Marketing the IPO – What is a “family and friends” or “directed share” program? (63)

released by an issuer needs to be in the form of a free writing prospectus, and the deal team may need to determine the value of filing specific information.
Can an IPO issuer use free writing prospectuses?
Yes. A company may use free writing prospectuses in addition to a preliminary prospectus as long as the preliminary prospectus precedes or accompanies the free writing prospectus. In addition, certain free writing prospectuses must be filed with the SEC and contain a required legend. Underwriters may also use free writing prospectuses, and the underwriting agreement for an IPO will contain mutual restrictions on the use of issuer free writing prospectuses and underwriter free writing prospectuses. BDCs and other investment companies may not use free writing prospectuses.
What is a “family and friends” or “directed share”
In connection with an IPO, an issuer may want the option to “direct” shares to directors, officers, employees and their relatives, or specific other designated people, such as vendors or strategic partners. Directed share (or “family and friends”) programs (“DSPs”) set aside stock for this purpose, usually 5-10% of the total shares offered in the IPO. Participants pay the initial public offering price. Shares not sold pursuant to the DSP, usually within the first 24 hours after pricing, are then sold by the underwriters in the IPO. Generally, directed shares are freely tradable securities and are not subject to the underwriter’s lock- up agreement, although the shares may be locked up for some shorter period. Each underwriter has its own program format. There are, however, guidelines that must be followed. The DSP is not a separate offering by the company but is part of the plan of distribution of the

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