Category Equity Compensation Plans

Equity Plan Proposal Update – 9/11/09-9/30/09

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Sorry for the delay in posting this, but things are starting to get busy as more companies turn to preparing for asking shareholders to approve shares for their equity plans next year.  Below you’ll find details about the equity plan proposals submitted by Russell 3000 companies during the period 9/11-30/2009. I’ve included their name, plan name, proposal type (New = new plan being proposed, Amend = amendment of existing plan, and A&R = an amendment and restatement of an existing plan), the scheduled shareholder meeting date, and the % of Common Shares Outstanding (net new shares) represented by the share request:

Company Plan Name Proposal Type Sh Mtg Dt % of CSO
Allis-Chalmers Energy Inc. 2006 Incentive Plan A&R 11/6/2009 8.18%
Archer Daniels Midland Co. 2009 Incentive Compensation Plan New 11/5/2009 4.67%
Cell Therapeutics 2007 Equity Plan Amend 10/20/2009 8.04%
Cisco Systems Inc. 2005 Stock Incentive Plan A&R 11/12/2009 3.61%
First Marblehead Corp. 2003 Stock Incentive Plan A&R 11/16/2009 4.03%
Harris Stratex Networks, Inc. 2007 Equity Plan A&R 11/19/2009 9.17%
Hi Tech Pharmacal Co. Inc. 2009 Stock Option Plan New 11/12/2009 4.23%
Huntsman Corp. Stock Incentive Plan Amend 11/4/2009 4.64%
II-VI Inc. 2009 Omnibus Incentive Plan New 11/6/2009 5.42%
KLA Tencor Corp. 2004 Equity Incentive Plan A&R 11/4/2009 6.44%
LSI Industries Inc. 2003 Equity Compensation Plan Amend 11/19/2009 7.28%
Matrix Service Company 2004 Stock Incentive Plan Amend 10/23/2009 4.20%
Mercury Computer Systems Inc. 2005 Stock Incentive Plan A&R 10/21/2009 6.38%
Meredith Corp. 2004 Stock Incentive Plan A&R 11/4/2009 7.74%
Myriad Genetics Inc. 2003 Employee, Director and Consultant Stock Option Plan Amend 11/5/2009 3.12%
Oplink Communications Inc. 2009 Equity Incentive Plan New 11/4/2009 6.81%
Parker Hannifin Corp. 2009 Omnibus Stock Incentive Plan New 10/28/2009 3.42%
Saba Software Inc. 2009 Stock Incentive Plan New 11/18/2009 10.41%
Western Digital Corp. 2004 Performance Incentive Plan A&R 11/11/2009 6.44%

Some observations about these plans:

  • I’ve noticed that a few companies that amend an existing plan choose to only put the plan language that was amended into their proxy.  That is fine if they want to save space and thus fees associated with printing and distribution of the proxy. However, it does make it more difficult for shareholders to find the existing plan document to be able to understand the amendments in context of the broader plan.  So, if a company wants to save money and only include the amendments, they could make it easier for their shareholders to find the plan by posting their plans on their website, something akin to what they do know for their corporate governance documents. Having done so, they could then simply include a simple line in the text of the proxy proposal indicating the URL where the entire plan (possibly marked to show the changes?) can be found on the company’s website.
  • It is almost a dead tie in these plan proposals for treatment of Full Value Awards (awards other than stock options or stock appreciation rights that are setlled in stock) – about half set no limit on the number of shares that can be granted as Full Value Awards, while the other half used a Flexible Share Pool approach (stock options and SARs count as 1 against the plan’s share authorization while Full Value Awards count at a higher rate against the share authorization). Of course, there was one company that opted to use a good old fixed limit on the number of shares that can be granted as Full Value Shares (let’s hope they don’t end up with too many left-over stock options that they can’t use).
  • At least one company appears to be setting things up to utilize the RiskMetrics’ exemption for in-the-money stock options that have been outstanding greater than 6 years.  Another company that has provided such disclosure was the Walt Disney Company.
  • It looks like a couple of these companies failed RiskMetrics’ Burn Rate Test and had to commit to maintaining their burn rate at a set level for the next 3 years as this was set out in the plan proposal.
  • At least one plan has no limit on Full Value Awards and yet was written so that liberal share counting was prohibited (not typically necessary under the RiskMetrics ISSue Compass model and SVT Cost Policy).  This could cause the plan to run out of shares sooner than if such language was included.

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Plan Proposal Roundup – Week of 9/7/2009

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Looking at the proxy statements that were filed last week (9/7/2009), here are the new plans and amendments that I found (Company, plan name, (date proxy filed) and [share request as a percent of Common Shares Outstanding as of the record date/disclosed in the proxy or 10-K or latest 10-Q]):

New Equity Compensation Plan Proposals

  • Avalon Holdings Corp., 2009 Long-Term Incentive Plan (9/9/2009), 34.2%
  • Phazar Corp., 2009 Equity Incentive Plan (9/10/2009), 11.9%
  • Secure America Acquisition Corp., 2009 Stock incentive Plan (9/9/2009), 9.6%
  • Stone Tan China Acquisition Corp., 2009 Incentive Plan (9/8/2009), 6.1%
  • Sysco Corp., 2009 Non-Employee Directors Stock Plan (9/11/2009), 0.1%
  • Winn Dixie Stores Inc., 2010 Equity Incentive Plan (9/8/2009), 11.2%

