Ownership Reports and Trading by Officers, Directors and Principal Security Holders
Federal RegisterAug 17, 1994
Ask Donna
What actually matters in this document.
Text
SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 228, 229, 240 and 249
[Release Nos. 34-34514; 35-26100; IC-20467; File No. S7-21-94]
RIN 3235-AF66
Ownership Reports and Trading by Officers, Directors and
Principal Security Holders
AGENCY: Securities and Exchange Commission.
ACTION: Proposed Rule.
-----------------------------------------------------------------------
SUMMARY: The Commission today is proposing amendments to its rules and
forms regarding the filing of ownership reports by officers, directors,
and principal security holders, and the exemption of certain
transactions by those persons from the short-swing profit recovery
provisions of Section 16 of the Securities Exchange Act of 1934
(``Exchange Act'') and related provisions of the Investment Company Act
of 1940 (``Investment Company Act'') and the Public Utility Holding
Company Act of 1935. The proposed rules are intended to streamline the
Section 16 regulatory scheme, particularly with respect to employee
benefit plans; broaden exemptions from short-swing profit recovery
where consistent with the statutory purposes; and codify several staff
interpretive positions.
DATES: Comments should be received on or before October 17, 1994.
ADDRESSES: Comments should be submitted in triplicate to Jonathan G.
Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549. Comment letters should refer to File No.
S7-21-94. All comments received will be available for public inspection
and copying in the Commission's Public Reference Room, 450 Fifth
Street, N.W., Washington, D.C., 20549.
FOR FURTHER INFORMATION CONTACT: Anne M. Krauskopf, Special Counsel,
Office of Chief Counsel, at (202) 942-2900, or Elizabeth M. Murphy,
Special Counsel, Office of Disclosure Policy, at (202) 942-2910,
Division of Corporation Finance, Securities and Exchange Commission,
450 Fifth Street, N.W., Washington, D.C. 20549.
SUPPLEMENTARY INFORMATION: The Commission is proposing amendments to
Rules 16a-1, 16a-2, 16a-3, 16a-4, 16a-6, 16a-8, 16a-9, 16b-3, and 16b-
51 promulgated under Section 162 of the Exchange Act.3
In addition, the Commission is proposing revisions to Item 405 of
Regulation S-K4 and Regulation S-B,5 as well as to Forms 3,
4, and 5.6
---------------------------------------------------------------------------
\1\17 CFR 240.16a-1, 16a-2, 16a-3, 16a-4, 16a-6, 16a-8, 16a-9,
16b-3, and 16b-5.
\2\15 U.S.C. 78p (1982).
\3\15 U.S.C. 78a et seq.
\4\17 CFR 229.405.
\5\17 CFR 228.405.
\6\17 CFR 249.103, 104 and 105.
---------------------------------------------------------------------------
I. Executive Summary and Background
In February 1991, in response to developments in the trading of
derivative securities, the growth of complex and diverse employee
benefit plans, and substantial filing delinquencies, the Commission
adopted extensive changes to the beneficial ownership and short-swing
profit recovery rules and forms applicable to insiders7 pursuant
to Section 16.8 After three years of experience, unanticipated
practical difficulties still arise in applying the new Section 16
rules, particularly with respect to thrift and similar employee benefit
plans.9 The rule changes proposed today address these practical
problems and further streamline the rules, to the extent consistent
with the purposes of Section 16.
---------------------------------------------------------------------------
\7\The term ``insider,'' as used in this release, refers to
officers, directors, and holders of more than ten percent of a class
of equity securities who are subject to Section 16.
\8\Release No. 34-28869 (February 8, 1991) [56 FR 7242]
(``Adopting Release''). The rules generally became effective on May
1, 1991, except for the phase-in period for compliance with the
substantive conditions of new Rule 16b-3. The phase-in period has
been extended until September 1, 1995 or such different date as may
be set in further rulemaking (Release No. 34-34513 (August 10,
1994)). See Section VI, below.
\9\Following the Adopting Release, the Commission issued two
other releases relating to the revised rules; one set forth the
Commission's interpretive views regarding shareholder approval for
amendments to employee benefit plans under Rule 16b-3, as well as
certain technical amendments (Release No. 34-29131 (April 26, 1991)
[56 FR 19925]), while the other adopted a technical amendment to
Form 4 (Release No. 34-28869B (April 10, 1991) [56 FR 14467]).
---------------------------------------------------------------------------
A. Employee Benefit Plan Transactions
The focus of the proposed rules is the treatment of employee
benefit plan transactions. In particular, the proposals would:
Exempt from short-swing profit recovery all purchase
transactions in thrift and other broad-based, tax-qualified plans,
other than those involving transfers to and from an employer securities
fund;
Exempt from short-swing profit recovery transfers to and
from employer securities funds in thrift and other plans that are
effected either during a quarterly window period or pursuant to a
diversification election under the Internal Revenue Code;
Expand exemptions for plan distributions in connection
with retirement or specified transactions authorized by the Internal
Revenue Code;
Provide that exempt dispositions within six months of an
exempt grant would not destroy the exemption for the grant;
Exclude from the definition of ``derivative security''
cash-only instruments issued as compensation by an employer to an
employee;
Exclude from the definition of ``derivative security''
rights that include non-market price based conditions;
Exclude from the definition of ``derivative security''
rights to withhold (or to deliver securities already owned) to satisfy
tax or exercise price obligations, and exempt cash settlement of such
rights where granted pursuant to exempt employee benefit plans;
Eliminate the transferability restrictions applicable to
derivative securities issued under an employee benefit plan.
B. Reporting
The proposal also would simplify and clarify the reporting
requirements by:
Permitting joint and group reporting where more than one
person is deemed to be a beneficial owner of the same securities;
Providing that Section 16 applies to a trust only if the
trust beneficially owns more than ten percent of a class of registered
equity securities;
Eliminating officers' and directors' post-termination
reporting obligations with respect to exempt transactions and other
transactions that are not matchable with a pre-termination transaction;
Requiring a discrete caption for the disclosure about
delinquent Section 16(a) reports required by Item 405 of Regulations S-
K and S-B.
The Release also solicits comment on a variety of approaches to
simplify the reporting of exempt transactions, including elimination of
the total holdings column in Forms 4 and 5, proposals to replace Form 5
with alternative reporting schemes (including a Form 10-K summary of
insider transactions), and elimination of the requirement to report
exempt employee benefit plan transactions.
C. Other Issues
Finally, the proposal would codify certain staff interpretive
positions, and would establish new categories of transactions exempt
from short-swing recovery by:
Exempting the disposition of securities pursuant to a
qualified domestic relations order, whether or not the securities are
held by a Rule 16b-3 employee benefit plan;
Revising the exemption for stock splits and stock
dividends to include pro rata stock dividends in which securities of a
different issuer are distributed.
II. Employee Benefit Plans
A. Expanded Exemptions for Broad-Based Plan Transactions and Intra-
Plan Transactions
The principal objection raised to the amended Section 16 rules has
been that the treatment of thrift, stock purchase and other broad-
based, tax-qualified plans is unduly cumbersome, presents significant
record-keeping problems, and discourages insiders from participation in
plan funds holding employer securities. These plans are subject to
significant restrictions under both the Internal Revenue Code10
and the Employee Income Retirement Security Act of 1974
(``ERISA''),11 which establish an objective framework for the
treatment of compensatory transactions and impose extensive
administrative requirements, thereby making plan transactions less
vulnerable to the abuses that the short-swing recovery provision of
Section 16(b) was designed to prevent. Accordingly, the proposed rules
would streamline the conditions necessary to exempt transactions in
such plans from short-swing profit recovery. Comment is solicited not
only on the proposals set forth, but also on whether there is any other
aspect of the treatment of employee benefit plans that should be
modified, either in Rule 16b-3 or any other rule relating to employee
transactions.
---------------------------------------------------------------------------
\1\026 U.S.C. et seq. (1986) (``I.R.C.'').
\1\129 U.S.C. 1001 et seq. (1986).
---------------------------------------------------------------------------
As discussed below, the revised rule would exempt, without
conditions as to timing, any purchase transaction arising under a
broad-based nondiscriminatory tax-qualified plan, other than an intra-
plan transfer to or from an employer securities fund.12 The
proposed exemption would have a broader scope than the current rule,
since it would be available not only to participant-directed
contributory plans, but also would apply specifically to related
``excess benefit'' or ``mirror'' plans and noncontributory plans such
as many employee stock ownership plans (``ESOPs'').13 The timing
restrictions governing the exemption for transfers to or from an
employer stock fund in any thrift, stock purchase or similar plan,
whether or not broad-based, nondiscriminatory and tax-qualified, would
be more flexible.
---------------------------------------------------------------------------
\1\2Proposed Rule 16b-3(d) would replace Rule 16b-3(d)(2) [17
CFR 240.16b-3(d)(2)] in its entirety. Other transactional exemptions
currently available to participant-directed plans would continue to
be available. Current Rules 16b-3(d)(1)(i) and (ii) [17 CFR 240.16b-
3(d)(1)(i) and (ii)] are proposed to be moved to Rules 16b-3(h) and
(g), respectively. See Sections II.B. and II.H, below.
\1\3See I.R.C. Sections 401(a) and 409.
---------------------------------------------------------------------------
1. Purchases Under Employee Benefit Plans
In adopting the current exemption for transactions in a thrift,
stock purchase, or similar ongoing securities acquisition plan,14
the Commission reasoned that ``wide participation and equal treatment
of all participating employees limits insiders' opportunities to engage
in short-swing speculation.''15 This reasoning may support a
broader exemption.
---------------------------------------------------------------------------
\1\4Rule 16b-3(d)(2)(i)(A) [17 CFR 240.16b-3(d)(2)(i)(A)].
\1\5Adopting Release at Section IV.D, text following n. 201.
---------------------------------------------------------------------------
Under the proposal,16 all purchase transactions in a thrift,
stock purchase or similar securities acquisition plan would be exempt
if the plan provides for broad-based employee participation, does not
discriminate in favor of highly compensated employees, and is qualified
under the Internal Revenue Code.17 In light of the requirement for
broad-based participation, the proposed rule would exempt one-time
acquisitions, as well as ongoing acquisitions (such as regular
purchases by payroll deduction pursuant to a thrift plan).18 The
exemption would apply whether the transaction results from an employer
or an employee contribution.
---------------------------------------------------------------------------
\1\6Proposed Rule 16b-3(d)(1)(i).
\1\7I.R.C. Section 401 establishes conditions for the tax
qualification of pension, profit-sharing and stock bonus plans; and
I.R.C. Section 423 establishes conditions for the tax qualification
of employee stock purchase plans.
\1\8Conforming changes are proposed to Rule 16b-3(c)(2)(i)(B)
[17 CFR 240.16b-3(c)(2)(i)(B)], transaction code B in Forms 4 and 5,
and General Instruction 4(a)(ii) to Form 5 to reflect deletion of
the requirement that the plan be ``ongoing.''
---------------------------------------------------------------------------
The proposal would eliminate the exemptive requirement that insider
participants who withdraw from a fund holding equity securities of the
employer (``employer securities fund'')19 either cease further
employer securities fund purchases for six months or hold the
securities distributed for six months.20 Similarly, insider
participants who stop participating in an employer securities fund no
longer would be required to refrain from further participation for six
months.21 The six-month holding period for securities offered
without a fixed price under a stock purchase plan or similar plan also
would be eliminated.22 The tax law restrictions applicable to
broad-based, tax-qualified plans, such as plan contribution limits,
plan benefit limits and nondiscrimination rules,23 should be
sufficient to deter insiders from using such plans as vehicles for
short-term speculation.
---------------------------------------------------------------------------
\1\9Such funds would include both funds composed entirely of
equity securities of the employer and mixed equity funds (except for
mixed equity funds where employer equity securities do not exceed 20
percent of fund assets as of the end of the plan's latest fiscal
year; see American Bar Association (June 28, 1993)).
\2\0Rule 16b-3(d)(2)(i)(B) [17 CFR 240.16b-3(d)(2)(i)(B)].
\2\1Rule 16b-3(d)(2)(i)(C) [17 CFR 240.16b-3(d)(2)(i)(C)].
\2\2Rule 16b-3(d)(2)(i)(D) [17 CFR 240.16b-3(d)(2)(i)(D)].
\2\3See I.R.C. Section 401(a) (contribution limits applicable to
both mandatory and voluntary contributions); I.R.C. Section 415
(limitation on ``maximum annual benefits'' for defined benefit plans
and ``maximum annual additions'' for defined contribution plans);
I.R.C. Section 401(m) (non-discrimination tests comparing the
contribution percentage for highly compensated employees to that of
all other employees); I.R.C. Section 416 (``top heavy'' rules
providing rank and file employees with minimum benefits and more
rapid vesting if plan benefits inure disproportionately to key
employees); and I.R.C. Section 423 (prohibiting a grant to any
employee who would own five percent of the stock following such
grant).
