RED HERRING PROSPECTUS

Red herring. When a security is offered to the public for the first time, the underwriter prepares a preliminary prospectus, called a red herring.
While the name may refer to the parts of the document printed in red ink, the implication is that the document has been written to present the company in the best possible light. The reference is to the rather distinctive odor of the fish in question, which, the story goes, fleeing fugitives sometimes used to throw bloodhounds off their scent.Although the preliminary prospectus contains important information about the company, its offerings, financial projections, and investment risk, it is customarily revised before the final version is issued.

WHY IT IS CALLED SO?
The term 'red herring' originates from the idiomatic use of that phrase.
The reason it is called a red herring is due to a disclosure statement printed in red ink on the cover which explicitly states that the issuing company is not attempting to sell its shares. e.g. "A Registration Statement relating to these securities has been filed with the Securities and Exchange Commission but has not yet become effective. Information contained herein is subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted prior to the time the Registration Statement becomes effective

CONTENTS
"Red-herring prospectus" Means a prospectus, which does not have complete particulars on the price of the securities offered and quantum of securities offered. The red herring statement contains:
1.purpose of the issue;

2.proposed offering price range;

3.disclosure of any option agreement;

4.underwriter's commissions and discounts;

5.promotion expenses;

6.net proceeds to the issuing company (issuer);

7.balance sheet;

8.earnings statements for last 3 years, if available;

9.names and address of all officers, directors, underwriters and stockholders owning 10% or more of the current outstanding stock;

10.copy of the underwriting agreement;

11.legal opinion on the issue;

12copies of the articles of incorporation of the issuer.