2011 IPO Report

WilmerHale recognizes its corporate recognizes responsibility environmental to stewardship. WilmerHale 11_938 UNI 9/11 5,000

2011 IPO Report

wilmerhale.com

Wilmer Cutler Pickering Hale and Dorr llp is a Delaware limited liability partnership. Our United Kingdom offices are operated under a separate Delaware limited liability partnership of solicitors and registered foreign lawyers regulated by the Solicitors Regulation Authority (SRA No. 287488). Our professional rules can be found at www.sra.org.uk/solicitors/code-of-conduct.page. A list of partners and their professional qualifications is available for inspection at our UK offices. In Beijing, we are registered to operate as a Foreign Law Firm Representative Office. WilmerHale principal law offices: 60 State Street, Boston, Massachusetts 02109, +1 617 526 6000; 1875 Pennsylvania Avenue, NW, Washington, DC 20006, +1 202 663 6000. This material is for general informational purposes only and does not represent our legal advice as to any particular set of facts; nor does it represent any undertaking to keep recipients advised of all relevant legal developments. Prior results do not guarantee a similar outcome. © 2004-2011 Wilmer Cutler Pickering Hale and Dorr llp Attorney Advertising Table of Contents

2 US IPO Market Review and Outlook

6 Law Firm and Underwriter Rankings

8 Selected WilmerHale Public Offerings

10 Regional IPO Market Review and Outlook – California

– Mid-Atlantic – New England – Tri-State

12 Special Issues for Special Issuers

14 Post-IPO Financing Techniques

16 Initial Public Offerings: A Practical Guide to Going Public 2 US IPO Market Review and Outlook US IPO Market Review and Outlook 3

Market Review US IPOs – 1996 to 2010 2008 IPO was 36% below its offering Percentage of Profitable IPO Companies – 1998 to 2010 US issuers Foreign issuers price at the end of 2008, and only 16% of % The IPO market continued to rebound that year’s IPOs were trading at or above throughout 2010, producing 142 IPOs. their offering price at year-end 2008. The year’s total was almost triple the 866 98 82 tally of 54 IPOs in 2009, which itself In 2010, there was only one “moonshot” 768 71 65 represented a significant step up from 619 (an IPO that doubles in price on its 62 64 62 537 61 59 59 97 56 the paltry output of 31 IPOs in 2008— 57 opening day)—Chinese Internet TV 52 522 446 353 480 company Youku.com jumped 161% the lowest annual count since 1975. 107 43 in first-day trading. The year’s other 339 207 The momentum that brought a spike in 310 205 190 198 26 26 34 32 35 58 54 142 top performers out of the blocks were 91 31 deal volume at the end of 2009 continued 75 71 15 55 14 171 158 163 149 9 ChinaCache International Holdings (up 9 10 39 throughout 2010, as both economic and 7714 9 22 87 66 6110 15 95% on its opening day), MakeMyTrip (up capital market conditions improved. 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 89%) and E-Commerce China Dangdang 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Quarterly volume ranged from 24 to Source: SEC filings (up 87%). Overall, all but one of the year’s Source: IPO Vital Signs 34 IPOs in the first three quarters of top-ten first-day gains came from IPOs 2010. Deal flow jumped to 54 IPOs in by foreign issuers, and Chinese issuers the fourth quarter of 2010—equal to accounted for seven of the top ten. the full-year 2009 total—enabling the market to enter 2011 on a high note. IPO companies were smaller and less profitable in 2010 than in recent years. The 142 IPOs in 2010 generated gross The percentage of profitable companies proceeds of $36.3 billion, with both going public dropped from a record figures representing the largest totals 82% in 2009 to 59% in 2010—the lowest since 2007. Boosted by General Motors’ percentage since the tail of the dot- gargantuan $20.1 billion offering— com boom in 2001. The median annual the largest IPO in US history—gross revenue of IPO companies plunged from proceeds in 2010 were nearly double US IPO Dollar Volume – 1996 to 2010 $229.0 million in 2009 to $100.8 million Median Annual Revenue of IPO Companies – 1998 to 2010 the prior year’s total of $19.2 billion. US issuers Foreign issuers $ billions in 2010. Both metrics reversed, at least $ millions Although it pales next to the annual temporarily, a long-term trend toward average of 500-plus IPOs of the late 1990s, 108.2 larger and more profitable IPO companies. 267.5 52.7 95.3 the total of 142 IPOs in 2010 approached 229.0 33.7 In 2010, 49 IPOs were completed by the annual run rate of about 200 IPOs companies based in the eastern United that prevailed from 2004 to 2007. 161.0 59.7 States (east of the Mississippi River), 144.5 61.6 48.8 28.9 Individual components of the IPO 55.5 46.5 western US–based issuers accounted 111.1 113.5 10.0 40.8 41.3 40.4 105.9 100.8 39.0 31.4 15.3 36.3 85.7 87.0 8.7 9.1 25.4 10.9 for 38 IPOs, and foreign issuers market fared as follows in 2010: 38.8 8.7 5.2 24.1 7.1 30.8 32.1 32.2 6.4 30.3 31.3 0.8 15.2 29.4 19.2 29.2 accounted for the remaining 55 IPOs. 26.2 0.8 ■ 6.1 23.3 35.0 The number of venture capital–backed 19.0 6.7 17.9 17.6 12.5 IPOs soared to 46 in 2010. This deal 9.1 Outlook volume was a welcome relief to venture 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 capitalists, who had suffered through Source: SEC filings In broad terms, the US IPO market Source: IPO Vital Signs the dark days of 2008 and 2009 with has gone through six phases over a two-year total of only 15 offerings. ■ The technology sector remained IPO of the year, by a wide margin. The the past two decades or so: ■ Mid-2003 through 2007—Solid a number of factors. The major factors are At 32%, the 2010 market share for strong in 2010. Tech-related companies year’s next-largest IPOs were from market recovery, although not neither mysterious nor easy to predict: VC-backed IPOs was consistent with ■ 1991 to 1998—Reasonably stable market, produced 53% of the year’s IPOs, Swift Transportation ($806.3 million), approaching the deal volumes that historical patterns. Most of these producing an average of 565 IPOs per year ■ Economic Conditions: Economic growth down slightly from 56% in 2009. SMART Technologies ($660.1 million) prevailed for most of the 1990s venture capital–backed IPOs were by ■ 1999 and 2000—Go-go market is a key determinant of strength in the ■ Foreign issuers accounted for 39% of and Oasis Petroleum ($588.0 million). ■ 2008—Market bottoms out under companies in technology or life sciences. characterized by marginally qualified IPO capital markets. By late 2007, five years of the market in 2010, the highest such the combined burden of an economic economic expansion—largely driven by ■ Aftermarket performance was stronger in companies and rampant price euphoria Private equity–backed IPOs grabbed 27% percentage in at least 15 years. China recession and plunging capital markets 2010 than in 2009. The average 2010 IPO (although annual deal volume was 13% strong consumer spending, boosted by of the market in 2010, with 39 offerings. continued to be the predominant appreciated 28% by the end of the year, lower than in the preceding eight years) ■ 2009 and 2010—Market rebounds low interest rates, tax cuts and increased Financial sponsors, hobbled by tight source of foreign-issuer IPOs in the and 68% of the year’s IPOs were trading at from historic lows, but not yet to borrowing against home equity—had credit from late 2007 through 2009, were ■ United States, producing a staggering 2001 to mid-2003—Very selective sputtered to an end. The recession that anxious to take their portfolio companies or above their offering price at year-end. the deal levels of 2004 to 2007 total of 40 IPOs—which represented market, in which deal volumes fell followed was longer and more severe than public. PE-backed companies tend to be In 2009, the average IPO appreciated 18% 28% of the entire US market in 2010. substantially and IPO candidates were We remain fundamentally optimistic almost anyone anticipated. Although large and mature and to produce very during the year, and 65% of the year’s IPOs held to much higher standards about the long-term prospects for the IPO With a total offering size of $20.1 billion, it had begun to recover by mid-2009, large IPOs, such as those of Hyatt Hotels were trading at or above their offering price market. The continuation and expansion General Motors produced the largest the economy has continued to send in 2009 and Sensata Technologies in 2010. at year-end. In sharp contrast, the average of the IPO market recovery will depend on 4 US IPO Market Review and Outlook US IPO Market Review and Outlook 5