---------------------------------------------------------------------------
Finally, the proposed rule would provide an explicit exemption for
purchase transactions pursuant to an ``excess benefit'' or ``mirror''
plan,24 defined as a plan, operated in conjunction with a tax-
qualified plan, that provides only the benefits or contributions that
would be provided under a tax-qualified plan but for the limitations
imposed by the Internal Revenue Code.25 Although such plans
technically are outside the scope of the ERISA regulatory scheme, they
are operated in a manner that replicates plans that are so regulated,
and accordingly are unlikely to be vehicles for speculative abuse.
---------------------------------------------------------------------------
\2\4Proposed Rule 16b-3(d)(1)(ii).
\2\5See, e.g., I.R.C. Sections 401(a)(17) and 415. See also
Thacher Proffitt & Wood (Dec. 20, 1991) Q. 2 and Thacher Proffitt &
Wood (Feb. 11, 1992) (excess benefit plans may be considered
together with related tax-qualified plans for purposes of satisfying
the broad-based participation and non-discrimination requirements of
the current rules); and Sonnenschein, Nath & Rosenthal (July 6,
1992) Q. 4 (excess benefit plans may be implemented without
shareholder approval although they are not organized in trust form).
---------------------------------------------------------------------------
Commenters are requested to address whether it is necessary to
limit the proposed purchase exemption to plans that are qualified
pursuant to the Internal Revenue Code. Are the conditions of the
proposed rule that a plan be broad-based and non-discriminatory
sufficient safeguards? Does satisfaction of the minimum participation,
minimum funding, non-discrimination and vesting standards specifically
imposed by the Internal Revenue Code provide additional assurance that
transactions pursuant to a plan will not be subject to abuse? Is the
proposed exemption for excess benefit plan transactions consistent with
the theory that wide participation and equal treatment of all
participating employees limits insiders' opportunities to engage in
short-swing speculation?
2. Intra-Plan Transfers
The proposed rule would simplify and shorten the timing restriction
that conditions the exemption for transfers of funds in an employee
plan to or from an employer securities fund (``fund-switching
transaction''). As proposed, any fund-switching transaction effected
pursuant to an election made during any quarterly ``window period''
would be exempt.26 Moreover, the exemption no longer would be
limited to transfers at least six months apart. The requirement that
the election occur in the ``window period'' following the release of
quarterly and annual financial data should provide an adequate
safeguard.27 As under the current rules, the exemption would be
available whether or not the plan is broad-based, tax-qualified and
nondiscriminatory.28 Finally, because of changes to the basic
exemption for plan purchases discussed above, transferring assets out
of an employer securities fund would no longer trigger the requirement
that the insider cease plan purchases for six months.29
---------------------------------------------------------------------------
\2\6Proposed Rule 16b-3(d)(2)(i). See Rule 16b-3(e)(3) [17 CFR
240.16b-3(e)(3)], defining the ``window period'' as the period
beginning on the third business day following the date of release of
quarterly and annual summary statements of sales and earnings, and
ending on the twelfth business day following such date.
\2\7Although the window period requirement reduces the
likelihood that an insider possesses material information that is
not publicly available, the window period should not be considered a
safe harbor from the prohibitions of Exchange Act Section 10(b) and
Rule 10b-5 thereunder [15 U.S.C. 78j(b) and 17 CFR 240.10b-5].
\2\8Plan participants also would continue to be able to effect
fund-switching transactions by means of a six month advance
election. See Section II.B, below.
\2\9This would change the result in Cravath, Swaine & Moore
(Oct. 22, 1991) Q. 4. See Section II.A.1, above.
---------------------------------------------------------------------------
Comment is requested as to whether the six month timing restriction
between transfers should be retained, and, if so, whether it should be
limited to opposite way transactions, such as a transfer into an
employer securities fund followed by a transfer out of an employer
securities fund. In addition, commenters should address whether
requiring that transactions be limited to every other window period,
even if separated by a few days less than six months--rather than
requiring the transactions themselves to be six months apart--would
alleviate difficulties in administering the requirement while
preventing opportunities for speculative abuse. Comment also is
requested whether it would be consistent with the statutory purpose to
exempt fund-switching transactions without any timing restrictions. In
addressing these issues, commenters are asked to consider the manner in
which the rule, as proposed, would function in tandem with concurrently
applicable provisions of the Internal Revenue Code and ERISA regarding
transfers.30
---------------------------------------------------------------------------
\3\0Commenters' attention is directed particularly to the rules
that became effective January 1, 1994 under Section 404(c) of ERISA
[29 USC 1104(c)] that specify circumstances in which employee plan
sponsors will not be subject to fiduciary responsibility because
investment decisions are made by plan participants. In order to
benefit from the rules, a plan must make a variety of investment
vehicles available to plan participants and permit participants to
switch their investments among the different vehicles at a rate of
frequency related to the volatility of the investment. The latter
requirement may dictate that a plan permit fund-switching
transactions more frequently than every six months. See 29 CFR
2550.404c-1.
---------------------------------------------------------------------------
In addition, the proposed rule would exempt any fund-switching
transaction that results from a diversification election satisfying the
provisions of the Internal Revenue Code, without regard to the ``window
period'' timing restriction.31 This would maintain the utility of
the 90-day period following the close of the plan year specifically
provided for such transactions by the Internal Revenue Code32 in
order to facilitate proper planning for retirement. Distributions to
participants pursuant to such diversification elections also are
proposed to be exempted, as discussed below.33 Comment is
requested as to whether such fund-switching transactions also should be
subject to the ``window period'' requirement or any further timing
restriction other than that imposed by the Internal Revenue Code.
---------------------------------------------------------------------------
\3\1Proposed Rule 16b-3(d)(2)(ii).
\3\2I.R.C. Section 401(a)(28), which requires an ESOP to permit
a participant who has attained age 55 and has participated in the
ESOP for 10 years to elect, within 90 days after the close of the
plan year, to direct the diversification of at least 25 percent of
the participant's account in the plan.
\3\3See Section II.H, below.
---------------------------------------------------------------------------
B. Participant-Directed Transactions--Six Month Advance Election
The rule currently exempts participant-directed transactions made
at least six months in advance of the effective date of the
transaction. This exemption34 would be clarified by codifying the
staff's interpretation that a subsequent election that does not take
effect for six months does not destroy the exemption.35
---------------------------------------------------------------------------
\3\4This provision, now Rule 16b-3(d)(1)(i), would be moved to
proposed Rule 16b-3(h).
\3\5See Philip Morris Companies, Inc. (June 26, 1992).
---------------------------------------------------------------------------
C. Compensatory Cash-Only Instruments
Under the proposed rules, the derivative security definition would
be modified to provide a more expansive exclusion for compensatory
instruments that can be redeemed or exercised solely for cash (``cash-
only instruments''),36 such as phantom stock. The proposed
exclusion would apply to all cash-only instruments issued in the
context of an employer-employee compensation arrangement,37
including compensation arrangements between a company and its non-
employee directors.38 Historically the purpose of such plans has
been to provide performance-based cash compensation to employees, using
stock price as a measure of company performance, rather than to provide
employees with an equity interest in the employer.
---------------------------------------------------------------------------
\3\6Proposed Rule 16a-1(c)(3). Insider or employer discretion to
require settlement in stock rather than cash would preclude reliance
on the exclusion. See Thacher Proffitt & Wood (Dec. 20, 1991) Q. 1.
\3\7For example, cash-settled put options written by a financial
institution or cash-only securities awarded to shareholders in the
context of a tender offer would not satisfy the exclusion. See
Sullivan & Cromwell (Apr. 30, 1991); and Marion Merrell Dow, Inc.
(Jan. 24, 1992), respectively.
\3\8See Anheuser-Busch Companies, Inc. (Jul. 29, 1991).
---------------------------------------------------------------------------
Commentators have cited a number of problems with using these types
of performance-based plans arising from the 1991 rule changes. For
example, change-in-control provisions and hardship withdrawal
provisions could render the current exclusion unavailable because the
rights would not be redeemable only on a fixed date or dates at least
six months following the award. Given the difficulties that have
arisen, and recognizing the historic role of stock return as a measure
for long-term cash-based incentive plans, the proposals would restore
these plans to a status similar to that which existed pre-1991.39
---------------------------------------------------------------------------
\3\9Proposed Rule 16a-1(c)(3).
---------------------------------------------------------------------------
Comment is requested on the necessity or appropriateness of the
proposed exclusion for compensatory cash-only instruments. Is there any
basis for according disparate treatment, for reporting and/or short-
swing profit purposes, to equity-based securities depending on whether
they are settled exclusively in cash or stock (or in either stock or
cash), where both types of derivative securities provide identical
opportunities for profit predicated on the underlying stock price
movement? Commenters should focus in particular on the need for
retention of one or both of the current, alternative conditions to the
availability of the exclusion (compliance with specified requirements
of Rule 16b-3; fixed-date redemption or exercise).40
Alternatively, should the current exclusion for cash-only instruments
be retained, with some relief provided for hardship withdrawals or
other specified exceptions? What impact, if any, would the proposed
exclusion have on executive and director stock-ownership programs that
seek to align shareholder and managerial interests through awards of
issuer stock or derivative securities payable in stock?41
---------------------------------------------------------------------------
\4\0Rule 16a-1(c)(3)(i) and (ii) [17 CFR 240.16a-1(c)(3)(i) and
(ii)].
\4\1Commenters should consider in this regard the possibility
that the Financial Accounting Standards Board may adopt uniform
accounting treatment of compensatory fixed-price stock options,
stock appreciation rights and other equity-based compensation that
may reduce current incentives to use fixed-price stock options.
---------------------------------------------------------------------------
D. Value Derived from Market Price of an Equity Security
Numerous interpretive questions, particularly in the employee
benefit area, have been raised concerning the treatment of performance
units and similar instruments as derivative securities. To provide
clarification, the proposed rules would revise the definition of
derivative security to codify the staff interpretive view that an
instrument is not within the scope of Section 16 if it includes a
material non-market price based condition (such as return on equity) to
exercise or settlement.42 As proposed, rights under which benefits
are subject to a material condition (other than the passage of time or
continued employment) not tied to the market price of an equity
security of the issuer would be excluded from the definition of
derivative security for purposes of Section 16.43 Commenters are
requested to address whether the proposed rule sets forth an
appropriate standard for exclusion, and whether the language of the
proposed rule articulates the standard in a workable manner.
---------------------------------------------------------------------------
\4\2See General Mills, Inc. (Jan. 31, 1992); and Certilman Balin
Adler & Hyman (April 20, 1992). See also Boston Edison Company (Mar.
19, 1992); Merrill Lynch & Co. (Aug. 28, 1992) Q. 4. (Registrant
discretion to adjust the applicable performance measure, as to
either duration or level of performance, excludes a performance unit
from being a derivative security.)
\4\3Proposed Rule 16a-1(c)(9).
---------------------------------------------------------------------------
E. Surrender and Withholding Rights in Connection With Exercise or Tax
Withholding
Employee benefit plans commonly provide participants with the right
to have securities withheld, or to deliver securities already owned,
either in payment of the exercise price of an option or to satisfy the
tax withholding consequences of an option exercise or the vesting of
restricted securities. While a tax withholding right currently is
treated as a derivative security separate from the equity or derivative
security to which it relates,44 it appears that this right, as
well as the right to have securities withheld in satisfaction of an
exercise price, properly may be viewed as an integral feature of the
related security.45 Accordingly, a newly proposed rule would
exclude from the definition of ``derivative security'' these
withholding rights, as well as rights to surrender previously owned
securities in satisfaction of either a tax obligation or an exercise
price.46
---------------------------------------------------------------------------
\4\4As an alternative to separate reporting, a tax withholding
right currently may be noted as a feature of the equity or
derivative security to which it relates. See The Clorox Company
(Mar. 27, 1992). A failure to report such right does not give rise
to a disclosure obligation under Item 405 of Regulation S-B or
Regulation S-K. See Skadden, Arps, Slate, Meagher & Flom (June 8,
1992).
\4\5Cf. Xerox Corporation (Jul. 7, 1992) (the staff reached this
conclusion with respect to a mandatory tax withholding feature).
\4\6Proposed Rule 16a-1(c)(8). Of course, when the related
derivative security is exercised, the surrender or withholding of
shares would continue to be reported in connection with the
exercise. See Kirkpatrick & Lockhart (Feb. 11, 1992). See Section
III.B, below, regarding reporting of cashless exercises.
---------------------------------------------------------------------------
Today, when withholding rights are exercised or securities
delivered, the exemptive treatment of the exercise transactions
differs, depending on whether securities are withheld by or tendered to
the employer. The delivery of previously owned shares with respect to
shares of the same class is exempt without further conditions except
for compliance with the general plan requirements of Rule 16b-3.47
In contrast, the withholding of an equity security is exempt only when
additional conditions applicable to stock appreciation rights--
information about the issuer, plan administration requirements, window
period restrictions and a six-month holding period--are met.48
---------------------------------------------------------------------------
\4\7Rule 16b-3(f)(2) [17 CFR 240.16b-3(f)(2)] (exercise price).
See also Simpson Thacher & Bartlett (Apr. 29, 1991) Q. 4 (c) (tax
withholding).
\4\8Rule 16b-3(e) [17 CFR 240.16b-3(e)].
