The Securities and Exchange Commission

[thepennyking]

In This Issue:
SEC I: Mandatory EDGAR for Foreign Private Issuers Proposed

SEC II: Emergency and Exemptive Orders Re: Stock Repurchases, Section 16 and Rule 10b5-1 Plans

SEC III: Capital Raising and Other Relief for Airline and Insurance Industries

Stock Options: Spike in Popularity of "6 and 1" Repricing Plans

M&A: Fairness Reviews in Going Private Transactions with Controlling Shareholders

What's Up Online: 1st All-Electronic Annual Meeting Held

Comings and Goings: Who's Doing What and Where

Events Calendar

--------------------------------------------------------------------------------


SEC I: Mandatory EDGAR for Foreign Private Issuers Proposed
On September 25th, at an open meeting, the SEC approved the issuance of proposed rules mandating EDGAR for all foreign private and government issuers. There is a 60 day comment period.

The proposal allows for a four-month "transition period" scheduled to begin as soon as final rules are published - so that EDGAR would not be mandatory until sometime in mid-2002 (but Chairman Pitt was particularly interested in comments about whether the Form 20-Fs due at the end of June 2002 should be mandatory or not). Under the proposal, virtually all forms would be filed by EDGAR.

Although Section 16 reports were discussed at the meeting, they are not addressed in the release - the SEC is trying to reconcile any programming needs before doing any rulemaking.

The Chairman was quite interested in having "24/7" EDGAR and eliminating the current 24 hour delay in making filings available on SEC's Web site - and he asked the staff to prepare a cost-benefit analysis on these topics.

The proposed rules are at http://www.sec.gov/rules/proposed/33-8016.htm.

On an unrelated note, the SEC has delayed an adjustment of its filing fees for a few weeks - so filing fee rates remain at the levels they have been (i.e. $250 per $1 million registered). Typically, any adjustments take effect on October 1st, the first day of the SEC's fiscal year.


--------------------------------------------------------------------------------


SEC II: Emergency and Exemptive Orders Re: Stock Repurchases, Section 16 and Rule 10b5-1 Plans
In the wake of last month's tragic incidents, the SEC took unprecedented actions to facilitate the reopening of fair and orderly markets after the exchanges had been closed for nearly a week. This included the issuance of an emergency order (with an extension) that was effective for the 10 business days after the markets were reopened and a subsequent exemptive order that will last until October 12th.

The orders granted relief in a number of areas, including Rule 10b-18, Section 16 and Rule 10b5-1 - but some areas of relief in the emergency order (that ended Sept. 28th) were not continued in the exemptive order as noted below.

Among other matters, the orders:
Pooling-of-Interests Relief - The order's relief clarified that stock repurchases during these 10 day period would not impact the availability of pooling-of-interest accounting for past acquisitions (so far, it is reported that over 200 companies have conducted repurchases under the orders).

Suspended Time Restrictions - Repurchases were allowed throughout the day, including at the market open and within the last 1/2 hour of the trading day. This relief continues under the exemptive order but only for larger issuers and with certain limitations.

Increased Volume Limits - Up to 100% of average daily volume, an increase from 25%. Block transaction did not count against volume limits.

Relief from "Blackout" Periods - Repurchases occurring during companies' end of quarter or "blackout" periods were not by themselves considered as any indication of a violation of the securities laws.

No Section 16 Matching for Purchases - Section 16 insiders could purchase stock and those purchases were not matchable with any sales during the past six months. Note that sales were not exempted so that any purchases under the orders will be matchable. Purchases made in reliance on the emergency orders must be reported on Form 4 (with the transaction code of "J," and an explanatory footnote that the purchase was made in reliance on the orders).This relief was not extended by the exemptive order.

Termination of 10b5-1 Plans - Termination of plans established prior to September 11 will not, by itself, call into question whether the plan was "entered into in good faith and not as part of a plan or scheme to evade" if they were terminated between September 11 and September 28. This relief was not extended by the exemptive order.
A press release regarding the latest exemptive order is at http://www.sec.gov/news/headlines/newrepurchase.htm.

