Pre-IPO Health Check overview and process Assessing

Transcription

Aspirations by Stock & Option Solutions
Nov. 4, 2014
Ready for Action: the Pre-IPO Health Check
Danielle Benderly, Perkins Coie LLP
Michael T. Esser, CECPTM; Pearl Meyer & Partners, LLC
Joshua P. McGinn, CEP; SVP Western Region, AST
November 4, 2014
Pre-IPO Health Check overview and process
Assessing:
◦ Compensation program and levels
◦ Equity plan readiness
◦ Employment agreements
Governance items
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Nov. 4, 2014
IPO “readiness assessment” across four
broad dimensions:
◦ Executive compensation
◦ Equity compensation plans and
practices
◦ Employment arrangements
◦ Compensation governance
Ideal timeframe:
◦ 9-18 months prior to
IPO/transaction
3
Identify gaps and key issues
◦ Where do we look similar to other public companies?
◦ Where are we different and why?
Prioritize activities and outline path forward
◦ Pre-IPO
◦ Post-filing
Identify potential
deal-breakers and
plan for resolving
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Nov. 4, 2014
Gather information
Assess and codify compensation programs
Review equity plan, practices and allocations
Harmonize employment arrangements
Review governance procedures
5
Materials regarding company strategy,
organization charts, financials, cap table
Compensation information/data
◦ Base salary
◦ Annual incentives/bonuses – target bonuses,
actual payouts, plan documents/descriptions
◦ Equity grants – current holdings, recent
grants, dates, exercise price(s)
Equity plan document; award agreements
Employment letters and agreements
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Nov. 4, 2014
Form, mix and levels of compensation vary by industry
and stage (pre- vs. post-IPO)
◦ Pre-IPO: lower cash; higher equity opportunity
◦ Public: higher base and bonus; less equity
Appendix - PM&P analysis re: evolution of
compensation pre- and post-IPO
Software companies provide larger grants pre-IPO (within ~18 months
of IPO), and significantly smaller awards post-IPO
Life Sciences companies have been more conservative with their preIPO awards
7
Median Grant Opportunity (% of fully diluted
shares)
CEO
shares)
CFO
1.0%
1.0%
0.94%
0.8%
0.8%
0.6%
0.59%
0.4%
0.6%
0.4%
0.37%
0.40%
0.2%
0.2%
0.0%
0.0%
0.30%
0.15%
Software
Life Sciences
Pre-IPO Grants
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Software
0.17%
0.19%
Life Sciences
Post-IPO Grants
*Data from PM&P analysis of recent IPOs; see
appendix for details
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Nov. 4, 2014
Capitalization table
◦ Stock ledger rules
◦ Data quality/cleanup
Management equity plan
◦ Plan document and grant agreements
◦ Participation and allocations
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Nov. 4, 2014
Accurate list of all equity outstanding
Scanned documents
Plan Reserve Information
Historical information on splits, transfers, ASC 718
audits, cost basis
Vesting of founders' and restricted stock
Current contact info for all stakeholders
Correct SSN and Tax ID Numbers
Correct and identifying information for trusts and
other entity stakeholders
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1.
2.
3.
4.
5.
6.
Work with your law firm
Research and find missing documents
Scan copies of your documents and store them for
ready reference
Validate and reconcile your ledger against your
documents
Contact stakeholders to update their information
Document and review the process
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1.
2.
3.
4.
5.
Nov. 4, 2014
Confirm Ownership Type Authorizations and
Reserves
Cross-reference Board resolutions for option grants
and stock certificates
Review and verify transaction data
Backfill any information you are missing
Review your Option Plan Information
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Review terms and conditions of
equity plan document
◦ Initial # of shares
evergreen provisions
◦ Types of awards
options (ISOs/NSOs)
restricted stock/RSUs
performance-based
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Nov. 4, 2014
Review terms and conditions of
equity plan document
◦
◦
◦
◦
Potentially fungible share counting
Individual grant maximum
Potential performance measures
Change-in-Control (CIC) definitions
and provisions
◦ Flexibility?
