| Sarbanes-Oxley And Corporate Governance | |
|
On December 20, 2002, the SEC published Release No. 33-8170 proposing rules to mandate the electronic filing and web site posting of beneficial ownership reports filed by officers, directors and 10% security holders under Section 16(a) of the Securities Exchange Act of 1934. The SEC requested comments by February 10, 2003. The statutory deadline for implementation imposed by the Sarbanes-Oxley Act is July 30, 2003. Background The Sarbanes-Oxley Act amended Section 16(a), effective for transactions on or after August 29, 2002, to require insiders to file reports of these transactions before the end of the second business day following the day on which the subject transaction is executed, subject to certain exceptions under SEC rules. On August 27, 2002, the SEC adopted rules to implement the accelerated filing deadline. Section 403 of the Sarbanes-Oxley Act also amended Section 16(a) to require that, by July 30, 2003:
Electronic Filing The proposed rules mandate electronic filing of all Forms 3, 4 and 5. The SEC noted that many companies make their insiders’ filings for them, and encouraged the continuation of this practice to facilitate accurate and timely filing. The SEC also noted, however, that its intention is to create a system that insiders can use "relatively easily" themselves – especially because an insider is legally responsible for the filing obligation and its accuracy, regardless of who submits a filing on the insider’s behalf. Toward that end, the SEC will implement a new online filing system at the same time the rules become effective. New Online Filing System - In the initial version of the new system, insiders and those who act on their behalf (presumably issuers or filing agents, such as financial printers) will be able to access the SEC web site to fill out and submit the forms. When the new system is implemented, EDGARLink filing no longer will be available for these forms. Also, the SEC will no longer accept filings on paper of Forms 3, 4 or 5, unless the filing satisfies the requirements for a temporary or continuing hardship exemption. The new system will allow filers, either directly or through agents, to create a customized form and to file it as a reduced content filing. A reduced content filing is a filing that provides header information (e.g., form type) and the data for mandatory fields, which the SEC plans to specify sufficiently before the new system's implementation to provide adequate preparation time. Reduced content filings should enable issuers and insiders to use third-party service providers for filings, if they wish to do so, just as they do today. In order to use the online system, each insider will need the same codes (CIK, CCC) that are required to file on EDGAR today. These codes, which are personal to the insider, are obtained by submitting a Form ID to the SEC. Insiders or issuers providing them with assistance in this regard should take care to determine whether the particular insider might already have codes assigned to them in the EDGAR system. Causing duplicate codes to be issued for the same individual can create numerous administrative problems, including rejection of the extremely time-sensitive filings. This problem is most likely to arise for officers or directors who are or have been officers and directors of another public company. If that other company was making electronic filings of insider reports, then those individuals will already have the necessary codes assigned to them in the EDGAR system. Submitting a new Form ID will result in the previously issued codes being terminated. Companies and other third party filing agents with the appropriate access codes will continue to be able to submit forms on behalf of insiders. The SEC expects to introduce enhanced verification procedures for use by filing agents in the future. According to the SEC, to access and file the forms through the SEC web site, filers will require valid EDGAR access codes to log on to the site. A menu will give filers the option to create online Forms 3, 4 or 5, or amendments to these forms. Due to cost and technical limitations, data entry will have to be performed quickly enough to avoid timeouts that end the session. The system will not be able to provide a way to save an incomplete form online from session to session. The system will validate for data type and required fields as many fields as possible while the filer fills in the form. Filers will have the chance to correct errors and verify the accuracy of the information. An online help function will be available. The filer will be able to download and print the filing and add attachments before submission. Once the filing is submitted, the system will display the accession number of the filing (confirming the SEC’s receipt of the filing) or a message that says the accession number will follow in a return notification. A filer will be able to obtain a return copy of the form shortly after filing, and also will be able to see the filing on the SEC’s web site. No Change in Hardship Exemptions - The proposed amendments would not alter the provisions governing the availability of hardship exemptions under Regulation S-T. Where an electronic filer attempts in good faith to file a document with the SEC in a timely manner, but the filing is delayed due to technical difficulties beyond the filer's control, the filer may request an adjustment of the document's filing date. The SEC may grant the request if it appears that the adjustment is appropriate and consistent with the public interest and the protection of investors. A filer may obtain a temporary hardship exemption if it experiences unanticipated technical difficulties that prevent the timely preparation and submission of an electronic filing. A filer may apply for a continuing hardship exemption if it cannot file all or part of a filing without undue burden or expense. It is unlikely that a continuing hardship exemption would be granted with respect to Forms 3, 4 or 5, given the nature of the information that appears in these forms and the expected ease of electronic filing. Moreover, the failure to obtain an identification number or access code in a timely manner will not justify a hardship exemption. Timely Notice to Issuer Still Required - Rule 16a-3(e) requires insiders to send or deliver a copy of each form to the issuer not later than when the form is transmitted for filing with the SEC. This copy must go to the person designated to receive such communications, or in the absence of this designation, to the issuer's corporate secretary or person performing equivalent functions. As part of their plan to implement the proposed rules, issuers will most likely want to designate a manner of receiving these communications electronically, and having them posted on their web site. Web Site Posting The SEC has proposed to amend Rule 16a-3 to add a new paragraph (k) requiring an issuer that maintains a corporate web site to post on its web site all Forms 3, 4 and 5 filed with respect to its equity securities by the end of the business day after filing. The SEC suggests that an issuer could satisfy this requirement whether it provides access to the Forms directly or by hyperlinking to them via a third-party service (including EDGAR) in lieu of maintaining the forms itself, if the following conditions are satisfied:
As with the SEC’s accelerated filing requirements, effective implementation of the new proposed rules by filers and issuers will require diligence and foresight. This will be especially true if the new online system is as easy to use as the SEC hopes. Electronic simplicity, complete with pull-down menus and a "help" function, may lull individual filers and their agents, including brokers and those managing their 10b5-1 plans, to rely less on the advice or assistance from issuers and their counsel. This may present opportunities, as well as challenges.
|
|
Home
| About Bristol | PIPE
Financing | Private
Company Financing | M&A
and Advisory Services | Wall
Street Research | Contact
| Legal Notices |