TheCorporateCounsel.net

The latest issue of The Corporate Executive has been sent to the printer. It is also available now online to members of TheCorporateCounsel.net who subscribe to the electronic format. This issue tackles two timely topics, revisiting sell-to-cover transactions in light of the SEC’s amendments to Rule 10b5-1 and potential revisions to equity award policies in light of the SEC’s renewed focus on the timing of equity awards. On the topic of sell-to-cover transactions, the issue notes:

The amendments to Rule 10b5-1 have added a whole new set of complications when a company is seeking to implement sell-to-cover transactions with respect to full value awards. A Rule 10b5-1 plan for sell-to-cover transactions now must comply with the more extensive requirements of Rule 10b5-1(c), including the applicable cooling off periods and, subject to the rule’s exception for certain sell-to-cover transactions, the multiple overlapping plan and single-trade limitations. Companies also must consider the disclosure requirements now applicable to Rule 10b5-1 trading plans when setting up a sell-to-cover approach for full value awards.

On the topic of equity award policies, the July-August 2024 issue of The Corporate Executive notes:

These new disclosure requirements create an opportunity for a company to revisit its equity award policy, or adopt a new equity award policy if it does not have one. As indicated above, companies will be required to disclose certain policies and practices related to the grant of certain equity awards. When revisiting its equity award policy, or adopting a new equity award policy, companies should keep these disclosure requirements in mind. The policy should address how the company grants annual awards as well as off-cycle awards, and whether the awards will occur on an established schedule. A typical approach for annual awards and off-cycle grants is to have a preestablished schedule that permits award grants a specific number of days following the company’s earnings release. This approach ensures that the grants are occurring in an open trading window and at a time when the company is less likely to possess material nonpublic information. We take this approach in our sample award policy.

Another consideration for equity award policies in light of the SEC’s recent rulemaking is whether to prohibit granting equity awards in close proximity to periodic reports on Form 10-Q or Form 10-K, or any Current Report on Form 8-K that includes material nonpublic information. To prevent triggering the new tabular disclosure regarding options grants, companies should take steps to ensure that options are not granted to named executive officers in the period beginning four business days before the filing of a periodic report on Form 10-Q or Form 10-K, or the filing or furnishing of a Current Report on Form 8-K that discloses material nonpublic information, and ending one business day after the filing or furnishing of such report. Our sample equity award policy addresses the granting of equity awards during this time period.

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– Dave Lynn