TheCorporateCounsel.net

July 3, 2003

Well, I hope my ability

Well, I hope my ability to interact with Broc’s blogging software has improved since Tuesday.

It’s been a busy week absorbing the new NYSE and Nasdaq equity compensation plan shareholder approval rules. At this point, it seems that practitioners have more questions than answers. Those of us on the west coast technology world are of course focusing primarily on the Nasdaq side of things, and our questions on those new rules include:

What is a bona fide period of unemployment?

When Nasdaq says that it “recommends” that plans meant to permit repricing use explicit terminology to make this clear, what does it mean in practical terms? It stops short of saying that the plans “must” include explicit terminology. We anticipate that Nasdaq will get many questions on this issue.

Does the exception from the shareholder approval requirement in a merger context (where the acquiror “acquires” shares under a target shareholder-approved plan and may issue such shares under awards to certain employees of the combined entity post-deal) apply where the target was private before the transaction? We think it should, but need Nasdaq to weigh in on this.

If an acquiror “acquires” target plan shares in a merger in the above manner, can it use the shares so acquired under any plan (e.g., use target ESPP shares to issue regular stock options post-deal)? There is language in the release to support this conclusion.

If an acquiror acquires a target plan that includes a shareholder-approved evergreen, can the evergreen continue to add shares to the plan after the deal and if so how would this work in terms of calculating the number of shares to be added each period (maybe the fixed number in most evergreens would apply by default)?

What is meant by the statement that a company “would not be permitted to use repurchased shares to fund options without prior shareholder approval”? We think this sentence is just meant to underscore that there is no free pass (as there never has been for Nasdaq companies) to use treasury shares unless you have shareholder approval of the maximum number to be so used. But the wording is causing some consternation.

Is the exception from shareholder approval for tax-qualified plans absolute? So, for example, if a company had a 20-year ESPP with an evergreen, would the tax-qualified plan exception mean that the company would not have to obtain new shareholder approval of the plan after ten years (as it would apparently be required to do if the plan were an option or other non-tax-qualified plan)?

Is it permissible to grant an award under a plan that has not yet received shareholder approval, where the grant is made contingent upon later shareholder approval?

And I’d guess there are many questions arising with respect to the grandfathering of old plans.

On another note, while the Disney and Abbott Labs cases have garnered a lot of attention recently about where the courts are on director duties and liability, I’ve just had a chance to read the Delaware Chancery Court opinion in the Oracle Corp. Derivative Litigation (June 17, 2003). The Court conludes that an Oracle Special Litigation Committee was not independent (and therefore won’t accept its findings) because of various ties between both the SLC members and the company insiders involved in the litigation to Stanford University. The opinion seems to underscore how different the Delaware courts’ attitudes on these issues are from a couple of years ago — it shows the court looking under every rock to identify potential conflicts. This seems like it will be a controversial case — it will be interesting to see where it goes from here. I’d recommend the opinion for your holiday weekend reading list (2003 Del. Ch. LEXIS 55).

Happy Fourth!

Sharon J. Hendricks