mixed signals and the timing and extent Median IPO Offering Size – 1996 to 2010 Profile of Successful IPO Candidates How Do You Compare? Some Facts About the IPO Market of economic growth is uncertain. $ millions 135.5 Set forth below are selected metrics about the IPO market, based on combined data 130.0 What does it really take to go public? ■ 119.4 for all US IPOs from 2007 through 2010. Capital Market Conditions: Stable and 116.4 119.0 115.5 113.0 There is no single profile of a successful IPO robust capital markets are a leading 102.6 100.0 company, but in general the most attractive indicator of IPO activity. After sharply 90.7 $114.5 million (12% below $50 million and 84.0 candidates have the following attributes: Median offering size declining in 2008, the Nasdaq stabilized in 8% above $500 million)

the first quarter of 2009 and then surged ■ 61.0 Outstanding Management: An investment to post a full-year gain of 44% by year- $95.5 million (29% below $50 million and truism is that investors invest in people, Median annual revenue of IPO companies end. Similarly, the Dow recovered from 16% above $500 million) 36.0 33.0 and this is even more true for companies its March low point and increased 19% 30.0 going public. Every company going for all of 2009. In 2010, the Nasdaq grew Percentage of IPO companies that are profitable 63% public needs experienced and talented another 17% and the Dow tacked on 11%. management with high integrity, a 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 28% average increase from IPO price (2010) ■ Institutional Appetite: IPOs are relatively vision for the future, lots of energy to 18% average increase from IPO price (2009) Aftermarket performance by year-end risky investments, so the appetite of Source: SEC filings withstand the rigors of the IPO process, 36% average decrease from IPO price (2008) institutional investors for risk capital 15% average increase from IPO price (2007) and a proven ability to execute. affects the IPO market. When other Delaware—93% ■ State of incorporation of IPO companies parts of a portfolio feel risky, investors Market Differentiation: IPO candidates need No other state over 1% may stay away. These players are critical a superior technology, product or service Percentage of IPOs including selling to the health of the IPO market. in a large and growing market. Ideally, they Percentage of IPOs—54% stockholders, and median percentage of offering Median percentage of offering—33% ■ Impact of Regulatory Environment: The are viewed as market leaders. Appropriate represented by those shares corporate governance reforms resulting intellectual property protection is expected Percentage of IPOs including directed share Percentage of IPOs—46% from the adoption of the Sarbanes-Oxley of technology companies, and in some programs, and median percentage of offering Median percentage of offering—5% Act in 2002 and the Dodd-Frank Act in sectors patents are de rigueur. represented by those shares 2010 have created new responsibilities Percentage of IPO companies disclosing ■ Substantial Revenues: With some 25% for public companies and their directors adoption of ESPP exceptions, substantial revenues are and officers. These changes have helped Venture Capital–Backed IPOs – 1996 to 2010 improve accountability to stockholders, expected—at least $50 million to $75 Percentage of IPO companies using a “Big 4” # of deals Median amount raised prior to IPO (in $ millions) 79% board oversight of management, board million annually—in order to provide accounting firm member qualifications and investor a platform for attractive levels of 73.2 Nasdaq—58% 69.0 69.0 Stock exchange on which the company’s confidence—but have also increased 252 profitability and market capitalization. NYSE—40% 60.2 common stock was listed the cost of being public, both in terms 216 58.0 Amex—2% 55.0 201 52.0 ■ Revenue Growth: Consistent and strong of potential liability and the expense 49.0 46.9 47.8 Median number of Form S-1 amendments of compliance. The more rigorous 43.0 revenue growth—25% or more annually— (excluding exhibits-only amendments) filed Five

