SECTION 2
Forms
Title 2
Title 3
Title 4

SECTION 3
Securities Act
Exchange Act
Sarbanes-Oxley Act
SOX TABLE
Title 5

SECTION 4
'33 ACT Reg
'34 ACT Reg
Reg. S-K
Reg. S-X
Title 5
Title 6

The Roadshow--Conventional and Electronic

Conventional road show presentations

The telephone and calls by brokers employed by members of the selling group to their clientele during the waiting period are a big part of the marketing effort. The brokers are taking indications of interest that they hope to turn into offers to buy and sales the moment the registration statement becomes effective. The real selling effort, however, is the road show(s) attended by invitees consisting of institutional investors, investor advisers, analysts, and broker-dealer representatives. The presenters are the lead investment bankers, the company CEO, and CFO and possibly other company employees familiar with their product, technology, game plan or whatever makes the company attractive. The only written information the invitees will receive is the preliminary prospectus, but the oral presentation may and is likely to go beyond the prospectus. The reaction of the invitees to the road shows held across the country permits the lead underwriter and issuer to gauge the demand for the offering (or at least leads the underwriter/issuer to think that it does) and becomes a big factor in the pricing and sizing of the offering. The Background description of road shows in the Schwab No-Action Letter is a must read. The request submitted on behalf of Schwab was written by Simon M. Lorne, a former General Counsel of the SEC. The remainder of the letter and the SEC no-action response will give you a view of the limited extent to which no-action letters allowed electronic roadshows, but are of academic interest only since the No-action letters have been replaced  by SOR and Rule 433 in particular.

SOR clarifies some issues relating to road shows; particularly, with respect to electronic road shows that a number of no-action letters left somewhat unresolved to be charitable,[1] and all of which are withdrawn by the adoption of Rule 433.[2] The final version of Rule 433 and the related definition of “graphic communication” is road show friendly. Rule 433 defines a road show as “a presentation regarding an offering by one or more members of the issuer's management” that includes a discussion of the issuer and/or management or the securities being offered.[3][ A traditional in person road show held after the registration statement has been filed that encompases only oral presentation is not a written communication and not a prospectus and, hence, does not need Rule 433 to avoid being classified as a free writing prospectus and/or to require a filing. The Adopting Release notes that “[i]n-person road shows will continue to be considered oral communications.”[4] Rule 433 clarifies that visual presentations such as slides and power point presentations at road shows provided not given to the participants have informally been regarded as oral.[5] A Note to Rule 433(d)(8) specifically so provides, although the explanation of the Note in the Adopting Release is clearer than the Note. [6] The Adopting Release states in this regard as follows: “We have added a note to the effect that where a communication (such as slides or other visual aids) is provided or transmitted simultaneously as part of a live road show that is not a written communication,…and that communication is provided or transmitted in a manner designed to make it available only as part of the road show and not separately, that communication is deemed part of the road show. Such a communication is thus deemed also not to be a written communication.”[7] The other issue relating to live in person road shows involves the concurrent transmission of the road show through an electronic media to an “overflow room” and or persons (e.g. sales persons of members of the selling group) in other locations. Since it involves the definition of graphic communication[8] that is also pertinent to electronic road shows, we discuss it separately below in that context other to note that within certain limitations such transmissions will not be deemed a written communication.[9]

Electronic road shows

The major clarifications concerning road shows relate to electronic road shows. Under the prior no-action letters,[10] it was necessary to restrict those that can access electronic road shows, whereas SOR encourages in the case of an IPO but does not require that access be provided to everyone that desires to access to the presentation. The final rules adopt three tacks that facilitate electronic road shows. First the Rule 405 definition of graphic communications[11] excludes a presentation that originates live and is to a live audience regardless of the means conducted (including graphic means) provided not a radio or televisions broadcast. Under those circumstances the presentation is not a written communication; therefore is not a free writing prospectus and does not have to be filed. Second, assuming the electronic road show is a graphic communication (e.g recorded and not presented live or is broadcast by radio or television) it is a free-writing prospectus but is subject to the filing requirements only if an offering of common equity or convertible equity securities by an issuer that is not, at the time of the filing of the registration statement for the offering a reporting company.[12] Third, assuming the electronic road show is a written communication and otherwise a free writing prospectus and subject to the filing requirements (an offering of equity securities by a non-reporting company) no filing is required  provided “the issuer makes at least one version of a bona fide electronic road show available without restriction by means of graphic communication to any person, including any potential investor in the securities.”[13]