New Equity Compensation Plan Amendment Proposals

  • Angidynamics Inc., 2004 Stock and Incentive Award Plan (9/9/2009), 3.1%
  • Arcadia Resources, Inc., 2006 Equity Incentive Plan (9/9/2009), 6.1%
  • Access Integrated Technologies, Inc., 2000 Equity Incentive Plan (9/11/2009), 4.6%
  • Blue Coat Systems Inc., 2007 Stock Incentive Plan (9/8/2009), 5.0%
  • Brigham Exploration Co., 1997 Incentive Plan (9/9/2009), 12.0%
  • Concurrent Computer Corp., 2001 Stock Option Plan (9/11/2009), 6.0%
  • Cowen Group, Inc., 2007 Equity and Incentive Plan (9/10/2009), 7% of post-transaction CSO
  • Gulfstream International Group Inc., Stock Incentive Plan (9/9/2009), 10.1%
  • Matrix Service Co., 2004 Stock Incentive Plan (9/11/2009), 4.2%
  • Noble Corp., 1991 Stock Option and Restricted Stock Plan (9/11/2009), 1.4%
  • Oragenics Inc., 2002 Stock Option and Incentive Plan (9/10/2009), 8.3%
  • SCM Microsystems Inc., 2007 Stock Option Plan (9/10/2009), 8.0%
  • Sysco Corp., 2007 Stock Incentive Plan (9/11/2009), 4.2%

Some interesting items from these plan proposals:

  • At least two of the plans (1 new and 1 amendment) use a flexible share authorization; the amended plan is seeking to change the Full Value Award Count from 1.5 shares to 1.25 shares (their stock options are now worth more relative to their stock price than when the plan was first put in place);
  • Several of the proposals were on proxies that also had proposals that would impact the share proposal in some way, e.g., proposals to increase the total number of authorized common shares. A number of these proposals explained the implications for the plan proposal if these other proposal(s) were and were not approved;
  • At least one of the plans uses an evergreen type provision so that the share authorization is equal to the lesser of (i) a fixed number, or (ii) a percent of the common shares outstanding at any time;
  • A couple of these companies had multiple classes of stock, and the second class of stock typically had a higher number of votes per share. Therefore on a vote dilution basis, the dilution from some of the  above proposals would be lower;
  • At least one amendment including adding Fidelity requirements, e.g., the 5% of the plan’s shares carve-out pool to permit awards to be granted not in compliance with the Fidelity requirements;
  • One of the proposals included a rolling 3-year burn rate limit of 1.5%. Most likely this was needed it in order to overcome RiskMetrics Group’s Burn Rate policy which would have otherwise caused a negative RMG vote recommendation against the proposal.

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CEPI Issues Draft Report on Global Stock Plans

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Last week, the Certified Equity Professional Institute (CEPI) at Santa Clara University released a draft version of its 2009 research project – GPS | Global Stock Plans. “GPS” stands for Guidance, Procedures, and Systems. The draft research report is open for public comment until September 30, 2009

The report covers several different areas of global plan design and administration, and includes “Action Items” at the end of each section to emphasize what a company should consider from a global plan perspective. Several charts laying out processes and responsibilities are also included. Also includes a glossary of common equity compensation terms in the Appendix.

Some of the suggestions detailed in the report include:

  • Undertake country-specific due-diligence to understand the cost of a plan before making final design decisions;
  • Any equity plan should incorporate flexibility to accommodate the needs of non-US locations;
  • Determining the local legal and filing requirements for plan awards;
  • Following global plan “best practices” in order to ensure a plan operates and functions better.

You can find a copy of the report at:

www.scu.edu/business/cepi/gps_draft_releases.cfm

For more information about the CEPI, visit its website at:

www.scu.edu/business/cepi/

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New Plans/Amendments Week of 8/31/2009

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Looking at the proxy statements that were filed last week (8/31/2009-9/6/2009), here are the new plans and amendments that I found (Company, plan name, (date proxy filed) and [share request as a percent of Common Shares Outstanding as of the record date/disclosed in the proxy or 10-K or latest 10-Q]):

New Equity Compensation Plan Proposals

  • Acies Corp., 2009 Stock Incentive Plan (9/3/2009) [13.5%]
  • Cryoport, Inc., 2009 Stock Incentive Plan (9/1/2009) [25.7%]
  • Commonwealth Biotechnologies Inc., 2009 Stock Incentive Plan (9/1/2009) [12.2%]
  • Conolog Corp., 2009 Stock Incentive Plan (8/31/2009) [43.4%]

New Equity Compensation Plan Amendment Proposals

  • Cell Therapeutics Inc., 2007 Equity Incentive Plan (9/4/2009) [8.3%]
  • API Nanotronics Corp., 2006 Equity Incentive Plan (9/4/2009) [10.2%]
  • Cree Inc., 2004 Long-Term Incentive Compensation Plan (9/4/2009) [3.3%]
  • Briggs & Stratton Corp., Incentive Compensation Plan (amended & restated) (9/3/2009) [13.6%]
  • Joe’s Jeans Inc., 2004 Stock Incentive Plan (8/31/2009) [6.6%]

Conolog Corp.’s proposed plan is not only notable for the significant dilution it represents, but it is quite possibly the shortest equity compensation plan I’ve ever read — all four articles of it.

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