Red Herring

The “red herring.” The preliminary prospectus is typically
printed after the company and its advisors conclude that
resolution of the remaining comments from the SEC is
not likely to require material revisions to the preliminary
prospectus and a new circulation to potential investors. As
the required cautionary language is printed on the front
cover in red ink, the preliminary prospectus is typically
referred to as a “red herring.” This language is as follows:
The information in the preliminary prospectus is not
complete and may be changed. These securities may not be
sold until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is
not an offer to sell these securities, and it is not soliciting an
offer to buy these securities in any state where the offer or
sale is not permitted.
The red herring prospectus may be distributed to the
general public. Since it is created before the pricing of
the offering, it does not contain the exact offering price.
However, the SEC requires that a bona fide estimated price
range be disclosed. If the final pricing is outside the range
set forth on the red herring that was distributed, you will
have to determine the necessary legal requirements, which
require a thorough and sometimes complex analysis, and
may require an additional filing and other actions. If this
change occurs, you should consult with counsel and refer
to the SEC guidelines on this topic

.
Printing. Early drafts of the registration statement are
typically managed by the company’s attorneys. After the
initial drafts have been discussed and edited, the document
is usually sent to a financial printer. Only a few firms
specialize in financial printing. These printers will be alert to,
and aware of, changing SEC rules and regulations regarding
prospectus and registration statement presentation,
format, and required size of type. The printers will also be
sensitive to your need for complete accuracy, timelines,
and confidentiality. The registration statement, including all
exhibits, is required to be filed on the SEC’s EDGAR system.
The major financial printers are set up to accommodate the
EDGAR filing process. The SEC’s EDGAR system provides
online access (at http://www.sec.gov) to most SEC filings and may
be extremely useful to you when drafting your registration
statement. Through the SEC website, you can access
previous registration statement filings to utilize as examples.
Your underwriter will also supply examples of previous
registration statement filings since the underwriters typically
have their own preferences.
Printing costs vary with the number of proofs and revisions
made and the extent of the revisions required between the
original filing and the final printing. Once the drafts are in
printed form, involved parties invariably notice details that
were overlooked. Authors’ alterations are very expensive
as revisions are usually requested from the printer on a
quick turnaround basis often resulting in overtime charges.
However, revisions cannot be avoided as they are essential
and often reflect updates, clarifications, and other changes.
With careful planning and organization, you can minimize
revisions to save time, money, and frustration.
Keep everyone involved in reading the early drafts and do as
much in-house editing as possible in advance of forwarding
your draft to the printer. Color art for the inside cover of
the prospectus, illustrations and related legends, pie charts,
and graphs should be prepared and approved in advance.
The artwork must be just as accurate as the rest of your
prospectus and must be submitted to the SEC for review.

For example, in a company’s registration statement, a four-color
illustration of all its various products was presented. The
SEC questioned why one of the depicted products was not
described in the prospectus and found that the product was
no longer being manufactured. The result was the artwork
had to be redone and reprinted.
The printing of the final prospectus will be done after the
registration statement is declared effective by the SEC and
pricing occurs. The printing is done rapidly to facilitate its
distribution. Most financial printers are familiar with these
time constraints.

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