Restrictions on offers


Once you have filed the registration statement and the
quiet period begins, you are forbidden to make any
written offers, such as through sales literature regarding
the offering, except by means of the red herring
prospectus and a free writing prospectus (described
below). Oral selling efforts (conversations between the
company or its underwriters and the prospective buyers
relating to information in the prospectus) are allowed,
but you must be careful even in oral conversations. If
oral communications are taped for broadcast or placed
on a website, they can be considered a written offer in
violation of SEC rules.

With the continued expansion in
use of the internet and social media, the SEC has adopted
rules to set the boundaries between oral and written
communications. Written communication is defined to
be any communication that is written, printed, a radio
or television broadcast, or a graphic communication.

Graphic communication includes all forms of electronic
media, including audio and video recordings, facsimiles,
digital storage devices, e-mail, internet websites,
computers, computer networks, or other forms of
computer data compilation. However, it does not include
a communication that at the time of the communication
originates live, in real time to a live audience, and does
not originate in recorded form or otherwise as a graphic
communication, although transmitted through graphic
These definitions become very important in dealing
with the roadshow (described below) and information
distributed through social networking media. As a part
of the briefing that counsel provides to officials in the
company, these rules and their application, including to
social networking sites, should be reviewed.

Free writing prospectus

To provide companies more flexibility during the offering,
in light of modern communication methods and the wide
dispersion of information, companies entering an IPO can
use what are called “free writing prospectuses” during
the quiet period after the registration statement that
contains a price range has been filed with the SEC. Free
writing prospectuses are any written communication that
constitutes an offer to sell or solicitation of an offer to buy
securities that are or will be the subject of a registration
statement, other than the statutory prospectus included
in the registration statement, or a communication after
the effective date of the registration statement that is
accompanied or preceded by a statutory prospectus.

Free writing prospectuses must include a prescribed legend
and most must be filed with the SEC. In addition, free
writing prospectuses must be accompanied or preceded
by a physical copy of the most recent statutory prospectus,
although this requirement will be satisfied, in the case of
an electronic free writing prospectus, if the latter contains
an active hyperlink to the statutory prospectus.

The freewriting prospectus may contain additional information
that is not found in the registration statement, but cannot
conflict with the information found in the registration
statement. The rules pertaining to the free writing
prospectus are complicated and you should work with your
legal counsel to ensure compliance



Also allowed are short press releases under Rule 134. Rule
134 “safe harbor” permits written communications that
include information with respect to the securities being
offered (the title, amount being offered, offering price, etc.);
proposed stock exchange listing; the type of underwriting,
names of underwriters, names of selling security holders,
and a brief description of the intended use of proceeds
of the offering, if then included in the disclosure in the
prospectus that is part of the filed registration statement;
the anticipated schedule for the offering and a description
of marketing events (including dates); and a description of
the procedures by which the underwriters will conduct the
offering. The purpose of the press release is to announce the
offering in the press and to tell interested parties where they
can obtain a copy of the prospectus.
Also allowed is a “tombstone” advertisement under Rule
134, so-called because of its formal, sparse wording,
and lack of adornment. Traditionally the tombstone
advertisement is issued after the pricing of the offering.

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