corporate governance environment 120 31.3 is usually needed, unless the company has before effectiveness other compelling features. The company may deter some IPO candidates. 22.4 81 Legal—$1,250,000 68 66 15.0 Median IPO expenses Accounting—$815,000 For most companies, however, the 13.0 56 should be able to anticipate continued 45 46 Total—$3,000,000 new and enhanced governance 22 20 23 and predictable expansion to avoid 7 8 requirements can be assimilated into the market punishment that accompanies 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Median underwriting discount 7% IPO planning and should not pose a Source: Dow Jones VentureOne revenue and earnings surprises. major impediment to going public. Median—112 calendar days ■ Profitability: Strong IPO candidates Time elapsed from initial filing to effectiveness Moreover, many of the consequences of 25th percentile—91 calendar days of the Form S-1 these requirements—such as a robust capital investing, including the timeline equity–backed IPOs flourished in 2010 often have track records of earnings 75th percentile—173 calendar days finance and accounting organization— from initial funding to IPO. According and can be expected to continue to enter and a demonstrated ability to enhance are needed in a growing enterprise, to Dow Jones VentureOne, the median the IPO market as conditions permit. margins over time. whether or not it ever pursues an IPO. time from initial equity financing to IPO Market momentum has continued into ■ rose to 8.1 years in 2010 from 7.9 years Market Capitalization: The company’s All IPO companies need top executive talent, Beyond these objective measures, IPO ■ Venture Capital Pipeline: Venture 2011, with year-to-date IPO volume in 2009. As recently as 2004 and 2005, potential market capitalization should a strong competitive position, adequate market candidates need to be ready for public capitalists depend on IPOs—along with outpacing that of 2010. High-profile this figure hovered around 5.5 years. be at least $200 million to $250 million, capitalization and deal-savvy advisors, but ownership in a range of other areas, including company sales—to provide liquidity to offerings through mid-2011 included in order to facilitate development of a other factors can vary based on a company’s employee recruitment and retention; accounting their investors. With the large increase ■ Private Equity Impact: Private equity Dunkin’ Brands ($423 million), HCA liquid trading market. If a large portion industry and size. For example, many biotech preparation; corporate governance; financial in IPOs by venture capital–backed investors also seek to divest portfolio Holdings ($3.8 billion), LinkedIn ($353 of the company will be owned by insiders companies will have much smaller revenues and disclosure controls and procedures; companies in 2010, the number of companies or achieve liquidity through million), Pandora Media ($235 million) following the IPO, a larger market cap may and not be profitable. More mature companies external communications; and a variety VC-backed companies entering IPO IPOs. PE-backed companies are usually and Yandex ($1.3 billion). Widely be needed to provide ample float. < registration, or resuscitating dormant larger and more seasoned than VC-backed anticipated IPOs by several prominent are likely to have greater revenues and market of corporate housekeeping tasks. caps, but slower growth rates. High-growth filings, has been increasing. Longer companies or other start-ups pursuing social media companies, when they occur, term, the pool of IPO candidates will IPOs, and thus can be strong candidates companies are likely to be smaller, and usually should help further energize the market. < be affected by current trends in venture in a demanding IPO market. Private have a shorter history of profitability. 6 Law Firm and Underwriter Rankings Law Firm and Underwriter Rankings 7

Eastern US IPOs – 1996 to 2010 Company Counsel in IPOs of Eastern US VC-Backed Companies – 1996 to 2010

Counsel to the Issuer Counsel to the Underwriters

Wilmer Cutler Pickering Hale and Dorr LLP 92 88 180 Wilmer Cutler Pickering Hale and Dorr LLP 63

Skadden, Arps, Slate, Meagher & Flom LLP 54 67 121 Morgan, Lewis & Bockius LLP 28

Cravath, Swaine & Moore LLP 16 83 99 Goodwin Procter LLP 20

Davis Polk & Wardwell LLP 12 85 97 DLA Piper LLP 13

Latham & Watkins LLP 29 57 86 Bingham McCutchen LLP 11

Simpson Thacher & Bartlett LLP 35 39 74 Foley Hoag LLP 10

Dewey & LeBoeuf LLP 19 54 73 Hogan Lovells US LLP 10

Shearman & Sterling LLP 15 57 72 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. 10

Ropes & Gray LLP 15 54 69 Wilson Sonsini Goodrich & Rosati, P.C. 10

Morgan, Lewis & Bockius LLP 44 14 58 Edwards Angell Palmer & Dodge LLP 9

Goodwin Procter LLP 37 18 55 Skadden, Arps, Slate, Meagher & Flom LLP 9

Sullivan & Cromwell LLP 7 46 53 Latham & Watkins LLP 8

Sidley Austin LLP 10 40 50 Nixon Peabody LLP 8

Cahill Gordon & Reindel LLP 1 10 48 49 Fulbright & Jaworski L.L.P. 7

DLA Piper LLP 23 23 46 Morris, Manning & Martin, LLP 7

Greenberg Traurig, LLP 31 15 46 Source: SEC filings

Source: SEC filings

Eastern US Technology Company IPOs – 2004 to 2010 Bookrunner in US IPOs – 1996 to 2010

Counsel to the Issuer Counsel to the Underwriters

Wilmer Cutler Pickering Hale and Dorr LLP 26 15 41 Banc of America Securities LLC 603

Ropes & Gray LLP 6 16 22 Credit Suisse 431

Goodwin Procter LLP 15 4 19 J.P. Morgan 415

Davis Polk & Wardwell LLP 0 16 16 Goldman, Sachs & Co. 379

Cravath, Swaine & Moore LLP 1 13 14 Morgan Stanley 360

Latham & Watkins LLP 5 9 14 Citi 304

Dewey & LeBoeuf LLP 0 12 12 Barclays Capital 258

Wilson Sonsini Goodrich & Rosati, P.C. 3 9 12 0 Deutsche Bank Securities 233

Shearman & Sterling LLP 3 8 11 UBS Investment Bank 200

Skadden, Arps, Slate, Meagher & Flom LLP 3 8 11 Friedman Billings Ramsey 81

DLA Piper LLP 4 4 8 Wells Fargo Securities, LLC 80

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. 4 4 8 Cowen and Company 65

