SEC Adopts Rules To Implement Accelerated Section 16 Reporting

On August 27, 2002, the Securities and Exchange Commission adopted new rules relating to Section 16 as directed by the Sarbanes-Oxley Act, including new accelerated filing deadlines. Section 16 applies to transactions in a public company’s equity securities by its directors, certain officers and 10% or greater beneficial shareholders. The new rules became effective on August 29, 2002 and apply to transactions on or after that date. The significant rule changes are outlined below. We recommend all companies notify company insiders as soon as possible of the need to comply with the new requirements.

Subject to only very limited exceptions, a Form 4 report must now be filed no later than the second business day following the day of any transaction which changes an insider’s beneficial ownership of the company’s equity securities. For example, if a transaction is executed on Tuesday, September 3rd, the Form 4 must be filed by the close of business on Thursday, September 5th.

• Beyond the two-day accelerated deadline, another significant effect of the new rules is to require that certain transactions previously eligible for delayed reporting on year-end Form 5 must now be reported on Form 4 within two business days. These include grants of stock options and restricted stock awards, cancellations, regrants and/or repricings of stock options, acquisitions from and sales of stock to the issuer, and discretionary purchases and sales of the company’s stock under employee benefit plans, as well as transactions pursuant to non-qualified deferred compensation plans. These transactions join option exercises and market transactions on the list of transactions now subject to two-business day reporting on Form 4. Other than these transactions, all of which fall within Rule 16b-3, transactions that were eligible for deferred reporting on Form 5 continue to be eligible, including gifts and transactions that are deemed to be a change in the form of beneficial ownership. ·
• In addressing the accelerated reporting on Form 4, please note the following:

• Transactions involving company stock under tax-qualified employee benefit plans and stock purchase plans, to the extent currently exempt from Section 16 reporting, will remain exempt from Section 16 reporting, although such holdings must still be included in the beneficial ownership amounts reported on either Form 4 or Form 5. (For example, employee elections to direct new contributions into the employer stock fund of an employee benefit plan will continue to be exempt from reporting. Only changes in the selected investment alternative that move money in or out of the stock fund will trigger a reporting event. The number of shares owned in the employer stock fund must be included in the insider’s beneficial ownership on the Form).

The new rules provide that two types of transactions will be afforded a somewhat longer timeframe for Form 4 reporting, as follows:

• These transactions must be reported on Form 4 no later than the second business day after the transaction is deemed to have occurred. For these types of transaction, the date on which the transaction will be deemed to have occurred is the earlier of (a) the date on which the broker, dealer or plan administrator notifies the insider that the transaction occurred, or (2) the third business day following the actual trade date (even if the insider is unaware the transaction occurred). ·
• The SEC plans to publish amended Forms 4 and 5 as soon as possible. In the meantime, insiders should continue to use the old forms, indicating the date on which the reportable transaction occurred rather than the month to which the Form relates. Period-end holdings should be reported to reflect beneficial ownership immediately following the transaction rather than month end and transactions pursuant to Rule 10b5-1 plans and discretionary employee benefit plan transactions should list the transaction date as the trade date with a footnote referencing the "deemed execution date."

By July 30, 2003, all insiders who must file reports under Section 16 will be required to file such reports with the SEC electronically via EDGAR, and companies which maintain websites must post these reports on their websites no later than the end of the business day following the filing date. Further rulemaking by the SEC in this regard will be forthcoming. The SEC is encouraging all insiders to file their Forms 4 electronically. Each insider must obtain their own unique EDGAR filer identification numbers from the SEC.

In the release adopting the new rules, the SEC clarified that it will not move forward with its previously proposed rules which would have required companies to file reports on Form 8-K regarding insider transactions in company securities. The SEC is, however, continuing to consider other expanded Form 8-K disclosures proposed in its earlier releases, including immediate disclosure of related party transactions and insider adoption of Rule 10b5-1 trading plans (these plans can serve to preclude insider trading violations for preplanned purchases or sales of company securities).