October 19, 2003

Shareholder Approval of Equity Compensation

Last week, the SEC approved the Amex’s rules on shareholder approval – as well as amended rules for the Nasdaq.

At the NASPP conference, David Drake of Georgeson Shareholder and Art Meyers of Palmer & Dodge gave an excellent presentation on the impact of the new rules – and the NASPP might have a reprise of that panel on a special webcast soon. Also note that the Sept/Oct issue of The Corporate Counsel that just hit the streets covers the new shareholder approval rules in detail.

SFAS 123 Transition Deadline Looming

One point well made at the NASPP conference was the upcoming SFAS 123 transition deadline for companies looking to expense their outstanding options under the increasingly popular prospective method. As set forth in SFAS 148 – which amended SFAS 123 and establishes three alternative transition deadlines – the deadline for selecting the prospective method is December 15th.

Under the prospective method, the fair value expensing of options is applied only in the year of grant and subsequently. This initially results in a lower level of option expense in the income statement compared to the other two alternatives – which can make it appear that a company has a trend of increasing option expenses. However, this effect can be offset if the company intends to reduce the aggregate value of future grants – which is the case for many companies.

From Bear Stearns, here is a list of the 350 companies that have adopted – or announced that they intend to adopt – 123 as of early September.

Cert. Denied by Supreme Court in Section 16 Case

On October 14th, the U.S. Supreme Court denied the application for certiorari filed by the defendants (insiders) in Levy v. Sterling Holding Company LLC (Docket No.03-171).

This is the case with the troublesome decisions on Rule 16b-7 and Rule 16b-3. The SEC had filed an amicus brief in the rehearing before the entire Third Circuit arguing that the Court’s interpretation of the SEC rules was incorrect. As you may recall, the Third Circuit did not follow the SEC’s interpretation of the rules. Alan Dye – who was involved in the case – provides an analysis of this important case on