Drafting Disclosure Tailored for the Web

By Broc Romanek, Editor of TheCorporateCounsel.net

ŠINSIGHTS: The Corporate & Securities Law Advisor Vol 15, No. 7 (July 2001)

Republished with permission from Aspen Law & Business

While investors are increasingly accessing investment information via the Web, companies are continuing to draft their disclosure documents in a traditional manner and are posting these documents on the Web. While drafting for the Web does require a change in drafting habits, the end result is more effective communication that is more easily digested by investors.

Although the Web is now more than seven years old, the art of drafting disclosure has not changed dramatically due to this new medium. Companies are missing a valuable opportunity to communicate with their shareholders and potential investors. There already is evidence about how investors prefer to read online, which can now guide companies in drafting Web disclosure that is best suited for investors. 1 As investors get a taste of "usable" writing, they may ask for online disclosure that is easily navigable and scannable. In addition, as more companies write for the Web in their online marketing efforts, it is only a matter of time before this skill migrates over to investor relations' Web pages.2

Companies and their counsel have recently demonstrated that they are capable of embracing a new way to draft disclosure. The face of disclosure has changed dramatically as a result of the Securities and Exchange Commission's (SEC's) "plain English" initiative.3 Over the past few years, the SEC's Division of Corporation Finance Staff issued thousands of "plain English" comments targeting particular language that it believed was not sufficiently clear to the average investor.4

Why Draft for the Web?

At this point you may ask, "Why should companies even care what investors want to read?" Disclosure documents still are liability driven; not marketing oriented. In other words, the primary goal of a draftsman is to avoid liability by not misleading investors. For the most part, companies do not seek to obtain new, or maintain current, investors by the text of what they disclose -- or by how they present disclosure -- in their SEC filings.

This could change due to the Web. First, investors now have easy and free access to a company's disclosure so that it is more likely that disclosure will be read. In addition, the retail investor culture is shifting. As investors increasingly make their own investment decisions, they are more willing to conduct their own research. The strong interest in Regulation FD by the investors community certainly reflects a heightened interest in what companies are saying.5

Despite the migration of investors to the Web, most companies merely post on their investor relations' Web sites the same linear documents that they drop in the postal mail.6 Even worse, quite a few companies merely link to their ASCII filings from the EDGAR database which is virtually illegible in print, much less on the Web. Change is inevitable as companies recognize that they may be harming their credibility with investors. Companies that do not draft disclosure tailored for the Web will appear unsophisticated and uncaring and they will be chastised for drafting "shovelware" disclosure by institutional and retail investors alike.7

How to Draft for the Web

The dilemma is how to draft for both an online and offline audience. One possible solution is to create multiple versions of the same document, each with identical or similar disclosure -- but different formatting and navigation. Since 1996, the SEC has permitted companies to create multiple versions of the same document, each with differing content -- so long as each version meets the applicable legal requirements.8 Companies can have an unlimited number of versions of a particular document -- and each version can have different text, graphics, audio, or spreadsheets. This provides companies with a great deal of flexibility.

Only a few pioneer companies have taken advantage of the flexibility to create multiple versions of required documents. For example, in its 1997 initial public offering (IPO), Ameritrade Holding Co. delivered either a CD-ROM or a paper prospectus to each interested investor. The CD-ROM prospectus consisted of two files: hypertext disclosure in a portable document format (PDF) and a 10-minute video presentation about Ameritrade's operations (including actors using Ameritrade's services).9 Although Ameritrade provided a textual description of the multimedia as part of the paper version of the prospectus, it was not obligated to do so because companies are not required to deliver identical versions of a document.10

Companies probably face incremental risk by delivering multiple versions of disclosure documents since an investor may claim that the versions it received omitted material information that was contained elsewhere. With careful drafting, however, this risk can be minimized so that the risk should not be much more than drafting a single document -- ensuring that all material information is presented. In practice, the fraud-on-the market theory should limit this risk because the total mix of information available to investors would include the multiple versions that would be filed with the SEC. Further comfort is provided by a recent case in which the federal district court found that a company did not violate Section 12(a)(1) because graphic material was filed as part of the registration statement as required under Rule 304(b)(1) of Regulation S-T, even though the investor relied on the electronic prospectus.11

One way to avoid risk is by simply changing the format of the disclosure's presentation, but not modifying the disclosure in the overall document itself. In other words, the "order" of the disclosure would change, but not the disclosure itself. This is because documents would not be posted "linearly." The format plays an important role because investors on the Web may be unwilling to spend the time to navigate a linear format to find disclosure that interests them.

