Thomson Financial Services, Inc.

Public Availability Date: September 4, 1998
WSB File No. 091498002
Fiche Locator No. 2952B7
WSB Subject Category: 32
References:
Securities Act of 1933, Section 2(a)(10)
 

"...The staff, without necessarily agreeing with counsel's analysis, will not recommend Commission action if this company transmits an issuer's road show presentation either over the Internet or its existing private network in reliance upon counsel's opinion that such transmissions are not prospectuses within the meaning of 1933 Act section 2(a)(10). The staff particularly notes that a registration statement must be filed with the Commission before any road show relating to the corresponding offering may either be listed or otherwise identified in the index of upcoming securities offerings or transmitted to any user following authorization by the lead underwriter for such offering. The company's virtual roadshow service, which is co-produced by First Call and Dalcomp, both subsidiaries of the Thomson Corp., a Canadian company, will provide money managers and other large institutional investors with video access to road show presentations transmitted through an Internet website maintained by the company and over First Call's private network. The company represents that a road show consists of oral presentations by members of management and the underwriting team describing the registrant and its plans and operations, accompanied by audio-visual aids. A preliminary prospectus is distributed to all participants either at or prior to the road show. The audience includes potential institutional investors, securities firms, trading and sales personnel from participants in the offering and research analysts. Access to the service will be controlled by a password system consisting of a user ID and password. Prospectuses will be available electronically and for downloading to all institutional parties with the user ID and password. The underwriter will agree in writing with the company not to enable a viewer to view a taped or live road show unless: 1) registration statement pertaining to the offering is on file with the Commission; 2) the viewer is an institutional investor or other person of a type the underwriter would customarily invite to a road show, and 3) the viewer has been provided with a copy of the prospectus. The sponsoring underwriters will have exclusive control over the content of both the taped and live road shows. The company will enter into written contracts with the underwriters pursuant to which the underwriters will agree to ensure that information disclosed in the road shows is not inconsistent with the prospectus furnished to viewers. The company represents that its compensation will not be contingent upon the degree of success of an underlying offering or the size of the offering."
 

        August 12, 1998
       
        Via Facsimile and By Hand
       
        Catherine T. Dixon, Esq.
       
        Chief Counsel, Division of Corporation Finance
       
        U.S. Securities and Exchange Commission
       
        Mail Stop 4-2
       
        450 Fifth Street, N.W.
       
        Washington, DC 20549
       
        Dear Ms. Dixon:
       
        This firm is counsel to Thomson Financial Services ("TFS"), a division of the Thomson Corporation. On behalf of our client, we seek your assurance that the Division of Corporation Finance (the "Division") would not recommend enforcement action to the Commission if TFS transmits road shows for public offerings to qualified investors over the Internet and over its existing private network as described herein, on the theory that such transmissions do not constitute prospectuses under Section 2(10) of the Securities Act of 1933.
       
       

        As you know, a "road show" is a method traditionally used by securities underwriters to present information concerning an upcoming securities offering to institutional customers. A road show typically consists of oral presentations by members of management and the underwriting team describing the registrant and its plans and operations, accompanied by audio-visual aids. ¹ A preliminary prospectus is distributed to all participants either at or prior to the road show. ² Road shows, which typically last an hour or so, are often held in various cities during the "waiting period" before a registration statement is declared effective. The typical audience includes potential institutional investors, securities firms, trading and sales personnel from participants in the offering and research analysts. ³
       
        TFS' Virtual Roadshow service is co-produced by First Call and Dalcomp, both subsidiaries of the Toronto-based Thomson Corporation, a $6 billion company serving 65 countries worldwide. ⁴ Virtual Roadshow will provide money managers and other large institutional investors with video access to road show presentations transmitted through an Internet website maintained by TFS and over First Call's private network. By allowing qualified investors to experience a traditional road show without leaving their offices, Virtual Roadshow will facilitate access to syndicate investment opportunities by institutions located in areas not ordinarily serviced by road show presentations.
       