---------------------------------------------------------------------------
Consistent with the view that each such right functions as an
integral feature of the security to which it relates, the proposal
would make the exemption for surrender transactions available to
withholding transactions as well.49
---------------------------------------------------------------------------
\4\9Rule 16b-3(e) would be amended to delete the clause that
deems the cash settlement of a tax withholding right to be a stock
appreciation right. Rule 16b-3(f)(2) would be amended to exempt
withholding by the issuer, as well as surrender or delivery to the
issuer, of shares of its stock as payment for the exercise of a
derivative security. Similarly, proposed Rule 16b-3(f)(3) would be
added to exempt the cash settlement of a tax withholding right,
either by withholding shares or the surrender of shares previously
owned. The tax withholding right could be in connection with an
option exercise or the vesting of restricted shares. Transaction
Code F would continue to be used for withholding transactions, and
would be expanded to cover the withholding and surrender of
securities in connection with the vesting of restricted shares.
Proposed Rule 16b-3(f)(3) would be substituted for current Rule 16b-
3(f)(3) [17 CFR 240.16b-3(f)(3)], which would be replaced
substantively by proposed Rule 16b-5(b), as discussed in Section
IV.A, below.
---------------------------------------------------------------------------
Comment is requested as to whether this approach, if adopted, also
should be applied to withholding and surrender transactions that occur
in the employer-employee context but outside Rule 16b-3 plans. If so,
commenters should describe the situations in which such an exemption
would be useful.
F. Stock Appreciation Rights
In addition to deletion of the clause that deems the cash
settlement of a tax withholding right to be a stock appreciation
right,50 the rule would be amended so that it would not preclude
insiders of newly public companies from relying on the exemption for
the cash settlement of stock appreciation rights.
---------------------------------------------------------------------------
\5\0See Section II.E, above.
---------------------------------------------------------------------------
The current rule requires the issuer of the stock appreciation
right to have been subject to the reporting requirements of Section
13(a) of the Exchange Act for at least a year prior to the transaction,
and to have filed all reports and statements thereby required. Under
the proposal, a one-year reporting history no longer would be required.
Instead, the issuer simply would have to have filed all required
reports and statements for a year prior to the transaction, or such
shorter time as the issuer had been subject to Section 13(a).
G. Grant and Award Transactions
1. Disinterested Administration
Two amendments are proposed to the exemption of grant and award
transactions based on disinterested administration of the employee
benefit plan.51 First, the provision that permits a director to
remain disinterested although he or she elects to receive in securities
``an annual retainer fee'' would be changed to permit receipt of ``a
director's fee,'' thus broadening the term to clarify that a meeting
fee or other director's fee would be included.52 Second, the
requirement that the securities elected to be received constitute an
``equivalent amount'' to the cash would be deleted.53 The current
requirement could impair companies' ability to provide directors with
an adequate incentive to elect the receipt of compensation in
securities. Comment is requested, however, as to whether some
limitation should remain in order to assure that the director's receipt
of stock is adequately linked to the fee, rather than a separate stock
grant.
---------------------------------------------------------------------------
\5\1See also n. 18, above.
\5\2Proposed Rule 16b-3(c)(2)(i)(C). See General Signal
Corporation (Feb. 5, 1993).
\5\3The term ``equivalent amount'' has been construed to include
the number of shares computed applying a price discount of five or
ten percent of the fee. See Bowater Incorporated (Aug. 16, 1991) and
General Signal Corporation (Feb. 5, 1993), respectively.
---------------------------------------------------------------------------
2. Formula Plans
To assure that objective criteria govern the making of awards under
formula plans, the rule currently requires that the plan itself
restrict the frequency with which the terms of the formula may be
amended to not more than once every six months, with limited
exceptions.54 Under the proposal, no written restriction would
need to be placed in the plan. Instead, the rule would require that the
plan not be amended periodically and in no event more often than every
six months, with the same exceptions as currently permitted.55 In
addition, a reference to the automatic nature of a formula plan would
be added to clarify that the rule does not permit discretionary
awards.56
---------------------------------------------------------------------------
\5\4The terms of the formula may be amended to comport with
changes in the Internal Revenue Code, ERISA, or the rules
thereunder.
\5\5Proposed Rule 16b-3(c)(2)(ii)(B).
\5\6Proposed Rule 16b-3(c)(2)(ii)(A).
---------------------------------------------------------------------------
3. Six Month Holding Period
Under the proposal, the six-month holding period for securities
obtained in a grant and award transaction would not apply to securities
disposed of in a transaction that is exempted by rule from Section
16(b), such as a bona fide gift.57 In addition, it is proposed
that the six-month holding period for dividend equivalent rights
(``DERs'') and shares purchased pursuant to the reinvestment of
dividends should be deemed to commence on the date of acquisition of
the shares on which the DERs or dividends are paid.58 If adopted,
should this treatment apply only to dividends and DERs paid at a rate
that does not exceed dividends paid on the issuer's common stock?
Moreover, should this treatment be limited to dividends paid on a
broadly held class of securities, so that neither the timing nor the
amount of dividend paid would be subject to manipulation by insiders?
---------------------------------------------------------------------------
\5\7Proposed Rule 16b-3(c)(1).
\5\8Id. Under current interpretation, the six-month holding
period is deemed to commence on the date the dividend or DER is
granted or allocated to the participant. See Hewitt Associates (Apr.
30, 1991) Q. 2(b); and Davis Polk & Wardwell (Aug. 23, 1991). Of
course, pro rata dividends paid in stock with respect to all
securities of the same class would continue to be exempt pursuant to
Rule 16a-9.
---------------------------------------------------------------------------
H. Exemptions for Distributions
Currently, distributions to plan participants of securities
acquired in an exempt manner under Rule 16b-3 are also exempt.59
As proposed, this exemption would be broadened so it would apply to all
distributions of plan securities, whether those securities were
acquired pursuant to Rule 16b-3, an exemption under the former rules,
or in a nonexempt manner.60 Such an exemption appears appropriate
where these distributions merely change the form of the participant's
beneficial ownership, not its extent. Of course, if the participant
then sells the securities, the sale would be subject to Section 16.
---------------------------------------------------------------------------
\5\9Rule 16b-3(g) [17 CFR 240.16b-3(g)].
\6\0This revised provision would be redesignated as Rule 16b-
3(g)(3). This would change the result in Cravath, Swaine & Moore
(May 6, 1991) Q. 8, and Cravath, Swaine & Moore (Oct. 22, 1991) Q.
5.
---------------------------------------------------------------------------
When a plan distributes the cash value of securities in
participants' accounts, rather than the securities themselves, such a
distribution would be viewed as a sale. As proposed, the rule would
expand the categories of exempt cash distributions to plan
participants.
First, distributions of securities and cash, or the deferral of
such distributions, incident to death, retirement, disability or
termination of employment, would be exempt.61 Such distributions
and deferrals currently are exempt if effected by means of a
participant-directed election.62 The proposed rule would codify
the staff's interpretation that the exemption is available even when
the transaction is not made pursuant to a participant's
election.63
---------------------------------------------------------------------------
\6\1Proposed Rule 16b-3(g)(1).
\6\2Rule 16b-3(d)(1)(ii).
\6\3See Merrill Lynch & Co. (Sept. 1, 1992) Q. 7.
---------------------------------------------------------------------------
This new exemption also would apply to distributions of securities
and cash pursuant to ESOP diversification elections permitted by the
Internal Revenue Code.64 In addition, the proposed rule65
would provide that any involuntary distribution of securities or cash
(including cash in lieu of fractional shares) for the purpose of
satisfying the limitations on employee elective contributions and
employer matching contributions imposed by the Internal Revenue Code is
exempt.66 Comment is requested as to whether distributions of
securities or cash mandated by the Internal Revenue Code67 to
begin following the participant's attainment of age 70\1/2\ years,
whether or not the participant has retired or otherwise terminated
employment, also should be exempted.
---------------------------------------------------------------------------
\6\4See Section II.A.2, above.
\6\5Proposed Rule 16b-3(g)(2).
\6\6The proposed rule would expand the staff's interpretive
position in Health Management Associates, Inc. (Mar. 6, 1992), which
provides that distributions of securities or cash to satisfy such
I.R.C. limitations are not withdrawals for purposes of Rule 16b-
3(d)(2)(i)(B), and that an associated cash-out of fractional shares
is exempt from short-swing profit recovery if the acquisition of the
shares was exempt under Rule 16b-3.
\6\7I.R.C. Section 401(a)(9).
---------------------------------------------------------------------------
I. Maximum Number of Shares Requirement
In order for a plan transaction to be exempt, the current rule
requires that the plan set forth in writing the basis for determining
insider eligibility to participate, and either the price at which
securities may be offered and the amount of securities to be awarded or
the method by which such price and amount are to be determined. Under
the proposal,68 application of this exemptive condition would be
restricted to plans subject to the shareholder approval requirement, as
was the case under former Rule 16b-3.
---------------------------------------------------------------------------
\6\8Proposed Rule 16b-3(a)(1).
---------------------------------------------------------------------------
Additionally, it appears that the manner in which shares are
counted in any Rule 16b-3 plan appropriately may be specified in the
plan, or, to the extent not so specified, left to the discretion of
plan administrators. Accordingly, effective as of the date of
publication of this release, the staff no longer will answer
interpretive requests regarding share counting, and the interpretive
letters addressing this subject69 no longer will be required to be
followed. Of course, the maximum number of shares issuable under a plan
will be subject to disclosure in the course of obtaining shareholder
approval for the plan.
---------------------------------------------------------------------------
\6\9Palmer & Dodge (Oct. 2, 1991); Frederic W. Cook & Co., Inc.
(May 15, 1992); Merrill Lynch & Co. (Aug. 28, 1992) Q. 1 and 2; and
Merrill Lynch & Co. (Sept. 1, 1992) Q. 1.
---------------------------------------------------------------------------
J. Transferability Restriction
Currently, the availability of exemptions is conditioned on a
written specification, in the plan or other written agreement, that a
derivative security awarded under the plan may not be transferred by
the participant other than by will or the laws of descent and
distribution, or pursuant to a qualified domestic relations
order.70 The restriction on transferability initially was derived
from the Internal Revenue Code as a reflection of prior business
practice and was designed to limit opportunities for the speculative
abuse of options.
---------------------------------------------------------------------------
\7\0Rule 16b-3(a)(2) [17 CFR 240.16b-3(a)(2)]. By
interpretation, plans that are not subject to I.R.C. Section 401(a)
have been allowed to permit transfers of derivative securities
pursuant to ``domestic relations orders'' that satisfy the
requirements of I.R.C. Sections 414(p)(1) (A) and (B). See Premark
International, Inc. (Mar. 6, 1992).
---------------------------------------------------------------------------
However, questions have been raised about whether this restriction
needs to be retained, given the presence of other safeguards in Rule
16b-3 and given the fact that the current Section 16 regulatory
framework generally recognizes economic parity between derivative
securities and their underlying equity securities. Accordingly, the
proposed amendments to Rule 16b-3 would delete the transferability
restriction.71 Commenters are asked to address whether there is
any continuing need for this restriction, either in whole or in part,
and should address the extent to which nontransferability may act as a
safeguard, both in Rule 16b-3 and in the context of compensatory cash-
only instruments as discussed above.
---------------------------------------------------------------------------
\7\1Of course, in many cases transferability restrictions would
continue to exist because of Internal Revenue Code requirements or
companies' policies.
---------------------------------------------------------------------------
Assuming the restriction is retained but modified, would it be
appropriate to recast it as a transactional requirement, so that only
derivative securities for which the exemption is claimed would need to
satisfy this requirement?72 Comment also is solicited on whether,
if the restriction is retained, additional kinds of transfers should be
permitted, such as transfers to family members of insiders, family
partnerships, charitable institutions, and trusts whose beneficiaries
are insiders and their families, or transfers by a non-employee
director to a third party entity (such as the director's law firm)
without consideration pursuant to an agreement that provides that any
compensation received for the director's services is received for the
benefit of that entity. Comment also is solicited on whether the rule
should permit only transfers that are exempt from short-swing profit
recovery, such as bona fide gifts.
---------------------------------------------------------------------------
\7\2Options that satisfy the transferability restrictions
currently may be issued on an exempt basis pursuant to a plan that
also issues on a non-exempt basis options that may be transferred,
without consideration, to family members, family trusts and family
partnerships. See Time Warner Inc. (Dec. 18, 1992) Q. 1.
---------------------------------------------------------------------------
If transfers to family members and family entities are permitted,
should these be limited to transfers for estate planning purposes?
Should such transfers be limited to persons or entities composed of
persons who are members of the insider's immediate family sharing the
same household, such that the insider will retain an indirect pecuniary
interest in the derivative securities following the transfer,73
and any subsequent disposition by the transferee would be attributed to
the insider? Finally, comment is solicited on the combined effect of
liberalizing or eliminating transferability restrictions and the
proposal, discussed above, to provide that securities obtained in an
exempt grant may be disposed of within six months if the disposition is
a gift or otherwise exempt from short-swing profit recovery. Should the
rules provide that the six-month holding period would continue to run
in the hands of the transferee?
