3. Preparing for a Successful Offering 19

Creating or enhancing your company’s image may require hiring a public relations firm well in advance of the public offering. This firm can assist you with getting your company’s “story” out prior to the offering and with external communications and shareholder relations after you have gone public.
Other ways your company can enhance its public image include adding analysts and business press editors to your mailing lists, participating in trade shows and conferences that are attended by analysts, and publicizing key employee appointments.
Build relationships with an investment banking firm, law firm and independent auditor
These relationships will serve to establish your company’s credibility. Factors to consider in selecting such firms for your IPO process are discussed in “Identifying Your Going-Public Team — The Players,” page 21, and “Choosing Your Investment Banker,” page 24.
Establish incentive compensation plans
Development of a long-term incentive compensation plan is critical to keeping management and employees motivated. Today, many companies establish such plans for the benefit of its management team and employees shortly after formation. As discussed in “Current Regulatory and Disclosure Issues,” plans involving the granting of equity securities (including options and warrants) within one year of an IPO, may require the recording of an additional compensation charge if it is determined that these securities were issued at below fair market value at the date of grant.
Many investment bankers like to see preexisting option plans in place with options issued to the management team. If much of an individual’s wealth is associated with the growth of the company and the value of the unexercised options, the underwriter will see a long-term commitment, and this may help the valuation of your company.
Please see “Compensation Planning and Design,” page 59, for more detail on this subject.
Loans to executives
Section 402 of the Sarbanes-Oxley Act of 2002 prohibits publicly-tradedcompanies from providing certain personal loans to directors and executive officers. Among the reasons identified were concerns over the use of company funds to provide personal financing to insiders. As a result, companies should work with appropriate legal counsel to determine which loan arrangements are considered prohibited and take appropriate corrective actions prior to the public offering.

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