Hogan Lovells US LLP 6 1 7 Piper Jaffray 65

Morgan, Lewis & Bockius LLP 1 5 6 RBC Capital Markets 62

Sullivan & Cromwell LLP 5 1 6 Prudential Securities 57

Source: Thomson Reuters

Source: SEC filings The above charts are based on companies located east of the Mississippi River. Counsel of Choice for Public Offerings

SERVING INDUSTRY LEADERS IN TECHNOLOGY, LIFE SCIENCES, CLEANTECH, FINANCIAL SERVICES, COMMUNICATIONS AND BEYOND

Public Offering of Initial Public Offering of Initial Public Offering of Initial Public Offering of Initial Public Offering of Initial Public Offering of Senior Notes Common Stock Ordinary Shares Common Stock Common Stock Ordinary Shares $2,100,000,000 $100,855,000 $654,120,000 $138,000,000 $42,000,000 $1,435,000,000 Counsel to Issuer Counsel to Issuer Counsel to Underwriters Counsel to Issuer Counsel to Issuer Counsel to Issuer August 2011 August 2011 March 2010 May 2010 February 2011 May 2011

Public Offering of Public Offering of Public Offering of Public Offering of Public Offering of Public Offering of Public Offering of Senior Notes Common Stock Common Stock Common Stock Common Stock Common Stock 4.75% Convertible Senior Notes $2,000,000,000 $60,900,000 $175,822,350 $95,737,500 $66,033,000 $579,600,000 $230,000,000 Counsel to Issuer Counsel to Issuer Counsel to Underwriters Counsel to Underwriters Counsel to Issuer Counsel to Issuer Counsel to Issuer March 2011 June 2011 January 2011 May 2011 June 2010 March 2010 February 2011

Public Offering of Initial Public Offering of Public Offering of Initial Public Offering of Public Offering of Public Offering of Public Offering of Public Offering of Common Stock Common Stock Common Stock Common Stock Common Stock 3.750% Notes Common Stock 4.375% Senior Notes $58,958,200 $46,500,000 $60,538,000 $89,717,000 $50,801,000 $500,000,000 $178,489,000 $650,000,000 Counsel to Issuer Counsel to Underwriters Counsel to Issuer Counsel to Issuer Counsel to Issuer Counsel to Underwriters Counsel to Underwriters Counsel to Issuer April 2011 August 2010 December 2010 March 2010 March 2010 July 2011 June 2011 June 2011

Initial Public Offering of Rule 144A Placement of Public Offering of Public Offerings of Rule 144A Placement of Initial Public Offering of Initial Public Offering of Common Stock 9.750% Senior Notes Common Stock Senior Notes 7.75% Senior Subordinated Notes Common Stock Common Stock $54,625,000 $400,000,000 $86,250,000 $2,000,000,000 $200,000,000 $185,006,000 $90,397,000 Counsel to Underwriters Counsel to Issuer Counsel to Underwriters Counsel to Issuer Counsel to Issuer Counsel to Issuer Counsel to Issuer October 2010 December 2010 May 2011 January and March 2009 February 2011 April 2010 July 2010 10 Regional IPO Market Review and Outlook Regional IPO Market Review and Outlook 11

California California IPOs – 1996 to 2010 New England New England IPOs – 1996 to 2010

