Real Corporate Lawyer

In an electronic road show, management makes a presentation about an upcoming offering to prospective investors and analysts, either live or re-transmitted via the Web and/or telephonic conference call.

Traditionally, road shows were conducted by in-person meetings with only large institutional investors and analysts in a few major cities just before an offering was priced. Other than preliminary prospectuses (and SEC filings that were incorporated by reference), no written materials were distributed. Slides, videos, or other multimedia may have been shown, but these “writings” did not leave the meeting room.

There is no legal requirement to distribute SEC documents at a live road show, but there is a legal requirement for most companies to make a preliminary prospectus available at the same time as or before an electronic road show. See more at Conditions of Conducting Electronic Road Shows.

Today, due to technological advances, road shows are also being simultaneously broadcast or re-transmitted over the Internet or other electronic media. In fact, some road shows are being designed exclusively for presentation via the Web.

2. What are the benefits of electronic road shows for companies?

Road shows are a primary means by which issuers are involved directly and actively with investors in the selling effort. With an electronic road show, a company can reach more investors and analysts without having to invest the travel and meeting time.

3. What are the benefits of electronic road shows for investors?

Electronic road shows arguably “level the playing field” by enabling more investors to be better informed—either directly by having access to the electronic road show or through the analysts that can more easily access the road show.

Through electronic road shows, retail and other investors have greater access to issuer information, such as management presentations, that have traditionally been available only at live road shows and that often have not been accessible by retail investors generally.

In addition, analysts have more time to prepare their analyses, since they are able to view road show presentations from anywhere and spend less time traveling.

Electronic road shows tend to be more focused and contain less puffery than their traditional counterparts, mainly because management “actors” are better prepared when they are filmed and because they are aware that electronic road shows leave an electronic trail of evidence for potential litigants.

4. How does the SEC regulate electronic road shows?

In July 2005, the SEC adopted rules addressing the use of electronic road shows in connection with registered securities offerings. Prior to these rules, electronic road shows proceeded in reliance on a series of no-action letters. When the new rules were adopted, these electronic road show no-action letters were withdrawn for registered public offerings.

B. Types of Companies Permitted to Use Electronic Road Shows

1. What companies can conduct electronic road shows?

Non-reporting issuers (IPO's), “unseasoned issuers” (those not eligible for Form S-3 for a primary offering), “seasoned issuers” (those eligible for Form S-3 for a primary offering), and “well-known seasoned issuers” (those with at least $700 million market capitalization) all can conduct electronic road shows. Certain categories of issuers must satisfy prospectus filing and/or delivery requirements. See more at Conditions of Conducting Electronic Road Shows.

Source: Rules 169 and 433.

2. Are any companies prohibited from conducting electronic road shows?

“Ineligible issuers” are not permitted to conduct electronic road shows unless they are live presentations transmitted electronically in real-time to a live audience.

Ineligible issuers include: (1) issuers that are not current in their Exchange Act reports; (2) blank check, shell, and penny stock companies; (3) limited partnerships offering and selling securities other than in a firm commitment underwriting; (4) issuers who have filed for bankruptcy in the last three years; and (5) issuers who have violated the anti-fraud provisions of the securities laws in the last three years.

Source: The definition of “ineligible issuer” appears in Rule 405.

3. Can a company conduct an electronic road show for a private offering?

Probably, so long as all of the conditions for a private offering are met. This means access is limited to accredited investors and private placement memoranda are delivered. See more at Online Private Offerings.

Note that it's probably easier to detect violations of private placement exemptions due to the trail of electronic evidence in electronic road shows, so companies should ensure that their service providers adequately qualify investors before selling to them.

4. Can a company conduct an electronic road show for a Rule 144A offering?

Yes; in a letter to Net Road Show (available January 30, 1998), the SEC staff granted no-action relief in this context.

Since Rule 144A offerings are exempt from the SEC's registration provisions, the analysis is whether an electronic road show is conducted in a manner consistent with Rule 144A, including its restrictions on general solicitation and general advertising. See more at Rule 144A.

5. Can a company conduct an electronic road show for a debt offering?

Companies have conducted electronic road shows for debt offerings, even though it's quite rare for companies to conduct live road shows for debt offerings. The SEC staff has not formally addressed whether companies can conduct debt offering electronic road shows.

Underwriters and companies appear to have gotten comfortable with conducting electronic debt road shows, probably since most regulatory issues are the same as in equity road shows.

C. Conditions of Conducting Electronic Road Shows

1. When can a company commence an electronic road show?

It depends on the type of issuer. An electronic road show generally is considered a “written” offer of securities and, accordingly, will be deemed a “free writing prospectus” subject to the use conditions in Rule 433. The exception is an electronic road show that originates and is presented live, in real-time to a live audience, which is considered an oral offer.

Source: The SEC's 2005 adopting release for the securities offering reform rules explains the difference between oral and graphic offers in the context of a road show in Section III.D.3.

