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The IPO process<br />
Three elements are the core of every<br />
MD&A:<br />
• Overview—There should be a summary<br />
discussion of the most important<br />
issues affecting the company’s past<br />
and future economic performance.<br />
This discussion is ordinarily at the<br />
beginning, and it varies widely in scope<br />
and breadth.<br />
• Discussion of results of operations—<br />
There must be a detailed comparative<br />
discussion of results for each of the<br />
past three years and any subsequent<br />
interim period. This discussion must<br />
zero in on the major drivers of financial<br />
performance and on the factors that<br />
might cause future results to differ<br />
from those in past periods.<br />
• Discussion of liquidity and capital<br />
resources—There must be a full<br />
discussion of the company’s<br />
liquidity, its funding requirements<br />
and its anticipated sources of funds.<br />
This discussion must focus on the<br />
company’s ongoing requirements more<br />
than on its past performance.<br />
In addition, MD&A must address<br />
several other specifically mandated<br />
disclosures, including a table of<br />
contractual obligations and a discussion<br />
of any off-balance-sheet arrangements.<br />
Other matters: The following additional<br />
topics concerning the company must also<br />
be addressed in the prospectus:<br />
• dividend policy;<br />
• material legal proceedings;<br />
• directors, senior management and<br />
advisors;<br />
• related-party transactions (see<br />
Section 7.5);<br />
• terms of the shares being offered; and<br />
• principal property.<br />
The prospectus will include a description<br />
of the offering, including the proposed use<br />
of proceeds, dilution resulting from the<br />
offering, underwriting arrangements and<br />
selling shareholders, if any.<br />
The requirements of the applicable<br />
SEC form do not limit what should be<br />
included in a prospectus. In addition<br />
to the information expressly required<br />
to be included, a general rule under the<br />
Securities Act requires the company to<br />
include such further material information,<br />
if any, as may be necessary to make the<br />
required statements, in the light of the<br />
circumstances under which they are made,<br />
not misleading.<br />
Industry guides: The SEC requires<br />
special disclosures from companies in<br />
certain industry sectors, as set forth in<br />
five industry guides. In particular, banks<br />
and bank holding companies, casualty<br />
insurers and mining companies must<br />
supply enhanced disclosure subject to the<br />
requirements of the guides. Compiling<br />
the information necessary to comply with<br />
the industry guides can be a substantial<br />
undertaking requiring specialized<br />
expertise.<br />
(b) Drafting process<br />
Drafting logistics: Primary responsibility<br />
for drafting the prospectus, other than<br />
the financial statements, usually falls<br />
to the company’s counsel, working with<br />
company personnel. Underwriters and<br />
their counsel usually draft the plan of<br />
distribution, which describes contractual<br />
and regulatory aspects of the IPO.<br />
Sometimes underwriters and their counsel<br />
also prepare first drafts of sections that<br />
will be key to the marketing effort, such<br />
as the description of the company’s<br />
strengths and strategy that leads off the<br />
summary box.<br />
The core working group reviews,<br />
comments and participates in drafting<br />
sessions that include representatives<br />
of the company and its auditors, the<br />
company’s counsel, the underwriters<br />
and their legal counsel. These drafting<br />
sessions are often conducted at inperson<br />
meetings, though they can also be<br />
held by videoconference or conference<br />
call. In addition to advancing the draft,<br />
the drafting sessions serve as a core<br />
component of the due diligence process<br />
by allowing the core working group to go<br />
meticulously through all content of the<br />
prospectus.<br />
“Benchmarking” is an important<br />
aspect of the drafting process. It involves<br />
determining what comparable issuers<br />
disclose in their prospectuses and periodic<br />
reports and what issues the SEC staff has<br />
raised in comment letters to such issuers.<br />
A review of comparable disclosure and<br />
issues raised in comment letters can help<br />
identify the significant disclosure issues<br />
of relevance to the company’s offering and<br />
may provide a roadmap for how best to<br />
address these issues. Judicious borrowing<br />
from comparable sources provides a<br />
helpful shortcut in what can otherwise be<br />
an arduous process.<br />
After the bulk of the drafting and due<br />
diligence has been conducted, the core<br />
working group distributes a draft of the<br />
registration statement to all directors<br />
and key officers and, depending on the<br />
circumstances, also to selling shareholders<br />
and other key shareholders. The<br />
underwriters should satisfy themselves<br />
that the company has established adequate<br />
procedures for collecting and evaluating<br />
comments on the document from those<br />
persons to whom it has been furnished.<br />
This is particularly important for MD&A<br />
and for any forward-looking statements<br />
that are included in the registration<br />
statement.<br />
Financial printer: A financial printer<br />
should be selected early in the IPO<br />
planning stages. Drafts of the registration<br />
statement will undergo several revisions<br />
over the course of the due diligence<br />
period and as comments from the SEC<br />
staff are incorporated into the document.<br />
At the beginning stages of the process,<br />
the company’s counsel will take the lead<br />
in reflecting any such changes in the<br />
registration statement. However, as the<br />
registration statement nears completion, it<br />
is the role of the financial printer to:<br />
• work with the company to ensure that<br />
the registration statement is formatted<br />
in the way required by the SEC and any<br />
other regulatory institutions;<br />
• process requested changes to the<br />
registration statement until the final<br />
draft;<br />
• prepare EDGAR-suitable versions<br />
of documents to be submitted<br />
electronically to the SEC on the<br />
company’s behalf; and<br />
• print and distribute hard copies of<br />
the preliminary prospectus and final<br />
prospectus.<br />
In choosing a financial printer, several<br />
factors should be considered. An IPO may<br />
require the participation of constituents<br />
in multiple countries and time zones. The<br />
financial printer should have a sufficiently<br />
broad and secure distribution network<br />
NYSE IPO Guide<br />
37