Web Writing Considerations

Once companies get used to the idea of drafting multiple versions of a document, the question is what to draft for the Web. Although PDF files ensure that a disclosure document appears as it does in print, it does not permit the best features of the Web -- ease of navigation and searching. Accordingly, Hypertext mark-up language (HTML) is better suited to craft something that investors can best navigate and read.

Although creating two different formats of disclosure documents obviously involves more time and money, the benefits should exceed the cost. Overall, the cost should not be too great since the actual disclosure will be the same or similar. To test the waters, companies may want to experiment with filings that are in demand and involve decisionmaking by investors, such as proxy materials and prospectuses.

The following ten points (discussed in detail in subsequent paragraphs) address a number of ways to enhance an investor's experience with online disclosure:

1. Design process and strategy

2. Navigation is key

3. The power of links

4. Convert cover pages to "homepages"

5. The need for speed

6. Brief is bliss

7. Make disclosure easy to skim

8. Even more "plain English"

9. Legibility

10. The pros and cons of multimedia

Occasionally, some of these methods may be constrained by the SEC's application of existing laws to the Web. For example, it appears that the SEC requires companies to maintain substantially the same "order" of periodic reports online as offline, but allows companies to be flexible with the order of content when drafting prospectuses.12 The SEC's position relating to periodic reports is too restrictive because linear thinking does not work online.13 Despite the presence of some regulatory restrictions and other gray areas, companies still can innovate under existing laws and interpretive positions -- and the SEC's regulatory paradigm is constantly evolving to accommodate the Web.

Design Process and Strategy

Companies should standardize how they design their disclosure documents. One step in this direction is designating one person to coordinate the design process and strategy. This person -- ideally an attorney that is Web savvy -- should ensure that each department responsible for drafting a portion of the document does not have its own design. For example, the financial statements prepared by the independent auditors should not "look" dramatically different than the other disclosure in the document.

In addition, the order of the document should not follow the company's hierarchical structure or fall within departmental lines. So that the design of the document does not evolve randomly, the structure of a disclosure document should be predetermined bearing in mind how investors will likely use it. Although an internally centered design is likely to evolve by default, an effort must be made to ensure that the end product fulfills the primary goal -- inform investors.

It is easy for a company to believe that it has provided adequate navigational tools by placing an omnipresent table of contents in a column on the left of the site. This design emphasizes the breadth of the document since investors are constantly aware of their choices. This design, however, comes at a cost -- normally nearly a quarter of the page that otherwise is available for reading. Investors probably would prefer to have additional reading room with a depth-emphasizing navigation bar. Depth bars can depict a complete hierarchical path from the document's homepage down to the current page. With this "breadcrumbs" design, investors get a sense of their current location relative to the document as a whole and can easily move to a higher-level page.

Frames create special problems and should be avoided altogether. The overriding concern is the potential for investors to be misled. The SEC has noted that the risk of investor confusion is higher when third-party content is framed -- making it more likely that a company is deemed to adopt the linked content under the SEC's link liability framework.14 In addition to heightened legal risk, framed content normally cannot be printed properly. Besides not fulfilling the SEC's mandate that disclosure must be printable, this deprives investors of the ability to review the information more extensively later.15

Ensuring that a document is not too wide is crucial for the online reading experience. Investors detest the need to scroll horizontally and often will quickly give up reading rather than endure the need to constantly scroll. Since investors have varying monitor sizes, it probably is best to use layouts that accommodate most investors. The most common monitor, with a 15-inch screen, is 640 pixels wide. Since the borders of most monitors slightly encroach on the viewable screen, 600 pixels is the safest width to use at this time.

