Monthly Archives: August 2004

August 12, 2004

Reality Bites: More on the

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 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.

August 11, 2004

More on Item 703 Stock

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.

August 10, 2004

The SEC’s 5-Year Plan On

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 or for only $315!

August 9, 2004

Demystifying Google’s Rescission Offer Last

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

August 5, 2004

SEC Adopts Technical Amendments The

The SEC adopted technical amendments yesterday to the Form 8-K release, originally adopted on March 16, 2004. Among the changes:

• the addition of a fourth checkbox to Form 8-K to allow a company to satisfy the disclosure requirements of Rule 13e-4(c), the Regulation M-A provision for issuer tender offers, by including that disclosure in a Form 8-K;

• revision of the requirement to disclose the source of funding under Item 2.01 of Form 8-K, Completion of Acquisition or Disposition of Assets, if a material relationship exists between the company and the source of funding (instead of if a material relationship exists between the company and the seller of the assets);

• Revision to Item 5.05(c) of Form 8-K, Amendments to the Registrant’s Code of Ethics, or Waiver of a Provision of the Code of Ethics, to provide that a company disclosing an amendment to, or waiver from, its code of ethics on its website must do so within four business days (rather than five);

• amendment to Item 5(a) of Form 10-K (disclosure of unregistered sales) to disallow the exclusion of sales made under Reg S; and

• re-addition of paragraph (b) of Item 5 of 10-Q/10-QSB that was inadvertently deleted.

New “Reg S” Practice Area

We have created new practice area for Regulation S. The Practice Area includes FAQs, recent No-Action Letters and a timeline of Reg S. Take a look!

-Submitted by Julie Hoffman

August 4, 2004

Treasury and IRS Issue New

Under new regs issued Monday by the Treasury Department and the IRS, employee-holders of ISOs have the ability to acquire employer stock without realizing income when the option is exercised. The regulations finalize, with minor changes, regulations proposed last summer.

Capital gains treatment is permitted if the employee holds the stock for a required period, the exercise price for the ISO is no less than the fair market value of the underlying stock on the date the ISO is granted, and the ISO plan was approved by shareholders. Additionally, the amount of ISOs that can be granted to an employee is limited.

The final regulations generally will be effective on the earlier of January 1, 2006 or the first regularly scheduled stockholders meeting occurring at least six months after the publication of the final regulations.

New “Lead Director” Practice Area

We have created a new “Lead Director” Practice Area, including FAQs on board leadership and examples from companies’ corporate governance principles and proxy statement disclosures. Check it out.

-Submitted by Julie Hoffman

August 3, 2004

August E-Minders is Up! We

We have posted the August E-Minders. Check it out!

SEC Enforcement Actions Down

An article in yesterday’s L.A. Times reported that actions brought by the Division of Enforcement are down in the current year (which ends Sept. 30). In the nine months ending June 30, the SEC brought 378 enforcement actions against companies and individuals, compared to 443 enforcement actions in the prior year.

Some experts speculate that the decrease is a result of a change in enforcement strategies and an increase in complex cases, rather than a decrease in corporate fraud. There are select areas, however, where SEC enforcement numbers are rising: freezing assets, suspending trades and officer & director bars.

Pitt’s (non) FOIAble Records

The U.S. District Court for the District of Columbia ruled last week that certain records of former Chairman Harvey Pitt are not required by FOIA to be turned over to the media. The ruling encompasses Pitt’s notes on meetings with Wall Street and accounting executives as well as telephone logs and appointment calendars. Bloomberg had made several requests for information during Pitt’s tenure, but the SEC claimed most of the records were not “agency records” subject to the FOIA.

The court also upheld the SEC’s denial of Bloomberg’s request for documents on a November 2001 meeting on conflicts on Wall Street. Bloomberg sought notes taken by the Staff at the meeting with officials from the NYSE, NASD and several brokerage firms. The court agreed with the SEC’s denial, saying that regulators would be hampered if participants didn’t feel free to talk openly at such meetings, or if the thoughts and recommendations of the Staff were “exposed” before a final decision on a policy matter.

-Posted by Julie Hoffman

August 2, 2004

Accelerated Filing Reprieve? Last week,

Last week, Jim Quigley, CEO of Deloitte & Touche USA, testified before the House Committee on Financial Services at a hearing on Sarbanes-Oxley. In his testimony, Quigley said it is very challenging for companies to comply with both an accelerated filing schedule and the new internal-controls rules in the same year. Quigley said Deloitte planned to send a letter to the SEC asking the agency to delay implementation.

It appears that the SEC may actually be considering a one-year extension for the accelerated filing deadline for Form 10-Ks, according to a July 26th Wall Street Journal article. Under the phase-in as originally established in 2002, for fiscal years ending after December 15, 2004, 10-Ks will be required to be filed within 60 days of the fiscal year end (rather than the 75 days they had this year).

In addition, accelerated filer companies are required to file their 10-Qs within 40 days after each quarter end this year – with this deadline dropping to 35 days next year.

Our New Survey on Accelerated Filer Deadlines!

We have a hunch that meeting a 35-day 10-Q deadline might be even more challenging than a 60-day 10-K deadline. To find out whether this hunch is correct, we have posted a quick survey on the ability of accelerated filers to meet these upcoming deadlines. Please weigh in on this important debate!

You also might want to review the final results from our recent survey on disclosure committees.

-Submitted by Julie Hoffman