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Grant agreements – terms and conditions
◦ Vesting schedule
Service (time) vesting or performance-based
◦ Exercise provisions
◦ Performance conditions
◦ Treatment at termination of employment
◦ Other items
“Cause” definition
CIC provisions
Non-compete/non-solicit provisions
Market stand-off
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Nov. 4, 2014
Overall share allocation and usage
◦ Comparison to peers/recent IPOs can provide a frame of
reference
Company (19)
Abaxis Inc
ABIOMED Inc
Align Technology Inc
Alphatec Holdings Inc
AtriCure Inc
Cardiovascular Systems Inc
Cutera Inc
Cynosure Inc
DexCom Inc
Endologix Inc
Given Imaging Ltd
HeartWare International Inc
Insulet Corp
MAKO Surgical Corp
Masimo Corp
NxStage Medical Inc
Solta Medical Inc
Trinity Biotech PLC
Volcano Corp
Year
End
Weighted
Avg. Shares
Outstanding
New Share
Authorization
3/31/2013
22,381,000
---
3/31/2013
12/31/2012
12/31/2012
12/31/2012
6/30/2012
12/31/2012
12/31/2012
12/31/2012
12/31/2012
12/31/2012
12/31/2012
12/31/2012
12/31/2012
12/31/2012
12/31/2012
12/31/2012
12/31/2012
12/31/2012
41,052,000
83,040,000
90,218,000
16,190,000
18,035,635
14,089,000
13,792,000
68,700,000
59,811,000
31,563,208
14,252,000
47,924,324
42,658,000
58,374,000
57,890,000
64,437,427
89,773,616
55,195,000
--8.4
6.4
3.3
2.5
--2.2
3.0
4.2
n/a
----4.0
3.0
--2.8
n/a
9.7
25th Percentile
Median
Average (19)
75th Percentile
Available
5.0 %
**(a)
**
**
**
**
**
**
**
2.9 %
3.3
4.5
5.3
5.9
13.4
7.0
5.9
5.9
11.7
4.6
3.8
4.6
n/a
8.3
8.7
6.1
11.5
4.6
7.9
n/a
15.4
5.0 %
6.1
7.7
8.7
Share Allocation
Outstanding
Grants
4.7 %
Annual Share Utilization
Total
9.7 %
2012
2011
2010
3 Yr.
Avg.
0.9 %
1.9 %
1.5 %
1.4 %
12.8
6.1
6.4
22.7
21.6
28.2
14.2
15.1
9.9
17.6
5.9
6.9
13.8
14.3
9.3
13.4
11.6
8.2
18.6
19.4
13.4
28.6
27.5
39.9
18.7
18.9
14.5
17.6
14.1
15.7
19.8
25.8
13.9
21.4
11.6
23.6
1.9
1.3
3.6
7.8
4.8
7.9
5.0
3.1
2.1
1.0
1.8
2.1
3.3
1.3
1.6
3.1
4.6
1.5
1.7
1.7
1.8
2.9
6.1
9.3
3.3
2.7
2.3
1.1
2.4
2.4
3.6
3.7
1.5
4.0
0.6
1.6
3.5
2.5
3.5
4.0
7.0
8.2
3.5
3.0
3.8
1.8
2.7
1.9
4.0
1.6
4.5
5.0
4.3
2.5
2.3
1.8
3.0
4.9
5.9
8.5
3.9
2.9
2.7
1.3
2.3
2.1
3.6
2.2
2.5
4.0
3.2
1.8
7.6 %
12.8
12.8
14.7
14.3 %
18.7
19.6
22.5
1.5 %
2.1
3.1
4.1
1.7 %
2.4
2.9
3.5
2.5 %
3.5
3.6
4.2
2.2 %
2.7
3.2
3.8
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Overall share allocation and usage - evergreens
Company (19)
Evergreen
Abaxis Inc
ABIOMED Inc
Align Technology Inc
Alphatec Holdings Inc
AtriCure Inc
Cardiovascular Systems Inc
Cutera Inc
Cynosure Inc
DexCom Inc
Endologix Inc
Given Imaging Ltd
HeartWare International Inc
Insulet Corp
MAKO Surgical Corp
Masimo Corp
NxStage Medical Inc
Solta Medical Inc
Trinity Biotech PLC
Volcano Corp
No
No
No
Yes
Yes
Yes
No
Yes
Yes
No
No
No
No
Yes
Yes
No
Yes
No
No
Evergreen Structure (Lesser of…)
% of Common
Share
Board
Shares
Amount
Discretion
-----------5.00%
1,600,000
N
3.25%
825,000
Y
5.00%
970,500
Y
---2.50%
300,000
Y
3.00%
-N
------------4.00%
2,500,000
Y
3.00%
-Y
---3.50%
1,800,000
N
-------
N = 19
Prevalence
Average
Median
42%
42%
3.66%
3.38%
32%
1,332,583
1,285,250
26%
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Nov. 4, 2014
Review offer letters and employment agreements
◦ Arrangements are often disparate, with differences
depending on hire date/situation
◦ Evaluate compliance with existing terms
◦ Consider disclosure requirements
◦ Evaluate how to harmonize arrangements
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Areas of focus:
◦ Initial term and renewal provisions
◦ Ongoing compensation; participation in incentive plans;
benefits; perquisites (if applicable)
◦ Severance and post-termination benefits
◦ Restrictive covenants – non-compete; non-solicit; nondisparagement; etc.