---------------------------------------------------------------------------
\7\3Rule 16a-1(a)(2)(ii)(A) [17 CFR 240.16a-1(a)(2)(ii)(A)]
provides a rebuttable presumption that an insider has an ``indirect
pecuniary interest'' in securities held by members of the insider's
family sharing the same household.
---------------------------------------------------------------------------
III. Revisions to Reporting System
A. Reporting of Exempt Transactions
The Commission is reconsidering its approach to the reporting of
transactions pursuant to the Section 16 regulatory scheme. Under the
current rules, transactions exempt from short-swing profit recovery
(other than exempt exercises and conversions of derivative securities)
must be reported annually.74 Reporting of exempt transactions has
been required to provide interested parties with the opportunity to
evaluate insiders' claims to exemptions; facilitate reconciliation of
insiders' holdings at the end of the fiscal year; and provide
indications of insiders' views of their corporations' prospects,
although annual reporting generally is permitted since these
transactions are viewed as having less potential than non-exempt
transactions to reflect insiders' investment assessments of their
corporations.
---------------------------------------------------------------------------
\7\4The report would be on Form 5, or, at the option of the
reporting person, on a Form 4 filed before the Form 5 would be due.
---------------------------------------------------------------------------
The Commission has received various suggestions that would further
streamline Section 16(a) reporting. These proposals seek to simplify
reporting through different basic approaches. One approach would delete
or substantially reduce the reporting of exempt transactions. A second
approach would not reduce significantly the reportable transactions,
but rather would reduce the flexibility provided insiders with respect
to using Form 4 or Form 5 to report a number of exempt transactions. A
third approach would introduce issuer annual reporting of insider
holdings and information as to transactions during the fiscal year.
These proposals highlight several questions as to what extent, if at
all, investors need information with respect to exempt transactions and
whether investors need a reconciliation of insiders' equity holdings
from year to year.
The suggestions received by the Commission include:
1. Elimination of the requirement to report exempt transactions, or
certain classes of exempt transactions, such as exempt employee benefit
plan transactions;75
---------------------------------------------------------------------------
\7\5Many of these transactions currently may be reported on an
aggregated basis, as of the most recent date for which plan
information is available. Aggregated reporting also is permitted, by
staff interpretation, for acquisitions and holdings resulting from
reinvestment of dividends or interest in exempt transactions, and
acquisitions of dividend equivalent rights in exempt employee
benefit plan transactions. Palmer & Dodge (Jan. 31, 1992) and
Skadden, Arps, Slate, Meagher & Flom (Jun. 23, 1992). This result
would be codified by proposed amendments to Instructions 4(a) (ii)
and (iv) to Form 5 and the Note to Instruction 4(a)(ii) to Form 4.
Aggregated reporting is not available for additional securities
acquired through voluntary cash contributions under dividend or
interest reinvestment plans. See n. 89 of the Adopting Release.
---------------------------------------------------------------------------
2. Replacement of annual reporting on Form 5 with a table to be
included in the issuer's Form 10-K annual report disclosing and
reconciling transactions and insiders' holdings;
3. Replacement of annual reporting on Form 5 with a requirement
that each Form 4 filed include information (as a separate line item, in
a footnote or in a reconciliation column) with respect to exempt
transactions that had occurred since the last Form 4;
4. Replacement of annual reporting on Form 5 with a requirement
that each Form 4 filed include information with respect to exempt
transactions that had occurred since the last Form 4, except that
broad-based plan transactions would continue to be reportable annually
(either on Form 5 or on Form 4); and
5. Elimination of the total holdings column in Forms 4 and 5 (which
the current rules limit to the class of securities with respect to
which a transaction is reported), or simplification of the reconciling
data for such columns.
The Commission is interested in obtaining the least burdensome
reporting system that will effectively achieve the disclosure purposes
of Section 16(a), and therefore solicits comment on each of the above
proposals. While the above changes are not included in the text of the
proposals published today, the Commission may adopt any of the
alternatives specified above, or a combination of those alternatives,
and also may in the final rule amendments incorporate any one or more
of the approaches discussed above. Comment is solicited as to whether
each of these suggested changes would simplify the reporting
obligations on insiders without materially reducing the flow of
information that is significant to investors. If the total holdings
column is retained, comment also is requested as to whether any
reconciling information could be eliminated. Additionally, comment is
solicited as to whether a new column should be added to Forms 4 and 5
requiring insiders to reconcile their current holdings with those
reported on the previous report. Would this reconciliation requirement
be appropriate only if reporting of exempt transactions were
eliminated?
In addition, commenters recommending the elimination of Form 5
should address the mechanism by which information that currently is
reportable only on an annual basis should be reported. Commenters also
are asked to address whether Form 5 has continuing usefulness in
reducing reporting delinquencies, 76 and, if so, what mechanism
could serve this purpose if Form 5 were rescinded. In particular, what
mechanism would enable issuers to determine, in connection with their
disclosure obligations under Item 405 of Regulation S-K and S-B,
whether all required Section 16(a) reports had been filed?77
---------------------------------------------------------------------------
\7\6See Rule 16a-3(f)(1)(ii) [17 CFR 240.16a-3(f)(1)(ii)].
\7\7See Section III.F below for discussion of Item 405.
---------------------------------------------------------------------------
Although the current reporting scheme generally requires
transactions exempt from short-swing profit recovery to be reported
annually, certain transactions, such as stock splits and stock
dividends, are exempt from the reporting requirement. The Commission
proposes to eliminate the reporting requirement for the exempt
cancellation or expiration of a long derivative security where no value
is received.78 Comment is requested as to whether this reporting
requirement should be retained, and whether there are other limited
classes of exempt transactions that could be exempted from reporting
without impairing the ability of the public to obtain useful
information.
---------------------------------------------------------------------------
\7\8Proposed Rule 16a-4(e). See Rule 16b-6(d) [17 CFR 240.16b-
6(d)].
---------------------------------------------------------------------------
Finally, a new transaction code K would be added to Forms 4 and 5
to report any transaction that changes only the form of beneficial
ownership and not the extent of a reporting person's pecuniary interest
in the subject securities. Such transactions are reportable on Form 5,
but the code also would be added to Form 4 so it could be used for
voluntary reporting on that form. Comment is requested as to whether
any additional codes need to be added, or whether any existing codes
may be deleted, consistent with the informational needs of persons who
use Section 16(a) disclosure.
B. Reporting of Small Acquisitions and Option Exercises
At present, small acquisitions of equity securities and exercises
and conversions of derivative securities are reported on an insider's
next otherwise required Form 4 or Form 5, whichever is earlier.\79\ No
change currently is proposed to the existing system of reporting these
transactions, other than amendment of the small acquisitions reporting
rule\80\ to exclude from the $10,000 threshold acquisitions occurring
within the prior six months of the current acquisition that were
exempted by rule from Section 16(b) or previously reported on Form 4 or
5, and to clarify that the current acquisition cannot be disregarded in
calculating the $10,000 threshold. Comment also is solicited as to
whether reporting would be made more convenient for insiders,
consistent with the informational needs of other investors, by
permitting small acquisitions and exempt exercises and conversions to
be reported solely on Form 5; or by providing that small acquisitions
be reported on Form 5 and exempt exercises and conversions be reported
on Form 4.
---------------------------------------------------------------------------
\79\The timing for reporting exercises and conversions was
expedited from the proposed annual reporting in response to
commenters' concerns, particularly the concerns of individual
investors that option exercises represent important indicia of
insiders' views of their companies' prospects. If a derivative
security is exercised or converted before its exempt grant otherwise
must be reported, the grant should be reported at the same time as
the exercise or conversion.
\80\Proposed Rule 16a-6. This rule provides only a deferral, not
an exemption from reporting. All small acquisitions, unless
otherwise exempt, must be reported on Form 4 or 5 as specified in
the rule.
---------------------------------------------------------------------------
Currently, when an insider exercises an option acquired pursuant to
a Rule 16b-3 plan and immediately sells a portion of the shares to pay
the exercise price under a cashless exercise program, the transaction
generally is reported on Form 4 or 5 as the exercise of a derivative
security and sale of a non-derivative security.\81\ Comment is
solicited as to whether insiders should be either required or permitted
to reflect the sale of the portion of shares necessary to satisfy the
exercise price by using the transaction code for payment of an option
exercise price by delivery or withholding of securities,\82\ rather
than the general sale of security code currently used, since all of
these transactions constitute cashless exercises. In addition, comment
is solicited as to whether this transaction code also should be used in
connection with the exercise of stock appreciation rights.
---------------------------------------------------------------------------
\81\Transaction code ``M'' is used to reflect the exercise and
code ``S'' is used to reflect the sale of the underlying shares.
\82\Transaction code ``F.'' The proposed amendments would
clarify that code ``F'' also should be used to report the
withholding of securities incident to vesting of a restricted
security to satisfy tax liabilities.
---------------------------------------------------------------------------
C. Joint and Group Reporting
Currently, when more than one person subject to Section 16 is
deemed to be a beneficial owner of the same equity securities, all such
persons must report as beneficial owners and file separate reports. To
reduce this duplicative reporting, the proposed rules would permit such
persons to file their reports either separately or jointly.\83\
---------------------------------------------------------------------------
\83\Proposed Rules 16a-3(i) and 16a-1(a)(3) would reflect this
change. Forms 3, 4 and 5 and the Instructions thereto also would be
modified to permit joint and group filings.
---------------------------------------------------------------------------
Under the proposal, where persons in a group have reporting
obligations, the filing of collective reports on behalf of all group
members would be permitted.\84\ Such joint and group filings, and any
amendments, could be submitted by any designated constituent beneficial
owner. Required information would have to be given for each beneficial
owner, and such filings would have to be signed by, or on behalf of,
each beneficial owner by an authorized person, with statements
confirming the delegation of signature authority attached to the
filing. Beneficial owners making a joint or group filing could
authorize one of the beneficial owners or a third party to sign on
their behalf, provided that confirming statements are attached to the
filing, or are provided by amendment as soon as practicable, with
respect to each owner delegating signature authority, unless such a
confirmation still in effect is on file with the Commission.\85\ Of
course, to the extent a sufficiently broad power of attorney previously
had been filed, such as with a Schedule 13D, that power of attorney
could be incorporated by reference in a Section 16(a) filing. Each
beneficial owner would, of course, retain individual liability for
compliance with the filing requirements, including the obligation to
assure that the filing is timely and accurately made.\86\ Comment is
solicited as to whether, in the alternative, authority to make a group
Section 16 filing could be presumed based on the filing of a group
Schedule 13D,\87\ such that all group members thereby would be deemed
to have granted authority to any group member to file a Section 16
form.
---------------------------------------------------------------------------
\84\Joint and group filings could be used, for example, by
parents and subsidiaries, partnerships, or Schedule 13D groups [17
CFR 240.13d-101]. The group itself is not a reporting person for
Section 16 purposes; however, under the proposed rules, group
members could choose to file collective reports to satisfy their
individual filing obligations. A group member is not required to
report transactions by another group member, however, unless he or
she has or shares a pecuniary interest in the securities acquired or
disposed of by such other member.
\85\General Instruction 7 to Forms 3, 4 and 5 permits a form
filed for an individual to be signed on behalf of the individual by
an authorized person. General Instruction 5 to Form 3 and General
Instruction 4 to Forms 4 and 5 would be amended to specify the means
of reporting the pecuniary interest of multiple beneficial owners. A
corresponding amendment also would be made to General Instruction 6
to each Form.
\86\Cf. In the Matter of Bettina Bancroft, Release No. 34-32033,
AP 3-7999 (Mar. 23, 1993).
\87\A group's Schedule 13D filing obligation may be satisfied
either by a single joint filing or by each of the group's members
making an individual filing. The Schedule 13D must be signed by each
person on whose behalf the statement is filed or his or her
authorized representative.
---------------------------------------------------------------------------
D. Trust Transactions
Today, a trust is subject to Section 16 not only if it beneficially
owns more than ten percent of a class of registered equity
securities,\88\ but also if the trustee otherwise is an insider and has
investment control over the issuer's securities held by the trust, and
the trustee or a member of the trustee's immediate family has a
pecuniary interest in such securities, except in limited circumstances.
This dual standard, newly established under the rules adopted in 1991,
created a new reporting obligation for some trusts, particularly family
trusts where the insiders already were required to report most of the
trust transactions involved.\89\
---------------------------------------------------------------------------
\88\See Proskauer Rose Goetz & Mendelsohn (Apr. 29, 1991) (a
trust that holds more than ten percent of a class of equity
securities registered under Section 12 is the beneficial owner of
those securities for purposes of Section 16.)
\89\See D'Ancona & Pflaum (Feb. 18, 1992); Sonnenschein Nath &
Rosenthal (Mar. 23, 1992) (easing compliance with the reporting
requirements for certain types of family trusts).