Navigation Is Key

Compared to print, investors can more easily -- and are more likely to -- control where they go to seek information online. With a print document, investors rely almost solely on the "Table of Contents" as well as their historical experience with similar documents to find information. The Web truly offers investors the ability to more easily navigate through a document -- if companies provide the opportunity. This probably is the most fundamental difference between an online and offline document.

On the Web, users like to control their own destination. Investors do not like to be forced to enter a document through a cover page. If possible, it is likely that other Web sites will use "deep" links to various points within the document. Often, investors will not navigate through a document as expected. So long as there is an adequate navigation system from each page, it should not matter where an investor enters the document and where he or she goes -- investors are made aware of the information choices available. Without an effective navigation system, a company probably faces heightened risk if investors do not enter its disclosure document through the cover page.

It is important for companies to assist investors so that they know:

  • Where they are within a document -- so that they know where to go from here;

  • Where they have been -- so they do not waste time or in case they want to reread previously visited information; and

  • Where they can go -- which is the primary purpose of a navigation system.

    The first goal is most easily accomplished with a hierarchical line across the top of the page -- or at a minimum, with a caption on the top of the page that identifies its location. Each page thus needs its own identification label. The second goal also is not too difficult since browsers already have "back" (i.e., return to prior page visited) and "history" (i.e., list of most recently visited pages) functionality. Using the standard purple color for used links also satisfies this goal.

    The most important goal of navigation is informing investors where they can go. Again, a hierarchical line serves this purpose, as does useful and descriptive links strategically scattered throughout the disclosure. A table of contents probably does not need to be made continuously accessible, even from a pull-down menu. In contrast to using links, pull-down menus are unable to show an investor that they have already been there -- thereby not fulfilling the second goal.

    An invaluable tool to help investors find information is a scoped search function. This tool allows investors to search for terms just within the disclosure document.16 This tool should always be highly visible, preferably at the top of each page. Boolean search should not be used since studies show that most investors are not sophisticated searchers. For example, if an investor wanted information relating to either earnings or sales, they would input "earnings and sales," instead of "earnings or sales."17 The first search would unintentionally return fewer results compared to the second.

    The Power of Links

    The power of hyperlinks is often misunderstood and underestimated. Links are not meant to split a long linear flow of disclosure into multiple pages. Instead, companies should use links to:

  • Provide structure and navigation;

  • Allow associated content to be easily accessible; and

  • Help investors scan content.

    Structural navigation links can be used to split information into logical topical chunks. Then investors can choose the topics they wish to focus on, yet still be aware of what else is available. With long linear disclosure, investors are more apt to quickly give up and never realize what other information choices were available -- and they tend to find it difficult to search for particular information. In addition, it is nearly impossible to read this disclosure online; investors are forced to print out entire disclosure documents to find information relevant for them.

    Investors tend to use links as guideposts to what the surrounding content is about -- and as a way to rest their eyes when scanning. As a result, the decision about what particular words to use in a hypertext link is critical. To serve as proper guideposts, links should not exceed two to four words in length. Only words that convey important information should be made into links; additional explanatory language can be included with these words so long as they are not part of the link itself. These explanations should be brief -- with a maximum of 60 characters -- and serve to allow investors to make an informed decision about whether to follow a particular path.18

    Even though blue is not the easiest color to read online, it has become the universally accepted convention to indicate that particular text is a link. Similarly, purple is used to indicate that an investor has already visited a particular link. Since deviating from this norm only serves to confuse investors and cost them time, the established conventions should be followed. Surprisingly, more than a few companies experiment and do not follow these conventions.

    Although the usefulness of linking to third-party content is evident, it is not recommended in SEC filings due to the liability that attaches. The SEC has made it clear that any third-party content linked from a company's disclosure document is deemed part of that document for liability, delivery, and filing purposes.19 Although it may be tempting to link to innocuous content from prospectuses or periodic reports for background purposes -- such as a site devoted to providing raw data on a company's industry -- a company should refrain because the content is outside of its control and yet the company would be responsible for it if it linked to it.

    Even more challenging is determining how to file content that may change on a daily basis and convincing a Web site owner to provide a consent, if required.20 Consents are required whenever content is linked because the company believes that such content is valuable as the report or opinion of an expert or counsel -- even if only a quote or summary of a report or opinion is linked. Of course, most third parties are not willing to provide a consent since they then have Section 11 expert liability for their content even though they are not raising capital or making a required disclosure for themselves.

