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Companies may soon be free to give interviews to Playboy without worrying about jeopardizing their initial public offerings. Sources said the Securities and Exchange Commission is preparing changes to the so-called quiet-period rules, which limit what companies may say in the 45 days before issuing stock. The agency is expected this month to provide guidance permitting pre-IPO companies to reveal basic information about the business and their management philosophy in media interviews or on their Web site during the quiet period, sources said. Google Inc. nearly had its IPO derailed because of an interview company founders Sergey Brin and Larry Page gave to Playboy in the run-up to the highly publicized offering. The SEC admonished Google for the interview, though it permitted the IPO to proceed in August. The SEC also is debating whether to permit pre-IPO companies to provide forecasts, such as projected stock prices and revenue predictions, and to disclose additional historical data, such as order backlogs. Companies that take advantage of the rule changes must accept liability for any quiet-period statements. That means shareholders or the SEC could sue for fraud if a projection is found to have been made in bad faith or if its historical data was inaccurate. “Saying a company has an 18-month backlog of orders for widgets, and it turns out that is false, will be considered materially misleading,” the source said. The 25-day quiet period after the SEC approves a company’s IPO registration statement is expected to remain in force. Some securities industry lobbyists had pressed the agency to make it easier for independent investment analysts to produce reports during that post-IPO quiet period. SEC officials also are considering other revisions to the quiet-period rules. These include shortening the pre-IPO 45-day quiet period to 30 days and allowing companies making secondary and other follow-up stock offerings to disclose additional information. Sources close to the commission expect that public corporations will be permitted to provide potential investors with more information about financial developments during the 45-day quiet period. That is likely to include providing more detailed dividend notices and running product advertisements. In addition, the SEC is likely to allow eligible companies to respond to unsolicited inquiries from independent analysts not affiliated with the their underwriters. Finally, public companies will be permitted to provide more forward-looking information, such as earnings and revenue forecasts, during the quiet period. Some public companies may be permitted to communicate more than others. Larger, “seasoned” companies, meaning those that have been public for more than a year and have a stock market capitalization of greater than $75 million, are likely to have more flexibility in what they can disclose during the quiet period than smaller public concerns. The quiet-period reforms will be packaged with other changes intended to make it easier for corporations to raise money through the capital markets, sources close to the agency said. For instance, the SEC will propose allowing companies to deliver prospectuses over the Internet rather than through the mail, sources said, a move that would speed access to the market. Experts said authorizing electronic delivery of prospectuses is long overdue. “It saves the company, underwriters and investors time and money,” said Brian Lane, former corporate finance director at the SEC. Rules now require stockbrokers to confirm that final prospectuses have been physically delivered to potential investors before securities are sold. Under its new proposal, the SEC would let companies planning IPOs or public corporations seeking to issue additional shares to post a prospectus on a government or investment bank Web site. Companies could then inform interested buyers that the prospectus is available online by sending them an e-mail or by issuing a press release. Lane, a partner at law firm Gibson, Dunn & Crutcher in Washington, said delivering documents electronically would let investors buy IPO shares immediately after the SEC approves the prospectus rather than waiting the typical three to five days it takes for it to arrive in the mail. “All the information individual or institutional investors need to make investment decisions will get to them faster because they won’t have to wait for physical delivery of the prospectus,” a source said. The SEC put capital markets reform on hold after the Enron Corp. scandal forced the agency to concentrate on its oversight responsibilities. The effort remained on the back burner as securities regulators were then tasked with promulgating and implementing anti-corporate fraud rules in the Sarbanes-Oxley Act. Key SEC officials developing the new rules, including Corporate Finance Division chief Alan Beller, have briefed staff members for the five SEC commissioners. The commissioners are expected to adopt the new provisions, sources said. Martin Dunn, deputy director of the Corporate Finance Division, also is contributing to the proposal. Observers said Beller and Dunn are pressing SEC staffers to finish work on the reform initiative so agency officials can discuss it with securities lawyers at the Practising Law Institute’s “Securities Regulation” forum in New York, which is scheduled for Nov. 11 through Nov. 13. A prior SEC effort to amend securities rules, dubbed the “aircraft carrier” because of its size and complexity, was derailed four years ago for fear that some provisions could make it harder for companies to quickly tap the capital markets. But much of the expected communications provisions in the draft rules will be taken from the aircraft carrier proposal. Copyright �2004 TDD, LLC. All rights reserved.

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