The Advisors' Blog

– Broc Romanek

Here’s a practice tip from Hunton Andrews Kurth’s Tony Eppert that could help increase the life expectancy of the share reserve under its shareholder-approved equity incentive plan. Here are Tony’s thoughts to consider when implementing an inducement grant program:

– Will the use of inducement grants with respect to new hires be used on a regular basis or on an ad hoc basis? If the former, consider drafting an inducement plan document with form of award agreements. And if the use of inducement grants will be on an ad hoc basis, then stand-alone inducement grants could be approved because the formality of a “plan” is not needed.
– Consider filing a Form S-8 to register the shares subject to the inducement grant (i.e., every “offer” of a security must either be registered or subject to an exemption).
– However, if the inducement grant consists of restricted stock and the use of this inducement grant exception is intended by the issuer as a one-time event (or infrequently), then consider whether the “bonus stock exemption” could be utilized in lieu of filing a Form S-8. Under the “bonus stock exemption,” restricted stock could be treated as if it were registered stock if certain conditions are satisfied. See SEC Release No. 33-6188, SEC Release No. 33-6281 and a series of SEC no-action letters. However, a drawback of the bonus stock exemption is that “affiliates” would be subject to Rule 144 resale restrictions (though the holding period should not apply because the shares are not deemed “restricted securities”).

Here’s my ten cents. Remember that ISS closely scrutinizes these types of awards…