Last month, the Eleventh Circuit affirmed a district court’s dismissal of a complaint filed under Section 11 brought by investors who were 30% shareholders in a company that merged with defendant company in APA Excelsior III L.P. v. Premiere Technologies. This case is about whether the sophisticated investors who signed traditional lock-ups/irrevocable proxies at the outset of arms-length merger negotiations should be able to recover under Section 11 based on the subsequently filed registration statement for a stock-for-stock merger.
The court found that the plaintiffs made a legally binding investment decision when they signed their shareholders’ agreements, months before the registration statement was filed – so that the plaintiffs weren’t entitled to an implied presumption of reliance on the registration statement when they made their investment decision. The court highlighted that these particular types of investors have access to even better information than what is traditionally disclosed in the registration statement by virtue of their due diligence rights.
As Section 11 does not normally require a showing of reliance, the court looked to the legislative history of the liability provision to interpret it as setting forth a presumption of reliance – not a strict liability statute – and further found the presumption was rebutted here due to the “pre-registration commitment theory.”
What Might Be the SEC’s View of the APA Excelsior Decision?
A decade ago, when the SEC proposed the Aircraft Carrier package of reforms, the SEC provided an interpretation that shares in these types of mergers could be registered on a Form S-4, even if investors were really making their investment decision at the time they entered into these types of shareholders’ agreements. In the Aircraft Carrier proposing release, the SEC stated it would be “codifying” a Staff position – and since the Commission voted to propose the release, I think an argument can be made that the SEC blessed the Staff’s interpretation of the issue even though the proposed rule never got adopted.
Here is the relevant excerpt from the Aircraft Carrier proposing release: “The use of lock-up agreements in business combinations has become common. As part of the negotiations for these combinations, the acquiring party usually requires that management and principal security holders of the company to be acquired commit to vote for the acquisition. These so-called “lock-up” agreements are made when the acquisition agreement is finalized, before any action by the public security holders. These agreements could be considered investment decisions under the Securities Act. If they are, the offers and sales of securities were made to persons who entered into those agreements before the business combination is presented to the non- affiliated security holders for their vote. Under this reasoning, those offers and sales could not be included in the registration statement for the offering to the persons not entering into lock-up agreements.
In recognition of the legitimate business reasons underlying the practice, the staff has permitted the registration of offers and sales under certain circumstances where lock-up agreements have been signed. We propose a rule that codifies this position. Our proposed rule would allow registration of those offers and sales when: (i) The lock-up agreements involve only executive officers, directors, affiliates, founders and their family members, and holders of 5% or more of the voting equity securities of the company being acquired; (ii) The persons signing the agreements own less than 100% of the voting equity securities of the company being acquired; and (iii) Votes will be solicited from shareholders of the company being acquired who have not signed the agreements and who would be ineligible to purchase in an offering under Section 4(2) or 4(6) of the Securities Act or Rule 506 of Regulation D.
The first condition would assure that the only persons who signed the agreements were insiders with access to corporate information who arguably would not need the protections of registration and prospectus disclosure. The last two conditions would make certain that registration under the Securities Act is required to accomplish the business combination. Where no vote is required or 100% of the shares are locked up, no investment decision would be made by non-affiliated shareholders and the transaction would have been completed via the lock-up agreement. If the non-affiliated shareholders were able to purchase under one of the private offering exemptions from registration, the entire transaction would be more akin to a private placement and registration of only resales would follow from that characterization.”
After McNulty: Changes in the Attorney-Client Privilege and Investigations
Tune in tomorrow for our webcast – “After McNulty: Changes in the Attorney-Client Privilege and Investigations” – to hear David Becker of Cleary Gottlieb, Peter Moser of DLA Piper, Keith Bishop of Buchalter Nemer, Joseph Burby of Powell Goldstein, and Christian Mixter of Morgan Lewis discuss the changing processes of government and internal investigations after the long-awaited McNulty memo, which provides prosecutors with a revised set of corporate fraud charging guidelines, including new policies on waiver of the attorney-client privilege and the advancement of attorney’s fees to employees under investigation. As an aside, here is a speech by Attorney General Alberto Gonzales at last week’s ABA White Collar Crime Conference.
