Author Archives: Broc Romanek

Today is the due date for the Form 10-Qs – and the sworn certifications – from most companies. An article on the topic from the Washington Post is at http://www.washingtonpost.com/wp-dyn/articles/A14968-2002Aug13.html.

No word yet on whether any CEO or CFO purposedly has not submitted a certification – or has submitted a modified one.

The following notes are from today’s panel regarding Section 16 and Executive Compensation developments at the ABA annual conference :

1. Sara Nelson Bloom from Nasdaq indicated that Nasdaq would eventually have a Web page for their legal department to make their positions more transparent, particularly in light of the inevitable slew of interpretations that will be necessary when their listing standards amendments become effective.

2. Mark Borges from the SEC indicated that, generally, companies with a 3/31 fiscal year end did a good job in providing disclosure regarding equity dilution. He noted that about 15% of the companies appeared to not include the disclosure, but observed that this generally included smaller companies that might not have been aware that the new regulation was in effect. Mark noted that interpretive guidance from the SEC regarding several issues regarding equity dilution disclosure was forthcoming in the near future.

3. Anne Krauskopf from the SEC mentioned what Alan Beller had already noted the day before – that the upcoming rulemaking under Section 403 of the Sarbanes-Oxley Act would likely leave the Section 16(a) reporting exemptions intact. Anne also noted that it was likely that some Form 5 transactions would continue to be reportable on Form 5 – with the exceptions being the ones noted in the SEC’s release last week – such as Rule 16b-3 transactions. These exceptions would now be reportable on Form 4 – such as excess benefit plans that might involve payroll deductions (in those cases, a Form 4 would be filed within 2 business days after each payroll deduction). For the new Form 4 (which will obviously no longer be a monthly form), Anne indicated that the holdings total could be based on the date of the report (after taking into account the transaction which caused the form’s filing); not the date of filing. She also indicated that Item 405 disclosure is only required for untimely filings; not necessarily for forms that might inadvertantly miscalculate the total holdings.

4. Anne also noted that the SEC was exploring solutions for the practical mess of obtaining filing codes for each insider. However, she did not indicate if this could – or would – be done before August 29th. As a result, companies might want to obtain filing codes for each insider as soon as practicable to facilitate electronic filing of these forms after August 29th.

From the American Bar Association annual conference, here are some brief notes from this morning’s dialogue with Corp Fin Director Alan Beller:

1. Regarding the certifications under the SEC’s Section 21(a) Order, it is important that companies and their counsel proofread what they submit so that the form of certification precisely matches what is required (apparently, there have been a number with typos – and that makes them deficient) – and companies should consider following the form of certification to a “t” and not list the reports that the certification covers. Otherwise, the company may inadverently not include a report that should be covered – and the SEC staff does not have the manpower to contact the company to ask if it was inadvertent – and the company will have submitted a deficient certification.

2. Stan Keller noted that the SEC had responded to a letter from some ABA members questioning the SEC’s ability to issue this SEC Order under Section 21(a) – both letters are on the ABA’s Web site. Dixie Johnson noted that the real concern was the SEC’s use of Section 21(a) in the future – and the related impact it would have on SEC enforcement investigations.

3. Alan addressed the question if a company had one person that served as both CEO and CFO – he stated if they truly were the same person (and was identified and signed as such in the company’s SEC filings), only one cert was required to be submitted.

4. Alan noted that the SEC was awaiting the formal rule proposals from the NYSE and Nasdaq – and hoped for uniformity in listing standards – and that the SEC wouldn’t be bashful in attempting to achieve that result. He also noted that these standards would have to conform to the Sarbanes-Oxley Act as well.

5. Regarding review of the Fortune 500, Alan noted that screening of all these companies (except for companies that have filed their 10-Ks recently – or will file them soon) has been completed – and that several hundred comment letters have – and will continue – to go out. Companies will not be notified if a comment letter is – or is not – forthcoming.

6. Alan noted that the rulemaking regarding accelerated deadlines for periodic reports would continue – but likely with generous transition periods – in light of the comments asking for more time and need for more internal processes at companies in order to comply with new obligations wrought by Sarbanes-Oxley.

7. Regarding the August 29th deadline for rulemakings regarding Section 302 certifications and Section 16 forms, the SEC is mulling the idea of transition periods to allow sufficient time for companies to comply – but no assurances could be given at this time. The Sarbanes-Oxley Act requires the SEC to finish rulemaking by August 29th – but is silent as to whether the rules can have transition periods.

8. Regarding Section 16 forms, Alan noted that it was likely that a few of the existing Section 16(a) reporting exemptions would remain in place. The existence of Form 5 itself likely will survive the rulemaking due from the SEC by August 29th – although many fewer transactions will be eligible for reporting on that form.

