The Practical Corporate & Securities Law Blog

By Broc Romanek

Go to TheCorporateCounsel.net

 
Reality Bites: More on the New 8-K Rules

I have received a phenomenal number of 8-K questions as the August 23rd effective date draws near, which is understandable given that the new 8-K requirements present tricky new challenges about when – and what – to disclose.

So we are holding a webcast on September 23rd - "Reality Bites: More on the New 8-K Rules" - that will supplement our May webcast on the topic (of course, you can review that transcript now). The agenda for the September 23rd webcast principally will be framed by questions e-mailed in advance to broc.romanek@thecorporatecounsel.net. So e-mail your questions now!

The panel for the September 23rd webcast consists of: David Martin of Covington & Burlin; Ron Mueller of Gibson Dunn; Bill Tolbert of Jenner & Block; and Brink Dickerson of Troutman Sanders.

8-K Transition Interp

At the ABA Annual Meeting earlier this week, Corp Fin Director Alan Beller confirmed that the old Form 8-K rules apply for events occurring before the effective date, August 23, but are reported after the 23rd. However, for EDGAR programming reasons, the new Form 8-K template and format must be used for any 8-Ks filed on - or after - the effective date.
posted by broc at 9:27 AM

 
More on Item 703 Stock Repurchase Tables

We have added two additional informal Corp Fin interpretations (that I have heard secondhand from several members - not directly from the Staff) regarding the Item 703 stock repurchase table to "Staff Interps re: Item 703 Disclosures about Stock Repurchases" in our "Stock Repurchase" Practice Area. These interps relate to tax-withholding and restricted stock units.

Sentencing Guidelines Transcript Available

We have posted the transcript from our July 21st webcast, "How the New Sentencing Guidelines Impact You."

The PTO Goes Online

Finally, the U.S. Patent and Trademark Office has made available all documents in the files of pending published U.S. patent applications online. This is a huge change as it is now generally possible to learn more about what a competitor is trying to patent - and to learn it significantly sooner. I know that this isn't relevant for our members - but thought it was notable and shows how the SEC was far ahead of its time when it developed EDGAR back in the early '80s.
posted by broc at 9:06 AM

 
The SEC's 5-Year Plan

On Thursday, the SEC posted its five-year strategic plan, as required by the Government Performance and Results Act of 1993. The 59-page plan outlines broad strategies to accomplish what could be considered the SEC's long-standing four goals: (1) enforce compliance with federal securities laws, (2) sustain an effective and flexible regulatory environment, (3) encourage and promote informed investment decision-making, and (4) maximize the use of SEC resources.

Most of the strategies outlined in the plan have been well-publicized over the past year as Chairman Donaldson has been making his mark. For example, the new Office of Risk Assessment is leading the way to implement the "doctrine of no surprises." Another example is the SEC's push to eventually utilize XBRL in an effort to upgrade EDGAR.

On the Corp Fin front, the transformation of the disclosure review process - including the criteria used for selection - is mentioned repeatedly. This transformation already has begun and is bound to evolve in the near term.

I am a fool for trivia and love all the factoids spread throughout the plan, such as 600,000 documents are filed annually through EDGAR and 18 million pages are contained in the 12,000 annual reports filed annually.

The SEC University

One of the more notable aspects of the 5-year plan is that the SEC is developing an online and in-person training program called the SEC University. One of the rationales for "SEC-U" (which is the abbreviation that the plan uses on page 48) is that 14% of the SEC's managers are eligible to retire in 2005 - hence, the need to train new leaders. Corp Fin has conducted in-person training for years - but it will be interesting to see what type of online training the Staff develops.

50 Nuggets III

Join Alan Dye and I as we wind our way through 50 practice pointers in a webcast tomorrow - 50 Nuggets in 50 Minutes III.

If you are not yet a member, take advantage of a no-risk trial to see what you are missing. Here are 10 Good Reasons to try us! And now you can take advantage of our special offer to try a "Rest of 2004" no-risk trial to either TheCorporateCounsel.net or Section16.net for only $315!
posted by broc at 7:17 AM

 
Demystifying Google's Rescission Offer

Last Wednesday, Google filed a rescission offer in a new registration statement with the SEC (which was then amended on Friday), offering to repurchase more than 23 million shares of its stock and 5.6 million options that were illegally issued to approximately 1,000 of its employees and consultants. This rescission offering is not directly related to the IPO.

According to media reports, some state regulators (e.g. California) are actively investigating violations raised by Google's prior offerings and these reports claim that Google's IPO has been postponed due to these investigations. However, the fact that this rescission offering is happening should not have been surprising to the mainstream media since the IPO prospectus - since April - has included a section entitled "Rescission Offer" that revealed these violations and the proposed resolution. This is not something that by itself should hold up the IPO - much less imperil it - since it was clearly planned for from the beginning. Rather, it's a soft IPO market that likely is forcing a postponement of the IPO.

According to Google's disclosure, the shares causing the violations are from Google's option plans. Although there are specific federal and state exemptions for sales of shares underlying options, it is not too uncommon for private companies to technically pop out of those exemptions and be left with no exemptions to rely on and no way to register the sales. The SEC likely will not do anything about Google's Rule 701 violations unless there was fraud involved, which doesn't seem to be the case. Remember that under Section 12, purchasers - not the SEC - have a cause of action to seek rescission.

Although it isn't disclosed, it's possible that Google crossed the Section 12(g) threshold some time back and was required to register its common stock under the '34 Act (companies that have more than 500 shareholders and $10 million in assets at calendar year end must register under Section 12(g)). Since it hadn't conducted a public offering, Google probably never imagined - as is the case for a number of larger private companies - it could possibly be required to file a Form 10 with the SEC.

Now that a IPO appears imminent (despite the postponement), any offerees that accept the rescission offer would be out of their minds as Google's anticipated IPO offering range is between $108 and $135 a share and the rescission offers are well below those levels; as low as a dollar and change in some cases.

The rescission offer prospectus does include a risk factor that alludes to this disparity: "The amount you would receive in the rescission offer is fixed and is not tied to the fair market value of our common stock at the time the rescission offer closes. As a result, if you accept the rescission offer, you may receive less than the fair market value of the securities you would be tendering to us." But this risk factor doesn't mention the anticipated range of the IPO. It will be interesting to see if any rescission offerees tender their shares.

Does a Federal Right of Rescission Survive a Rescission Offer?

One risk factor in the Google rescission prospectus raises an interesting issue: "If you affirmatively reject or fail to accept the rescission offer, it is unclear whether or not you will have a right of rescission under federal securities laws after the expiration of the rescission offer. The staff of the Securities and Exchange Commission is of the opinion that a person's right of rescission created under the Securities Act of 1933 may survive the rescission offer. However, federal courts in the past have ruled that a person who rejects or fails to accept a rescission offer is precluded from later seeking similar relief."

If Google's stock price tanked in the aftermarket, could rescission offerees attempt to exercise their rescission rights then (note that the rescission prospectus states that the offer expires in September - most states require that rescission offers remain open for at least 30 days)? E-mail your thoughts (and any materials on rescission offerings) on this topic to me and I will address it later in the week as we are in the midst of building a "Rescission Offerings" Practice Area.

Is a Dutch Auction a Postive Development for Investors?

Yesterday's Washington Post contained this editorial from Yale School of Management professor Barry Nalebuffon on this hot topic.

By the way, here is Google's IPO auction website...
posted by broc at 7:13 AM