In March 2012, the SEC Staff announced a welcome change to its long-standing view regarding the estimated price range that must be included on the cover of an initial public offering (IPO) prospectus used prior to effectiveness of the registration statement.

This alert:

• reviews briefly the requirement for an IPO preliminary prospectus to disclose a bona fide estimate of the range of the maximum offer price;

• describes the recent change in the Staff’s view on the acceptable magnitude of that estimated price range; and

• notes some of the ways in which the Staff’s changed position on price range disclosure may afford issuers and underwriters additional flexibility in certain offerings.

Price Range Disclosure Requirement -

Section 5(b)(1) of the Securities Act of 1933 (the Securities Act) provides that issuers can distribute or otherwise use a prospectus prior to effectiveness of the related registration statement only if the prospectus meets the requirements of Section 10 of the Securities Act, which governs the information required to be included in a prospectus. To meet the requirements of Section 10, a prospectus used prior to effectiveness of the registration statement, commonly referred to as a “preliminary prospectus” or “red herring prospectus,” generally must be substantially complete and, for IPOs, must contain on the cover page a bona fide estimate of the range of the maximum offering price. Use of a non-compliant preliminary prospectus would violate Section 5 of the Securities Act, exposing the issuer to a right of rescission on the part of purchasers of the offered securities under Section 12(a)(1) of the Securities Act.