The SEC’s 8-K Rule Changes: How They Impact You
We have posted the transcript from the CompensationStandards.com webcast: “The SEC’s 8-K Rule Changes: How They Impact You.”
Always a fascinating read, here is Warren Buffett’s 23-page 2007 letter to shareholders. Warren always has something to say about executive compensation practices and this year’s letter is no exception. On page 19, he notes that he has served as a director on 19 boards and he has been the “Typhoid Mary” of compensation committees. “At only one company was I assigned to comp committee duty, and then I was promptly outvoted on the most crucial decision that we faced. My ostracism has been peculiar, considering that I certainly haven’t lacked experience in setting CEO pay. At Berkshire, after all, I am a one-man compensation committee who determines the salaries and incentives for the CEOs of around 40 significant operating businesses.”
Warren goes on to wax about a pack mentality regarding executive compensation, which results in: “CEO perks at one company are quickly copied elsewhere. ‘All the other kids have one’ may seem a thought too juvenile to use as a rationale in the boardroom. But consultants employ precisely this argument, phrased more elegantly of course, when they make recommendations to comp committees.
Irrational and excessive comp practices will not be materially changed by disclosure or by an independent comp committee. Indeed, I think it’s likely that the reason I was rejected for service on so many comp committees was that I was regarded as too independent. Compensation reform will only occur if the largest institutional shareholders – it will only take a few – demand a fresh look at the whole system. The consultants’ present drill of deftly selecting “peer” companies to compare with their clients will only perpetuate present excesses.”
CD&As Pouring In
As the proxy season heats up, proxy statements are now being filed in droves (Mark Borges blogged about a bunch of them last night). This Temple-Inland proxy statement is noteworthy because they decided to write the entire CD&A in a Q&A format.
Shareholder Access: SEC Looks Abroad
The Financial Times reports that SEC Chairman “has commissioned a study of how Europe and other foreign jurisdictions handle shareholder voting rights as the regulator grapples with whether to relax rules allowing shareholders access to company proxy documents. The move will be welcomed by large European shareholder groups which have warned that the US risks falling behind in corporate governance standards and that limiting access to proxies could discourage foreign shareholdings in US companies.” Meanwhile, the European Parliament approved the “Proposal for a Directive on Shareholder Voting Rights.” And today’s Washington Post contains a blurb stating that the SEC may hold public hearings on access in the near future.
As an aside, one of the two outstanding shareholder proposals on access has been withdrawn at Reliant Energy; the proponent did not provide a reason for the withdrawal of the proposal. And ISS has backed the shareholder access proposal coming up for a vote at Hewlett-Packard.
March E-Minders is Up!
We have posted the March issue of our monthly email newsletter.
Tahir J. Naim of Fenwick & West provides this timely warning about a March 15 deadline from the California Franchise Tax Board: California’s Franchise Tax Board has implemented a program related to collection of its taxes for 2006 income recognized by certain taxpayers due to Section 409A that parallels the IRS program described in IRS Announcement 2007-18. The deadline for participation in this program is March 15, 2007.
It is the position of California’s Franchise Tax Board that, as of 1/1/05, California’s Revenue and Taxation Code Section 17501 automatically incorporated into California law the provisions (including the 20% tax and interest) of Section 409A of the Internal Revenue Code.
In other words, California taxpayers whose deferred compensation arrangements trigger the application of the federal 409A tax will also have a commensurate California tax liability for a total tax liability of at least 85% (federal = 35% + 20% + 1.45% + 409A interest + CA of 9.3% + 20% + CA 409A interest) on income which in at least some instances the taxpayer will not yet have received.
