Publicity During A Registration Period

When in doubt about publicity during a registration period, consult your attorney. Actually, when in doubt about anything these days, running it by your attorney is a good idea…and some issues are critical.

Certain aspects of the Federal securities laws come into play once a company’s management and Board of Directors have made the decision to pursue an IPO (Initial Public Offering). Specifically, the company must carefully monitor publicity between the beginning and the end of the offering period. If you are working on a press release about an IPO, you should seek and heed the advice of a securities attorney.

The following advice, contributed by Joe Paykin, Esq., sets forth general guidelines a company should follow during the registration process, and is worth reading in its entirety:

Once a company is “in registration,” i.e., has made a decision to go public and has reached an understanding with a managing underwriter, it may not make an “offer to sell” the subject securities until the registration statement is filed. An offer to sell includes publicity efforts that “condition the market,” or are intended to or have the effect of raising interest in the company and its stocks. For instance, press releases containing forecasts, predictions of favorable future events, or favorable conditions for the industry may be viewed as conditioning the market. In such circumstances, the Securities and Exchange Commission (SEC) may delay or prevent the offering from proceeding.

However, a company in registration is permitted to continue to make announcements concerning factual business and financial developments and to respond to unsolicited inquiries concerning such matters. For example, press releases concerning significant new contracts or the opening of a new plant are permissible. Also, general advertising of the company’s products and services is allowed. A company should make announcements consistent with its practices prior to commencing the registration process. In any case, however, such publicity should not contain forecasts, projections, or opinions concerning values. In addition, until the offering is completed (and for a certain time after that, as discussed below), the corporate law firm, the underwriters, and the underwriters’ counsel should review any proposed press releases in advance.

In particular, the company should avoid any publicity regarding the proposed offering. The SEC’s rules do permit a company, prior to filing its registration statement, to announce the proposed offering. The information that may be contained in such a release is very limited. Among other things, neither the anticipated offering price nor the names of any underwriter may be mentioned. Many companies planning an IPO choose to avoid making such a release. After the registration statement is filed, the company may issue a press release concerning the filing. Again, what may be disclosed in this release is very limited. To a large extent, the company will look to the underwriters to determine whether to make such a release and what to include in the release.

Thereafter, during the “waiting period” between filing and the date the SEC declares the registration statement effective, the company should avoid any publicity other than distribution of the preliminary prospectus and announcements consistent with practices prior to beginning the registration process. A wide variety of writings in connection with an offer to sell the Company’s stock may be considered a “prospectus.” These writings would not meet the SEC’s rules. For example, a broker sent his business card with a preliminary prospectus, and wrote on the card “phone me as soon as possible as my allotment is almost complete on this issue.” The card was subsequently deemed to be a prospectus. Material business events may be announced. The preliminary prospectus may need to be supplemented for such an event.

Oral communications are permitted during the waiting period. The underwriters may organize a road show where officers of the company make presentations to brokers and financial institutions. Even in these meetings, the information discussed should be consistent with the prospectus, and not go substantially beyond what is in the prospectus.

After the registration statement is declared effective, the underwriter will be required to deliver final prospectuses for at least ninety days after the effective date. During this “quiet period,” the constraints on publicity are essentially the same as during the waiting period, except that the final prospectus, which replaces the preliminary prospectus, must be supplemented or amended.