Since it plays such a critical role we start with the Rule 405[14] definition of a graphic communication,[15] which is very broad as it includes “all forms of electronic media, including, but not limited to, audiotapes, videotapes, facsimiles, CD-ROM, electronic mail, Internet Web sites, substantially similar messages widely distributed (rather than individually distributed) on telephone answering or voice mail systems, computers, computer networks and other forms of computer data compilation.” The final rules, however, add one very important qualification to the definition of graphic communication as follows: “Graphic communication shall 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 it is transmitted through graphic means.” We need to note that the Section 405 definition of written communication includes a graphic communication, which, therefore, is a prospectus as defined by Section 2(a)(10) of the Securities Act, emphasizing the significance of the exclusion of live presentations. We also need to note that Section 2(a)(10) definition of a prospectus includes a radio or television broadcast. Accordingly, a graphic communication not involving a live presentation and/or a radio and television broadcast (whether or not involving a live presentation) are all a statutory prospectus and subject to the restrictions of Section 5(b)(1). A live presentation not a radio or television broadcast that meets the requirements of the exclusion from  a graphic communication is an oral communication and like any other oral communication (e.g. in person or over the telephone conversation) is not subject to the restrictions of Section 5(b)(1) after the registration statement is filed.

To appreciate the significance of and limitations on the exclusion from the definition of live presentations we reference the Adopting Release, which states as follows:[16]

The definition of graphic communication 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. Any such communication is not a graphic communication even if it is transmitted through a means of graphic communication. A basic concept of the definition we adopt today is that communications that are graphic communications when they are transmitted are treated as graphic communications under the definition and communications that are live, in real-time communications to a live audience when they are transmitted are not treated as graphic communications. We believe that live, in real-time communications to a live audience, including those transmitted by graphic means, have less of the permanence of communications that originate in graphic form or that appear on the printed page. Accordingly, we believe that the distinctions in the definitions we are adopting today are appropriate updatings of the Securities Act's distinctions between oral and written communications.

A radio or television broadcast on the other hand are a Section 2(a)(10) prospectus regardless of the means of transmission. The Adopting Release states in this regard as follows :[17]

We thus make a clearer distinction between communications that are broadcast and those that are graphic communications. We have clarified that a television or radio broadcast in Securities Act Section 2(a)(10) and in our definition of written communication encompasses all radio or television broadcasts, regardless of the means of transmission of the signals. For example, a cable television show will be considered a television broadcast that is a written communication, and a television show or radio program that may be seen or heard through the Internet on a computer will also be considered a television or radio broadcast that is a written communication. A communication may fall outside the definition of graphic communication because it originates live, in real-time to a live audience but such communication (for example, a live business news program broadcast by traditional means or on cable) may be a television or radio broadcast. On the other hand, a live, in real-time communication that is transmitted by graphic means to a live audience would be an oral communication. Given the potentially unlimited and uncontrolled nature of dissemination of broadcast communications and the language of the Securities Act, we believe that this is an appropriate distinction.

The Adopting Release fortuitously includes the following examples of what are and what are not written communications in this context:[18]

·         a live telephone call is not a written communication;

·         a live telephone call that is recorded by the recipient is not a written communication;

·         e-mails, facsimiles, and electronic postings on web sites, by their nature, originate in graphic form and, therefore, are graphic communications;

·         a live, in-person road show to a live audience is not a written communication;

·         a live, in real-time road show to a live audience that is transmitted graphically is not a graphic communication;

·         a live, in real-time road show to a live audience that is transmitted to an "overflow room" is not a graphic communication;

·         a webcast or video conference that originates live and in real-time at the time of transmission and is transmitted through video conferencing facilities or is webcast in real-time to a live audience is not a graphic communication;

·         the ability of a member of the audience to record a webcast or video conference that is presented live and in real-time to a live audience would not affect the status of that webcast or video conference;

·         a live telephone call or video or webcast conference that is recorded by or on behalf of the originating party or parties and then transmitted, or is otherwise transmitted other than live and in real-time, will be a graphic communication and therefore a written communication;

·         a live telephone call or video or webcast conference that is recorded by the recipient and then re-transmitted by the recipient is a graphic communication by the recipient when it is re-transmitted; and

·         an interview with an issuer's chief executive officer conducted live as part of a television program is a written communication regardless of how the television signal is transmitted (whether over the airwaves, or through cable, satellite, or Internet) and regardless of how it is received by the recipient (whether a television set or a computer).