# of deals $ billions # of deals $ billions The number of California IPOs surged New England doubled its IPO output from four in 2009—the lowest number in in 2010, with six IPOs, compared to 18.21 180 17.57 decades—to 20 in 2010. Gross proceeds 169 three in the prior year. Proceeds also 79 8.04 grew more modestly, from $0.80 billion nearly doubled, growing from $0.61 to $1.95 billion, as the average deal size 13112.90 billion to $1.10 billion, as average deal dropped to $97.5 million. With these 106 size hit $182.4 million in 2010. 5.46 46 results, IPO activity in California topped 41 6.84 3.63 34 3.64 66 6.27 Massachusetts led the region in 5.73 3.03 the levels of 2002 and 2003, but remained 54 2.59 2.76 4.51 23 4.27 43 2010, with four IPOs, followed by 22 1.99 below the levels of 2004 to 2007. 3.42 35 16 25 25 2.89 13 2.15 20 1.95 Connecticut with two. New England’s 1.02 1.10 15 1.56 18 1.37 0.87 9 0.80 5 4 0.40 0.53 0.50 0.61 6 California’s largest and most prominent 5 4 2010 offerings spanned the region’s 3 1 3 IPO of 2010 was by electric car maker 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 traditional strengths in software, 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 biopharmaceuticals and financial services. Tesla Motors, which in June raised $226.1 Source: SEC filings Source: SEC filings million to become the first American In 2010, the region’s largest IPOs were automaker to go public in more than half a by LPL Investment Holdings ($469.7 century (later in the year, General Motors million), Ironwood Pharmaceuticals followed suit). Other large California IPOs ($187.5 million) and SS&C Technologies in 2010 came from Pacific Biosciences Holdings ($160.9 million). of California ($200.0 million), RealD ($200.0 million), Green Dot ($164.1 Five of the region’s six IPOs in 2010 million) and QuinStreet ($150.0 million). increased in price by year-end, and the region’s average IPO gained The average California IPO in 37% during the year. The best- 2010 ended the year 19% above its performing New England IPOs of offering price—boosted by the strong 2010 were Higher One Holdings (up aftermarket performance of Amyris Mid-Atlantic IPOs – 1996 to 2010 Tri-State IPOs – 1996 to 2010 69%), AVEO Pharmaceuticals (up (up 67%), Inphi (also up 67%) and # of deals $ billions # of deals $ billions 62%) and Ameresco (up 44%). Financial Engines (up 65%). 14.75 46 45 We expect that strong levels of venture 132 The California IPO market historically 4.28 3.82 capital investment in New England, has been dominated by technology- 3.36 along with the region’s world-renowned 9.53 9.35 related companies, with tech IPOs 2.95 89 2.75 8.25 84 8.51 26 2.63 universities and research institutions, 8.08 routinely accounting for 80% to 90% 2.40 24 7.07 22 will continue to provide a fertile 5.73 of the total number of the state’s 5.43 5.37 5.17 1.56 15 environment for new companies. 45 13 1.34 1.25 3.76 offerings. This trend was borne out 11 1.12 36 0.96 10 Although New England is unlikely to 32 29 0.93 0.94 25 7 7 in 2010 and is likely to continue. 17 1.68 5 return to the giddy days of 1996 through 14 13 14 1.52 4 0.34 3 9 1 4 0.61 3 With capital market and economic 2000, when it produced an annual 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 conditions improving, California IPO average of 44 IPOs, the region remains a activity should continue to rebound. Source: SEC filings natural wellspring of IPO candidates. Source: SEC filings Several prominent California-based social media companies are widely expected to by one large IPO. Average deal size in The region’s IPOs performed exceptionally Tri-State followed by Pennsylvania with four Venture capital activity in the tri- launch IPOs within the next year. Other the region in 2010 was $134.8 million. well in the aftermarket. The average and New Jersey with three. state region now trails only that of The number of IPOs in the tri-state emerging companies that demonstrate mid-Atlantic IPO of 2010 ended the California and New England. We The region’s largest IPOs of 2010 were by region of New York, New Jersey and The region’s largest IPOs in 2010 were strong growth in revenue and profitability year 53% above its offering price. The expect that VC-backed companies— The Fresh Market ($289.9 million), Booz Pennsylvania grew from nine in 2009 by Aeroflex Holding ($232.9 million), can also be expected to come to market. region’s best performers were BroadSoft including those from the technology Allen Hamilton Holding ($238.0 million), to 14 in 2010. Gross proceeds, however, Baltic Trading ($228.2 million) (up 165%), The Fresh Market (up 87%) and life sciences sectors—as well as Primo Water ($100.0 million) and Walker plunged from $3.76 billion to $1.52 and FXCM ($210.8 million). and KEYW Holding (up 47%). spin-offs from the region’s established Mid-Atlantic & Dunlop (also $100.0 million). billion, primarily because in 2009 one IPOs by tri-state companies in 2010 companies, will be IPO candidates as Technology- and defense-related very large IPO accounted for more than The mid-Atlantic region of Virginia, With three IPOs each, Maryland appreciated an average of 15% by the IPO market continues to improve. companies historically have contributed half of the year’s proceeds. Average Maryland, North Carolina, Delaware and North Carolina were the leading year-end. The region’s best performers The Web 2.0 sector should produce a significant portion of the mid- deal size in 2010 was $108.8 million. and the District of Columbia produced sources of IPOs from the mid-Atlantic additional IPOs from the region. < Atlantic region’s IPO deal flow. We were Qlik Technologies (up 159%), seven IPOs in 2010, up from three in region in 2010. Virginia contributed expect this pattern to continue as IPO In 2010, New York resumed the Aegerion Pharmaceuticals (up 49%) 2009. Gross proceeds dipped from the region’s other IPO of 2010. region’s lead role with seven IPOs, and IntraLinks Holdings (up 44%). $1.12 billion to $0.94 billion, primarily activity increases in the region. because 2009’s proceeds were skewed 12 Special Issues for Special Issuers Special Issues for Special Issuers 13

