The newest edition of Peter Romeo and Alan Dye’s Section 16 Forms & Filing Handbook arrived in my mailbox last week.  I thought the last edition contained a model form for every possible Section 16 reporting scenario, but no–there are 15 new forms in this version. It’s so big, I practically needed some assistance toting it upstairs to my office.  Here are four things I learned from perusing the new forms.

1. Reporting Performance Awards with a Service Tail

New Model Form 135 clears up some of the confusion with respect to a performance award that is still subject to service-based vesting conditions after the performance goal has been achieved. As my readers know, performance awards in which vesting is conditioned on goals other than stock price targets aren’t reportable until the performance goes are achieved.  Once the compensation committee has certified achievement of the goals, however, the award is reportable, even where it isn’t paid out immediately or is still subject to time-based vesting requirements. The award essentially becomes a standard RSU once the performance goals have been achieved.  Assuming the award can only be paid out in stock, it can then be reported as the acquisition of either a derivative security or common stock, just like any other time-based RSU.

2. Voluntary Reporting of ESPP Purchases

Alan Dye doesn’t always report purchases under Section 423 ESPPs, but when he does, he uses transaction code A of J.  (I couldn’t resist–it’s not often that I can invoke beer commercials in my blogs).  Because purchases under an ESPP aren’t reportable, there’s no transaction code assigned to them.  If you are going to voluntarily report these transactions, New Model Form 145 suggests using code A or J and including a footnote to explain the transaction.  Personally, I like code A because it specifically applies to exempt acquisitions, whereas code J can apply to either exempt or nonexempt transactions.

3. Voluntary Exit Forms

I did already know that it isn’t necessary to file an exit form unless the former insider has reportable transactions that occur after his/her termination.  Despite this, some companies voluntarily file exit forms for departing insiders anyway.  I’d never really thought about some of the specifics related to filing a voluntary exit form when there aren’t any transactions to report on the form.  New Model Form 214 provides some guidance.  In addition to the obvious (check the “Exit” box and include a note in the remarks field explaining the reason for the filing), if using a Form 4, the date of the “earliest transaction” in box 3 should be the insider’s termination date (if using a Form 5, the date of the fiscal year end is reported in box 3), and the insider’s title in box 5 can either be his/her former title or you can select the “other” checkbox and specify his/her status (e.g., “former insider”).

4. Grants to Spouses of Insiders

Given how common dating is in the workplace, I bet that this situation comes up more frequently than you’d think: an insider meets someone at work, they fall in love and get married and then, unconnected to the marriage, the insider’s spouse is granted an option or an award. Because they are married, the grant has to be reported as an acquisition of an indirectly held security on a Form 4 for the insider. But because the spouse isn’t an insider, the award might not be submitted to the compensation committee/board for approval, making it a non-exempt grant unless the shares underlying the grant are held for at least six months.  The 2014 Handbook includes new Model Form 91 explaining how to report the grant.

It’s probably unlikely that the shares underlying the grant would be sold within six months, but even so, my takeaway here is to consider submitting grants to spouses of insiders to the comp committee for approval.  I imagine that it wouldn’t be that much extra work for the committee, it seems like it might be a good idea from a shareholder optics perspective anyway, and then the exempt status of the grant is one less thing to worry about.

Luckily, grants to any person(s) the insider is having an affair with probably aren’t considered to be indirectly owned by the insider (unless it’s some sort of weird Woody Allen-type situation) and, thus, aren’t reportable. Moreover, when the insider divorces, Model Form 74 (which is not new) explains that any transfers of securities pursuant to the divorce settlement generally aren’t reportable.

– Barbara