|
Section 16 of the Securities Exchange Act of
1934 requires certain corporate "insiders" to file
reports reflecting transactions in the corporation's equity
securities (including derivatives related to such securities).
Section 16 also compels these insiders to disgorge short-swing
profits derived from trading activity within any six-month
period.
Reporting Obligations
Each person who is or becomes a "reporting officer"
or a director of RadioShack must file reports concerning his
or her beneficial ownership of RadioShack securities with
the Securities and Exchange Commission, the New York Stock
Exchange and RadioShack. There are three types of forms that
must be submitted on a timely basis to comply with Section
16 reporting requirements:
- Form 3 for First-Time Filers: This form must be
filed within 10 calendar days after the event triggering
the filing. Triggering events include the election of a
corporate employee to director or reporting officer status
(whether or not such person owns any corporate securities),
or any transaction that places an investor's holdings in
the corporation above 10 percent for the first time. Form
3 requires information as to the reporting officer's or
director's beneficial ownership of all classes of RadioShack's
equity securities, including options.
- Form 4 for Changes in Beneficial Ownership: This
form is used to report changes in the reporting officer's
or director's ownership position. It must be filed within
two (2) business days after the transaction occurred. Directors
and officers who cease to hold their positions must still
report certain changes on Form 4 for up to six months after
leaving their positions.
- Form 5 for Annual Reconciliation: The Form 5 is
an annual report used to disclose certain exempt transactions
(typically gifts) not previously reported on Form 4. It
must be filed within 45 calendar days after the end of a
corporation's fiscal year. Many insiders customarily file
a Form 4 for all transactions, whether or not exempt, which
negates the requirement of filing a Form 5.
It is RadioShack's policy that the ultimate responsibility
to prepare and timely file Forms 3, 4 and 5 rests with the
reporting officer or director, and NOT with RadioShack.
As an accommodation to RadioShack's reporting officers and
directors, the office of the General Counsel may furnish,
prepare and file Forms 3, 4 and 5 for the reporting officers
and directors. Each reporting officer and director is obligated
to promptly provide information to the office of the General
Counsel concerning any change in his or her beneficial ownership
of RadioShack securities to ensure timely filing.
Changes in Beneficial Ownership Covered by Section 16
As noted above, transactions causing changes in a reporting
officer's or director's beneficial ownership are generally
required to be reported on a Form 4. A wide range of transactions
can trigger this reporting requirement, and reporting officers
and directors should therefore consider the following points:
- Reports under Section 16 cover beneficial ownership, as
opposed to mere record ownership, of reporting officers
and directors, and therefore include securities held by
others for the reporting officer's or director's benefit
(regardless of how the securities are registered).
- Securities held by immediate family members living in
a reporting officer's or director's home are rebuttably
presumed to be beneficially owned by the reporting officer
or director.
- A reporting officer or director may in certain circumstances
be presumed to beneficially own RadioShack securities held
in trust. This ownership may include trusts (including living
or family trusts) in which the reporting officer or director
is a settlor or has or shares investment control. In addition,
trusts in which the reporting officer or director, or his
or her immediate family member (whether or not living in
the reporting officer's or director's home), is a beneficiary
are subject to particularly complex reporting requirements.
- The concept of "securities" for Section 16 purposes
includes derivative securities (such as certain deferred
stock units, options, stock appreciation rights and other
rights with an exercise or conversion privilege at a price
related to an equity security).
Failure to Comply with Section 16
The consequences for failure to file a Form 3, 4 or 5 or
failure to file on a timely basis could result in civil penalties,
including substantial monetary penalties and cease and desist
orders prohibiting the reporting officer or director from
trading in RadioShack's stock for a certain period of time.
Criminal penalties could be imposed for a willful failure
to comply with reporting provisions. In addition, RadioShack
must identify in its annual proxy statement reporting officers
and directors who failed to file reports or who filed delinquent
reports in the previous fiscal year.
In addition, under Section 16, reporting officers and directors
face strict liability for effecting non-exempt purchases and
sales (or sales and purchases) in RadioShack's securities
within a six-month period that result in a "short swing
profit" (whether this profit is actual or imputed). The
statue compels the reporting officer or director to disgorge
all profits gained in the transactions. The proceeds of the
disgorgement are turned over to RadioShack's treasury. If
RadioShack does not bring an action to recover these profits,
any stockholder acting on RadioShack's behalf may do so. These
stockholder lawsuits are not infrequent because the various
reports that must be filed pursuant to Section 16 are publicly
available. There are many law firms that actively monitor
filings and file lawsuits if they identify violations.
Procedures for First-Time Filers
Prior to filing his or her initial Section 16 report, each
Section 16 first-time filer that is a reporting officer or
director shall:
- Be educated in Section 16's requirements and this policy,
- Sign an acknowledgement that the person is subject to
this policy,
- Execute the initial Form 3 report, and
- Execute a power of attorney to facilitate future Section
16 filings.
Posted: 4/22/04
|