    Convert Cover Pages to "Homepages"

    Based on usability studies, investors likely scan the first page they see to find matters of interest.21 If they do not find anything of value, they resort to understanding the document's navigation system to locate interesting content. Under the current SEC regulations, the first page of online disclosure normally consists of either the facing page of a registration statement or a cover page of periodic report, prospectus, or proxy statement.22 Neither of these is overwhelming in their usefulness, particularly facing pages.

    Ideally, the first page of a disclosure document would be its "homepage." From this page, investors could make informed choices about what information they want to review from a series of descriptive links -- or from a highly visible search tool. Since a page normally loads from top to bottom, the most useful information should be placed higher on the homepage. To reduce clutter on homepages, the techniques of aggregation, summarization, filtering, and truncation should be used.23 To make this "homepage" more relevant, it could contain even more useful information than normally is available on the first page of a disclosure document.24

    The Need for Speed

    When deciding how to draft online content, companies should ensure that the content of each page "loads" quickly.25 Online investors are extremely impatient. At this time, it has been proven that we feel like we are moving freely through information if pages load within one second. In contrast, load delays of more than 10 seconds are likely to lose an investor's interest.26

    Even though many investors -- particularly institutional investors -- have broad bandwidth connections of T1 or T3 lines, there are numerous investors still connecting through a dial-up modem. To accommodate these investors by keeping download times under 10 seconds, a page should contain no more than 34 kilobytes of data. This rules out using most types of multimedia that can take quite a long time to load, even with broad bandwidth connections.

    Brief Is Bliss

    You probably have noticed that you do not enjoy reading documents online because it tends to make your eyes tired. Studies now show that we read 25 percent slower online than reading hard copy.27 In addition, scrolling takes an additional effort from investors. As a result, online text should be kept shorter than it would be presented in print.

    The drafter's challenge is to reduce text by at least 25 percent -- and probably more -- so that the reading experience is comparable to reading from paper. Reducing text while not omitting information that renders the information misleading is critical. One possible solution is to make ample use of links and to approach drafting with a design strategy that involves layering of -- or "drilling down" to -- information. This technique can allow a company to have identical online and offline disclosure documents -- just with differing formatting.

    By relegating information that is more detailed or background in nature to "secondary" pages, information that is valuable to a minority of investors is still available -- yet does not interfere with the majority who does not want to wade through it. The question then is whether the SEC and the courts would view links to more complete information as the equivalent of traditional linear disclosure. Although the SEC acknowledged that the envelope theory does not work in every circumstance and has limited the theory's application in its link liability framework, it likely would view content linked together within the same disclosure document to be considered together.28 Based on this and other judicial precedent, an argument can be made that links to more detailed information can make information complete.29

    Make Disclosure Easy to Skim

    Investors do not read online as much as "skim" or "scan." Instead of reading text word-by-word, they tend to pick out keywords, links, and paragraphs that appear interesting. To accommodate this unique method of reading, companies should draft their disclosure with more captions and ensure that each caption is meaningful by itself. The SEC recognized this trait even for print when it forced companies to draft the captions of risk factors so that they stand on their own.30

    Compared to print, captions should be clearly evident standing on their own because there is less information surrounding it to place captions in context. For example, charts and subheadings may be on the same page of a print page to provide more meaning to a caption -- those same pieces of information may be linked or on a different page online.

    Each caption should fully explain what the related text means, yet be as short as possible. Typical leading articles can be omitted, such as "A," "An," or "The." The first few words should convey the most meaning of the words in the caption. Clever captions that do not convey the full and true meaning of the associated content should be avoided.

    More frequent use of bullets and similar design elements is necessary to allow investors to easily scan through text. Using boldface for key words and phrases and other highlighting techniques -- such as the use of colored text -- also can assist investors to understand disclosure. As learned from the plain English initiative, "white space" can be invaluable to help investors comprehend disclosure. This is even more important online.

