[Federal Register Volume 59, Number 158 (Wednesday, August 17, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-20124]


[[Page Unknown]]

[Federal Register: August 17, 1994]


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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.

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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
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    \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.
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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.
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    \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]).
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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.
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    \1\026 U.S.C. et seq. (1986) (``I.R.C.'').
    \1\129 U.S.C. 1001 et seq. (1986).
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    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.
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    \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.
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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.
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    \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.
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    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.
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    \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.''
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    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.
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    \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).
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    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.
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    \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).
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    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
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    \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.
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    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
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    \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.
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    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.
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    \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.
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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
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    \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).
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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.
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    \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).
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    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
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    \3\9Proposed Rule 16a-1(c)(3).
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    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
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    \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.
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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.
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    \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).
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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
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    \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.
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    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
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    \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)].
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    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
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    \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.
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    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.
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    \5\0See Section II.E, above.
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    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.
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    \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.
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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
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    \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).
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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?
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    \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.
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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.
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    \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.
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    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
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    \6\1Proposed Rule 16b-3(g)(1).
    \6\2Rule 16b-3(d)(1)(ii).
    \6\3See Merrill Lynch & Co. (Sept. 1, 1992) Q. 7.
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    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.
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    \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).
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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.
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    \6\8Proposed Rule 16b-3(a)(1).
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    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.
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    \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.
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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.
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    \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).
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    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.
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    \7\1Of course, in many cases transferability restrictions would 
continue to exist because of Internal Revenue Code requirements or 
companies' policies.
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    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.
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    \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.
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    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?
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    \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.
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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.
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    \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.
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    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
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    \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.
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    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
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    \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.
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    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.
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    \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.
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    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.
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    \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.
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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.
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    \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.
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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\
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    \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\
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    \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)].
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    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\
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    \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?
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    \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.
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    \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)].
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    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.
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    \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\
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    \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\
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    \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