Depending on what the markets do next, underwater stock option exchanges could be poised for a big comeback. Exchange programs are already quietly on the rise, but the governance landscape isn't as forgiving as it was in 2008 and 2009. Before taking action, it's important to take stock of where your company stands in a number of critical areas.
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Underwater Stock Options Focused White Papers
There is a wealth of resources already available addressing the current underwater stock option environment. Most of this information, including Radford's own ongoing research includes an array of information on our Exchange Portal (www.UnderwaterExchange.com), focuses on offering an exchange program to employees that allow them to tender their underwater options for a specified lower number of at-the-money replacement options. As challenging as designing the tender offer may be, the subsequent accounting needs equal attention. This summary provides a roadmap for determining the appropriate treatment of the modified awards and associated incremental expense for Topic 718 accounting.
Written by Associate Partner Jon Burg, this Radford Review analyzes the underlying circumstances that make a company a good candidate for an underwater stock option exchange program. He examines in depth the key criteria that should be considered before a company explores offering an exchange; offers an example of an appropriate candidate; and provides additional Radford commentary. Click below to access this Radford Review.
A new NCEO issue brief explores concerns and strategies for equity compensation plans in a down market, including research on recent and best practices for option exchanges, accounting problems in the face of changing volatility patterns, issues for international plans, share availability concerns for employee stock purchase plans (ESPPs), ways to make ESPPs more effective, and how to communicate with employees about equity during a downturn.
Written by Brett Harsen of Radford, Michael Duncan of BNY Mellon Shareholder Services, Takis Makridis of Equity Methods, Dan Walter of Performensation, Ed Burmeister and Valerie Diamond of Baker & McKenzie, and Christine Zwerling and Corey Rosen the NCEO, this is the most comprehensive treatment of the subject available.
Shareholder-Approved Underwater Option Exchange Programs - A Study of Mutual Fund Voting Patterns White Paper
This timely white paper is a must-read for any company that is currently facing underwater stock options and considering an option exchange proposal to shareholders.
Written by Associate Partner Brett Harsen, this Radford Review explores the actual mutual fund voting patterns on underwater stock option exchange program proposals to identify voting results for specific investors, industry and timing considerations, as well as exchange approaches that were successful in garnering shareholder approval. He then outlines four key shareholder-friendly design features that, according to his research, were collectively instrumental in garnering investor approval. Click below to access this Radford Review.
Years after the technology boom of the 1990s and the economic downturn in 2001/2002, underwater options remain a common problem for technology and life sciences companies, but the business and shareholder environment has changed greatly in the interim.
Written by Associate Partner Brett Harsen, this white paper explores the three most common underwater exchange approaches, Options-for-Options, Options-for-Stock, and Options-for-Cash, and discusses the implications of each major design consideration. Citing from Radford's ongoing research, Brett reviews public companies that have implemented such programs, providing actual data on prevalent market practices. Additionally, Brett provides advice on program rollout, communication and administration. Click below to access this Radford Review.
Designed as an executive briefing for those companies facing underwater stock options, Radford's Partner Terry Adamson and Associate Partner Brett Harsen; Matt Martin, Advanced Micro Devices, Inc.'s Vice President, Compensation and Benefits; Latham & Watkins' Partner Joseph Yaffe; and Riverbed Technology Inc.'s Director Wendy Jennings present a panel discussion focusing on the key considerations for developing and implementing an underwater exchange program, including employee relations; shareholder considerations; SEC tender offer filing rules; and accounting treatment.
In this web seminar, you'll get the background, basics and actionable ideas for dealing with this issue including:
- Design and program structure
- Issuer considerations
- Regulatory and tax considerations
- Working with shareholders and proxy advisors
- Voting patterns on underwater exchanges put to vote
Michael Casey, Chair of the NASDAQ OMX Management Compensation Committee, moderated the panel consisting of experts in the areas of compensation, employee benefits and corporate governance: Brett Harsen, Associate Partner, Radford; Eric Hilfers, Partner, Cravath, Swaine & Moore; Patrick McGurn, Special Counsel, RiskMetrics Group.