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[7]  Oral Forward-Looking Statements and the Safe Harbor

A safe harbor is provided for oral forward-looking statements that are identified as forward-looking statements, state that actual results could differ materially, and advise that additional written information concerning factors that could cause actual results to differ materially is available, provided the written information referred to is readily available and identifies the important factors that could cause the actual results to differ materially.[1] Specifically, the statutory language reads as follows:

(2) Oral forward-looking statements. —

In the case of an oral forward-looking statement made by an issuer that is subject to the reporting requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934, or by a person acting on behalf of such issuer, the requirement set forth in paragraph (1)(A) [forward-looking statement accompanied by meaningful cautionary statements] shall be deemed to be satisfied —

       (A) if the oral forward-looking statement is accompanied by a cautionary statement —

             (i) that the particular oral statement is a forward-looking statement; and

             (ii) that the actual results could differ materially from those projected in the forward-looking statement; and

       (B) if —

             (i) the oral forward-looking statement is accompanied by an oral statement that additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statement is contained in a readily available written document, or portion thereof;

             (ii) the accompanying oral statement referred to in clause (i) identifies the document, or portion thereof, that contains the additional information about those factors relating to the forward-looking statement; and

             (iii) the information contained in that written document is a cautionary statement that satisfies the standard established in paragraph (1)(A).

(3) Availability. —

Any document filed with the Commission or generally disseminated shall be deemed to be readily available for purposes of paragraph (2).

The safe harbor for oral forward-looking statements will come into play primarily in connection with oral statements made to analysts or to stockholders. A CEO, for example, prior to a meeting with analysts or stockholders, could prepare an outline of what s/he expects to say to the analysts and file the forward-looking statements and appropriate cautionary statements under Item 5 of Form 8-K if it has not already been part of another filing. S/he would then preface his remarks in substance as follows: “I would like to make a number of forward-looking statements and to call your attention to the fact that with respect to each one that the actual results could differ materially from what we have projected. We have filed with the Securities Exchange Commission as item 5 of Form 8-K [or in the case of the annual meeting — these statements appear in our annual report to shareholders] under date of _________ and you can readily obtain additional information concerning important factors that could cause the actual results to differ materially from what we have predicted. That having been said, we expect (1) __________, (2) _________, and (3) ________ to happen within the forthcoming year.” This can be done readily in such formal settings, but may be quite a mouthful in the course of a telephone conversation with an analyst or a financial reporter, neither of whom necessarily will feel compelled to repeat the cautionary information. One should not take a great deal of comfort in the safe harbor in this context, although liability may be avoided by not getting too involved in the analyst’s projections.[2] Some of the early attempts to take advantage of this provision have not taken the format recommended above, but rather have attempted to set forth a number of generic factors in the hope that they may be relevant to some future oral statements. .

The safe harbor is available to the issuer and persons representing the issuer in connection with oral statements made in connection with a distribution of securities, if they comply with the safe harbor’s requirements relating to oral statements. The underwriter, however, is not protected in this respect. The safe harbor takes the form of a general statement in paragraph (c)(1) that there is no liability for a forward-looking statement, “whether written or oral,” provided any of the specified conditions are met in terms of the three levels (meaningful cautionary statements, or immaterial, or no actual knowledge).[3] Separately it is provided that the requirement of paragraph (1)(A) (referring to (c)(1)(A)) shall be deemed to have been met in the case of an oral statement if the statement states that it is a forward-looking statement; that actual results could differ materially, and refers to a generally available document that includes the appropriate cautionary statements required by paragraph (1)(A).[4] The safe harbor under Section 27A(a) of the Securities Act and 21E(a) of the Exchange Act is limited to a reporting issuer, person acting on behalf of or by an outside reviewer retained by such issuer, or an underwriter.[5] The provision relating to oral statements being deemed to have satisfied the (1)(A) requirements, however, refers only to oral statements made by a reporting issuer or a person acting on behalf of such persons.[6] The omission of outside reviewers and underwriters was done with deliberation.[7] An underwriter making a forward-looking statement orally in a road show, for example, to institutional investors, brokers and the like, does not have the benefit of this provision. The underwriter would have the safe harbor available with respect to such oral statement if it included what is required by (c)(1)(A)(i), that is a meaningful cautionary statement of important factors that could cause the results to differ materially, if the statement was immaterial, or if the maker did not have actual knowledge that it was false or misleading. The underwriters do not have the luxury of incorporating the meaningful cautionary statements from generally available documents, although a person acting on behalf of the issuer (an officer or employee) would have the benefit of the safe harbor as to oral statements otherwise within this provision made in the course of a road show. It also appears clear that no one otherwise within the safe harbor umbrella can in a written forward-looking statement incorporate by reference the cautionary statements that appear in another document (the prospectus, for example) since the forward-looking statement would not be “accompanied by meaningful cautionary statements.”[8] The materiality of the unaccompanied statement, however, would be applicable as would the second prong issue of whether the maker had actual knowledge that it was false or misleading.

To a significant degree, the PSLRA safe harbor for oral forward-looking statements is more limited and more discriminating than the written prevails over the oral and the prospectus rules rule adopted by several courts. See § 1_03_5.