What Is a Free Writing Prospectus & When Is It Used?
Understand Free Writing Prospectuses: how these regulated communications provide additional investor information during securities offerings.
A prospectus is a disclosure document that describes a financial security for potential buyers, serving as a source of information for investors considering an offering. It provides details about the company, its financial history, and the securities being offered. A “free writing prospectus” (FWP) is a specific communication providing additional insights to potential investors during the securities offering process.
Defining Free Writing Prospectuses
A free writing prospectus (FWP) is any written communication that represents an offer to sell or a solicitation of an offer to buy securities, used after a registration statement has been filed with the U.S. Securities and Exchange Commission (SEC). This includes various formats, such as emails and internet content. The FWP’s primary purpose is to supplement the information found in the statutory prospectus, not to replace it.
Issuers utilize FWPs to provide additional or updated information to investors beyond the initial registration statement. This flexibility allows companies to communicate current details about the offering and the issuer. FWPs are a tool for companies to promote their securities offerings, facilitating more informed investment decisions.
While a statutory prospectus is a comprehensive document with strict content requirements, an FWP can be more concise and focused on specific aspects. It serves to enhance disclosure during the offering process by allowing for timely dissemination of information. The term “free writing” reflects its less constrained nature compared to the highly regulated statutory prospectus.
When Free Writing Prospectuses Are Used
Free writing prospectuses can be used at various stages of a securities offering, primarily after the registration statement has been filed with the SEC. During the “waiting period,” which is the time between the filing of the registration statement and its effectiveness, FWPs allow issuers to continue communicating with potential investors. This period is important for investors to evaluate the offering and for the SEC to review the registration statement.
Their use is common after the effective date of the registration statement, providing updated information. For certain highly established entities, known as well-known seasoned issuers (WKSIs), FWPs can even be used before the filing of a registration statement. This provides WKSIs with greater flexibility in their pre-offering communications.
Examples of information commonly conveyed through FWPs include road show presentations, which are often electronic, and detailed term sheets related to the pricing of an offering. Other forms can include press releases, emails, or marketing materials that go beyond basic tombstone advertisements. FWPs enable the sharing of current or specific information, adapting to market conditions or new developments.
Key Characteristics and Requirements
A free writing prospectus must adhere to specific regulatory requirements. Content in an FWP must not contain material misstatements or omissions, and it must be consistent with the information in the statutory prospectus.
FWPs must be filed with the U.S. Securities and Exchange Commission (SEC) on its EDGAR system. This filing requirement ensures regulatory oversight and makes the information publicly available for investors and regulators, serving to maintain transparency in the offering process.
A mandatory legend must be included in an FWP, informing investors that the FWP is part of a registration statement and directing them to the statutory prospectus for complete information. This legend typically provides details on how to access the statutory prospectus, often through the SEC’s website or by contacting the issuer or underwriters. Furthermore, a statutory prospectus must precede or accompany the FWP, or be readily available to the recipient.
Distinction from Statutory Prospectuses
The statutory prospectus is the legally mandated disclosure document filed with the SEC, containing all important information about the offering and the issuer. It includes comprehensive details such as financial statements, risk factors, and the use of proceeds. In contrast, a free writing prospectus serves as a supplemental communication.
The content scope differs significantly; the statutory prospectus must contain all information required by SEC rules and is highly standardized. An FWP, however, can be more concise and focused on specific aspects, provided it does not contradict the statutory prospectus.
Both documents are subject to anti-fraud liability under federal securities laws, meaning issuers and other parties can be held accountable for misleading information or omissions. FWPs offer greater flexibility in terms of format, content, and timing compared to the rigid requirements of the statutory prospectus.