The Practical Corporate & Securities Law Blog

By Broc Romanek

Go to TheCorporateCounsel.net

 
I've had a number of requests for what Alan Dye said about the Section 16 changes on the "50 Nuggests" webcast - the following summarizes his comments:

Version 8.6 of the EDGAR Filer Manual became final on July 28, 2003. The new version reflects the filing procedures applicable to Section 16 reports filed on or after July 28.

As reflected in the new Manual, the reprogrammed electronic filing system addresses all but one of the seven "glitches" that existed in the version of the electronic filing system that was in use from May 5 until July 28. Of the six glitches that were addressed, only four were “fixed” in a way that allows insiders to report transactions the same way they were reported in paper filings. Specifically:

1. When an insider reports a transaction on Form 4 or Form 5, the insider may now report his or her total holdings of securities of the class involved in the reported transaction in the appropriate table (i.e., Table I or Table II), leaving blank the columns that call for transactional information. It is no longer necessary to report “holdings” in a footnote to a line on which a transaction is reported.

2. When reporting a gift, grant, award, or other transaction for which the insider neither pays nor receives consideration, the insider may insert in the price column (Column 4 of Table I or Column 8 of Table II) a footnote or, instead, a "0." In paper filings, insiders typically left the price column blank in this context. The electronic filing system will not accept a report, however, if the price column is left blank.

3. When reporting a transaction in a derivative security that does not have a dollar-denominated conversion or exercise price (e.g., phantom stock that is convertible into common stock on a “1-for-1” basis), the insider may insert a footnote in Column 2 of Table II, and explain the conversion terms in the footnote (e.g., explaining that the security converts on a "1-for-1" basis). It is no longer necessary to insert a “0” in the conversion price column. In paper filings, insiders typically inserted “1-for-1” or similar words in Column 2. The electronic filing system will not accept a report, however, that does not include in Table II either a dollar amount or a footnote.

4. When reporting a derivative security for which the vesting date and/or expiration date is not known (i.e., phantom stock that pays out upon the insider's retirement), the insider may insert (in Column 2 of Table II of Form 3 or Column 6 of Table II of Form 4 or Form 5) a footnote in the appropriate sub-column and explain the terms of the security in the footnote. It is no longer necessary to use a "dummy date" (i.e., “08/08/1988”).

5. When reporting a derivative security that has multiple fixed vesting dates, the insider may insert a footnote in the “date exercisable” column (Column 2 of Table II of Form 3 or Column 6 of Table II of Form 4 or Form 5) and explain the vesting terms in the footnote. It is no longer necessary to insert the first vesting date, accompanied by a footnote (although an insider may choose to do so).

6. Insiders may now insert an address in Box 1 of Form 3, Form 4, or Form 5, and need not leave the address box blank. If, however, the insider leaves the box blank, the electronic filing system will complete the box automatically, using the insider's address as it appears in his or her Form ID.

The glitch that the SEC chose not to fix is the requirement that, when reporting multiple transactions, the total holdings column (Column 5 of Table I or Column 9 of Table II) reflect a running tally of the insider's holdings. In paper filings, insiders typically left the total holdings column blank until the last line on which a transaction was reported.

The most important upshot of the reprogrammed e-filing system is that some third-party "filers" reportedly have not yet been updated - so that attempts to make filings with these filers get rejected by the SEC's system. Be careful to check the SEC's Edgar database after you make a filing to ensure it is successful! The Romeo & Dye Section 16 Filer is upgraded and compatible with the SEC's latest changes - and its still free through 9/30 (and then still has the lowest price - yet one of the best - filers available) - check it out at http://www.section16.net/Filer/index.htm.

posted by broc at 9:38 AM

 
For TheCorporateCounsel.net subscribers, we have posted the transcript of yesterday's "50 Nuggets" webcast at http://www.thecorporatecounsel.net/member/audio/07_30_03_transcript.htm. Please give me feedback/pushback on any of the nuggets and whether you liked format of program - broc.romanek@thecorporatecounsel.net. I hope to update the transcript with tidbits as i get feedback from the community.

Yesterday, SEC chairman Donaldson gave a one-year anniversary of SOX speech at http://www.sec.gov/news/speech/spch073003whd.htm. Nothing much new was said - but some of the Q&A was interesting, particularly the focus on the media on getting some of the former Enron execs in jail (for which the SEC has no authority).

You got the sense that his tenure might ultimately be judged on whether these alleged fraudsters at Enron and other scandal-ridden companies go to the "pokey." And the answer to the shareholder access question indicated that it was quite likely that the SEC will adopt rules quickly in this area.
posted by broc at 10:01 AM

 
Today is our practical webcast - "50 Nuggets in 50 Minutes" - which includes a special session with Alan Dye on the recent Section 16 e-filing changes at http://www.greatgovernance.com/programs.html#50nuggets.