In addition, the Chief Accountant's office issued an interpretation that clarified that the auditor independence rules would not be implicated if accounting firms assisted clients that had offices around the World Trade Center as part of the recovery process.

The interpretation is available at http://www.sec.gov/rules/interp/33-8004.htm.


--------------------------------------------------------------------------------


SEC III: Capital Raising and Other Relief for Airline and Insurance Industries
The SEC has facilitated the ability of airline and insurance companies to raise capital on Form S-3. In addition to setting up phone and e-mail "hotlines" for these companies, the SEC is prepared to allow them to use Form S-3 even if they don't meet the form's eligibility requirements (e.gs. delinquent filings, inadequate float) and the SEC staff will review any filings by these companies within 5 business days of receipt.

In addition, these companies can seek relief for missing other SEC deadlines (e.g. filing for no-action relief under Rule 14a-8 regarding shareholder proposals). These special accommodations will continue through the end of the year.

The press release regarding this relief is available at http://www.sec.gov/news/headlines/airline-insurance.htm.


--------------------------------------------------------------------------------


Stock Options: Spike in Popularity of "6 and 1" Repricing Plans
As noted by Pat McGurn of Institutional Shareholder Services, over 100 companies have implemented "six months and one day" stock repricings so far in 2001. These option exchange plans allow companies to avoid the negative accounting effects of FASB's new Interpretation 44.

Under the accounting literature, stock options are treated as either "fixed" or "variable." If an option is treated as "variable," the company must recognize an ongoing earnings expense charge in connection with any rise in the value of the stock underlying the option. When an award is deemed "fixed," the company is required to measure a charge only at a single point in time-typically the grant date, when the "intrinsic value" is zero. Since Interpretation 44 allows companies to avoid variable accounting treatment by canceling underwater options in exchange for a promise of a new grant following a six-month "quarantine" period, this new type of "6 and 1" plan is attractive.

Despite widely publicized negative comment about Sprint's "6 and 1" plan as far back as November 2000, many companies have followed Sprint's lead. Pat includes a chart and list of companies that recently have adopted these plans in his article - and he predicts a backlash from institutional investors against companies that adopt such plans.

Source: Pat McGurn's observations are made in the September/October issue of the Corporate Governance Advisor published by Aspen. Aspen can be reached at http://www.aspenpublishers.com/Default.asp?cookie%5Ftest=1.


--------------------------------------------------------------------------------


M&A: Fairness Reviews in Going Private Transactions with Controlling Shareholders
Two recent Delaware cases illuminate how to avoid an "entire fairness" review in going private transactions conducted by a controlling stockholder. As noted by Steven Glover of Gibson Dunn, practitioners long assumed that a going private transaction in which a controlling stockholder acquires the balance of the stock from minority stockholders would be reviewed under the stringent entire fairness standard (often resulting in the use of special board committees formed on behalf of minority stockholders to show that an acquiror paid a fair price and engaged in fair dealing).

However, these recent decisions suggest that the ordinary business judgment rule will apply when the controlling stockholder makes a cash tender offer or stock exchange offer for the outstanding shares, and then conducts a short form merger to acquire any shares that were not tendered in response to the exchange offer or tender offer. This appears to work only if the controlling stockholder succeeds in acquiring 90% of the company's stock in the first step tender offer or exchange offer, so that the applicable short form merger statute is available.

These decisions are In re Siliconix Incorporated Shareholders Litigation, (Delaware Chancery Court June 19, 2001), and Glassman v. Unocal Exploration Corp., (Delaware Supreme Court July 25, 2001).

Source: The cases are available at http://caselaw.lp.findlaw.com/data2/delawarestatecases/390-2000.pdf (Unocal) and http://corporate-law.widener.edu/documents/opinions/18700-117.pdf (Siliconix). Steven Glover's article about these cases is in the September issue of the M&A Lawyer published by Glassers. Glassers can be reached at http://www.legalwks.com.


--------------------------------------------------------------------------------


What's Up Online: 1st All-Electronic Annual Meeting Held
In April, a small company incorporated in Delaware - Inforte - became the first company to take advantage of Delaware's year-old laws to conduct an electronic stockholders' meeting - with no physical counterpart! Now states other than Delaware, such as Massachusetts, are reported to be considering changing their laws to allow e-meetings.