        The specific features of Virtual Roadshow, as the service initially will be offered, are as follows:
       
        1. Audience, Access and Prospectus Delivery
       
        Virtual Roadshow's audience will be limited to institutional parties ("Users") such as those currently serviced by First Call Research Direct and First Call Notes; access to the service will be controlled by a password system consisting of a User ID and Password. The service will contain an index of upcoming securities offerings, some of which will have road shows available for viewing by qualified investors. ⁵ The offerings will be indexed by the name of the registrant and name of the underwriter(s). Users will also be able to access any document concerning a registrant found in the Commission's EDGAR system via a hyperlink to the Commission's web page.
       
        Each offering in the index will be marked by one of three symbols to signify whether only a prospectus, ⁶ or a prospectus and a taped or live road show is available for that particular offering. Prospectuses will be available electronically and for downloading to all institutional parties with a User ID and Password.
       
        A party may not view a taped or live roadshow unless the lead underwriter has specifically authorized him to do so. The underwriter will agree in writing with TFS not to enable a viewer to view a taped or live road show unless: (a) a registration statement pertaining to the offering is on file with the Commission; (b) the viewer is an institutional investor or other person of a type the underwriter would customarily invite to a road show; and (c) the viewer has been provided with a copy of the prospectus. This prospectus will be delivered either in paper format or, for customers from whom the lead underwriter has received advance consent, by electronic delivery. ⁷ If the registration statement is not effective at the time a road show is transmitted, the prospectus distributed to the viewer will be a Section 10(b) preliminary prospectus (i.e., the "red herring"). On the other hand, if a registration statement is effective at the time a road show is transmitted, the prospectus distributed will be a Section 10(a) statutory prospectus.
       
        2. Content of Virtual Roadshows
       
        Virtual Roadshows will consist of either taped or live road show presentations. Taped road shows will be exact replays of road shows seen live by qualified investors, including all presentation aids used at live road shows (slides, charts, video tapes, etc.), in full audio and video format. The road shows will be filmed in their entirety, including all questions and answers. Taped road shows will not be edited for content. ⁸ Taped road shows will be presented at the same speed as the live road show, and a brief agenda will be available to viewers indicating by time segment the presenters and subject matters covered. While it is anticipated that viewers generally will view road shows in their entirety, they will have the ability to interrupt their viewing and view less than the entire road show. ⁹
       
        Live road shows will consist of the transmission on a real-time basis of the same road show seen by in-person viewers. At the discretion of the sponsoring underwriter, viewers of live virtual road shows may be allowed to submit questions during the road show. The sponsoring underwriter may answer such questions during the road show presentation if it deems the questions to be of general interest to the audience.
       
        The sponsoring underwriters will have exclusive control over the content of both taped and live road shows. TFS will enter into written contracts with the underwriters pursuant to which the underwriters will agree to ensure that information disclosed in the road shows is not inconsistent with the prospectus furnished to viewers. The issuer will also ensure that statements made by its representatives are not inconsistent with the prospectus.
       
        Both live and taped road shows will be preceded by and will conclude with the following statement:
       
        A prospectus or preliminary prospectus has been furnished to each person authorized to receive this transmission. You should refer to the prospectus, and to the registration statement of which it is a part, for more complete information about the offering. By electing to view this transmission, you represent, warrant and agree that you will not videotape, record or otherwise attempt to reproduce or re-transmit the content of this transmission.
       
        For offerings for which a registration statement has been filed with the SEC but is not effective, the transmission will also include the following visual disclosure:
       
        The issuer of the securities discussed in this transmission has filed a registration statement with the Securities and Exchange Commission covering the offer and sale of the securities. The registration statement has not yet become effective. These securities may not be sold, nor may offers to buy them be accepted before the registration statement becomes effective. This transmission does not offer any securities to you or ask you to buy any securities. The securities will not be sold in any state in which the sale would be illegal before registration or qualification under the securities laws of that state.
       
        Virtual Roadshow transmissions will include technology designed to prevent the copying, downloading or printing of any portion of the road show other than the prospectus. Such transmissions will also be protected so that a viewer will be able to view a road show any number of times during a single 24-hour period (which will commence upon the viewer's first access of the program) and not thereafter.
       