    Even More "Plain English"

    Although disclosure generally has undergone great change due to "plain English," further improvements for the Web can be made. Since investors are scanning online text, it is important that the most important message in a paragraph is disclosed in the first sentence. This follows the "inverted pyramid" principle used by most print media journalists. A paragraph should start with a short conclusion and more detail should follow. This allows investors to more easily skim paragraphs, yet still derive value from them.

    In fact, these "topic sentences" should dominate the paragraph itself. "One idea per paragraph" should be an online rule of thumb. Each paragraph should have no more than three sentences, and it is perfectly fine to have paragraphs that consist of only one sentence. Whereas one or two sentences per paragraph should be the online norm, it is uncommon to find such short paragraphs in a print disclosure document.

    The bottom line is that it is extremely important to draft simple sentences. Convoluted phrases and sentences are nearly impossible to untangle online. If a company must disclose details about complex matters, the disclosure should be straightforward. Complicated concepts can be more fully explained by linked content. Plain English taught the drafting community that complex matters can be explained without resorting to legalese. The same lesson should be applied even more stringently online.

    Legibility

    It should not even bear mentioning that online disclosure should be legible. Yet this is a common problem. The SEC's online legibility standard is fairly flexible. Companies must merely present "all required information in a format readily communicated to investors, and where indicated, in a manner reasonably calculated to draw investor attention to specific information."31 Based on this loose standard, perhaps it is not surprising that online disclosure frequently is too small, has poor resolution, or has obscuring background coloration. The most obvious examples are companies that post their ASCII EDGAR filings online -- the text in these documents is very difficult to read online due to its poor resolution.

    Black and white should be the norm with sufficiently large sizes so that investors can easily read the text, even from a handheld device, if possible. Text should never move or zoom on its own. Microsoft Explorer and AOL's Netscape browsers are not compatible. Accordingly, Web pages should be HTML coded -- and tested -- in the various versions of each browser since an investor's browser dictates how a page will actually layout on its computer. This is a challenging and time consuming task but necessary to ensure that each investor can properly view the disclosure as intended.

    The Pros and Cons of Multimedia

    The appropriate use of multimedia can provide great benefits, particularly graphs and charts. For example, in a recent IPO, a biotech company included an effective flowchart in its prospectus to describe its product.32 Without the flowchart, most investors probably would not be able to fully comprehend its business.

    Multimedia, however, should be used judiciously until more investors have broader bandwidth connections. Investors without broadband rarely access multimedia because of the associated lengthy download time. If multimedia is used, companies should clearly describe what is in the multimedia disclosure so that investors do not waste time downloading content that will not live up to their expectations. Text itself should never be rendered as images since that needlessly increases its load time. The bottom line is that the use of multimedia that is merely gratuitous frustrates investors, so any extraneous images or photos should be avoided.

    In addition, it may take time for companies to learn how to derive value from using multimedia. For example, the few companies that provide video Webcasts of their analyst conference calls normally just use "talking heads." This actually detracts from an investor's experience since it does not offer anything more for investors to consider. Investors actually prefer "audio only" Webcasts to these unsophisticated videos.

    Conclusion

    Drafting "usable" disclosure for the Web is not difficult. There are fairly simple guidelines to follow that do not necessarily require knowledge of the technological underpinnings of the Web. While writing for the Web does require a change in old drafting habits, once mastered, companies will be providing investors with information they truly want and are capable of reading and digesting.

    Notes

    1. Numerous studies are mentioned throughout the best book on Web usability, Jakob Nielsen's Designing Web Usability (2000).

    2. Sun Microsystems has an excellent tutorial on how to write for the Web at < color=#0000ff>http://www.sun.com/980713/webwriting/.

    3. In Release No. 33-7497 (October 1, 1998), the SEC adopted the new "plain English" rule, Rule 421 of Regulation C. This rule only applies to disclosure made under the Securities Act of 1933 (Securities Act) but the Staff made clear that portions of periodic reports and proxy statements incorporated by reference also must comply with Rule 421. See Question 3 of Updated Staff Legal Bulletin 7 (July 7, 1999).

    4. In Updated Staff Legal Bulletin 7 (July 7, 1999), the SEC provided 41 common comments to help companies comply with Rule 421 of Regulation C of the Securities Act.

