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Form 4 Errors
Form 4 filings can be complex. Ideally, your company has a process in place that is designed to mitigate the risk of erroneous data ending up on a Form 4. However, if an error is discovered, it may be necessary to amend the original filing with a footnote explaining the reason for the amendment. When filing an amended Form 4, there is no need to restate the original Form 4 in its entirety. Rather, the amended Form 4 can include only the line items that are being updated. Additionally, there is no need to amend inaccurate Form 4 filings resulting from the original error that took place between the original erroneous filing and the amendment. Upon discovery of a filing error, the company will need to determine if it is something that must be disclosed in the proxy statement per the requirements of Item 405 (which requires disclosure of late reports and known failures to file required reports).
This week, I'd like to address a few common errors. Obviously, this blog entry shouldn't be taken as advice. Only your legal counsel (or the SEC) can confirm the appropriate action that you should take when it comes to specific erroneous data in a Form 4 filing. If you subscribe to Section16.net or the Romeo and Dye Section 16 Treatise and Reporting Guide, you can find additional common errors in form filings along with fantastic guidance on correct reporting and best practices.
If a grant is inadvertently reported twice, removing the duplicate can be done by filing an amended Form 4 with the correct details of the grant along with a footnote clarifying that the grant was originally reported twice. There is no need to show a "disposition" of the erroneous duplicate.
Incorrect Grant Type
If a Form 4 is filed with an incorrect title of derivative security listed in Column 1 of Table II, the correction can be made by filing an amended Form 4 with the correct grant type in Column 1 and a footnote to explain the discrepancy. This is not the same as an amendment to an existing grant, which is considered the disposition of the original grant and acquisition of a new grant. In the case of an incorrect ISO/NQ split, as long as all the other details on the grants (grant date, exercise price, etc.) are the same, then both the ISO portion of the grant and the NQ portion of the grant can be reported on the same line and a correction to share allocation between the two may not require an amendment.
Incorrect Securities Beneficially Owned
If there was an error in the number of shares reported in Column 5 of Table I or Column 9 of Table II, the amended filing is pretty straight forward as long as the total holdings are not incorrect because of an error in or omission of an actual transaction. An amendment with the correct holdings can be filed with a footnote explaining the correction. Likewise, if holdings are incorrectly reported as directly or indirectly held, the same amendment filing would apply. Even if the issue is simply that direct holdings are reported as indirect (or vice versa), it may be best to file an amended Form 4 to show both line items with the correct number of shares. It's also important to note that the number of shares reported in Column 9 of Table II should only reflect the total of the same class as the derivative security being reported on that line, not the total number of all derivative securities held by the filer.
Some errors may not require an amended Form 4 at all because they are not material enough to warrant an amendment. Of course, you'll want to work closely with your legal counsel to determine the most appropriate course of action in each case. Examples of some details that most likely would not require an amended filing are using the incorrect title, including an incorrect mailing address, failing to disclose that a transaction took place under a Rule 10b5-1 Plan, or accidentally putting the wrong vesting schedule in a footnote.
Section 16 Updates
At the beginning of each year, Alan Dye partners with the NASPP to provide our members with valuable Section 16 updates. NASPP members can access our archive recordings of Section 16 update webcasts in the NASPP Webcast Archive.
Ask the Experts
Speaking of fantastic NASPP programs, mark your calendar for June 29th at 4:00 EST. We will be airing our Latest "Ask the Experts" webcast, Estimating, Applying and Reconciling Forfeiture Rates! If you have a specific issue you would like to have our experts address, it's not too late to submit your question to the panel.
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