Questions Posed for Today's Webcast

The Annual Alan Dye Conference On Section 16

Keeping Yourself Out of the Section 16 "Hot Water"

Tuesday, January 29, 2008

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  1. We recently filed a Form 4 to report the grant of two employee stock options. The options had identical terms in all respects, including the exercise price, but one was an incentive stock option and the other was a non-qualified option. We reported the options on separate lines of Table II. We understand that the staff’s new Section 16 interpretations, which you wrote about in Section 16 Updates, say that options having identical terms are securities of the same class. Does that mean that we should have reported the two options on a single line? If so, should we go back and amend the Form 4?
  2. The OMB numbers on the Forms 3, 4 and 5 posted on the SEC’s website expire on February 29, 2008. Are new forms available yet? If not, will the EDGAR system accept expired forms after February 29?
  3. We generally consider ex-employees who are insiders to be affiliates for 90 days following termination. During that period, the former employees have no relationship with the company other than that they are in their grace period for exercising vested options. Under the circumstances, where they are no longer “control” persons and are not true affiliates, is a Form 144 filing required if they exercise options and sell the shares within that 90 day window?
  4. We recently discovered that, due to default settings in our filing system, a Form 4 filed over two years ago to report an insider’s sale of stock incorrectly checked the column noting that the transaction was an acquisition rather than a disposition. Column 5, however, reported correctly the total number of shares owned by the insider. We discovered the error because a third-party service that tracks insiders’ transactions was reporting too many shares as beneficially owned by the insider. (Apparently these services pick up only transactional information, and do their own math to determine total ownership, so the service added shares rather than subtracting them.) What needs to be done to correct this error?
  5. When reporting a stock option exercise in Table II for an insider who holds numerous stock options granted at varying exercise prices over a period of years, what figure is supposed to be shown in Column 9 of Table II--the number of options still outstanding for the option that was exercised, or the total number of shares underlying all of the insider’s options? If the answer is that only the shares underlying the option being exercised should be reported, what should be done now if the company hasn’t been following that practice?
  6. What is the best practice to follow when preparing a Form 4 to report a transaction that does not affect the insider’s other holdings? That is, is it best to report all of the insider’s other holdings, even though there was no activity involving those holdings?
  7. Can you please provide an update on your views regarding the application of the “Rule of Three” as a viable analysis under Section 16?
  8. I have a Section 16 officer who purchased shares of common stock on December 31, 2007, pursuant to an employee stock purchase plan which satisfies the requirements of Section 423 of the Internal Revenue Code. This officer has no reason to file a Form 5 (or Form 4) before February 14, the 45th day after our year end. If she did, I would simply include the shares purchased pursuant to the ESPP in Column 5 of the line on which I report her direct holdings and explain in a footnote that the total includes shares acquired pursuant to the ESPP. Would it be acceptable to file a "voluntary" Form 5 and report the purchase of the ESPP shares, or should I wait and include the shares in the next required Form 4 or Form 5?
  9. Our company grants new directors restricted stock the day after they are elected to the board. We know we have ten days to file a Form 3, but the stock grant means that a Form 4 is due before the Form 3 is due. It has been our practice to make sure we file the Form 3 early (before the Form 4 due date), but what do we do if we don’t have complete information to submit the Form 3 before the Form 4 deadline? Is it ever proper to file a Form 4 before a Form 3?
  10. We just determined that two Forms 4 filed in August and October of 2007 to report an insider’s option exercises incorrectly identified the options that were exercised and therefore also misstated the number of shares involved in the transactions. We are going to amend the two Forms 4 to report the transactions correctly. That will have the effect of changing the number of shares beneficially owned by the insider as reported in Column 5 of Table I. We have filed five Forms 4 for the insider since the option exercises occurred, and each one carried forward the prior error regarding the number of shares the insider owns. Do we need to amend those five Forms 4?
  11. We filed a Form 4 to report an insider’s sale of company stock, and through inadvertent error we filed the report twice. We’re concerned that the duplicative filing will confuse investors, and in any case the insider has asked us to try to have it removed from the SEC’s EDGAR system. Is there a way to do that?
  12. We missed a Form 4 filing deadline by minutes, due to our own misunderstanding of how to use our software program. Is there any way to avoid treating the missed deadline as a late filing, so that we don’t have to disclose the delinquency in the proxy statement?
  13. What is the current practice regarding average price reporting now that the staff has issued its interpretation saying it isn’t permissible? We’ve been doing it for years.
  14. Do you see any reason to prohibit executives from electing, during a quarterly blackout period, tax withholding of shares upon exercise of an option or vesting of restricted stock?
  15. One of our vice-presidents was considered a Section 16 officer until 2004, when we re-evaluated our list of Section 16 officers and concluded that he should no longer be considered subject to Section 16. Now, the vice-president is being promoted to an executive officer position. The vice-president did not file an exit report in 2004 to indicate that he was no longer subject to Section 16. Do we need to file a new Form 3, or can we just resume filing Forms 4?
  16. A public company issuer will be acquired by merger but will survive as a wholly owned subsidiary of the acquiror. After the merger, the issuer will file a Form 15 to de-register its common stock. Before the Form 15 becomes effective, former insiders of the public company will receive common stock and options to purchase the common stock of the issuer (not its parent). Are the acquisitions reportable?
  17. An insider was the trustee of an irrevocable trust that she established for the benefit of her children and grandchildren. The trust holds shares of the issuer’s common stock. Several months ago, without our knowledge, the insider resigned as trustee and was replaced by an institutional trustee. Since the insider’s resignation as trustee resulted in her no longer being the beneficial owner of the trust’s holdings of common stock, should we have reported the resignation on Form 4? Since we didn’t, should we now report the resignation on Form 5?
  18. We signed and filed a Form 3 and two Forms 4 for an insider before we received his signed power of attorney. Do we need to amend any or all of the three reports to attach the power of attorney as an exhibit, or can we instead file the power as an exhibit to the insider’s next Form 4?
  19. An insider who engaged in a transaction reportable on Form 5 died prior to the end of the fiscal year. Is the transaction still reportable? No one at the company has a power of attorney for the deceased insider.
  20. An outside director of the issuer participates in, and serves as a trustee of, his employer’s 401(k) plan. The plan offers as an investment option a fund comprised of the issuer’s common stock. If the director elects to invest in the issuer stock fund, will acquisitions resulting from the director’s payroll deduction contributions be eligible for exemption under Rule 16b-3(c)? Will transactions in issuer stock by other plan participants be attributable to the director for purposes of Section 16?