    5. In Release No. 33-7881 (August 15, 2000), the SEC mentions that it received over 6,000 comment letters after it proposed Regulation FD, most of them from retail investors.

    6. Although the SEC permits companies to file their disclosure documents in HTML, relatively few companies have done it. See Release No. 33-7855 (April 24, 2000). Even if they do, some do not take advantage of the basic benefits of using HTML, such as a providing linkable table of contents or a search tool.

    7. In fact, to convince the SEC that investors are ready to accept implied consent for electronic delivery, companies should be prepared to show that they have done a better job of preparing online disclosure. In Section D of Release No. 33-7856 (April 28, 2000), the SEC asked the public to comment about what circumstances indicate that implied consent should be universally applied. In response, some organizations have argued that the SEC should change its position about implied consent.

    8. In Example 7 of Release No. 33-7288, the SEC made clear that companies could deliver multiple versions of the same disclosure document under certain circumstances as follows:

    An investment company produces both an electronic version (such as a CD-ROM) and a paper version of its prospectus. Each version contains all information required by, and otherwise complies with, the applicable form and all other applicable provisions of the federal securities laws. The electronic version contains a movie that does not appear in the paper version. Each version of the prospectus indicates that there may be other versions of the prospectus and, if the issuer determines to make such other versions available, provides information on how to obtain such other versions. The paper version does not include a summary or transcript of the movie in the electronic version. Both versions of the prospectus are filed with the Commission as part of the company's registration statement, or separately pursuant to Rule 497. The use of either version of the prospectus to satisfy delivery requirements would be permissible. The issuer (or other party to whom the law assigns the responsibility) remains responsible for ensuring that each version satisfies applicable statutory requirements.

    9. Ameritrade Holding Co., Form S-1 (SEC File No. 333-17495). The video presentation included a text legend at the beginning identifying the video as part of the statutory prospectus.

    10. Rule 304 of Regulation S-T requires that companies file a script or fair and accurate description of the multimedia (but this description may not be subject to civil or antifraud liability). This script or description can either be filed as part of the SEC document itself or as an appendix at the end of the document. If an appendix is used, it should be placed at the end of the prospectus, as noted in footnote 309 of Release 33-6977 (March 18, 1993).

    11. DeMaria v. Andersen 2001 Westlaw 303725 (S.D.N.Y., 00 Civ. 2337 (WHP) March 29, 2001). In this case, the plaintiff complained because the paper prospectus contained a bar graph depicting historical online publishing revenues and net losses on a quarterly basis while, in the electronic prospectus, there was only a narrative description of the bar graph and that this description contained a discrepancy. The court held that under Rule 304(b)(1), the graphic material included in the paper prospectus, but omitted from the electronic prospectus, was "deemed part of" the registration statement filed with, and declared effective by, the SEC, so that there was no cognizable claim that shares were sold in contravention of Section 5 and thus there was no violation of Section 12(a)(1).

    12. In footnote 20 of Release 33-7233 (October 6, 1995), the SEC stated that:

    Electronically delivered documents must be prepared, updated, and delivered consistent with the provisions of the federal securities laws in the same manner as paper documents. Regardless of whether information is delivered through paper or electronic means, it should, of course, convey all material and required information. If a paper document is required to present information in a certain order, then the electronic document should convey the information in substantially the same order. For example, in an audio or video prospectus, the information required to be on the cover page of a paper prospectus pursuant to Item 501(c) of Regulation S-K 17 C.F.R. 229.501(c) (e.g., red herring language) must be among the first information presented through the audio or video media.

    13. The SEC liberalized its "order" of online content position for prospectuses when it adopted the plain English rule. Plain English, however, only applies to filings made under the Securities Act. Rule 421(a) of Regulation C under the Securities Act:

    The information required in a prospectus need not follow the order of the items or other requirements in the form. Such information shall not, however, be set forth in such fashion as to obscure any of the required information or any information necessary to keep the required information from being incomplete or misleading. Where an item requires information to be given in a prospectus in tabular form it shall be given in substantially the tabular form specified in the item.