Executives who are “specified employees” (as defined in Section 409A) will want to pay particular attention to ensuring their severance arrangements include the 6-month delay on any payments that would trigger the tax under Section 409A (more broadly, this will also heighten the need of issuers with employees in California to have backing for the position that their stock option exercise prices are no less than fair market value of the underlying shares on the date of grant).
Although the law was effective with respect to 2005 income, it may be that California – like the IRS – will concentrate its focus on the collection of taxes arising in 2006 and thereafter. For example, it is only with California’s 2006 Form 540 that mention is made of 409A taxes (see the instructions to Line 33 of the form).
If you need more information, contact the California Franchise Tax Board at 916.845.7057. [And speaking of 409A, Corp Fin has issued its second tender offer prompt payment exemptive letter.]
Pay Bosses More! Gimme a Break…
I keep thinking we have seen the last of the WSJ opinion columns urging that CEOs be paid more. Wrong again! This recent opinion column from two senior fellows at the Cato Institute really takes the cake.
You know we are in for a laugher when the column starts off with the theme of: “Excessive executive compensation harms no one but perhaps the stockholders who put up with it.” Getting past that excessive compensation does indeed hurt employee morale (not to mention how leaders are viewed by many in this country, etc.), I don’t see how these senior fellows make their argument that “stockholders are putting up with it” with a straight face.
First, shareholders haven’t known how high levels of CEO compensation have really gotten because the SEC rules historically haven’t elicited the full compensation story from companies (these rules were changed last summer, but the new and expanded disclosures aren’t in quite yet). For that matter, most boards themselves didn’t know how much they are paying their own CEOs until tally sheets became a mainstream practice within the last year or so. As tally sheets have begun to be used for the first time, the “Holy Cow” surprise felt by the NYSE board in the Dick Grasso incident has proved not to be an isolated event.
Second, many shareholders simply aren’t putting up with it. Unfortunately, they have only limited tools at their disposal to try to effectuate change: submitting nonbinding shareholder proposals to companies to place on annual meeting ballots, and more recently, “just vote withhold” campaigns against director nominees. This soon may change as the movement to force annual shareholder advisory votes on executive compensation is gathering momentum on Capitol Hill (and with companies as Aflac just became the first US company to agree to do it in 2009).
With more disclosure in their hands and a vehicle to express dissatisfaction, I believe we will soon have pretty solid proof that shareholders don’t want to “put up with it”; they’ve just been stuck with it as boards continue to follow outdated – and ill-formed – processes that have led to mind-boggling compensation packages to CEOs. As I have long contended, I don’t believe most directors want to overpay CEOs – it’s just that the processes put in place over a decade ago led to some unintended results.
This cycle must end. It’s incumbent on boards to fix these problems and have some backbone to realize that layering on a few more million won’t really incentivize a CEO to perform just a wee bit more when the CEO is already sitting on a pay package worth tens of millions. Arguing otherwise doesn’t seem to be a logical read of human nature.
Deal Protection: The Latest Developments
Join DealLawyers.com tomorrow for a webcast – “Deal Protection: The Latest Developments” – and hear about the latest deal protection developments from Cliff Neimeth of Greenberg Traurig and Ray DiCamillo and Bill Haubert of Richards Layton.
No registration is necessary – and there is no cost – for DealLawyers.com members. Take advantage of our no-risk trial for this timely webcast.
At the top to the year, I blogged extensively about issues arising from tender offers for backdated options. One of the issues related to the “prompt payment” requirement in the tender offer rules (because new Section 409A of the Internal Revenue Code requires that any cash amounts paid in connection with an option repricing be paid in the year after the option repricing; a requirement which contravenes the SEC’s prompt payment rules).
Yesterday, Corp Fin’s Office of Merger & Acquisitions issued the first exemptive letter – to CNET Networks – relating to Section 409A and the tender offer prompt payment rules.