The key is to originate as a live (not recorded) presentation) to a live audience including those who are not present in person but are receiving it simultaneously by means (including a webcast) other than by radio or television broadcast. In such event, the presentation is an oral communication, is not a free writing prospectus, and is not subject to any filing requirements. As an oral communication in connection with a public offering it is subject to the enforcement provisions of the Securities Acts and can give rise to a private action under appropriate provisions of the Securities Acts if it includes false or misleading representations of material facts. The foregoing applies to an electronic road show and also to an in person road show that in addition to the immediate audience includes people in an overflow room and those at other locations listening, for example, via teleconferencing.[19]

As discussed above in connection with an in person road shows,[20] visual aids including power point presentations are deemed part of the road show and not written communications, provided not separately distributed to participants or others.[21] The Adopting Release states in this regard as follows:[22]

If the road show is not a written communication, such a communication, such as slides or Visual aids, even if it would otherwise be a graphic or other written communication is deemed to be part of the road show and thus not to be written. This provision also would cover, for example, a communication of visual aids provided in a separate feed from a live, in real-time road show to a live audience transmitted by graphic means, where the separate communication is provided or transmitted in a manner such that the separate communication can only be seen as part of the road show. If the road show is written and not required to be filed, such a simultaneous communication is also not required to be filed. This provision also would cover visual aids transmitted in a manner designed to make them available simultaneously only as part of an electronic road show. If the electronic road show is not subject to filing, neither are the visual aids. Otherwise, graphic or other written communications provided separately, for example by graphic means in a separate file designed to be available to be copied or downloaded separately, will be treated as a written communication and, if an offer, will be a free writing prospectus.

We assume an electronic road show that is a graphic communication and, hence, a written communication (e.g. recorded and made available on the issuer’s or the underwriter’s web site). First, we assume that the offering is a follow-on offering of common stock by a reporting company. The electronic road show is a graphic communication that is a written communication and is a free writing prospectus. Since it is not offering equity securities of a non-reporting company it does not have to be filed [23]. It is a free writing prospectus, however, and would have to include the appropriate legend.[24] Further if the company is an unseasoned reporting company offering equity securities it would have to make the most recent subject to completion prospectus available.[25] This should be no problem as the requirement of delivering the subject to completion prospectus  is “satisfied if a free writing prospectus that is an electronic communication contained an active hyperlink to such most recent prospectus.”[26] A seasoned reporting company ordinarily would include such a link even if not required.

A non-reporting company offering common equity or securities convertible into common equity (typically an IPO) making available an electronic road show that is not within the live presentation exception from the definition of graphic communication has made a written communication that is a free writing prospectus. The road show script, however, does not have to be filed if “the issuer of the securities makes at least one version of a bona fide electronic road show available without restriction by means of graphic communication to any person, including any potential investor in the securities.”[27] A bona fide electronic road show for this purposes is one “transmitted by graphic means that contains a presentation by one or more officers of an issuer or other persons in an issuer's management.” [28] If there is more than one version of the electronic road show, to be such a bona fide version the road show made generally available in this manner must include “discussion of the same general areas of information regarding the issuer, such management, and the securities being offered.”[29] If there is more than one version of the electronic road show, a bona fide version “available without restriction must be made available  no later than the other versions”[30] If these conditions are not complied with, a script of the road show must be filed in accordance with the filing requirements pertaining to a free writing prospectus generally.[31]

Assuming an electronic road show relating to an offering of equity securities by a non-reporting company that does not have to be filed because a bona fide version is made available to anyone seeking access, as a free writing prospectus, however, the electronic road show would be subject to the other conditions of Rule 433. Those conditions include the delivery of a subject to completion  prospectus required of non-reporting and unseasoned issuers[32] and restrictions on using information that conflicts with the information included in the prospectus.[33] The delivery of a subject to completion prospectus, as noted above, should be no problem as the requirement of delivering the subject to completion prospectus  is “satisfied if a free writing prospectus that is an electronic communication contained an active hyperlink to such most recent prospectus..”[34] These provisions encourage making at least one version of an electronic road show available with respect to an IPO to anyone who seeks to access it, but does not require it if the issuer is willing to comply with the filing requirements relating to a free-writing prospectus.