        3. Compensation
       
        The compensation TFS will receive for the presentation of road shows will not be contingent upon the degree of success of an underlying offering or the size of the offering. Instead, TFS will charge fees for producing the material to be transmitted over the Internet or over First Call's private network. TFS' fees may vary depending upon whether the road show is (1) produced but not transmitted, or (2) produced and transmitted for any period of time. TFS also may collect fees from viewers on a subscription or pay-per-view basis for providing access to road shows. In all such cases, viewers will have been authorized by the underwriter to receive the electronic road show, in the manner described above.
       
       

        Section 5(b) of the Securities Act makes it unlawful for any person to transmit a prospectus through interstate commerce with respect to an offering for which a registration statement has been filed unless the prospectus meets the requirements of Section 10 of the Act. Section 2(10) of the Securities Act defines the term "prospectus" to mean:
       
        ... any prospectus, notice, circular, advertisement, letter, or communication, written or by radio or television, which offers any security for sale or confirms the sale of any security . . .
       
        However, a communication sent or given after the effective date of the registration statement generally is not deemed to be a prospectus so long as the recipient of the communication is given a prospectus meeting the requirements of Section 10(a) at or prior to the time of the communication. Id.
       
        Traditional road show presentations that are made after the filing but prior to the effectiveness of a registration statement ordinarily are not considered prospectuses, since these presentations are oral and visual, and not written. ¹⁰ It appears that video transmissions of road shows to a defined, limited audience should be treated the same way, notwithstanding the fact that these transmissions may utilize some of the same technology associated with television. This is so because when Congress used the terms "radio" and "television" in Section 2(10), Congress was concerned with mass communications to the public through "broadcasts" scattered over a 360-degree radius. ¹¹ With such scatter-shot transmissions, there is no way to identify the investors viewing the presentation, and no way to ensure that those viewers have previously received a prospectus meeting the requirements of Section 10. On the other hand, controlled transmissions to the types of investors who ordinarily attend road shows, and to whom prospectuses have been supplied, do not present such problems, and thus do not implicate the policies underlying the Securities Act's prospectus requirements.
       
        This reading of the statute is consistent with three recent no-action positions taken by the Division with respect to similar services. ¹¹ Like Virtual Roadshow, each of the services described in these no-action requests uses audio or video technology, although each service is configured to ensure that electronic road shows can be accessed by only those types of investors who would ordinarily attend a live presentation.
       
        For example, according to its request for a no-action letter, Private Financial Network ("PFN") (whose subscribers are mostly broker-dealers and investment advisers) transmits road shows by satellite, telephone circuits and fiber optic or other cable. Reception by satellite requires a decoder available only to subscribers, while telephone and cable distribution are directed only to a particular personal computer or other receiver. In its request, Bloomberg represented that it initially plans to use a closed-circuit system to dedicated Bloomberg terminals as well as to individual computers that can receive "open" Bloomberg data feeds. In each case, the user will have a private password to obtain access to the road shows. In the future, Bloomberg may transmit road show materials over the Internet, again using protected passwords and other means to limit access. In all cases, the audience will be limited to Bloomberg subscribers who have been enabled by an underwriter to view the particular road show in question. The third requester, Net Roadshow, transmits road shows over the Internet, but restricts access by requiring qualified investors to obtain access codes from an underwriter of the particular offering. The audience for TFS's Virtual Roadshow will be similarly limited. Only institutional parties will have access to the index of offerings for which a road shows are available, and only those parties who have been authorized by the lead underwriter will be able to view actual road shows.
       
        In addition to limiting the electronic road show audience to the types of parties who normally attend live road shows, each of the services which received no action relief from the Division also circumscribes even the approved audience's access to and use of the electronic road shows. PFN, for example, will not transmit a single road show to any subscriber more than two times. Net Roadshow changes its access code for each road show daily, and permits qualified investors to view a road show for one day only. Bloomberg allows qualified investors to view a particular show any number of times during a single 24-hour period, but not thereafter. ¹² All three of the services prohibit viewers from copying, downloading or redistributing any road show material, although printing or downloading prospectuses is allowed. Access by approved viewers of TFS's Virtual Roadshow will be limited in a manner comparable to that used in the services described above. Users will be able to view a road show an unlimited number of times in a 24-hour period, but not thereafter, and will be prohibited from copying, downloading or redistributing any road show material. (They will, however, be able to download any prospectus.)
       