We also have posted the August Eminders at http://www.thecorporatecounsel.net/E-minders/ - which includes more notes from last week's ABA webcast on "reporting up." We are holding a webcast on August 13th regarding "Designing Reporting-Up and Complaint Procedures" - see http://www.greatgovernance.com/Programs.html#designingprocedures.

Yesterday, the House Financial Services committee released a 1-year anniversary SOX report - see http://financialservices.house.gov/media/pdf/Sarbanes-Oxley%20One%20Year%20Later.pdf.

Yikes, the SEC is moving fast as promised on shareholder access. It has scheduled an open meeting for next Wednesday, August 6th, to consider proposing rules regarding disclosure of nominating committee activities and board/shareholder communications (but note that the proposed SRO corporate governance listing standards have languished for nearly a year, go figure). See http://www.sec.gov/news/digest/dig072903.txt.
posted by broc at 9:33 AM

 
Happy birthday Sarbanes-Oxley! The SEC got a nice birthday present regarding third-party liability when JP Morgan and Citigroup settled for big $$$ for their involvement in the Enron scandal. See http://www.sec.gov/news/press/2003-87.htm.

The SEC's General Counsel, Giovanni Prezioso, has released a letter he sent to the State Bar of Washington regarding the attorney conduct rules at http://www.sec.gov/news/speech/spch072303gpp.htm. Washington's State Bar has proposed a rule that would conflict with the SEC's new Rule 205. Part 205.3(d)(2) provides that "an attorney appearing and practicing before the Commission in the representation of an issuer may reveal to the Commission, without the issuer's consent, confidential information related
to the representation to the extent the attorney reasonably believes necessary..." to prevent certain specified harm. The State Bar's proposal would prohibit Washington lawyers from disclosing confidential information to the Commission that Rule 205 would permit them to disclose.

It should be noted that the ethical rules of most - if not all - states prohibit the revelations allowed under Rule 205 unless a higher threshold is met. There has been a debate as to whether the permissive provision adopted by the SEC would preempt the prohibition set forth in the ethical rules of the various states. In this letter, the SEC's General Counsel is taking the position that Rule 205 would preempt state law under the supremacy clause - and that a state bar can't discipline an attorney, appearing and practicing before the Commission, who in good faith, reveals to the Commission without the issuer's consent, confidential information related to the representation to the extent the attorney reasonably believes it is necessary to achieve one of the objectives of Part 205.3(d)(2).

Importantly, the SEC's General Counsel does not address whether a state bar could discipline an attorney who in good faith believes such a revelation is necessary if the bar later finds that the belief was not reasonable. Thanks to Ken Winer for his help deciphering the GC's letter!

For TheCorporateCounsel.net members, we have launched our "Blog City," which consists of five different sets of practitioners - with varying areas of expertise - blogging for your enjoyment. I like to think that the paper analogy to this new concept is the use of columnists in your daily paper - so find a blogger or two that matches your particular interests and personality today at http://www.thecorporatecounsel.net/blog/blog_city.htm.

We also have posted two interviews: one with LaDawn Naegle and Randy Wong on how to file CEO/CFO certifications this quarter at http://www.thecorporatecounsel.net/member/InsideTrack/07_29_03_Naegle.htm - and the other with Caroline Gottshaulk on how SOX impacts voluntary filers at http://www.thecorporatecounsel.net/member/InsideTrack/07_25_03_Gottschalk.htm.
posted by broc at 6:42 AM

 
Effective today, the SEC has tweaked Edgar so that CEO/CFO certifications must be filed as Exhibits 31 (for Section 301 certs) and 32 (for 906 certs) - rather than under "signatures" and as exhibit 99. In addition, earnings releases and blackout period information must now be filed under the 8-K items that were originally intended (ie. the SEC's interim fix of using Item 9 is no longer in effect).

For TheCorporateCounsel.net subscribers, we have posted a Word file of the new 302 certification at http://www.thecorporatecounsel.net/member/DocLibrary/302_certification.doc.

Also, the SEC has commenced a 6-month trial to allow same-day Edgar filings to be received at 6 am EST - 2 hours earlier than the 8 am official start time. See http://www.sec.gov/info/edgar/ednews/edchanges728.htm.

This SEC press release is curiously silent about the changes to the Section 16 e-filing system that are supposed to take effect today (as noted in this SEC final release from last week adopting updated Edgar Manual 8.6 - http://www.sec.gov/rules/final/33-8255.htm).

Based on what we know, we expect the SEC's changes to not fix all the snags that currently exist. As a result, we have added a session to this Wednesday's webcast where Alan Dye will explain these traps and offer possible solutions - join us Wednesday for "50 Nuggets in 50 Minutes" at http://www.greatgovernance.com/programs.html#50nuggets.

Last Friday, the SEC released a study encouraging the adoption of a "principles-based" accounting system - see http://www.sec.gov/news/press/2003-86.htm.
posted by broc at 9:30 AM