For some companies, the IPO entitled to exemptions from some A tracking stock IPO is not as complex conventional IPOs, effectively excluding company may find it difficult to go public The reverse-merger route to journey takes a road less traveled. corporate governance requirements as a spin-off IPO, primarily because many prototypical IPO candidates; until it has several post-bankruptcy public ownership presents Although these IPOs have many features in under Nasdaq and NYSE rules. most of the separation arrangements periods that can be compared. several special challenges: ■ the stock is priced with an common with more conventional IPOs, involved with a spin-off are not required. ■ Additional Disclosure: The Form S-1 illiquidity discount; ■ Bankruptcy Disclosures: The company ■ Merger Agreement: The transaction they also involve different considerations. The parent usually creates new equity requires various disclosures that are will need to discuss its past financial begins with a merger agreement Discussed below are several IPO structures incentive plans for the management ■ it may be difficult to satisfy the public ordinarily not necessary for other difficulties and will be unable to focus defining the terms and conditions of that present special issues. and employees of the tracked business, float and round-lot stockholder types of IPOs, such as a description of exclusively on its “new” strategies, the transaction. Every issue present in but few other indicia of independent requirements for stock exchange listing; the transaction structure and its tax management, capital structure and any business combination—ownership, Spin-Off IPOs operations. Perhaps the biggest challenge and accounting consequences, and a ■ prospects. Disclosure will also be required management and integration, to list in a tracking stock IPO is to accurately unless the stock is exchange-listed, the summary of the agreements between offering does not create a market for if any member of management was a just a few—must be resolved. The term “spin-off” is used loosely to refer describe and delimit the tracked business the parent and the subsidiary. employee equity incentives or liquid director or officer of the company at the to a variety of transactions. For example, ■ in a manner that permits separate financial time of its bankruptcy (if it occurred Due Diligence: The surviving company a spin-off occurs when a public company stock currency for acquisitions; and Spin-off IPOs are a staple of the statements for it to be prepared and within the preceding 10 years). is responsible for the liabilities incurred dividends the shares of a subsidiary to market. Recent prominent examples audited. The Form S-1 needs to describe ■ research coverage may be more and actions taken by the shell company its stockholders, thereby creating two include Mead Johnson Nutrition (from the investors’ rights in the tracked business difficult, if not impossible, to obtain. ■ Offering Limitations: A company that has before the merger. The private company separate public companies without an Bristol-Myers Squibb) in 2009 and and the potential conflicts of interest. been subject to a bankruptcy petition merging into the shell company must IPO. The phrase “spin-off IPO” refers Primerica (from Citigroup) in 2010. Moreover, the benefit of avoiding within the prior three years is not carefully examine the corporate to the sale of an ownership position Tracking stock IPOs tend to appear public company obligations may be permitted to use an electronic road show, history and pre-merger activities of when a high-growth market sector temporary, since the company usually in a subsidiary to the public, with the Tracking Stock IPOs and its use of free writing prospectuses the shell company to make sure it is parent selling some or all of its shares emerges and large, diversified companies agrees to register the Rule 144A is limited to a description of the terms not inheriting unexpected liabilities. in the subsidiary and/or the subsidiary To issue tracking stock, a parent company want to showcase their operations securities for public resale or register of the securities and the offering. ■ SEC Filing and Review: A reverse- issuing new shares. A spin-off IPO is creates a new class of stock to “track” in that sector. Never representing a as a reporting company, typically ■ Exchange Listing: Although Nasdaq and merger transaction usually requires a sometimes combined with the parent’s the economic performance of a specific large segment of the market, tracking within one year after the placement. the NYSE do not preclude the listing merger proxy statement or a Form S-4 distribution of its remaining shares in the subsidiary, division or other business unit, stock IPOs have all but disappeared Rule 144A IPOs have been reported as of companies that previously filed for registration statement. These filings subsidiary to the parent’s stockholders. but the investor does not actually receive in favor of structures that afford more far back as the early 1990s. After gaining bankruptcy, a past bankruptcy could typically are more complicated and an ownership position in the specific transparency and investor protections. in popularity between 2005 and 2007, affect an exchange’s subjective judgment time-intensive to prepare than a Form A spin-off IPO usually requires business being tracked, and that business more extensive preparations than when approximately 40 transactions were of the merits of the application. S-1 for a conventional IPO, and SEC unit is not actually separated from the Rule 144A IPOs completed (primarily by REITs and energy review usually takes longer than review a conventional IPO. In addition to parent. A tracking stock is intended to When economic conditions weaken, some and financial services companies), there of a Form S-1 for an IPO or a public- planning for the subsidiary’s IPO and function in a manner similar to a spin- A “Rule 144A IPO” is a Rule 144A public companies inevitably fail, due to were no Rule 144A IPOs in 2008 and public merger proxy statement. public company life, a spin-off IPO off, by allowing the tracked business to placement by a private company, coupled excessive debt or other factors. As the involves a number of other elements: with an agreement to register the securities only one in each of the last two years. be separately highlighted and valued financial cycle plays out, some of these ■ Blue Sky Laws: If the shell company is not for public resale or a commitment to ■ Transaction Planning: A transaction in the public market, while preserving companies eventually return to the public listed on a national securities exchange, register as a reporting company under the Post-Bankruptcy IPOs structure must be developed to ownership and control for the parent. market with IPOs. The most prominent its issuance of shares in the merger Exchange Act following completion of transaction will not be exempt from state achieve the desired operating, Occasionally a company that has post-bankruptcy IPO of recent years was From an investor’s perspective, the placement. A Rule 144A IPO is not an securities “blue sky” laws. As a result, the tax and financial objectives. emerged from bankruptcy proceedings that of General Motors, whose 2010 IPO there are several downsides to IPO in the usual sense, but can function shell company will be forced to comply will subsequently pursue an IPO. A consisted of a $15.77 billion common ■ Establishment of Subsidiary: The business a tracking stock structure: as an alternative to a conventional IPO. with additional filing and disclosure company in these circumstances is stock offering by selling stockholders to be spun off must be segregated requirements in all applicable states. ■ the tracked business usually lacks The principal advantage of a Rule 144A (former creditors) and a concurrent $4.35 into a separate subsidiary, holding likely to have been a public company the kind of corporate governance IPO is that it can provide the company billion preferred stock offering by GM. the correct assets, liabilities and that deregistered in conjunction with its In many cases, it is puzzling why a arrangements that would be present with as much capital as a conventional employees, and the infrastructure of a bankruptcy proceedings. The subsequent private company that aspires to become a in a freestanding company; Reverse-Merger IPOs separate company must be created. IPO—but much more rapidly because IPO could be prompted by registration substantial public company would pursue SEC review is bypassed. Other advantages rights given to creditors or stockholders a reverse merger with a shell company. ■ the investor has no direct voting rights A “reverse-merger IPO” is not really ■ Parent-Subsidiary Relationship: The include greater flexibility in the disclosure in the bankruptcy, or could be desired The transaction is often more difficult with respect to the tracked business; an IPO, but rather is a mechanism parent and subsidiary need to determine and offering process and the company’s by the company for its own reasons. and expensive than a traditional IPO, for a private company to become a their post-IPO relationship, including the ■ potential conflicts exist between corporate governance arrangements, and and the results usually less satisfactory. public company. In a typical reverse terms of inter-company agreements and the interests of the parent and the potential ability to delay compliance A post-bankruptcy IPO presents Still, reverse mergers enjoy enduring merger, a private company with an transition services agreements. The parent the tracked business; with public company obligations. several noteworthy issues: appeal. By some estimates, close to half also may wish to implement mechanisms operating business merges into a public ■ of all companies traded on the Over-the- ■ an investment in a tracked stock is subject Fresh-Start Accounting: Upon emerging to retain control of the subsidiary. Compared to a conventional IPO, a Rule shell company without an operating Counter Bulletin Board went public in to risks associated with all of the parent’s from bankruptcy, the company will 144A IPO has several disadvantages: business, and the private company’s reverse-merger transactions. Perhaps the ■ Controlled Company Rules: If the businesses, assets and liabilities; and adopt “fresh-start” accounting. Although stockholders receive a majority of the ■ best explanation of this phenomenon parent holds a majority of the the Rule 144A IPO market is concentrated both pre- and post-bankruptcy results stock of the surviving company. ■ is that it represents the continuing voting power for the election of the a tracking stock is immune from in a few sectors and limited to more and financial statements must be triumph of hope over experience. < subsidiary’s directors, the subsidiary unsolicited acquisition bids and any mature companies than the market for presented in the Form S-1, these results will be a “controlled company” and accompanying takeover premium. will not be directly comparable, and the 14 Post-IPO Financing Techniques Post-IPO Financing Techniques 15

