February 2, 2007

NASD Changes Filing Fees for WKSI Filings

Last week, the NASD filed a rule change with the SEC to amend its filing fees for WKSIs under Rule 2710, with a maximum fee of $75,500 for each such filing. The NASD rule was effective upon filingbut with an implementation date of February 26th. The maximum filing fee has been $75,500 for a while now.

The problem regarding filing fees for any shelf offering is that, even though the amount registered on the shelf would justify payment of the full fee, the NASD has been willing to allow the first broker-dealer that takes down a tranche need only pay a filing fee on that tranche, and then each following broker-dealer pays more fees – up to the $75,500 maximum per registration statement.

The NASD has followed this practice ever since the shelf rules allowed undesignated shelfs – and issuers and broker-dealers argued that the mere fact that the issuer had registered $500 million of securities, for example, did not mean the NASD should collect a fee on that amount, since the issuer may only sell a small amount from the shelf.

Thus, NASD was willing to base its fees for shelf offerings on the amounts sold off the shelf rather than the amount registered with the SEC. It appears that for WKSI filings, the NASD staff concluded that the practice was just too cumbersome and could hold up a no-objections letter. Since the n-o letter isn’t issued unless the fee is paid there is too little time in today’s filings for the underwriters to wait for the filing fee to be sent, received, recorded at the NASD.

For those negotiating agreements related to registering securities, the practice point is that you should ensure that the issuer is obligated to pay all NASD filing fees or otherwise clearly state what is expected up front – otherwise the broker-dealers, selling shareholders, and issuer will end up arguing about who is responsible for the full NASD filing fee when it is due upon filing of a shelf. I hear that there have been instances of selling shareholders doing a shelf takedown and discovering that the NASD wants the fee for the entire shelf covering all primary and secondary shares…

SEC Clears Market-Based Option Valuation

A few months ago, I conducted this podcast about Zions Bancorp and its use of market value for auctioning employee stock options. Last week, the Office of Chief Accountant issued this letter to the company approving the market-based valuation approach after the company tweaks what it has been doing. This WSJ article provides more details – and look for more information on this topic on an upcoming NASPP program.

In his “AAO Weblog,” Jack Ciesielski weighs in on whether ESOARs will fly in the marketplace.

Our February Eminders is Posted!

We have posted the February issue of our monthly email newsletter.