TheCorporateCounsel.net

We have been inundated with interp questions on the new Item 703 repurchase table that will debut in the 10-Qs (that are required to be filed by COB Monday), as I’m sure the SEC staff has been. Below are several issues that have been informally addressed recently by the SEC staff – most of these are drawn from our Q&A Forum:

Restricted Stock: Executives purchase stock on day 1 for $.01 per share, which is par value. The shares are restricted and cannot be sold until the restrictions lapse. The restrictions lapse 20% per year for 5 years. Each time restrictions lapse, the executives have a tax withholding obligation to the Company which they may satisfy by delivering back to the Company some of the shares on which the restrictions have lapsed. Also, when an executive leaves the employ of the Company, the shares must be sold back to the Company for $.01 per share.

Answer: I have heard that some staffers have told practitioners that both types of repurchases have to be reported under 703 – any consideration given by the company means that the stock must be included in the table (if no consideration is given, it need not be included). I have also heard that you don’t need to include restricted stock units (because they are not registered under Section 12) – but this could be an area where the staff changes its view. One area that is clear is that you don’t need to include forfeitures of restricted stock upon failure to satisfy vesting requirements or vesting conditions (so long as no consideration is given).

Options: As noted in my interview with Jonathan Wolfman, the staff has said that you don’t need to include net option exercises to pay the exercise price of an option – nor the net option exercise to pay tax withholding of an option. But the staff has now decided that a stock-for-stock exchange does get included (so i am adding a note about the reversed position into Jonathan’s interview).

Rabbi Trusts: An issuer has a non-qualified deferred compensation plan for executives which allows participants to invest in the issuer’s stock. A rabbi trust purchases stock, subject to formulaic parameters, according to the investment choices of the participants. The issuer does not direct the purchase or sale.

Answer: These repurchases should be included in the table (because they are the company’s assets).

By the way, the March/April issue of The Corporate Counsel asks some interesting questions about some still unanswered issues regarding affiliated purchasers and employee benefit plan repurchases (the March/April issue is just hitting the streets as I type).

More from Oxley on SOX

Aparently, at the Security Traders Association conference last week, Representative Oxley said one – or more hearings – will be held this summer to evaluate how the legislation that bears his name is impacting businesses and whether or not it is working as intended. The hearings would include testimony from corporate executives, the SEC and the PCAOB.

In addition, Oxley told reporters that the House committee he chairs will soon review the FASB’s controversial stock option exposure draft.