Rep. Frank Re-Introduces Legislation re: Shareholder Advisory Votes on Executive Pay
As noted in this press release, yesterday, House Financial Services Committee Chairman Barney Frank, joined by 21 other Representatives, introduced legislation that would require public companies to include a non-binding advisory shareholder vote on their executive pay plans on their ballots. The bill, H.R. 1257 – the “Shareholder Vote on Executive Compensation Act” – would not set limits on pay, but would allow shareholders to voice their approval or disapproval on the company’s executive pay practices through an advisory vote (then, the board would have discretion as to how to react to that vote).
The bill also would require a non-binding advisory vote if a company provided a new, not yet disclosed, “golden parachute” while simultaneously negotiating to buy or sell a company. This is a different formulation compared to the last time this bill was introduced; the former bill required shareholder approval of any golden parachute payments in an acquisition (ie. a binding vote).
A House Financial Services Committee hearing on this bill will be held next Thursday, March 8th. Rep. Frank said he expects House passage of this bill as soon as April…
General Electric Files Proxy Statement
In his blog, Mark Borges has been providing some detailed analysis of the proxy statement filed recently by General Electric (as well as other newly filed proxy statements).
When preparing financial statement footnotes and other disclosures, practitioners may need more than the guidance provided by FASB statements and SEC rules. They may also need information about other companies’ disclosures. By identifying and measuring the most common practices and variations of disclosures, this research can aid companies as they strive to improve the quality of their own disclosures. Based on a review of publicly available comment letters on the SEC website posted during the first eight months of 2006, this report provides a recap of reporting topics and trends and the most common comments made by the Staff. Categorization of each comment type included a review of each comment and, if available, the company response to the comments. Many of the key areas identified in the report (refer to the table in the executive summary) seem to be consistent with other information provided by the SEC.
Directors Harder to Recruit
As reported by Financial Week back in November: An executive from Korn Ferry estimated that 10 years ago it took roughly 90 days to fill a directorship; it can take up to 180 days these days. Of 391 new directors hired by S&P 500 companies, only 29% are active CEOs, a 38% decline from 2001. Meanwhile, the number of CFOs and other high-ranking execs among the new director hires jumped 67% over the same time period, and this year accounted for 15% of all new slots, according to executive search firm Spencer Stuart.
Shearman & Sterling’s 4th annual survey examines the corporate governance practices of the 100 largest US public companies, including these notable trends:
– Poison pills and classified boards continue to decline. The number of companies with poison pills fell by nearly 50% over the past two years and the number of companies with classified boards fell by over 30% in that same period.
– Of the 24 top 100 companies at which separate individuals serve as chairman and CEO, six have adopted policies requiring separation of the two functions.
– A majority of companies continue to exceed the minimum independent director requirements of the NYSE and NASDAQ. Independent directors continue to comprise 75% or more of the boards of the majority of companies.
– The number of board and committee meetings continues to increase. Given this increased time commitment, investors have focused on the number of boards on which directors serve.
We have posted the March-April 2007 issue of The Corporate Counsel since it contains practical guidance that pertains to proxy season issues that you may be grappling with. We are making an exception to our subscription license to allow you to forward this issue of The Corporate Counsel to whomever you think it will benefit (and tell them to try a no-risk trial to The Corporate Counsel print newsletter).
SFAS 159: More Fair Value Accounting
A few weeks ago, the FASB issued SFAS 159, which is a new standard that provides companies with the opportunity to report selected financial assets and liabilities at fair value. In other words, SFAS 159 allows companies to measure specified financial instruments and warranty and insurance contracts at fair value on a contract-by-contract basis, with changes in fair value recognized in earnings each reporting period.
The election, called the “fair value option,” will enable some companies to reduce the volatility in reported earnings caused by measuring related assets and liabilities differently, and it is simpler than using the complex hedge-accounting requirements in Statement 133 to achieve similar results.
