Alan Dye and Peter Romeo and Section 16 (b)

Below is something that Alan Dye of Romeo and Dye apparently stated as to how companies may adjust their grant Agreements to deal with the SEC Staff opinion expressed in the Q and A #123.16.

"(6) Issuer Discretion To Disallow Stock Withholding, Surrender, Or Delivery May Call Into Question Availability Of Rule 16b-3(d)."

"The (SEC) staff has taken the position that a net exercise or tax withholding transaction that is subject to issuer discretion would require specific approval of individual transaction in order for the Rule 16b-3(e) exemption to be available. See Compliance and Disclosure Interpretations, Exchange Act Section 16 and Related Rules and Forms, Q. 123.16 (May 23, 2007)."

"Apparently the staff is concerned that the issuer's discretion means the board or committee delegated to management the decision whether to approve withholding, rather than making the decision itself. Issuers might consider assuring the availability of the exemption by:

(i) eliminating the discretionary feature and making the right entirely elective on the part of the insider,

(ii) having the administering committee adopt a resolution providing that withholding is permissible unless the committee (not management) concludes that it should not be permitted in a particular case, or

(iii) having the committee establish clear guidelines for management's disallowance of withholding, so that the decision by management is ministerial rather than discretionary


So Alan Dye was telling executives to design Compensation Plans giving complete discretion to executives as to the method of paying the exercise price or taxes. But having complete discretion by the executive requires the company (issuer) to have no discretion. This puts the issuer in a worse position than the market trader without any inside information. And that type of discretion on the part of the executive is clearly comprehended within the purpose of section 16 (b) of the Securities Act of 1934.

I do not know if Romeo and Dye still hold the same view as to whether discretionary dispositions by the executive or by the issuer are exempt. 


Edited Thu, Jun 7, 2018 11:03 AM

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