9. Regarding interpretations under the various provisions in the Sarbanes-Oxley Act, Alan repeatedly noted that Congress had just acted – and it is not the SEC’s place to then quickly undermine their actions by conducting rulemaking that exempts issuers and transactions contrary to the plain language of the legislation. He noted that interpretations of certain sections might be forthcoming in the long run – but could not provide any assurances about timing, nature and if it would happen at all. He noted that the SEC was in conversations with the DOJ to potentially provide interpretations under Section 906 – but that there were no assurances and that nothing was imminient.

10. Regarding the application of Sarbanes-Oxley to foreign private issuers, the points made above in 9. apply here as well. The SEC might not act – and certainly will not act quickly to provide any relief to those issuers.

11. Regarding whether the SEC is likely to meld Section 302 and 906 certifications, Alan noted that the Act clearly has required them as two separate certifications – so it was unlikely that they could be combined – although it might be too early to tell in the long run.

12. Karl Groskaufmanis noted that during last week, 150 companies had filed their 10-Qs – and 30 filed them with knowledge qualifiers in their 906 certifications. 112 of these companies included the 906 certifications as Exhibit 99 or in the 10-Q itself. 11 of these companies only filed or furnished the 906 certifications on a 8-K.

13. SEC General Counsel, Giovanni Prezioso, noted that his office has estimated that Sarbanes-Oxley will directly require the SEC to conduct at least 24 rulemakings/studies/other actions – and conduct at least another 20 such actions as part of this rulemaking process (note that these are not all Corp Fin rulemakings).

The media continues to track the potential conflicts of interest posed by the SEC’s Chairman and the four new Commissioners. The Washington Post recently ran a lengthy article detailing the potential conflicts posed by the new Commissioners at http://www.washingtonpost.com/wp-dyn/articles/A61642-2002Aug8.html.

The transcript from Wednesday’s program is now available at http://www.realcorporatelawyer.com/CLE/CLE08-07-02Transcript.html.

The SEC just issued its 4th set of FAQs on the certifications that are required for the 947 companies under its Order. It only comprises two new FAQs – and its at http://www.sec.gov/rules/other/4-460faqs.htm.

The FASB agreed yesterday to explore requiring all companies to disclose more prominently the impact of stock options on earnings – rather then just recommend uniform standards for companies that have voluntarily agreed to disclose this impact. Over 30 companies have volunteered in the past few weeks, including Citigroup who announced its intentions yesterday.

A Washington Post article on this topic is at http://www.washingtonpost.com/wp-dyn/articles/A57198-2002Aug7.html.

The SEC just issued supplemental information regarding the Section 16 reports that get accelerated by Sarbanes-Oxley on August 29th. The release is at http://www.sec.gov/rules/other/34-46313.htm.

The SEC is encouraging electronic filing of these forms – and will allow insiders to file them in free-text format – rather than the tables in the forms themselves – so long as the order of the information is the same. This is a big accomodation – as EDGAR isn’t set up to easily accept tables yet.

Regarding 906 certifications, if a company files its Form 10-Q and the certification is not evident from the filing – that does not necessarily mean that it was not submitted under the Sarbanes-Oxley Act. The company may have submitted it as correspondence – which would not be publicly available.

Of course, filing it as part of the 10-Q might not be a bad idea – otherwise, the media and investors may jump to the conclusion that the company was unable – or unaware – to make the submission.

Late Friday, the SEC posted its proposal relating to certifications for analysts at http://www.sec.gov/rules/proposed/33-8119.htm.

The SEC has just posted on its web site, Release No. 34-46300 with proposed rules to implement Section 302 of the Sarbanes-Oxley Act of 2002 – its at http://www.sec.gov/rules/proposed/34-46300.htm.

The Release discusses the differences with the SEC’s own proposals for certification. The comment period for the 302 rules and the SEC’s own rules remains August 19. The Release points out that because of the short time period for the 302 rules, it will not be able to consider comments filed after Aug 19, and urges parties to try to get comments in before the 19th.

The SEC distinguishes Section 906 as something different from the rules under 302, and as something in effect now. Set forth below is the Release’s footnote on Section 906:

“Section 906 of the Sarbanes-Oxley Act of 2002 adds new Section 1350 to chapter 63 of title 18 of the United States Code. Section 1350 requires a written statement to accompany all periodic reports filed with us that contain financial statements. This release does not relate to Section 906 of the Act, which, by its terms, is effective on enactment of the Act, July 30, 2002.”

A few more companies have made 10-Q filings with the 906 certifications, including Cigna, PSE&G and State Street.