    14. The SEC's statement about framed links is in ns.59 -- 60 and accompanying text of Release 33-7856 (May 4, 2000).

    15. In the text accompanying footnote 22 in Release No. 33-7233 (October 9, 1995), the SEC analogized to paper delivery by requiring companies to provide investors with an opportunity to retain a permanent record of any electronically delivered information.

    16. Using informative page titles is important if a company uses a search engine that displays search results to navigate a document. In HTML, each page has a title in the "header" section that specifies what the page's content is about.

    17. The weakness of most search engines is that they do not include spell checks or synonym expansion. If these functions are available, they are invaluable since investors may have difficulty spell checking their own typing or thinking of synonyms for search terms.

    18. A new feature -- the "link title" -- is available with Internet Explorer 4.0 and newer versions. When a mouse hovers over a link, a "link title" pops up that contains explanatory information about the related content.

    19. The SEC addressed third-party content in footnote 57 and accompanying text as well as Example 6 of Release 33-7856 (May 4, 2000). Rule 105 of Regulation S-T addresses the liability for content linked from a filed document.

    20. Example 6 of Release 33-7856 (May 4, 2000) emphasizes the need to file third-party consents under Rule 436(a) in many cases. Rule 437 provides that a company may apply to the SEC Staff to not require a consent, but the company must provide an affidavit that obtaining the consent is impractical or involves undue hardship, and the Staff rarely grants such applications.

    21. A series of Web usability studies from the 1997 International Journal of Human Computer Studies is available at < color=#0000ff>http://ijhcs.open.ac.uk/.

    22. Items 501 of Regulation S-K and Regulation S-B set forth the requirements for the outside front cover page for disclosure documents filed with the SEC. Note that glossy annual reports are not required to be filed with the SEC -- merely submitted. As a result, companies are free to innovate subject to antifraud considerations.

    23. Aggregation is combining similar disclosures in one place on the homepage. Summarization is self-explanatory and can be used more often with linked pages that have more detail. Filtering is removing any content that does not add value to the homepage. Truncation is the use of only initials or initial words from common words or phrases to save valuable space -- note that truncation may render some statements so incomprehensible that disclosure becomes misleading.

    24. For example, a list of key financial ratios with links to a company's financial statements and related notes.

    25. "Loading" (response time) is how long it takes for content to appear on a Web page that is selected by an investor.

    26. See pp. 42 -- 48 of Jakob Nielsen's Designing Web Usability (2000).

    27. Id. pp. 101 -- 104. Note that monitors with 300 dpi resolution -- which makes the online reading experience akin to reading paper -- are now available but expensive. Once their prices come down, this issue likely will be solved.

    28. The "envelope" theory provides that content linked together is considered as if it was mailed in the same envelope. The SEC first introduced this theory in Example 15 and Example 16 in Release 33-7233 (October 6, 1995). The SEC limited the theory's application in Section II.A.4 of Release 33-7856 (May 4, 2000).

    29. In Rasheedi v. Cree Research, Inc., (Middle D.N.C., Oct. 17, 1997), the US District Court for the Middle District of North Carolina ruled that forward-looking statements accompanied by cautionary language may qualify for the safe harbor provided by the Private Securities Litigation Reform Act of 1995 even if the cautionary language does not identify the specific factor that ultimately caused the forward-looking statements not to come true.

    30. As part of the plain English initiative, Item 503(c) of Regulation S-K was amended to require companies to use subheadings that adequately describe the risk that follows. In Updated Staff Legal Bulletin 7 (July 7, 1999), the SEC stated, "Item 503(c) seems to be the least understood of the plain English requirements." In that Bulletin, the SEC provided sample risk factor disclosures and subheadings to help companies comply with Item 503(c).

    31. Rule 420(b) of Regulation C under the Securities Act states:

    Where a prospectus is distributed through an electronic medium, issuers may satisfy legibility requirements applicable to printed documents, such as paper size, type size and , boldface type, italics and red ink, by presenting all required information in a format readily communicated to investors, and where indicated, in a manner reasonably calculated to draw investor attention to specific information.

    32. The flowchart is on p. 36 of Seattle Genetics' Pre-Effective Amendment No. 5 to Form S-1 filed March 6, 2001 (File No. 333-50266).