Another Internal Controls Delay for Smaller Companies?
According to this article, Senators John Kerry (D-Mass.) and Olympia Snowe (R-Maine) have sent a letter to the SEC and PCAOB seeking another one-year delay in requiring small U.S. public companies to evaluate their internal controls of financial reporting.
Meanwhile, COSO announced that Grant Thornton has been commissioned to develop guidance designed to help organizations monitor the quality of their internal control systems.
A few months ago, Google announced a “Transferable Stock Option Program” that would allow employees to auction off vested options, as managed by Morgan Stanley. Last week, Google filed a Form S-3ASR that fleshs out what they intend to do. Now, Google is test driving the auction process using 20 pre-selected employees, with a full roll-out to other employees expected in April.
– Testing Phase – This prospectus supplement explains how Google’s “test launch” works. The test-driving employees receive 5 transferable options with different exercise prices, each with a strike price higher than Google’s stock price on the date on which the option is issued. During the testing phase, only one institution is able to bid on the options (in comparison, when the auction is “live,” there will has to be at least two competing bids before an auction is deemed complete).
– Full Roll-Out – Here’s an excerpt from the prospectus explaining how the auction likely will work:
“Options will be sold under the TSO program through an auction process in which a designated broker dealer will serve as auction manager. Currently, we have selected Morgan Stanley & Co. Incorporated to act as the auction manager. The auction will be operated through a secure internal online tool (the “TSO system”), which is accessible by participating employees. All participating financial institutions must be able to provide automated bids for all options in the TSO program on a continuous basis, updated approximately every 30 seconds while the TSO market is open.
Employees will use the TSO system to see the current highest bid price offered by the participating financial institutions for their vested options. During regular TSO market hours, the TSO system will continuously update to display the highest current bid price for each eligible option. All participating financial institutions will be required to bid on all of the options eligible for sale as a condition of participation in the TSO program, although the participating financial institutions may place zero dollar bids. A bid will be valid, at the time submitted by the participating financial institution, for at least 1,000 shares underlying options. A bid will remain in force until either the total available size of the bid is purchased at the bid price or a revised bid is submitted by the auction manager or a participating financial institution. Employees will receive the highest bid price at the time their market order is received, which may not be the same as the latest quote provided through the TSO system. No order may exceed 1,000 shares.”
President’s Working Group: Hedge Fund Regulatory Approach of Market Discipline
Last week, the President’s Working Group on Financial Markets issued guidelines on hedge funds that are intended to guide regulators as they address issues associated with private pools of capital, including hedge funds. The President’s Working Group is chaired by the Treasury Secretary and composed of the Chairs of the Federal Reserve, SEC and CFTC. As noted in this press release, the guidelines reflect an agreement between the Working Group and the regulators to use an approach of market discipline to protect investors rather than an approach of regulator’s doing more inspections or requiring more disclosure.
Wanna Buy a Hedge Fund – Cheap?
Search for “hedge fund” on Ebay. Bidding ends tomorrow and minimum bid is $70,000 (no bids made yet). This hedge fund – located in Switzerland – didn’t receive any bids the first time it was offered a couple of weeks ago. If you don’t want to buy a hedge fund, but would rather grow your own – you can find plenty of “How To” books on how to form a hedge fund. You too can have your own hedgie!
Recently, a number of members have asked about NYSE Rule 203.01, as they wonder why companies listed on the New York Stock Exchange haven’t been issuing press releases when they’ve filed their Form 10-K with the SEC (indicating that the 10-K is available from their website, etc).
As you might recall, last August, the NYSE amended its rules – to facilitate the SEC’s e-proxy initiative – that repealed the requirement that listed companies distribute a copy of the annual report containing financial statements to shareholders. As part of the rule changes, the NYSE amended Rule 203.01 to provide that listed companies must (1) post its Form 10-K on or through the company’s website, (2) state on its website that paper copies of the audited financial statements are available upon request and free of charge, and (3) simultaneously issue a press release announcing the filing with the SEC of the Form 10-K and stating that the Form 10-K is available on the company’s website.