        As for content, each of the electronic services which received no-action relief presents its road shows in such a way that an electronic viewer has as similar an experience as possible to a viewer of a live road show; editing is allowed in only very limited circumstances. Each of the services also gives the issuer and/or underwriter for an offering exclusive control over the content of the road show, but obligates these parties to ensure that information in the electronic road show does not vary from the filed prospectus.
       
        PFN transmits road shows under the conditions described above, in their entirety on a live or taped basis with editing performed only to remove dead time arising from logistical or similar problems or, at the direction of the issuer and/ or underwriter, to edit out misstatements or mistakes. Net Roadshow presents the exact road show seen live by qualified investors, by taping a road show in its entirety, including all questions and answers, and presenting the taped road show over the Internet at a speed similar to that at which the live road show occurs. Editing is limited to the same circumstances as PFN, except that Net Roadshow's taped road show presentations may include a periodic crawl providing a summary of changes in information that have occurred since the filming of the road show. Bloomberg, which may transmit both live and taped road shows, edits its taped road shows only under the same conditions as PFN and Net Roadshow, except Bloomberg's updating crawl also invites viewers to contact the appropriate institutional salesperson at the underwriter for further information concerning any changes. Editing of TFS's Virtual Roadshows will be limited to the same circumstances as those described in the Net Roadshow and Bloomberg letters.
       
        Each existing electronic service emphasizes the primacy of the prospectus filed with the Commission as to information concerning an offering. As mentioned previously, the PFN, Net Roadshow and Bloomberg letters all note that issuers and underwriters are obligated to make sure their presentations are not inconsistent with the most recent prospectus on file with the SEC. ¹³ Each service also denies access to any viewer to whom a prospectus has not been delivered. PFN contractually requires the underwriter and issuer to deliver a prospectus to all viewers before a road show airs, and requires viewers to sign a contract agreeing and acknowledging that a prospectus must be received before a road show is viewed. Net Roadshow achieves prospectus delivery by means of a large button marked "PRELIMINARY PROSPECTUS" which a viewer may click on at any time to view the preliminary prospectus in its entirety. Bloomberg accomplishes prospectus delivery by requiring the issuer or underwriter to deliver a prospectus to each viewer before giving the viewer access to a road show. ¹⁴ Moreover, all of the services tell viewers either before, during or after the road show presentation that a prospectus should be reviewed before an investment decision is made. Prospectus delivery for TFS's Virtual Roadshow product will be consistent with the methodology described in the prior letters.
       
        Finally, with regard to compensation, according to their no-action letters, PFN, Net Roadshow and Bloomberg do not base their fees on the size or success of an offering, but charge what amounts to a production/transmission fee to issuers and/or underwriters. In some cases, a fee also is charged to viewers. TFS's compensation for its Virtual Roadshow product will be consistent with that described in the prior letters.
       
        Thus it appears that in terms of audience, access restrictions, content, prospectus delivery and compensation, Virtual Roadshow is substantially similar to the three electronic road show services which have already received no-action assurances from the SEC staff. By parity of reasoning, if PFN, Net Roadshow and Bloomberg transmissions do not constitute "prospectuses" under Section 2(10) of the Securities Act, a post-filing/pre-effective transmission through Virtual Roadshow should not be considered a prospectus either. ¹⁵
       
       

        Based upon the foregoing, we ask you to concur with our opinion that transmission of live or taped road shows through Virtual Roadshow as described herein should not be deemed to be a prospectus under Section 2(10) of the Securities Act.
       
        In accordance with SEC Rel. No. 33-6269, seven copies of this letter are enclosed with the original. If you have any questions about this matter, please contact either me or Will Edick at our firm.
       
        Very truly yours,
       
        Mari-Anne Pisarri
       
        cc: Mary J. Kosterlitz, Esq.
       
