Marketing the IPO – What is a free writing prospectus? (62)

Can an issuer hold an electronic road show?
Yes. Securities Offering Reform allows greater use of the Internet to distribute electronic road shows. A preliminary prospectus must be made available to investors before or at the same time when the investors access the electronic road show.
What is a free writing prospectus?
In the 2005 Securities Offering Reform, the SEC adopted the concept of a “free writing prospectus.” Rule 405 defines a free writing prospectus as any written communication that constitutes an offer to sell or a solicitation of an offer to buy securities relating to a registered offering that is used after the registration statement is filed (there is more latitude for certain issuers that are already public) that is made by means other than an actual prospectus or preliminary prospectus meeting SEC requirements and certain other written communications. While free writing prospectuses are often used in debt transactions to describe the specific terms of the debt securities, they are less often used in IPOs. However, they do have a very useful IPO function. Prior to 2005, if there were a material change in the offering, the deal team—issuer, underwriters andcounsel—would debate whether the change was so material that oral advice of the change was insufficient and a revised prospectus needed to be prepared, filed and circulated to investors (called a
“recirculation”). Since 2005, the deal team has the ability to provide a simple updating document to potential investors no later than the time when the investors have to make their investment decision (and file it within the time required by SEC rules). The free writing prospectus does not have a required format and will reflect transaction needs. Not all information

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