Illegal Insider Trading40

• When corporate insiders (officers, directors, and employees) buy and sell stock in their

own companies.

• Section 16: All officers, directors, and beneficial owners of a company that own more than

10 percent of its registered equity securities must file an initial report with the SEC (Form 3)

showing their holdings.

• They must file a report for any transaction in which there was a change in the holdings.

(Form 4)

• An annual statement of changes in beneficial ownership must also be filed. (Form 5)

Legal Insider Trading41

• The drastic drop of share price, along with the insider

trading scandal, have caused a mass selling of

Biobotanical Therapeutics stock by its shareholders.

• The company wants to try to stay in business but is

forced to declare bankruptcy under Chapter 11.

Bankruptcy42

Bankruptcy Options43

Try to reorganize in an effort to deal

with crippling debt (Chapter 11)

Cease all business activities

(Chapter 7)

• Companies who plan to make an attempt to

reorganize their corporate structure and seek

out solutions to their debt.

• Most publicly traded companies will file under

Chapter 11 because it will allow them to stay in

business and control the bankruptcy process.

Why Chapter 11?44


Search specific exhibits/

contracts/agreements for

relevant disclosures

• A private company steps in; offering to

purchase most of the assets of Biobotanical

Therapeutics.

• The Board of Directors see no other option and

reluctantly agree.

• After the deal is completed, Biobotanical

Therapeutics decides that it would be in its

best interest to terminate its registration.

• This is done on Form 15.

Getting Acquired46

In Depth: Form 1547

1. Also known as: “Certificate

and Notice of Termination

of Registration”

2. Used to revoke the

registration of a company


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50

END RESULT:Biobotanical Therapeutics is no

longer a publicly traded company.

the lifecycle of a company - intelligize

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