◦ CIC provisions
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Nov. 4, 2014
Board of Directors – issues and planning points
◦ Board composition
Continuing directors post-IPO
Recruiting needs – new independent members
◦ Committee structure; charters
Audit
Compensation
Nominating/Governance
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◦ Compensation Issues
Board retainer; meeting fees
Specialized roles – non-executive Chairman; Lead Director
Committee compensation – Chair retainers; meeting fees
Equity awards
Initial/on-boarding awards
Annual grants
including form, level and timing
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Nov. 4, 2014
Get started early – 9-18 months before IPO
◦ Data gathering is time-consuming; checklists can help
Establish an external frame of reference
◦ Peer groups/comparables for compensation and program
comparisons
Ask for help – use your advisors
◦ External viewpoints and experience are often helpful
Identify gaps, issues and a game plan for resolving
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Danielle Benderly
Joshua P. McGinn, CEP
Partner
Perkins Coie LLP
1120 N.W. Couch Street, 10th Floor
Portland, OR 97209-4128
Direct: (503) 727-2011
Fax: (503) 346-2011
Email: dbenderly@perkinscoie.com
SVP, Western Region Relationship Management
American Stock Transfer & Trust LLC
One Embarcadero Center, Suite 503
San Francisco, CA 94111
Bus: (415) 835-1313
Email: jmcginn@amstock.com
Michael T. Esser, CECPTM
Managing Director
Pearl Meyer & Partners, LLC
550 South Hope Street; Suite 1600
Los Angeles, CA 90071
Direct: (213) 438-6504
Email: mike.esser@pearlmeyer.com
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Nov. 4, 2014
PM&P analysis regarding the evolution of
compensation pre- and post-IPO
◦ Analysis covered 66 Software and Life Sciences companies
with IPOs since 2011 (software) or 2010 (life sciences)
Excludes companies with revenue > $5 billion
◦ CEO and CFO positions
◦ Cash compensation and equity pre- and post-IPO
◦ Employment agreements – severance basis and multiples
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Nov. 4, 2014
Life Sciences base salaries are higher than Software
both pre- and post-IPO
Median Base Salary
Median Base Salary
CEO
CFO
$450
$450
$400
$410
$350
$379
$350
$300
$350
$300
$300
$250
$400
$200
$200
$150
$150
$100
$100
$50
$50
$0
Life Sciences
Software
Pre-IPO
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CEO target bonus % is significantly higher post-IPO
Notably higher target % in Software
Median STI Target %
CEO
CFO
90%
90%
80%
80%
81%
70%
70%
60%
65%
50%
50%
40%
42%
50%
40%
30%
30%
20%
20%
10%
10%
0%
50%
53%
35%
30%
0%
Software
www.sos-team.com
Life Sciences
Post-IPO
Median STI Target %
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$271
$250
$0
Software
60%
$300
$278
$250
Life Sciences
Software
Pre-IPO
Life Sciences
Post-IPO
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Nov. 4, 2014
Post-IPO target total cash virtually equivalent for Software
and Life Sciences
◦ Higher target bonuses for Software make up for lower base salaries
Median Target Total Cash
Median Target Total Cash
CEO
CFO
$700
$700
$600
$632
$600
$615
$500
$500
$537
$494
$400
$400
$300
$300
$200
$200
$100
$100
$0
$423
$405
$375
$353
$0
Software
Life Sciences
Software
Pre-IPO
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Life Sciences
Post-IPO
Software companies provide larger grants pre-IPO (within ~18 months
of IPO), and significantly smaller awards post-IPO
Life Sciences companies have been more conservative with their preIPO awards
shares)
CEO
shares)
CFO
1.0%
1.0%
0.94%
0.8%
0.8%
0.6%
0.59%
0.4%
0.6%
0.4%
0.37%
0.40%
0.2%
0.2%
0.0%
0.0%
0.30%
0.15%
Software
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Life Sciences
Pre-IPO Grants
Software
0.17%
0.19%
Life Sciences
Post-IPO Grants
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Nov. 4, 2014
CEOs generally receive a 1x severance multiple (absent CIC) and CFOs receive either
0.5x or 1x
Severance multiple is usually based on base salary only rather than base + bonus
Severance Multiple - Absent CIC
Severance Multiple - Absent CIC
CEO
CFO
50%
50%
40%
40%
42%
37%
30%
20%
10%
11%
13%
<1x
1x
27%
20%
7%
8%
0%
39%
30%
27%
3%
Between 1x -
10%
20%
19%
17%
3%
0%
<1.5x
<1x
1x
Between 1x -
1.5x
<1.5x
1.5x
Severance Basis - Absent CIC
Severance Basis - Absent CIC
CEO
CFO
100%
50%
50%
63%
50%
57%
42%
14%
0%
Base
20%
17%
0%
Base + Bonus
Base
Software
10%
Base + Bonus
Life Sciences
31
Generally severance multiple is higher following CIC, or basis
includes bonus
Severance Multiple - Following CIC
Severance Multiple - Following CIC
CEO
50%
40%
40%
39%
30%
30%
30%
27%
20%
6%
0%
<1x
1x
Between 1x -
27%
25%
13%
13%
10%
8%
7%
39%
30%
20%
19%
10%
CFO
50%
13%
8%
0%
<1.5x
<1x
1x
Between 1x -
1.5x
Severance Basis - Following CIC
Severance Basis - Following CIC
CEO
CFO
60%
40%
<1.5x
1.5x
60%
40%
47%
47%
44%
20%
42%
37%
20%
28%
0%
31%
30%
0%
Base
Base + Bonus
Base
Software
Base + Bonus
Life Sciences
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Pre-IPO Health Check overview and process Assessing

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