However, the NYSE recently stated in its annual corporate governance letter to listed companies that a listed company will be deemed to satisfy Rule 203.01 if it distributes its audited financial statements in compliance with the SEC’s proxy rules (ie. “The Exchange will deem a domestic company that distributes its audited financial statements to shareholders in compliance with SEC proxy rules to be in compliance with the requirements of Section 203.01”). In other words, the NYSE clarified that a press release is not necessary if the company delivers a glossy annual report with financials to shareholders.
So most listed companies will not have to issue press releases when they file their Form 10-Ks. By the way, several companies have issued such a press release: Ryder Systems, Quicksilver, Krispy Kreme Doughnuts; Aspen Insurance Holdings Limited; Deere & Company; Building Materials Holding Corporation; and Pioneer Natural Resources Company. Thanks to Beth Ising of Gibson Dunn for helping to sort this quagmire out…
Last Minute Planning for the Proxy Season
We have posted the transcript for our webcast: “Last Minute Planning for the Proxy Season.”
The Promise of Transparency — Corp Fin in 2007
On Friday, Corp Fin Director John White delivered this speech entitled “The Promise of Transparency — Corporation Finance in 2007,” which covers a bunch of rulemakings, etc. that are in the Division’s “kitty” for the year.
My blogs on the Direct Registration System continue to generate a healthy dose of member feedback. Michael Kaplan of Davis Polk notes that there are some states (and countries) that don’t allow issuance of uncertificated securities – and some companies actually have charter provisions about this. For these companies, it seems that the exchanges will not require charter amendments – which would require a vote during this year’s shareholder meeting so long as the securities are DTC eligible. Michael also points out that IPO issuers should bear this in mind as they already are subject to the DRS eligible requirements of the exchanges.
Some members took the analysis a step further and asked why the exchanges were even bothering sending notices about uncertificated securities at all, as they view street name holders as essentially being in the same position vis a vis the company’s shareholder records. In their view, all that should matter is that the company has securities that are DTC eligible.
Highlighting that each state has a law that can be read differently, one member noted that I mentioned the language “each shareholder is entitled to a certificate” as potentially requiring certificates under a common sense reading. He notes that, under Ohio law, there is that specific “entitled to” language in the statute itself, which many companies repeat in their code of regulations (the Ohio equivalent of bylaws), yet language further in the statute specifically provides that, unless provided otherwise in their articles or regulations, a company can have uncertificated shares. So at least under Ohio law, the “entitled to” language shouldn’t be read to require certificated shares.
And Jane Whitt Sellers of McGuireWoods points out that Section 13.1-648 of the Virginia Code provides that, unless the articles or bylaws provide otherwise, the board may authorize the issuance of some or all shares without certificates. Jane believes that if you have a statute like Virginia’s that operates “subject to” whatever the bylaws or articles say, you must amend any existing provisions in bylaws or articles that require certificates before going to an uncertificated approach. And in our “Direct Registration” Practice Area, we have posted another sample by-law provision for those that may need to amend their by-laws.
An M&A Conversation with Chief Justice Myron Steele
We have posted the transcript from the DealLawyers.com webcast: “An M&A Conversation with Chief Justice Myron Steele.”
Chancellor Chandler Enjoins Caremark Special Meeting: Mailing Supplemental Disclosures
Last week, Chancellor Chandler of the Delaware Court of Chancery enjoined a stockholder vote on the pending merger between Caremark and Express Scripts until not earlier than March 9th. The Chancellor issued his decision because of the materiality of supplemental disclosures made by Caremark on February 12th, just 8 days before the stockholder vote scheduled for February 20th. We have posted a copy of the opinion in the DealLawyers.com “M&A Litigation” Portal.