For most issuers, this means an electronic road show can occur only after a registration statement relating to the offering is filed with the SEC. For a well-known seasoned issuer, however, electronic road shows can be done at any time. See "What is a ‘Well-Known Seasoned Issuer'?” in these FAQs.

2. Do investors have to receive a prospectus before an electronic road show?

For non-reporting and unseasoned issuers, yes. For seasoned and well-known seasoned issuers, no. These issuers only need to include a generic legend with a hyperlink to the preliminary prospectus and a toll-free number where the prospectus can be obtained. See more at “What companies can conduct electronic road shows?”

3. What if the prospectus is only a base prospectus for a take down offering?

Base prospectuses, preliminary prospectuses, summary prospectuses (other than summary prospectuses permitted by Rule 431) and prospectuses subject to completion will satisfy the prospectus condition.

4. Are there any additional filing requirements for electronic road shows?

Electronic road shows, and their scripts, are not generally subject to filing, except for material issuer information disclosed and not previously included in the registration statement. For issuers filing an IPO, at least one version of a “bona fide” electronic road show must be readily available electronically to any potential investor at the same time as the electronic road show. See "What is a “bona fide” electronic road show?”

Source: Rule 433(d)(8) covers filing requirements for an electronic road show that is a free writing prospectus.

5. What is a “bona fide” electronic road show?

Where the issuer is using more than one version of an electronic road show, the bona fide electronic road show must cover the same general areas regarding the issuer, its management, and the securities being offered as the other versions. A bona fide electronic road show need not address all of the same subjects or provide all the same information as other versions.

D. Relationship with Live Road Shows

1. Should records of an electronic road show be kept?

Yes. Issuers and offering participants, including underwriters and participating dealers, must keep copies of electronic road shows for three years following the initial bona fide offering of the securities.

Source: Rule 433(g).

2. Can a company allow investors to view only a portion of a road show?

Yes. An electronic road show can be set up so that investors are allowed to be selective about the portions that they wish to view.

For example, the beginning of an electronic road show can include a table of contents with links directly to the segments of the road show, enabling viewers to skip around if they wish. This is analogous to the ability of investors to walk in and out of a live road show as they wish.

3. Can a company allow investors to interact with management during an electronic road show?

Yes. During live electronic road shows, a company can elect to allow investors to submit questions (via e-mail or otherwise) to management.

4. Should a company copyright the content of an electronic road show?

Maybe, to provide another layer of protection against investors copying the electronic road show content.

By copyrighting road show content, companies and their agents will have another basis to get relief from an investor who breaks its agreement not to copy road show content, as well as allow companies to have a possible legal action against their service provider.

Source: Two excellent articles on this topic are Frank G. Zarb , Jr., Mark A. Wong, and Jake D. Feldman, "Controlling Republication of Your Webcast: Stopping the Runaway Train," in the December 2001 issue of Wall Street Lawyer, and Micalyn S. Harris, “Copyright Protection for Internet Road Shows?” in the April 1998 issue of wallstreetlawyer.com.

5. Are investors required to acknowledge that they will comply with conditions to view an electronic road show?

Probably not.

Investor acknowledgments may help protect a company from liability, but obtaining them may be administratively difficult.

In fact, the SEC staff has warned that investors cannot be forced to certify that they have read a prospectus before accessing public offering content; they merely can be encouraged to read the prospectus.

6. Does an electronic road show service provider need to register as a broker?

No, so long as the service provider's fees are not contingent upon the success or size of an offering.

Fees paid by investors to gain access to an electronic road show on a subscription or pay-per-view basis are not considered “contingent” fees, so service providers with these types of fee arrangements do not need to register as a broker.

7. Does a company have to conduct a live road show if it conducts an electronic road show?

No. Electronic road shows now can be used without many of the conditions previously communicated in electronic road show no-action letters. For example, an electronic road show need not be the re-transmission of a live presentation, and may be edited. In addition, those distributing the road show do not have to limit viewers to seeing it either within a 24-hour period or twice. They also can allow viewers to copy, print or download the road show. Multiple versions of electronic road shows are permitted.

Note that each different electronic road show will be a separate free writing prospectus.

Source: Footnote 295 of the SEC's 2005 adopting release for the securities offering reform rules.

8. How does Regulation FD apply to electronic road shows?

Regulation FD applies only to reporting companies, so it does not apply to IPO road shows.

For non-IPO road shows, under Regulation FD, any material nonpublic information (electronic or not) used in reporting companies' road shows has to be broadly distributed before or on the date of first use.

Note that even material oral statements made during live road shows trigger a filing obligation under Regulation FD.

Source: The SEC's statements about how Regulation FD would affect road shows is in Section II.B.7 of Release No. 33-7787 (December 20, 1999). The SEC excluded companies that are going public from complying with Regulation FD in II.B(5) of Release No. 33-7881 (August 15, 2000). For more on Regulation FD, see these FAQs.