Despite Delaware's modernized laws, many practitioners had predicted that no companies would attempt a pure e-meeting because of the concerns raised by many groups, including the Council of Institutional Investors and the AFL-CIO. These groups seek to preserve the ability to directly confront management as they feel that there is no comparable substitute for in-person contact. They don't take issue with supplemental Webcasts of annual meetings, and over 100 companies have done so this year.

Inforte found considerable cost and time savings in conducting an e-meeting (this was the company's first annual meeting since its IPO) - spending only $2k (for such things as the Webcast and an inspector of election), rather than the $20k budgeted. The time savings consisted of simpler planning and no traveling for management and the board. Inforte has approximately 5500 registered and beneficial holders.

Under new Section 211 of the Delaware General Corporation Law, the board can hold a meeting "by means of remote communication" and allow remote stockholders/proxy holders to be considered "present" for quorum and voting purposes, if the company has the ability to:
implement "reasonable measures" to verify that each person is a stockholder or a proxy holder.

Inforte was prepared to receive e-votes by fax (but none were faxed) and the inspector of elections would have verified the name and control number on any faxes against the transfer agent's and ADP's records.
implement "reasonable measures" to provide remote participants a "reasonable opportunity" to "participate" in the meeting.

Inforte allowed any investor (not just stockholders) to e-mail questions before - or during - the meeting (but none did).
allow to "attend" the meeting on a substantially concurrent basis, including an opportunity to read or hear the proceedings of the meeting.

Through PR Newswire, Inforte used a live audio Webcast and the meeting chair was prepared to read any e-mailed questions to the audience.
maintain a "record" of the votes or other action taken at the meeting by means of remote communication

Since Inforte collected e-votes by facsimile, this was fairly easy to do; next year, Inforte hopes to allow for online voting and recordkeeping should be even easier.
For FAQs about online stockholder meetings, see http://www.realcorporatelawyer.com/stockholdermeetings.html.


--------------------------------------------------------------------------------


Comings and Goings: Who's Doing What and Where
At the SEC, Harvey Pitt held his first open meeting as the new Chairman. Based on the tone and number/types of matters that were on the agenda, it appears that he is more likely to have the Commission consider more proposed rulemakings at open meetings - rather than in seriatim - and ask many more questions.

Robert K. Herdman was announced as the new Chief Accountant. Mr. Herdman was Vice-Chair of Ernst & Young, where he had been the senior partner responsible for the firm's relationships with the SEC, the Financial Accounting Standards Board, and the American Institute of Certified Public Accountants.

In the wake of last month's tragedies, tightened security is evident at the SEC. Staffers must display their badges at all times and visitors must check in and wear a badge to enter any of the buildings. The SEC's Northeast office was located in Building No. 7 of the World Trade Center and was destroyed but everyone is safe. The Northeast staff has been relocated to 233 Broadway on a permanent basis.

In Corp Fin, Christine Bianchine has left the Office of Rulemaking to concentrate her efforts on a new child. As typical at this time of year, many new junior staffers have begun their government careers in Operations, as other more seasoned staffers have transferred between Offices in an effort to vary their type of experience.

In private practice, it appears that all SEC alumni who worked in the World Trade Center are safe, including those at Brown & Wood, Thacher Profitt and Sandler O'Neil.


--------------------------------------------------------------------------------


Events Calendar
Although many events have been cancelled, the following upcoming events are still scheduled to be held:
RR Donnelley Financial Europe's "US GAAP Seminar," London, October 4
American Corporate Counsel Association's Annual Conference, San Diego, October 14-17
National Association of Stock Plan Professionals Annual Conference, New Orleans, October 17 - 20
RR Donnelley Financial Europe's "International Financial Reporting Issues - For Analysts, Bankers and Lawyers," Frankfurt, October 15-19
PLI's 33rd Annual Institute on Securities Regulation, New York City, November 8-11
If you would like to participate in either of these RR Donnelley Financial Europe conferences, please email [e-mail] for more information.