Here is some analysis from Travis Laster of Abrams & Laster: The 8 days provided by Caremark was definitely towards the short end of the spectrum for supplemental disclosures, but it was not unprecedented. The Chancellor instead appears to have been influenced by the combination of the brief time period and the his view of the significance of the disclosures, which included “the revelation that Caremark has considered, on at least three separate occasions, potential transactions with Express Scripts.”
The Chancellor juxtaposed this disclosure with the Caremark board’s “present protestations that antitrust difficulties loom so large as to prevent the board of directors from even discussing an offer with an admittedly higher dollar value.” (Emphasis in original). The Chancellor also noted the materiality of Caremark’s disclosure that the CVS merger would extinguish stockholder standing to pursue derivative litigation regarding claims for stock option backdating. This statement comes on the heals of the Chancellor’s two recent and quite strong decisions criticizing stock option practices.
At 2 typed pages, the opinion is quite short and worth a first-hand read, particularly for deal counsel and litigators who frequently must consider whether – and when – to make supplemental disclosures.
After facing a shareholder proposal on the topic, Aflac has agreed to become the first major company in the US to give shareholders an advisory vote on executive compensation packages beginning in 2009 (the first year the company will have three years of comp data under the SEC’s new exec comp rules). Boston Common Asset Management had submitted the proposal last year. Here is a related Washington Post article.
At least 60 companies have shareholder proposals regarding “say-on-pay” for their shareholder meetings this year, up from seven last year. As Pat McGurn of ISS noted during our recent webcast on the proxy season (here is the transcript), these proposals are expected to average a majority level of support from shareholders this year.
Rep. Barney Frank (D-Mass.), Chairman of the House Committee on Financial Services, has been pushing a bill that would allow for advisory votes on executive compensation and he intends to hold a hearing on March 8th regarding strengthening the role of shareholders in setting executive compensation. Advisory shareholder votes on executive compensation are currently required in the United Kingdom, Australia, Sweden and the Netherlands.
More on Delaware Chancery Court’s Backdating Decisions
A few weeks back, I blogged about Delaware Chancellor Chandler two opinions in declining to dismiss complaints alleging backdating of options (in Ryan v. Gifford) and spring-loading of option grants (in Tyson Foods). In this CompensationStandards.com podcast, Megan McIntyre of Grant & Eisenhofer (the firm that is bringing some of these backdating suits) provides some insight into these decisions, including:
– What did Chancellor Chandler hold in these cases?
– What does this mean for companies with backdating issues?
– Do you think these two opinions portend that more executive compensation related lawsuits will be filed in Delaware?
Survey Results: Stock Option Grant Procedures
The NASPP recently wrapped up a very popular survey regarding option grant procedures. Below is an excerpt from the survey results, along with the other questions posed to NASPP members:
1. Who approves option grants to non-executives?
– Board of Directors – 18.1%
– Compensation Committee – 47.6%
– Committee of officers – 6.0%
– CEO – 20.5%
– CFO – 0%
– Other – 7.8%
2. When are grants to new hires (non-executives) approved?
– Once a week (at the same time every week) – 3.6%
– Once a month (at the same time every month) – 23.1%
– Once a quarter (at the same time every quarter) – 10.9%
– After earnings are released – 5.3%
– Before earnings are released – 1.0%
– Only during open window periods – 4.9%
– When the board meets – 13.0%
– When the compensation committee meets – 28.9%
– Other – 16.4%
– No set scheduled – 16.8%
3. When are other (not hire-related) grants to non-executives approved?
4. How have you changed (or are planning to change) your grant procedures in light of the back-dating scandal?
5. If you conducted an investigation of historical grant dates, what was the extent of your investigation?
6. For new-hire grants (where the grant date is not the hire date), what date is vesting based on?
7. Did your external auditors apply additional procedures to validate the income statement impact of option grants?
