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Companies preparing stock offerings will have more leeway to talk to investors and the media under new Securities and Exchange Commission rules that took effect Thursday. The SEC voted to relax restrictions on companies’ public communications on June 29 as part of a package of long-awaited reforms aimed at making it easier for corporations to tap capital markets. Executives at all companies will now have much more freedom to communicate about their companies before the 30-day quiet period companies must honor when they issue initial or follow-on stock offerings. During the quiet period itself, officials from well-known public companies and what the SEC calls “seasoned issuers” have modest but meaningful new freedoms as well. Companies issuing public communications before filing their offering plans with the SEC once risked being charged with making prohibited offers, otherwise known as “gun jumping.” Even written communications such as press releases and research reports issued by the companies’ underwriters were at risk of being treated as nonconforming prospectuses. “The old gun-jumping rules are severely truncated,” said Kirk Davenport, a securities lawyer for Latham & Watkins’ New York office. “Everything that happens prior to the 30 days is a freebie.” There’s one exception to that blanket protection, though. Even before the quiet period begins, company executives and their investment bankers remain prohibited from mentioning specific details of any upcoming offering. The quiet period is in effect five days before the pricing of an offering and for 25 days afterward. Lawyers specializing in advising initial-public-offer clients say the new rules are little different from previous “best practices” they had advised clients to follow but provide much-needed legal certainty from regulators. In addition to giving all companies essentially a free pass to talk about their business prior to the quiet period, underwriters for “seasoned issuers,” or companies that have been public for more than a year and have a market capitalization of $75 million or more, may continue issuing research reports on the companies. Additionally, those companies are permitted to make predictions about business performance if two caveats are met. First, forward-looking statements must have been part of their previous communications practices and, second, the targets of the predictions must be noninvestors, such as employees, vendors and customers. A company going public for the first time may supplement the formal bare-bones prospectus with a new creation called a “free writing” prospectus. But whether IPO candidates use the free writing prospectus option is an open question, said Brian Borders, head of the Borders Law Group in Washington. “How the changes will play out over time will depend on future interpretations,” he predicted. “It’s a subtle area.” Added Horace Nash, chair of the securities group at Mountain View, Calif.-based law firm Fenwick & West: “The current IPO road show process in terms of marketing actually works pretty well.” The changes update 1930s-era regulations establishing a quiet period that limits executives’ ability to tout their shares and gin up investor demand in the weeks surrounding an offering. Though once viewed as a vital anti-fraud protection, the communications restrictions were increasingly seen as an unfair impediment to the free flow of information to individual investors. While investment banks and other large institutions were given an inside track to corporate information during the road shows, individuals have been generally restricted to the limited information contained in an offering’s prospectus. Copyright �2005 TDD, LLC. All rights reserved.

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