---------------------------------------------------------------------------
Since the primary effect of the new standard was to create
duplicative reporting obligations, imposing independent Section 16
obligations on the trusts does not appear necessary. Accordingly, the
proposed rules would eliminate these overlapping obligations by
subjecting a trust to Section 16 only if it holds more than ten percent
of a class of registered equity securities of the issuer.\90\
---------------------------------------------------------------------------
\90\Proposed Rule 16a-8(a)(1). A conforming amendment to Rule
16a-2(d)(2) [17 CFR 240.16a-2(d)(2)] would reflect the proposed
rescission of Rule 16a-8(a)(1)(ii) [17 CFR 240.16a-8(a)(1)(ii)].
---------------------------------------------------------------------------
Duplicative reporting also can result because in certain instances
the trust and a trust beneficiary must report separately with respect
to the same transaction. Accordingly, a proposed new note would provide
that transactions attributed to a trust beneficiary may be reported by
the trustee on behalf of the beneficiary.\91\
---------------------------------------------------------------------------
\91\Proposed note to Rule 16a-8(b)(3).
---------------------------------------------------------------------------
E. Post-Termination Reporting
Under the current rules, any transaction following the cessation of
director or officer status is required to be reported, if executed
within six months of a transaction that occurred while the person was a
director or officer. However, it appears that the record-keeping
burdens of tracking post-termination transactions should be imposed
only with respect to those transactions where short-swing profit
liability is likely. Accordingly, the proposal would eliminate
insiders' post-termination reporting obligations with respect to post-
termination transactions that are exempt and thus not subject to
matching with pre-termination transactions.\92\ Similarly, a post-
termination transaction would not be required to be reported unless it
occurred within six months of an opposite (purchase vs. sale), non-
exempt transaction that was effected while the reporting person was an
officer or director.\93\ Comment is requested as to the continuing need
to report these transactions. In particular, is it necessary to
continue to require reporting of exempt post-termination transactions
to assure that an exemption properly may be claimed?
---------------------------------------------------------------------------
\92\Proposed Rule 16a-2(b)(2).
\93\Proposed Rule 16a-2(b)(1).
---------------------------------------------------------------------------
F. Compliance With the Reporting Requirements
Since the adoption of the 1991 revisions to the Section 16 rules
and forms, including issuer disclosure concerning insider compliance
and annual reporting of exempt transactions, compliance with Section
16(a) reporting obligations generally has improved substantially.\94\
Accordingly, the Commission does not propose to change the disclosure
requirements of Item 405 of Regulations S-B and S-K, which requires
issuer disclosure concerning insider compliance with these reporting
obligations, except that registrants would be required to set off any
disclosure of non-compliance under an appropriate and discrete
caption.\95\ This should enable interested parties to locate quickly
this disclosure, which often consists of only a sentence or two, and to
prevent it from being buried among unrelated disclosure.
---------------------------------------------------------------------------
\94\During 1990, the year before the new rules were adopted,
approximately 21 percent of the reportable market transactions were
reported more than three days following the due date. From May 1991
through March 1994, the comparable figure was approximately five
percent.
\95\The caption would read: ``Section 16(a) Reporting
Delinquencies.'' Additionally, a technical amendment to Item 405 of
Regulation S-B would correct the reference to Rule 16a-3(d) [17 CFR
240.16a-3(d)] by replacing it with a reference to Rule 16a-3(e) [17
CFR 240.16a-3(e)].
---------------------------------------------------------------------------
In addition, Item 405 would be revised to clarify the nature of the
issuer's obligation to review insiders' filings in order to determine
whether there are any delinquent reports that must be disclosed. The
issuer is entitled to rely on the Forms 3, 4, and 5 furnished to it, as
well as written representations by the insider that no Form 5 is
required. New language would be added to make it clear that the issuer
is obligated to consider the absence of certain forms.\96\ The absence
of a Form 3 from an insider is an indication that disclosure is
required. Similarly, the absence of a Form 5 from an insider is an
indication that disclosure is required, unless the issuer has received
a written representation that no Form 5 is required,\97\ or the issuer
otherwise knows that no such filing is required.
---------------------------------------------------------------------------
\96\Proposed Item 405(a)(2) of Regulations S-K and S-B. See
Adopting Release, n. 231 and surrounding text.
\97\A ``safe harbor'' from disclosure is available for an issuer
who receives a written representation and keeps it for two years.
See Item 405(b)(2).
---------------------------------------------------------------------------
Further, comment is solicited on whether Item 405 should be revised
to require issuers to include in their filings an affirmative statement
that there were no Section 16(a) delinquencies required to be reported,
if such is the case.\98\ It has been suggested that there are instances
where required disclosures are not made because Item 405 is overlooked.
An affirmative statement of the absence of reportable delinquencies has
been proposed to the Commission as a potential tool for minimizing this
problem. Commenters should address whether the problem suggested does
in fact exist, and, if so, whether the proposed solution would be
effective.
---------------------------------------------------------------------------
\98\If this requirement were adopted, registrants with no
delinquencies to report would be permitted to use the caption
``Compliance with the Reporting Requirements of Section 16(a).''
---------------------------------------------------------------------------
Finally, the Commission is aware of and encourages the practice of
many issuers to assist their officers and directors in complying with
their Section 16(a) reporting obligations. Since the use of powers of
attorney is permitted, it is also possible for an issuer to coordinate
the filing of its officers' and directors' reports by having the
corporate secretary or other agent obtain powers of attorney from these
reporting persons, and act on their behalf to collect information every
month about their transactions subject to Section 16 and make the
filings by the due date.\99\
---------------------------------------------------------------------------
\99\Of course, insiders giving powers of attorney would still
retain individual liability for compliance. See n. 86 above and
accompanying text.
---------------------------------------------------------------------------
G. Equity Swaps
Questions have been asked concerning the proper method of reporting
equity swaps for purposes of Section 16. Equity swaps are individually
negotiated contracts in which the specific terms may vary from
agreement to agreement. For instance, an equity swap may take the form
of an agreement in which one party holding shares of equity securities
agrees to pay, or ``swap,'' the return\100\ on those securities in
exchange for the return on an equity index, basket of equities, or an
interest rate-based cash flow. Section 16 consequences would arise from
such a transaction where either party to the transaction is a Section
16 insider with respect to a security to which the swap agreement
relates.\101\
---------------------------------------------------------------------------
\100\For purposes of this analysis, ``return'' may include
dividends paid on the equity instrument, as well as change in market
value.
\101\No Section 16 consequences would flow from the transaction
to the extent that the swap relates solely to interests in
securities comprising part of a broad-based, publicly traded market
basket or index of stocks, approved for trading by the appropriate
federal governmental authority, that are deemed not to confer
beneficial ownership for purposes of Section 16 pursuant to Rule
16a-1(a)(5)(iii) [17 CFR 240.16a-1(a)(5)(iii)] and/or are excluded
from the definition of ``derivative securities'' pursuant to Rule
16a-1(c)(4) [17 CFR 240.16a-1(c)(4)].
---------------------------------------------------------------------------
In order to demonstrate how Section 16 would apply,\102\ assume
that an insider agrees to pay to the counterparty for a period of three
years the value of dividend payments on 100,000 shares of issuer common
stock, in exchange for payment of a fixed interest rate based on the
market value of the 100,000 shares of stock at the commencement of the
swap term. The parties also agree that at the end of the swap term, the
insider will pay to the counterparty the cash value of any appreciation
on the shares during the term, or, conversely, the counterparty will
pay to the insider the cash value of any depreciation. The insider
retains title to and any voting rights in the securities.\103\
---------------------------------------------------------------------------
\102\This analysis addresses solely the application of Section
16 to these transactions to the extent that they are engaged in by
insiders. The discussion does not analyze the status of these
transactions or the parties thereto under any other provision of the
federal securities laws.
\103\It is not necessary, however, that either party to any
equity swap have direct ownership of the underlying equity
securities, index or basket. Rather, equity swaps may provide
insiders with a synthetic means of realizing any changes in the
value of the equity securities to which the swap agreement relates.
For example, an insider may engage in a swap in which the insider
contracts to receive any change in value of the issuer's common
stock without making any direct investment in such stock.
---------------------------------------------------------------------------
It appears that the following reporting scheme appropriately
reflects the economic impact of the transaction on the insider. The
insider should report entering into the swap on Form 4 as (i) the sale
or writing of a stock appreciation right (``SAR''), and (ii) the
purchase of a stock depreciation right (``SDR'').\104\ This result
would reflect the fact that the insider has locked in the value of the
100,000 shares during the swap term to the same extent as if the shares
had been sold.\105\
---------------------------------------------------------------------------
\104\If the counterparty is an insider, it would report the same
swap as (i) the purchase of an SAR, and (ii) the sale or writing of
an SDR.
\105\The result would be a sale of the underlying securities
pursuant to Rule 16b-6(a) [17 CFR 240.16b-6(a)] because the insider
engaging in the swap has an increase in a put equivalent position.
---------------------------------------------------------------------------
The manner in which an insider reports the closing of the swap
would depend on the change in price of the underlying securities during
the swap term.\106\ If the price increases, so that the insider must
pay cash to the counterparty, the insider should report the exempt
expiration without value of the SDR.\107\ The insider also should
report on Form 4 the exempt exercise by the counterparty of the SAR,
the insider's exempt deemed disposition of the underlying securities to
the counterparty pursuant to the SAR, and the insider's non-exempt
deemed re-acquisition of the underlying securities.\108\
---------------------------------------------------------------------------
\106\To the extent settlement of the parties' obligations occurs
on an interim basis during the term of the swap, such as quarterly,
the insider's Section 16 obligations would arise with respect to
each settlement.
\107\Because the SDR would be a long derivative security in the
hands of the insider as holder, this expiration would be exempt from
short-swing profit recovery pursuant to Rule 16b-6(d). Although
proposed Rule 16a-4(e), discussed above in the text accompanying
note 78, would exempt the expiration from reporting as well, in the
context of an equity swap such an expiration should be reported
because it is an integral component of the overall transaction.
\108\Rule 16b-6(b) [17 CFR 240.16b-6(b)] would exempt the first
two components of the exercise of the SAR because the deemed sale
would have taken place at the time the SAR was sold by the insider;
however, the deemed acquisition that occurs simultaneously would not
be exempt.
---------------------------------------------------------------------------
If the price decreases, so that the insider receives cash from the
counterparty, the insider should report the expiration of the SAR.\109\
The insider also should report on Form 4 the exercise of the SDR as the
simultaneous exempt disposition of a put derivative security as a
result of its exercise, the exempt deemed disposition of the underlying
securities as a result of the exercise, and the non-exempt deemed
acquisition of the underlying securities.\110\
---------------------------------------------------------------------------
\109\With respect to the insider as the writer, rather than the
buyer, of the SAR, Rule 16b-6(d) provides that upon any cancellation
or expiration within six months of writing the option, profit
recovery shall not exceed the premium received for writing the
option. See also Sullivan & Cromwell (Nov. 17, 1993) regarding
exemption for the writer of option cancellation or expiration more
than six months following writing the option.
\110\Rule 16b-6(b) would exempt the first two components of the
exercise of the SDR because the deemed sale would have taken place
at the time the SDR was acquired by the insider; however, the deemed
acquisition that occurs simultaneously would not be exempt.
---------------------------------------------------------------------------
Comment is requested as to whether the derivative security analysis
described above accurately reflects the economic substance of the swap
transaction described, or whether there is a more appropriate analysis
for purposes of Section 16. Comment also is solicited as to whether
there are other common forms of equity swaps for which a different
Section 16 analysis may be appropriate. In setting forth the analysis
above, the Commission does not wish to suggest that previously filed
Forms reporting swap transactions in another manner need to be revised,
or that swap transactions reported differently are subject to
disclosure pursuant to Item 405 of Regulations S-B and S-K. Finally,
comment is requested as to whether there is a need for separate
reporting codes for these transactions.
IV. Additional Exemptions and Revisions
A. New Exemption for Qualified Domestic Relations Orders
The current rules limit the exemption for the disposition of
securities pursuant to a qualified domestic relations order (``QDRO''),
as defined in the Internal Revenue Code or Title I of ERISA, and the
rules thereunder, to employee plan securities. Since such dispositions
are unlikely to be influenced by access to inside information, this
limitation does not appear necessary. Accordingly, the proposal
includes a general exemption for such dispositions.\111\
---------------------------------------------------------------------------
\111\Proposed Rule 16b-5(b), which would replace current Rule
16b-3(f)(3). Current Rule 16b-5 [17 CFR 240.16b-5], which exempts
bona fide gifts and inheritance, would be redesignated as proposed
Rule 16b-5(a). Transaction code Q, which is used for QDRO
transactions, would be moved to the category ``Other Section 16(b)
Exempt Transactions and Small Acquisition Codes'' in Forms 4 and 5.