An IPO is a major milestone for in advance of an offering. During the company reaches agreement on the offering agent or company has a pre-existing to securities market professionals and Can I Use Form S-3? any company, but the offering ensuing three years, the company can terms with investors, and a prospectus relationship (often employing a private securityholders unless the company proceeds usually do not satisfy the offer equity or debt securities registered supplement describing the offering terms is placement memorandum). Investors simultaneously publicly discloses the In order to use Form S-3, a public company company’s capital requirements on the Form S-3 pursuant to a prospectus then filed with the SEC. A CMPO is opened sign financing agreements with the information. In general, Regulation must satisfy both company requirements indefinitely. Several post-IPO financing supplement that describes the specific to the public after confidential marketing; company, the company issues the PIPE FD applies as follows to a public and transaction requirements. alternatives are discussed below. offering terms and is filed with the SEC the company issues a press release to securities (typically common stock or company’s financing transactions: In general, Form S-3 is available within two business days after pricing— announce the offering, immediately preferred stock) to the investors at a ■ Regulation FD does not apply to written to any US company that: without further SEC action. The company distributes a preliminary prospectus discount from the market price, and the Follow-On Public Offerings and oral statements in connection with may file another shelf Form S-3 when all supplement to prospective investors, and placement agent collects a percentage ■ registered follow-on public offerings, has been subject to the Exchange Act for at A public offering of securities after securities covered by the Form S-3 have fee from the company at closing. PIPE then files the preliminary prospectus including primary shelf offerings, least 12 calendar months and has timely filed an IPO—termed a follow-on public been sold or the three-year time limit is supplement with the SEC. Before the transactions are particularly favored by RDOs, CMPOs and ATM offerings (it all required reports during the 12 calendar offering—can be used to raise additional reached. Subject to market conditions, market opens on the next trading day, small-cap and mid-cap companies with does apply to resale shelf offerings). months and any portion of a month immediately equity or debt capital. Follow-on public Rule 415 provides eligible companies with the CMPO is priced, the final prospectus substantial capital needs but limited preceding the filing of the Form S-3; and offerings can involve a wide variety of the ability to access the public capital supplement is distributed to investors, and access to the Rule 144A market. ■ Regulation FD does apply to written and securities and structures, and are usually markets on short notice as needed. both documents are filed with the SEC. oral statements made in connection with ■ has not, since the end of its last fiscal year, underwritten. Depending on how long Shares issued in an RDO or CMPO are a Rule 144A placement or PIPE financing. failed to pay any dividend or sinking fund WKSI Shelf Offerings. A special category Additional Considerations the company has been filing periodic sold at a discount from the market price. When Regulation FD applies, the company preferred stock obligation or defaulted on of public company called a well-known reports with the SEC, the size of its public Stockholder Approval. In general, should announce the proposed financing any material indebtedness for borrowed seasoned issuer (WKSI) enjoys even float and other considerations, follow- companies listed on Nasdaq or the before it is disclosed to potential investors, money or long-term lease obligation. more flexibility. A WKSI may file a shelf Rule 144A Placements on public offerings are conducted on NYSE can issue shares for cash in public unless the financing is immaterial to the registration statement on Form S-3 that Transaction requirements vary by type of security different types of registration statements In a Rule 144A placement, the company offerings without any requirement company or offerees sign a confidentiality becomes automatically effective, bypassing and offering. For example, if the company has a with varying disclosure requirements issues securities (typically debt or for stockholder approval under stock agreement. In addition, the company SEC review completely, and use prospectus public float of at least $75 million, it can use Form and timelines from filing to closing. convertible debt) to an initial purchaser exchange rules. Companies listed on must avoid disclosing material nonpublic supplements to offer and sell securities in a private placement that is exempt from Nasdaq or the NYSE must, however, information during investor meetings or S-3 for a primary offering of equity or debt securities Form S-1. Unless the company is eligible to under the Form S-3 for a period of up registration pursuant to Section 4(2) of obtain stockholder approval for any in written offering materials, unless the of any size; if the company’s public float is less use a Form S-3, a follow-on public offering to three years. As a result, a WKSI can the Securities Act. The initial purchaser, private issuance of securities representing recipients agree to keep the information than $75 million, it can use Form S-3 to register must be registered on a Form S-1. The make registered public offerings of equity which is usually an investment banking or convertible into 20% or more of their confidential or the company publicly securities, over any period of 12 calendar months, Form S-1’s disclosure requirements for a or debt securities at will and reap the firm, then resells the securities to qualified pre-financing outstanding shares or voting discloses such information prior to with an aggregate market value of up to one-third follow-on public offering of common stock maximum time-to-market advantage. institutional buyers (QIBs) under Rule power if the purchase price is below the or simultaneously with disclosure to of the company’s public float. Other eligibility rules are substantially the same as for an IPO 144A or in offshore transactions under market price. Under exchange rules: prospective investors. In transactions in also apply to non-convertible debt, rights offerings, (a debt offering has additional disclosure At-the-Market Offerings. In an at-the- Regulation S. The initial purchaser’s which Regulation FD does not apply, the dividend reinvestment plans, and outstanding market (ATM) offering, the company sells ■ Rule 144A placements and PIPE requirements). In some circumstances, resales are made pursuant to an offering securities (typically common stock) from financings are not public offerings, and company should consider whether it is convertible securities, options and warrants. a public company may incorporate by memorandum or circular; the level of an effective shelf registration statement a typical RDO also will not qualify sound investor relations practice to disclose reference information from its prior disclosure will depend on the nature of the at the prevailing market price, rather as a public offering for purposes of to investors material information that it Am I a WKSI? Exchange Act filings into a Form S-1. company, offering and targeted investors. than negotiating a fixed price directly the stockholder approval rules. does not disclose to investors generally. Form S-3. Use of Form S-3 can provide with investors. Upon establishing the Rule 144A marketing practices vary, but In order to qualify as a WKSI, a company must ■ A CMPO that is broadly marketed FINRA Clearance. FINRA rules prohibit significant time and transaction cost arrangements for an ATM offering, the often include a short road show or other be Form S-3–eligible and have a public float of at to the public may qualify as a public underwriters and broker-dealers from savings, by permitting the company to company files a prospectus supplement investor meetings. The principal advantage least $700 million or have issued at least $1 billion offering. Nasdaq specifies the criteria participating in a public offering unless incorporate by reference information describing the offering; completed sales of a Rule 144A placement over a registered of debt securities in registered transactions in the that must be satisfied in order for a FINRA determines that the underwriting from the company’s prior Exchange Act are either disclosed in subsequent Form follow-on public offering is that it enables past three years. A “blank check company,” a “shell CMPO to qualify as a public offering, compensation and other terms are filings, rather than repeat that information 10-Qs and Form 10-Ks or announced a company to get to market quickly, company” or a company offering “penny stock,” but the NYSE has not provided “fair and reasonable.” In an IPO, this in the Form S-3, and to incorporate by without the risk of delays from SEC review sooner, if material. For larger companies formal guidance on the question. determination often requires several as defined under SEC rules, and a company that reference information from its future of a pre-closing registration statement. with substantial public floats that can months to reach. FINRA rules exempt has been subject to a bankruptcy petition within Exchange Act filings, rather than amend As a result, the issuance of securities absorb additional shares, ATM offerings from filing certain types of offerings, the prior three years, cannot qualify as a WKSI. the Form S-3 to add that information. PIPE Financings representing or convertible into 20% or can provide undiscounted access to the most notably shelf offerings registered If the offering is underwritten, the capital markets, alone or in conjunction more of a listed company’s pre-financing PIPE (private investment in public on Form S-3 based on the eligibility What is a QIB? company often voluntarily includes more with other financing sources. outstanding shares or voting power in equity) financings are private placements standards for Form S-3 that were in extensive information than required by a Rule 144A placement, PIPE financing In general, Rule 144A defines QIBs as institutional conducted by public companies pursuant effect prior to October 21, 1992—these the Form S-3 rules in order to enhance Hybrid Public-Private Offerings. In a or RDO—or in a CMPO that is not to exemptions from registration, typically Form S-3 standards are significantly investors that own and invest on a discretionary the marketing of the offering. registered direct offering (RDO) or a marketed sufficiently broadly to qualify more stringent than the current Form basis at least $100 million in securities of unaffiliated confidentially marketed public offering Section 4(2) or Regulation D. A PIPE as a public offering—at a discount to the Shelf Offerings. If the company is eligible S-3 standards. FINRA also offers companies; registered broker-dealers that own (CMPO), company securities (typically offering is typically marketed through current market price will trigger the need to use Form S-3, it can conduct primary expedited clearance of WKSI offerings and invest on a discretionary basis at least $10 common stock) that are subject to an an investment banking firm, acting as a for a stockholder vote on the issuance. “shelf” offerings pursuant to Rule 415 effective shelf registration statement placement agent. The placement agent and a same-day clearance process for million in securities of unaffiliated companies; and under the Securities Act. In a shelf offering, are confidentially marketed for several conducts due diligence, structures the Regulation FD. Regulation FD prohibits shelf offerings with an accelerated other entities in which all of the equity owners the Form S-3 is filed, undergoes SEC days to a targeted group of institutional offering and solicits interest from potential a public company from intentionally effective, pricing or launch date. < are QIBs. An individual investor cannot qualify as review (if any) and is declared effective investors. An RDO is announced after the investors with whom the placement disclosing material nonpublic information a QIB, regardless of income, net worth, investing experience or financial sophistication. < We Wrote the Book on Going Public. You can write the next chapter.

