Taking BBE Public (4)

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After we retained Mason as our legal adviser for our initial public offering (IPO), he suggested a joint meeting with USA Investment Company (USA) and Stock Traders, Inc. (STI), the two investment companies which had expressed an interest in working with BBE as underwriters of the IPO.  The purpose of the meeting with our Board of Directors was to outline for everyone the process, time line and likely expenses in offering our shares to the public.  This would provide us the information we need to give our shareholders before we take a formal vote on the IPO.

USA is an investment bank which deals exclusively with large investing institutions like pension funds, insurance companies, mutual funds and the like.  STI is a traditional retail stock brokerage company dealing with individual investors.  After some preliminary discussions, Mason and our CFO, Mary Jo, reached agreement with the two companies for an IPO in which both of them would work together as underwriters, in effect, acting as an underwriting syndicate.  USA would work to sell shares of BBE to its institutional clients and STI would offer shares to its retail investors.  USA offered a firm commitment to sell two thirds of the shares to its institutional clients (the number of shares remained to be determined).  STI offered a best efforts commitment to market the remaining third of the shares.  As stated in an earlier blog, USA would buy the BBE shares it agreed to sell at a negotiated price and then resell them to its clients at the publicly offered price, which would be higher.  STI would act as a marketing agent for a commission to generate interest in purchasing BBE's shares among its retail customers.  Unlike USA, it would have no obligation to sell all of its allocation.  USA requested the right to sell more shares than initially agreed upon  if their institutional clients wanted to buy more shares.  We agreed to this over allotment option which is commonly referred to as a "Green Shoe Option."

Mason pointed out that there were several issues which had to be addressed regarding BBE.  As a result of the merger with Blog Topics, Inc. awhile ago, we now have two classes of common stock with different voting rights.  Although some public companies have dual classes of stock, he and the representatives from USA and STI all agreed that BBE must have only one class of common stock before we could proceed with the IPO.  They also suggested that BBE try to redeem the company's two series of preferred shares, one owned by Gobble and the other by Bob and Mary.  The Articles of Incorporation and the Bylaws of BBE would also need amendment to the form of organizational documents typical for publicly traded companies.  The goal is to take BBE public, and therefore the company must have Articles and Bylaws of a public company in all respects.  In fact, the SEC and most exchanges require certain provisions in a public company's governing documents which are not usually found in the Articles of Incorporation and Bylaws of private companies.  Public companies must provide certain protections for shareholders normally not provided by private companies.  SEC rules and regulations require there to be individuals on a public company's Board of Driectors who meet the agency's definition of an independent outside director.  This will require us to  bring new people onto the board if we are to go public.

Along the same lines, they said that we would have to change accountants.  Since starting in business, BBE has always used a small, local accounting firm to prepare its financial statements.  Since BBE is privately held, there was no need for our accountants to audit BBE's books.  As a publicly traded company, BBE will need to have its financial statements audited by a nationally recognized accounting firm.  Mason repeated his earlier advice that if BBE is to be a public company, it has to look and and operate its business like a public company.  Investors expect certain things from companies they choose to invest in.  Annual audited statements and approving opinions from a well known accounting firm are necessary to engender investor confidence in a public company's numbers.

Making all of these changes and going through the regulatory steps necessary to go public will take time, up to a year, before the IPO can happen.  All of this will cost money as well.  We schedule a special shareholder meeting to discuss all of this with our owners.  We invite our preferred stock holders as well.  Mason and the underwriters will make a full presentation at the meeting.

We will continue the story of BBE's going public in the next blog.

Comments are always welcome.