---------------------------------------------------------------------------
By interpretation, the current exemption has been construed to
permit the transfer of securities, issued under a plan that is not
subject to Section 401(a) of the Internal Revenue Code, pursuant to a
``domestic relations order'' that satisfies certain conditions of the
Internal Revenue Code,\112\ but does not satisfy QDRO standards.\113\
Comment is requested as to whether the proposed exemption should
require satisfaction of the QDRO standards in all circumstances, or
whether satisfaction of the Internal Revenue Code ``domestic relations
order'' standards would suffice.\114\
---------------------------------------------------------------------------
\112\I.R.C. Sections 414(p)(1)(A) and (B). Among other things,
the order must create or recognize an alternate payee's right to
receive all or a portion of the benefits payable to a participant
under a plan; relate to the provision of child support, alimony
payments, or marital property rights to a spouse, former spouse,
child, or other dependent of the participant; and be made pursuant
to a State domestic relations law (including a community property
law).
\113\The order need not satisfy, among other things, conditions
applicable to payments made after the participant's earliest
retirement age, and requirements to treat the former spouse as
surviving spouse for purposes of determining survivor benefits. See
Premark International, Inc. (Mar. 6, 1992), which further provides
that the plan may permit such transfers consistent with the
transferability restriction of Rule 16b-3(a)(2).
\114\Any revisions to the standards of the proposed exemption
also would be reflected in the transferability restriction, if
retained. See Section II.J, above.
---------------------------------------------------------------------------
B. Exemption for Stock Dividend Transactions
As proposed, the exemption for stock splits and stock dividends
would be expanded to include specifically a stock dividend in which
equity securities of a different issuer are distributed.115 The
primary application of this exemption would be to ``spinoff''
transactions, in which assets previously owned by the issuer are
distributed pro rata to shareholders in the form of equity securities
of another issuer.
---------------------------------------------------------------------------
\1\15Proposed Rule 16a-9(a).
---------------------------------------------------------------------------
The Division has interpreted the current rule to apply to stock
splits or stock dividends involving the issuance, on a pro rata basis,
of a different class of equity securities of the same issuer.116
The business purposes generally motivating spinoff transactions and the
fact that the securities distributed represent assets owned indirectly
by shareholders appear to justify further expanding this exemption to
securities of a different issuer.
---------------------------------------------------------------------------
\1\16See Emergent Group, Inc. (Apr. 6, 1992).
---------------------------------------------------------------------------
C. Over-Allotment Options
Questions have arisen as to whether an over-allotment option
written by an insider could be characterized as the establishment of a
put equivalent position and deemed sale of the underlying stock.
Subsequent expiration of the unexercised option arguably could
constitute a purchase of the underlying security, matchable with the
over-allotment option grant or other sales by the insider within a six-
month period.
Recognizing that over-allotment options facilitate public offerings
and do not lend themselves to the speculative abuse Section 16 was
designed to prevent, the staff issued interpretive relief to prevent
this unintended result.117 The proposal would codify this relief
by explicitly excluding over-allotment options from the derivative
security definition.118 Of course, a sale of securities to an
underwriter upon exercise of the over-allotment option would remain a
sale for Section 16 purposes. Comment is solicited on whether
additional conditions should be placed on the exclusion, such as
requiring that the option comply with all applicable regulations and
policies of the National Association of Securities Dealers.
---------------------------------------------------------------------------
\1\17See Video Technology (Overseas) Limited/Davis Polk &
Wardwell (June 17, 1992), and Davis Polk & Wardwell (July 16, 1992).
\1\18Proposed Rule 16a-1(c)(7).
---------------------------------------------------------------------------
V. Request for Comment
Any interested person wishing to submit written comments on the
proposed revisions to the Commission's Section 16 rules and forms, and
compliance disclosure requirements, as well as on other matters that
might have an impact on the proposals contained herein, is requested to
do so. In addition, the Commission requests comment on whether any
further changes to the Section 16 rules, particularly Rule 16b-3, are
necessary or appropriate at this time. Comment is requested
specifically from persons subject to Section 16; issuers whose
officers, directors and ten percent shareholders are subject to Section
16; and persons using the information afforded by the Section 16(a)
reports. The Commission also requests comment on whether the proposed
rules, if adopted, would have an adverse impact on competition or would
impose a burden on competition that is neither necessary nor
appropriate in furthering the purposes of the Exchange Act. Comments
responsive to this inquiry will be considered by the Commission in
complying with its responsibilities under Section 23(a) of the Exchange
Act.119
---------------------------------------------------------------------------
\1\1915 U.S.C. 78w(a).
---------------------------------------------------------------------------
VI. Transition to New Rules
If the proposed rule revisions are adopted, provisions for a
transition from the current rules will be necessary, particularly with
respect to proposed Rule 16b-3. Although the discussion below
represents the Commission's current intent regarding transition to the
proposed revised rules, this schedule is subject to modification.
The Commission intends to make the proposed rule amendments, other
than those to Rule 16b-3, effective with respect to reports that are,
or would have been, due on or after the 45th day following the date of
adoption (the ``Effective Date''), with earlier compliance permitted.
Of course, to the extent that proposed rules codify interpretive
positions, those positions continue to be valid before the Effective
Date. Trusts currently subject to Section 16 that would be relieved of
Section 16 obligations under the proposed rules would not be subject to
any post-termination reporting obligations or required to file a final
Form 5.
In extending the phase-in period for current Rule 16b-3, the
Commission stated that this period would continue until September 1,
1994, or such earlier date as set in further rulemaking under Section
16. Given the timing of these rule proposals, the Commission is
extending the phase-in date until September 1, 1995 or such different
date as set in further rulemaking.120 Current and former Rule 16b-
3 would remain available until September 1, 1995,121 unless a
different date is set by the Commission in the adopting release.
Comment is solicited on how long a transition period issuers and
insiders would need, assuming adoption of the proposals. Of course,
issuers continue to be permitted to convert their plans to current Rule
16b-3 at any time, provided that all plans of the issuer are converted.
After the phase-in date, issuers and insiders will no longer be able to
rely on the former employee benefit plan exemptions, but instead will
need to comply with current Rule 16b-3 (modified to the extent the
Commission adopts these rule proposals).
---------------------------------------------------------------------------
\1\20See Release No. 34-34513, also issued today.
\1\21The exemptions afforded by former Rules 16a-8(b) and (g)(3)
also would remain available.
---------------------------------------------------------------------------
Because proposed Rule 16a-1(c)(8), which would exclude from the
definition of ``derivative security'' the right or obligation to
surrender a security or to have a security withheld in satisfaction of
an exercise price or tax withholding obligation, is inextricably linked
to the proposed amendment of Rule 16b-3(e), the Commission proposes to
link the availability of proposed Rule 16a-1(c)(8) to conversion of the
plan to proposed Rule 16b-3.
VII. Cost-Benefit Analysis
Commenters are requested to provide their views and data to assist
the Commission in evaluating the costs and benefits associated with the
proposed amendments. It is expected that the amendments would decrease
significantly the compliance burden imposed on persons subject to
Section 16 and attendant costs without undercutting the statutory
objectives of disclosing information concerning insider trading and
discouraging speculative short-term insider trading.
The proposed simplification of the treatment of employee benefit
plan transactions would constitute the most important reduction in
compliance burden. The proposed rules also would reduce compliance
costs by: permitting joint and group reporting where more than one
person is deemed to be a beneficial owner of the same securities;
providing that Section 16 applies to a trust only if the trust
beneficially owns more than ten percent of a class of registered equity
securities; and limiting officers' and directors' post-termination
reporting obligations.
Furthermore, the proposed rules would expand the exemption for
stock splits and stock dividends to include stock dividends in which
securities of a different issuer are distributed, and would provide a
general exemption from reporting and short-swing profit recovery for
the disposition of securities pursuant to a qualified domestic
relations order.
VIII. Summary of Initial Regulatory Flexibility Analysis
An Initial Regulatory Flexibility Analysis has been prepared in
accordance with 5 U.S.C. 603 concerning the proposed amendments. The
analysis notes that the proposed amendments are intended to simplify
the Section 16 regulatory scheme, particularly with respect to employee
benefit plans, and codify several staff interpretive positions.
As discussed more fully in the analysis, most of the reporting
persons the proposed amendments would affect are small entities, as
defined by the Commission's rules. The proposed amendments would
decrease the reporting and compliance requirements imposed upon
corporate insiders subject to Section 16.
The analysis discusses several possible alternatives to the
proposed amendments including, among others, establishing different
compliance or reporting requirements for small entities or exempting
them from all or part of the proposed requirements. As discussed more
fully in the analysis, implementation of any of these alternatives
either would be duplicative of the proposed amendments or inconsistent
with the Exchange Act.
Comments are encouraged on any aspect of the analysis. A copy of
the analysis may be obtained by contacting Elizabeth Murphy, Office of
Disclosure Policy, Division of Corporation Finance, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
IX. Statutory Basis
The amendments to Regulation S-B, Regulation S-K, and the Section
16 rules and forms are being proposed by the Commission pursuant to
Exchange Act Sections 3(a)(11),122 3(a)(12),123 3(b),124
9(b),125 10(a),126 12(h),127 13(a),128 14,129
16, and 23(a). As the Section 16 rules and forms relate to the
Investment Company Act and the Public Utility Holding Company Act, they
also are adopted pursuant to Investment Company Act Sections 30130
and 38,131 and Public Utility Holding Company Act Sections
17132 and 20,133 respectively.
---------------------------------------------------------------------------
\1\2215 U.S.C. 78c(a)(11).
\1\2315 U.S.C. 78c(a)(12).
\1\2415 U.S.C. 78c(b).
\1\2515 U.S.C. 78i(b).
\1\2615 U.S.C. 78j(a).
\1\2715 U.S.C. 78l(h).
\1\2815 U.S.C. 78m(a).
\1\2915 U.S.C. 78n.
\1\3015 U.S.C. 80a-29.
\1\3115 U.S.C. 80a-37.
\1\3215 U.S.C. 79q.
\1\3315 U.S.C. 79t.
---------------------------------------------------------------------------
List of Subjects in 17 CFR Parts 228, 229, 240, and 249
Reporting, recordkeeping requirements, and Securities.
Text of the Proposals
In accordance with the foregoing, Title 17, Chapter II of the Code
of Federal Regulations is proposed to be amended as follows:
PART 228--INTEGRATED DISCLOSURE SYSTEM FOR SMALL BUSINESS ISSUERS
1. The authority citation for part 228 continues to read as
follows:
Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s,
77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77jjj, 77nnn, 77sss,
78l, 78m, 78n, 78o, 78w, 78ll, 80a-8, 80a-29, 80a-30, 80a-37, 80b-
11, unless otherwise noted.
2. By amending Sec. 228.405 by revising the reference to ``Rule
16a-3(d)'' in paragraph (a) to read ``Rule 16a-3(e)'' and by revising
paragraphs (a)(1) and (a)(2) before the Note to read as follows:
Sec. 228.405 (Item 405) Compliance with section 16(a) of the Exchange
Act.
(a) * * *
(1) Under the caption ``Section 16(a) Reporting Delinquencies,''
identify each person who, at any time during the fiscal year, was a
director, officer, beneficial owner of more than ten percent of any
class of equity securities of the registrant registered pursuant to
section 12 of the Exchange Act, or any other person subject to section
16 of the Exchange Act with respect to the registrant because of the
requirements of section 30 of the Investment Company Act or section 17
of the Public Utility Holding Company Act (``reporting person'') that
failed to file on a timely basis, as disclosed in the above Forms,
reports required by section 16(a) of the Exchange Act during the most
recent fiscal year or prior fiscal years.
(2) For each such person, set forth the number of late reports, the
number of transactions that were not reported on a timely basis, and
any known failure to file a required Form. A known failure to file
would include, but not be limited to, a failure to file a Form 3, which
is required of all reporting persons, and a failure to file a Form 5 in
the absence of the written representation referred to in paragraph
(b)(2)(i) of this section, unless the registrant otherwise knows that
no Form 5 is required.
* * * * *
PART 229--STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES
ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND
CONSERVATION ACT OF 1975--REGULATION S-K
3. The authority citation for part 229 continues to read in part as
follows:
Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s,
77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 77nnn,
77sss, 78c, 78i, 78j, 78l, 78m, 78n, 78o, 78w, 78ll(d), 79e, 79n,
79t, 80a-8, 80a-29, 80a-30, 80a-37, 80b-11, unless otherwise noted.
* * * * *
4. By amending Sec. 229.405 by revising paragraphs (a)(1) and
(a)(2) before the Note to read as follows:
Sec. 229.405 (Item 405) Compliance with section 16(a) of the Exchange
Act.
* * * * *
(a) * * *
(1) Under the caption ``Section 16(a) Reporting Delinquencies,''
identify each person who, at any time during the fiscal year, was a
director, officer, beneficial owner of more than ten percent of any
class of equity securities of the registrant registered pursuant to
section 12 of the Exchange Act, or any other person subject to section
16 of the Exchange Act with respect to the registrant because of the
requirements of section 30 of the Investment Company Act or section 17
of the Public Utility Holding Company Act (``reporting person'') that
failed to file on a timely basis, as disclosed in the above Forms,
reports required by section 16(a) of the Exchange Act during the most
recent fiscal year or prior fiscal years.
(2) For each such person, set forth the number of late reports, the
number of transactions that were not reported on a timely basis, and
any known failure to file a required Form. A known failure to file
would include, but not be limited to, a failure to file a Form 3, which
is required of all reporting persons, and a failure to file a Form 5 in
the absence of the written representation referred to in paragraph
(b)(2)(i) of this section, unless the registrant otherwise knows that
no Form 5 is required.