“[This book] is quickly becoming the bible of the I.P.O. market.” — The New York Times (The Deal Professor, January 19, 2010)

“CEOs should keep this book at their side from the moment they first seriously consider an IPO…and will soon find it dog-eared with sections that inspire clarity and confidence.” — Don Bulens, CEO of EqualLogic at the time it pursued a dual-track IPO

“A must-read for company executives, securities lawyers and capital markets professionals alike.” — John Tyree, Managing Director, Morgan Stanley

More information at IPOguidebook.com Book available from PLI.edu Want to know more about the venture capital and M&A markets?

Our 2011 Venture Capital Report offers an in-depth analysis of, and outlook for, the US and European venture capital markets. The report features industry and regional breakdowns, an analysis of trends in venture capital financing, an overview of VC-backed company M&A deal terms, a review of tax-saving opportunities from investments in qualified small business stock, and a discussion of near-term planning considerations for VC-backed companies that expect to go public.

See our 2011 M&A Report for a detailed review of, and outlook for, the global M&A market. Other highlights include an overview of the new Dodd-Frank requirement for a non-binding shareholder advisory vote on golden parachute arrangements, advice on special considerations in California M&A transactions, and a survey of key terms in sales of VC-backed companies.

To request a copy of any of the reports described above, or to obtain additional copies of the 2011 IPO Report, please contact the WilmerHale Marketing Department at [email protected] or call +1 617 526 5600. An electronic copy of this report can be found at www.wilmerhale.com/2011IPOreport.

Data Sources WilmerHale compiled all data in this report unless otherwise noted. Offerings by REITs, bank conversions, closed- end investment trusts and special purpose acquisition companies are excluded. Offering proceeds exclude proceeds from exercise of underwriters’ over-allotment options, if applicable. For law firm rankings, IPOs are included under the current name of each law firm. Venture capital data is sourced from Dow Jones VentureOne. Rule 144A IPO data is sourced from Thomson Reuters.

2011 IPO Report

wilmerhale.com