Legal Definitions - free writing prospectus

A free writing prospectus (FWP) is a specific type of written communication used by a company that is in the process of selling its shares to the public for the first time, known as an Initial Public Offering (IPO). During a period called the "waiting period" – after the company has filed its initial registration statement with the U.S. Securities and Exchange Commission (SEC) but before the SEC has approved the sale – companies are generally restricted in what they can say publicly about their offering.

The FWP allows a company to provide additional written information to potential investors that might not be included in the formal registration statement or preliminary prospectus. This information must not contradict anything in the official filing. It serves as a flexible tool for issuers to update or elaborate on details about the offering, the company, or its business, especially if new developments occur or if they want to highlight specific aspects to investors. The goal is to provide more context and persuade investors, while still adhering to strict regulatory requirements designed to protect them.

Here are some examples of how a free writing prospectus might be used:

• New Product Feature Announcement: Imagine "InnovateTech Inc." is in the waiting period for its IPO. After filing its registration statement, the company's research and development team finalizes a groundbreaking new feature for its flagship software product, which significantly enhances its market appeal. This information was not available when the initial filing was made.

  How it illustrates the term: InnovateTech Inc. can issue a free writing prospectus detailing this new product feature, including its benefits and potential market impact. This allows them to share important, positive, and non-conflicting information with potential investors during the waiting period, without having to amend their entire, lengthy registration statement immediately.

• Clarification from Investor Roadshow: "GreenEnergy Solutions," a renewable energy company, is conducting its "roadshow" – a series of presentations to institutional investors – during its IPO waiting period. During these meetings, many investors repeatedly ask for more detailed projections on the company's long-term operational costs, which were only broadly outlined in the preliminary prospectus.

  How it illustrates the term: To address these common investor questions comprehensively and consistently, GreenEnergy Solutions can distribute a free writing prospectus. This FWP would provide a more granular breakdown and explanation of their operational cost projections, ensuring all potential investors receive the same detailed information in writing, thereby clarifying a key financial aspect during the waiting period.

• Strategic Partnership Update: "BioPharma Innovations" has filed its registration statement for an IPO. During the waiting period, the company successfully secures a major strategic partnership with a large, established pharmaceutical company to co-develop and distribute one of its key pipeline drugs. This partnership significantly de-risks BioPharma Innovations' future revenue.

  How it illustrates the term: BioPharma Innovations can issue a free writing prospectus to announce and elaborate on the details of this new strategic partnership. This allows them to highlight a significant positive development to potential investors that was not part of the original filing, providing crucial updated information that could influence investment decisions during the waiting period.