* * * * *
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934
5. The authority citation for part 240 continues to read in part as
follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77eee, 77ggg,
77nnn, 77sss, 77ttt, 78c, 78d, 78i, 78j, 78l, 78m, 78n, 78o, 78p,
78s, 78w, 78x, 78ll(d), 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-37,
80b-3, 80b-4, 80b-11, unless otherwise noted.
* * * * *
6. By amending Sec. 240.16a-1 by revising paragraphs (a)(3) and
(c)(3), (c)(5) and (c)(6), and adding paragraphs (c)(7), (c)(8) and
(c)(9) to read as follows:
Sec. 240.16a-1 Definition of Terms.
(a) * * *
(3) Where more than one person subject to Section 16 of the Act is
deemed to be a beneficial owner of the same equity securities, all such
persons must report as beneficial owners of the securities, either
separately or jointly, as provided in Sec. 240.16a-3(i). In such cases,
the amount of short-swing profit recoverable shall not be increased
above the amount recoverable if there were only one beneficial owner.
* * * * *
(c) * * *
(3) Securities received pursuant to a compensation arrangement
between the issuer and an employee or director that may be redeemed or
exercised only for cash and do not permit the receipt of equity
securities in lieu of cash;
* * * * *
(5) Interests or rights to participate in employee benefit plans of
the issuer;
(6) Rights with an exercise or conversion privilege at a price that
is not fixed;
(7) Options granted to an underwriter in a registered public
offering for the purpose of satisfying over-allotments in such
offering;
(8) The right or obligation to surrender a security, or have a
security withheld, upon exercise of a derivative security or vesting of
restricted shares to satisfy the exercise price or tax withholding
consequences of exercise or vesting; or
(9) Rights under which the benefits are subject to a material
condition (other than the passage of time or continued employment) not
tied to the market price of an equity security of the issuer.
* * * * *
7. By amending Sec. 240.16a-2 by revising paragraphs (b) and (d)(2)
to read as follows:
Sec. 240.16a-2 Persons and transactions subject to section 16.
* * * * *
(b) A transaction(s) following the cessation of director or officer
status shall be subject to Section 16 of the Act only if:
(1) Executed within six months of an opposite transaction subject
to Section 16(b) of the Act that occurred while that person was a
director or officer; and
(2) Not otherwise exempted from Section 16(b) of the Act pursuant
to the provisions of this chapter.
Note: For purposes of this paragraph, a purchase and a sale each
shall be an opposite transaction with respect to the other.
* * * * *
(d)(1) * * *
(2) Transactions by such person or entity acting in a capacity
specified in paragraph (d)(1) of this section after the period
specified in that paragraph shall be subject to Section 16 of the Act
only where the estate, trust or other entity is a beneficial owner of
more than ten percent of any class of equity security registered
pursuant to Section 12 of the Act.
8. By amending Sec. 240.16a-3 by adding paragraph (i) to read as
follows:
Sec. 240.16a-3 Reporting transactions and holdings.
* * * * *
(i) Where more than one person subject to Section 16 of the Act is
deemed to be a beneficial owner of the same equity securities, all such
persons must report as beneficial owners of the securities, either
separately or jointly. Where persons in a group are deemed to be
beneficial owners of equity securities pursuant to Sec. 240.16a-1(a)(1)
due to the aggregation of holdings, a single Form 3, 4 or 5 may be
filed on behalf of all persons in the group. Joint and group filings
must include all required information for each beneficial owner, and
such filings must be signed by each beneficial owner, or on behalf of
such owner by an authorized person.
9. By amending Sec. 240.16a-4 by adding paragraph (e) before the
Note to read as follows:
Sec. 240.16a-4 Derivative securities.
* * * * *
(e) The disposition or closing of a long derivative security
position, as a result of cancellation or expiration, shall be exempt
from Section 16(a) of the Act if exempt from Section 16(b) of the Act
pursuant to Sec. 240.16b-6(d).
* * * * *
10. By amending Sec. 240.16a-6 by revising paragraph (a)(1) to read
as follows:
Sec. 240.16a-6 Small acquisitions.
(a) * * *
(1) Such acquisition, when aggregated with other acquisitions of
securities of the same class (including securities underlying
derivative securities, but excluding acquisitions exempted by rule from
Section 16(b) or previously reported on Form 4 or Form 5) within the
prior six months, does not exceed a total of $10,000 in market value;
and
* * * * *
11. By amending Sec. 240.16a-8 by revising paragraph (a)(1) and
adding a note at the end of paragraph (b)(3) to read as follows:
Sec. 240.16a-8 Trusts.
(a) Persons Subject to Section 16--(1) Trusts. A trust shall be
subject to Section 16 of the Act with respect to securities of the
issuer if the trust is a beneficial owner, pursuant to Sec. 240.16a-
1(a)(1), of more than ten percent of any class of equity securities of
the issuer registered pursuant to Section 12 of the Act (``ten percent
beneficial owner'').
* * * * *
(b) * * *
(3) * * *
Note: Transactions attributed to a trust beneficiary may be
reported by the trustee on behalf of the beneficiary.
* * * * *
12. By amending Sec. 240.16a-9 by revising paragraph (a) to read as
follows:
Sec. 240.16a-9 Stock splits, stock dividends, and pro rata rights.
* * * * *
(a) The increase or decrease in the number of securities held as a
result of a stock split or stock dividend applying equally to all
securities of that class, including a stock dividend in which equity
securities of a different issuer are distributed; and
* * * * *
13. By amending Sec. 240.16b-3 by revising paragraphs (a), (c)(1),
(c)(2)(i)(B) and (C), (c)(2)(ii), (d), the introductory text of
paragraph (e), paragraph (e)(1)(i), the heading for paragraph (f),
paragraphs (f)(2), (f)(3) and (g), removing paragraph (a)(2), and
adding paragraph (h) before the Note to read as follows:
Sec. 240.16b-3 Employee benefit plan transactions.
(a) Plan Conditions. A transaction by an officer or director shall
be exempt from section 16(b) of the Act if it is pursuant to an
employee benefit plan that satisfies the conditions of this paragraph
and of paragraph (b) of this section, if applicable; and the
transaction satisfies one of the transaction exemptions of paragraphs
(c), (d), (e), (f), or (g) of this section. The plan shall set forth in
writing the means or basis for determining eligibility to participate,
as it relates to officers and directors, and either the price at which
the securities may be offered and the amount of securities to be
awarded or the method by which the price and the amount of the award
are to be determined; provided, however, that plans for which paragraph
(b)(3) of this section provides an exemption from the shareholder
approval requirement of paragraph (b) of this section need not specify
the amount of securities to be awarded.
* * * * *
(c) * * *
(1) Six Month Holding Period. The equity security is held for six
months from the date of grant or, in the case of a derivative security,
at least six months elapse from the date of acquisition of the
derivative security to the date of disposition of the derivative
security (other than upon exercise or conversion) or its underlying
equity security; provided, however, that compliance with this paragraph
(c)(1) is not required with respect to a disposition by a plan
participant that is exempted by rule from Section 16(b) of the Act.
Dividend equivalent rights and stock acquired upon the reinvestment of
dividends, other than stock dividends exempted pursuant to
Sec. 240.16a-9, shall be deemed to have been acquired as of the date of
acquisition of the securities on which such dividends or dividend
equivalent rights were paid.
(2) Plan Administration. * * *
(i) Disinterested Administration. * * *
(B) Participation in a securities acquisition plan meeting the
conditions in paragraph (d)(1) of this section shall not disqualify a
director from being a disinterested person;
(C) An election to receive a director's fee in either cash or
securities, or partly in cash and partly in securities, shall not
disqualify a director from being a disinterested person; and
* * * * *
(ii) Formula Awards. The grant or award is made pursuant to a plan
that:
(A) By its terms permits officers and/or directors to receive
automatic awards; and either: states the amount and price of securities
to be awarded to designated officers and directors or categories of
officers and directors, though not necessarily to others who may
participate in the plan, and specifies the timing of awards to officers
and directors; or sets forth a formula that automatically determines
the amount, price and timing, using objective criteria such as earnings
of the issuer, value of the securities, years of service, job
classification, and compensation levels; provided that
(B) Such terms are not amended periodically, and in no event more
often than every six months, other than to comport with changes in the
Internal Revenue Code, the Employee Retirement Income Security Act, or
the rules thereunder.
* * * * *
(d) Broad-Based Plans and Intra-Plan Transfers. A transaction in a
thrift, stock purchase or similar securities acquisition plan shall be
exempt from Section 16(b) of the Act if the plan satisfies the
conditions of paragraph (a) and paragraph (b) of this section, if
applicable, and the transaction satisfies the conditions of either
paragraph (d)(1) or (d)(2) of this section.
(1) For any purchase transaction resulting from an employee
contribution and/or an employer contribution, other than an intra-plan
transfer, the transaction is pursuant to:
(i) A plan that provides for broad-based employee participation, by
its terms does not discriminate in favor of highly compensated
employees, and is qualified pursuant to Section 401 or Section 423 of
the Internal Revenue Code; or
(ii) A plan that:
(A) Operates in conjunction with a plan that satisfies the
requirements of paragraph (d)(1)(i) of this section; and
(B) Provides only the benefits or contributions that would be
provided under a tax-qualified plan but for the limitations of Sections
401(a)(17), 415 and any other applicable contribution limitation set
forth in the Internal Revenue Code.
(2) For intra-plan transfers between an equity securities of the
issuer fund and another fund:
(i) The transaction is pursuant to an election made during a
quarterly time period specified in paragraph (e)(3) of this section; or
(ii) The transaction results from a diversification election that
satisfies the requirements of Section 401(a)(28) of the Internal
Revenue Code.
(e) Cash settlements of stock appreciation rights. A transaction
involving the exercise and cancellation of a stock appreciation right
(whether or not the transaction also involves the related surrender and
cancellation of a stock option), and the receipt of cash in complete or
partial settlement of that right, shall be exempt from Section 16(b) of
the Act if the plan satisfies the conditions of paragraph (a) and
paragraph (b) of this section, if applicable, and the following
conditions are met:
(1) Information about the issuer. (i) The issuer of the stock
appreciation right has filed all reports and statements required
pursuant to Section 13(a) of the Act for at least a year prior to the
transaction or such shorter time as the issuer has been subject to that
section; and
* * * * *
(f) Cancellations, expirations, and surrenders. * * *
(2) The surrender or delivery to the issuer, or the withholding by
the issuer, of shares of its stock as payment for the exercise of an
option, warrant or right with respect to shares of the same class; and
(3) The surrender or delivery to the issuer, or the withholding by
the issuer, of an equity security to satisfy the tax withholding
consequences of either the receipt or vesting of the equity security or
the exercise of a derivative security related to the equity security.
(g) Distributions of plan securities or cash. The following
distributions are exempt from Section 16(b) of the Act; provided that
paragraphs (g)(1) and (g)(2) of this section shall be available only if
the plan pursuant to which the distribution is made satisfies the
conditions of paragraph (a) and paragraph (b) of this section, if
applicable, and the securities with respect to which the distribution
is made were acquired in a transaction exempt pursuant to Sec. 240.16b-
3:
(1) A distribution of either securities or cash, or a combination
of securities and cash; or a deferral of a distribution of securities
or cash in whole or in part, provided such distribution or deferral is
incident to death, retirement, disability, termination of employment,
or a diversification election permitted by Section 401(a)(28) of the
Internal Revenue Code;
(2) An involuntary distribution of either securities or cash,
including cash in lieu of fractional shares, for the purpose of
satisfying the limitations on employee elective contributions and
employer matching contributions imposed by the Internal Revenue Code;
and
(3) Any other distribution to a participant of securities that have
been held pursuant to any employee benefit plan for the benefit of that
participant.
(h) Participant-directed transactions. A participant-directed
transaction and any related employer matching contribution shall be
exempt from Section 16(b) of the Act if the plan satisfies the
conditions of paragraph (a) and paragraph (b) of this section, if
applicable, and the transaction is pursuant to an election made by the
participant at least six months in advance of the effective date of the
transaction; provided that such election is irrevocable or may be
revoked or changed only by means of a subsequent election that shall
not take effect until six months elapse from the date of such
subsequent election.
* * * * *
14. By amending Sec. 240.16b-5 by revising the section heading,
redesignating the existing text as paragraph (a) and adding new
paragraph (b) to read as follows:
Sec. 240.16b-5 Bona fide gifts, inheritance and qualified domestic
relations orders.
* * * * *
(b) The disposition of equity securities pursuant to a qualified
domestic relations order, as defined in the Internal Revenue Code or
Title I of the Employee Retirement Income Security Act, or the rules
thereunder, shall be exempt from the operation of section 16(b) of the
Act.
PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934
15. The authority citation for Part 249 continues to read in part
as follows:
Authority: 15 U.S.C. 78a, et seq., unless otherwise noted;
* * * * *
16. By amending Form 3 (referenced in Sec. 249.103) and the General
Instructions thereto by adding paragraph (b)(v) to General Instruction
5, by revising the first sentence of General Instruction 6, and by
revising Item 1 and adding Item 7 to the information preceding Table I
to read as follows:
Note--The text of Form 3 does not and this amendment will not
appear in the Code of Federal Regulations.
Form 3--Initial Statement of Beneficial Ownership of Securities
* * * * *
General Instructions
* * * * *
5. Holdings Required to be Reported
* * * * *
(b) Beneficial Ownership Reported (Pecuniary Interest).
* * * * *
(v) Where more than one person beneficially owns the same equity
securities, such owners may file Form 3 individually or jointly. Joint
and group filings may be made by any designated constituent beneficial
owner. Indicate only the name and address of the designated filer in
Item 1 of Form 3 and attach a listing of the names and IRS or social
security numbers (or addresses in lieu thereof) of each other reporting
person and number the listing as part of the Form 3 report. Joint and
group filings must include all required information for each beneficial
owner, and such filings must be signed by each beneficial owner, or on
behalf of such owner by an authorized person. If the space provided for
signatures is insufficient, attach a signature page and number it as
part of the Form 3 report.
* * * * *
6. Additional Information
If the space provided in the line items of this Form or space
provided for additional comments is insufficient, attach another Form
(or copy of the Form) completed as appropriate (except for the listing
and additional signature pages required by General Instruction 5(b)(v),
which may be attached on 8\1/2\ by 11 inch white paper). * * *
* * * * *
1. Name and Address of Reporting Person*
---------------------------------------------------------------------------
*If the Form is filed by more than one Reporting Person, see
Instruction 5(b)(v).
---------------------------------------------------------------------------
(Last) (First) (Middle)
(Street)
(City) (State) (Zip)
* * * * *
7. Individual or Joint/Group Filing
(Check applicable line)
______ Form filed by One Reporting Person
______ Form Filed by More than One Reporting Person
* * * * *
16. By amending Form 4 (referenced in Sec. 249.104) and the General
Instructions thereto by revising the Note following General Instruction
4(a)(ii) and adding paragraph (b)(v) to General Instruction 4; by
revising the first sentence of General Instruction 6; by revising
General Instruction 8; and by revising Item 1 and adding Item 7 to the
information preceding Table I to read as follows:
Note--The text of Form 4 does not and this amendment will not
appear in the Code of Federal Regulations.
Form 4--Statement of Changes in Beneficial Ownership of Securities
* * * * *
General Instructions
* * * * *
4. Transactions and Holdings Required To Be Reported
* * * * *
(a) General Requirements.
* * * * *
(ii)* * *
Note: Transactions reportable on Form 5 may, at the option of
the reporting person, be reported on a Form 4 filed before the due
date of the Form 5, and may be aggregated to the extent permitted by
Instruction 4(a)(ii) to Form 5. Exercises or conversions of
derivative securities and small acquisitions specified in Rule 16a-
6(a) must be reported on the next required Form 4 or Form 5 but may
be reported voluntarily on Form 4 at an earlier date. (See
Instruction 8 for the code for voluntarily reported transactions.)
(b) Beneficial Ownership Reported (Pecuniary Interest).
* * * * *
(v) Where more than one beneficial owner of the same equity
securities must report transactions on Form 4, such owners may file
Form 4 individually or jointly. Joint and group filings may be made by
any constituent beneficial owner. Indicate only the name and address of
the designated filer in Item 1 of Form 4 and attach a listing of the
names and IRS or social security numbers (or addresses in lieu thereof)
of each other reporting person and number the listing as part of the
Form 4 report. Joint and group filings must include all required
information for each beneficial owner, and such filings must be signed
by each beneficial owner, or on behalf of such owner by an authorized
person. If the space provided for signatures is insufficient, attach a
signature page and number it as part of the Form 4 report.
* * * * *
6. Additional Information
If space provided in the line items of this Form or space provided
for additional comments is insufficient, attach another Form (or copy
of the Form) completed as appropriate (except for the listing and
additional signature pages required by General Instruction 4(b)(v),
which may be attached on 8\1/2\ by 11 inch white paper).* * *
* * * * *
8. Transaction Codes
Use the codes listed below to indicate in Table I, Column 3 and
Table II, Column 4 the character of the transaction reported. Use the
code that most appropriately describes the transaction. If the
transaction is not specifically listed, use transaction Code ``J'' and
describe the nature of the transaction in the space for explanation of
responses. If a transaction is voluntarily reported earlier than
required, place ``V'' in the appropriate column to so indicate;
otherwise the column should be left blank.
General Transaction Codes
P--Open market or private purchase of non-derivative or derivative
security
S--Open market or private sale of non-derivative or derivative security
V--Transaction voluntarily reported earlier than required
Employee Benefit Plan Transaction Codes
A--Grant or award transaction pursuant to Rule 16b-3(c)
M--Exercise of in-the-money or at-the-money derivative security
acquired
pursuant to Rule 16b-3 plan
B--Transaction in acquisition plan pursuant to Rule 16b-3(d)(1)
N--Participant-directed transaction pursuant to Rule 16b-3(f)(4)
F--Payment of option exercise price or tax liability by delivering or
withholding securities incident to exercise of a derivative security or
vesting of a restricted security issued in accordance with Rule 16b-3
I--Intra-plan transfer in accordance with Rule 16b-3(d)(2) resulting in
acquisition or disposition of issuer securities
T--Acquisition or disposition transaction under an employee benefit
plan other than pursuant to Rule 16b-3
Derivative Securities Codes
C--Conversion of derivative security
E--Expiration of short derivative position
H--Expiration (or cancellation) of long derivative position
O--Exercise of out-of-the-money derivative security
X--Exercise of in-the-money or at-the-money derivative security
Other Section 16(b) Exempt Transactions and Small Acquisition Codes
(Except for Employee Benefit Plan Codes Above)
G--Bona fide gift
R--Acquisition pursuant to reinvestment of dividends or interest
(DRIPS)
W--Acquisition or disposition by will or the laws of descent and
distribution
L--Small acquisition under Rule 16a-6
Q--Transfer pursuant to a qualified domestic relations order
Z--Deposit into or withdrawal from voting trust
K--Exempt change in form of beneficial ownership
Other Transaction Codes
J--Other acquisition or disposition (describe transaction)
U--Disposition pursuant to a tender of shares in a change of control
transaction
* * * * *
1. Name and Address of Reporting Person*
---------------------------------------------------------------------------
*If the Form is filed by more than one Reporting Person, see
Instruction 4(b)(v).
---------------------------------------------------------------------------
(Last) (First) (Middle)
(Street)
(City) (State) (Zip)
* * * * *
7. Individual or Joint/Group Filing
(Check applicable line)
______ Form filed by One Reporting Person
______ Form Filed by More than One Reporting Person
* * * * *
17. By amending Form 5 (referenced in Sec. 249.105) and the General
Instructions thereto by revising General Instructions 4(a)(ii),
4(a)(iv) and adding paragraph (b)(v) to General Instruction 4; by
revising the first sentence of General Instruction 6; by revising
General Instruction 8; and by revising Item 1 and adding Item 7 to the
information preceding Table I to read as follows:
Note.--The text of Form 5 does not and this amendment will not
appear in the Code of Federal Regulations.
Form 5--Annual Statement of Beneficial Ownership of Securities
* * * * *
General Instructions
* * * * *
4. Transactions and Holdings Required To Be Reported
(a) General Requirements
* * * * *
(ii) Report transactions and holdings in Rule 16b-3(d) securities
acquisition plans, acquisitions and holdings resulting from
reinvestment of dividends or interest in transactions that were exempt
from Section 16(b) pursuant to Rule 16b-2 or 16b-3, and acquisitions of
dividend equivalent rights in transactions exempt pursuant to Rule 16b-
3, as of the most recent date for which the information is reasonably
available, specifying the date of the information. Also, report
transactions and holdings in such securities acquisition plans,
acquisitions and holdings through such reinvestment of dividends or
interest, and acquisitions of such dividend equivalent rights, for the
portion of the prior fiscal year not included on the Form 5 for the
prior year, specifying the date of the information, or, alternatively,
this information may be included on a Form 4 or an amendment to the
Form 5 filed promptly. Such acquisitions, but not dispositions, may be
presented on an aggregate basis for the period reported. If reported on
an aggregate basis, disclose the range of prices paid.
* * * * *
(iv) Except for transactions noted in (ii) above, every transaction
shall be reported even though acquisitions and dispositions with
respect to a class of securities are equal, or the change involves only
the nature of ownership, such as a change from indirect ownership
through a trust or corporation to direct ownership by the reporting
person. Report total beneficial ownership as of the end of the issuer's
fiscal year for all classes of securities in which a transaction was
reported.
(b) Beneficial Ownership Reported (Pecuniary Interest).
* * * * *
(v) Where more than one beneficial owner of the same equity
securities must report on Form 5, such owners may file Form 5
individually or jointly. Joint and group filings may be made by any
constituent beneficial owner. Indicate only the name and address of the
designated filer in Item 1 of Form 5 and attach a listing of the names
and IRS or social security numbers (or addresses in lieu thereof) of
each other reporting person and number the listing as part of the Form
5 report. Joint and group filings must include all required information
for each beneficial owner, and such filings must be signed by each
beneficial owner, or on behalf of such owner by an authorized person.
If the space provided for signatures is insufficient, attach a
signature page and number it as part of the Form 5 report.
* * * * *
6. Additional Information
If the space provided in the line items of this Form or space
provided for additional comments is insufficient, attach another Form
(or copy of the Form) completed as appropriate (except for the listing
and additional signature pages required by General Instruction 4(b)(v),
which may be attached on 8\1/2\ by 11 inch white paper). * * *
* * * * *
8. Transaction Codes
Use the codes listed below to indicate in Table I, Column 3 and
Table II, Column 4 the character of the transaction reported. Use the
code that most appropriately describes the transaction. If the
transaction is not specifically listed, use transaction Code ``J'' and
describe the nature of the transaction in the space for explanation of
responses.
General Transaction Codes
P--Open market or private purchase of non-derivative or derivative
security
S--Open market or private sale of non-derivative or derivative security
Employee Benefit Plan Transaction Codes
A--Grant or award transaction pursuant to Rule 16b-3(c)
M--Exercise of in-the-money or at-the-money derivative security
acquired pursuant to Rule 16b-3 plan
B--Transaction in acquisition plan pursuant to Rule 16b-3(d)(1)
N--Participant-directed transaction pursuant to Rule 16b-3(f)(4)
F--Payment of option exercise price or tax liability by delivering or
withholding securities incident to exercise of a derivative security or
vesting of a restricted security issued in accordance with Rule 16b-3
I--Intra-plan transfer in accordance with Rule 16b-3(d)(2) resulting in
acquisition or disposition of issuer securities
T--Acquisition or disposition transaction under an employee benefit
plan other than pursuant to Rule 16b-3
Derivative Securities Codes
C--Conversion of derivative security
E--Expiration of short derivative position
H--Expiration (or cancellation) of long derivative position
O--Exercise of out-of-the-money derivative security
X--Exercise of in-the-money or at-the-money derivative security
Other Section 16(b) Exempt Transactions and Small Acquisition Codes
(Except for Employee Benefit Plan Codes Above)
G--Bona fide gift
R--Acquisition pursuant to reinvestment of dividends or interest
(DRIPS)
W--Acquisition or disposition by will or laws of descent and
distribution
L--Small acquisition under Rule 16a-6
Q--Transfer pursuant to a qualified domestic relations order
Z--Deposit into or withdrawal from voting trust
K--Exempt change in form of beneficial ownership
Other Transaction Codes
J--Other acquisition or disposition (describe transaction)
U--Disposition pursuant to a tender of shares in a change of control
transaction
Form 3, 4 or 5--Holdings or Transactions Not Previously Reported
To indicate that a holding should have been reported previously on
Form 3, place a ``3'' in Table I, column 3 or Table II, column 4, as
appropriate. Indicate in the space provided for explanation of
responses the event triggering the Form 3 filing obligation. To
indicate that a transaction should have been reported previously on
Form 4, place a ``4'' next to the transaction code reported in Table I,
column 3 or Table II, column 4 (e.g, an open market purchase of a non-
derivative security that should have been reported previously on Form 4
should be designated as ``P4''). To indicate that a transaction should
have been reported on a previous Form 5, place a ``5'' in Table I,
column 3 or Table II, column 4, as appropriate. In addition, the
appropriate box on the front page of the Form should be checked.
* * * * *
1. Name and Address of Reporting Person*
---------------------------------------------------------------------------
*If the Form is filed by more than one Reporting Person, see
Instruction 4(b)(v).
---------------------------------------------------------------------------
(Last) (First) (Middle)
(Street)
(City) (State) (Zip)
* * * * *
7. Individual or Joint/Group Filing
(Check applicable line)
______ Form filed by One Reporting Person
______ Form Filed by More than One Reporting Person
* * * * *
Dated: August 10, 1994.
By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-20124 Filed 8-16-94; 8:45 am]
BILLING CODE 8010-01-P
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.