       

        September 4, 1998
       
        RESPONSE OF THE OFFICE OF CHIEF COUNSEL
       
        DIVISION OF CORPORATION FINANCE
       
        Re: Thomson Financial Services, Inc. ("TFS")
       
        Incoming letter dated August 12, 1998
       
        Based on the facts presented, but without necessarily agreeing with your analysis, the Division will not recommend enforcement action to the Commission if TFS transmits an issuer's road show presentation over either the Internet or its existing private network for the purposes and in accordance with the procedures described in your letter, in reliance upon your counsel's opinion that such transmissions are not prospectuses within the meaning of Section 2(a)(10) of the Securities Act of 1933. The Division notes that a registration statement must be filed with the Commission before any road show relating to the corresponding offering may either be listed or otherwise identified in the "index of upcoming securities offerings," or transmitted to any User following authorization by the lead underwriter for such offering, as described in your letter.
       
        This position is based on the representations made to the Division in your letter; any different facts or conditions therefore might require different conclusions. Moreover, this response sets forth the Division's position on enforcement action only, and does not express any legal conclusion on the question presented. Because regulatory responses to legal issues raised by technological developments may evolve, you should be aware that this no-action position may be reevaluated in the future.
       
        Sincerely,
       
        Mary J. Kosterlitz
       
        Special Counsel
       
¹Monte E. Wetzler, "The Internet in Conventional Securities Offerings," wallstreetlawyer.com Vol 1. No. 4 (1997) at 5.

²Id.

³Bloomberg L.P., SEC No-Act LEXIS 1023 at 3-4 (Oct. 22, 1997).

⁴First Call is the world's foremost financial research network, used by more than 1,400 institutional investment firms. Dalcomp is creator of the Thomson Global Syndicate System, which automates all aspects of equity and debt syndication for a lead manager. The Virtual Roadshow product combines First Call's distribution network with Dalcomp's bookrunning software expertise. Investors would not have access to any First Call or Dalcomp data through Virtual Roadshow; rather, Virtual Roadshow would provide access only to the features described in this letter.

⁵The index will list only those offerings for which a registration statement has been filed with the Commission. The index will not contain any information other than that allowed by SEC Rules 134 and 135.

⁶The prospectus will be identical with that on file with the SEC.

⁷See "Use of Electronic Media for Delivery Purposes," SEC Rel. No. 33-7233 (October 6, 1995); "Use of Electronic Media by Broker-Dealers, Transfer Agents and Investment Advisers for Delivery of Information," SEC Rel. No. 33-7288 (May 9, 1996).

⁸TFS reserves the right to edit out dead time arising through logistical, organizational or other problems, and to give the issuer and/or underwriter the opportunity to edit out misstatements or mistakes. If information changes between the time the road show is recorded and throughout the period the road show is available, the display will include text providing a synopsis of such changes. The text also will notify the viewer that he may contact the underwriter for further information about such changes.

⁹This corresponds with the ability of an attendee of an in-person road show to arrive late and leave and reenter the room at any time.

¹⁰While oral communications concerning an offering of securities are not considered prospectuses, such statements still are subject to the anti-fraud and anti-manipulation provisions of the federal securities laws, as well as Section 12(a)(2) of the Securities Act of 1933.

¹¹Pub. L. No. 22, ¤10(d), 73rd Cong., 1st Sess. (May 27, 1933); S. Rep. No. 1036 at 18; H.R. Rep. No. 1542 at 26, 83rd Cong. 2d Sess. (1954). This interpretation is supported by Section 10(f) of the Securities Act which requires copies of radio or television prospectus "broadcasts" to be filed with the Commission.

¹¹Private Financial Network [1997 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¦77,332 (March 12, 1997); Net Roadshow, Inc. [1997 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¦77,367 (July 30, 1997); Bloomberg L.P., 1997 SEC No-Act LEXIS 1023 (Oct. 22, 1997).

¹²Bloomberg also allows investors to interrupt viewing and to view road shows in less than their entirety.

¹³If road shows are transmitted during the waiting period, the prospectus delivered is the Section 10(b) preliminary prospectus. If the road show takes place after the offering goes effective, a Section 10(a) statutory prospectus is delivered.

¹⁴The prospectus is delivered either in paper format or -- with advanced consent -- electronically.

¹⁵In accordance with the aforementioned exception contained in Section 2(10), a Virtual Roadshow transmission occurring after the effective date of the registration statement will not be considered a prospectus, so long as such transmission is preceded or accompanied by delivery of a Section 10(a) prospectus.


 

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