Susan J. Daley Partner

Among the many tax issues implicated by separation arrangements are two relatively new developments that may require special attention when drafting offer letters, severance plans, release agreements, change in control arrangements and similar separation arrangements.  Employers should review their separation arrangements by year-end to address these new developments.

Perkins Coie is pleased to announce the publication of a new edition of the Executive Compensation Disclosure Handbook: A Practical Guide to the SEC's Executive Compensation Disclosure Rules, a publication written by Perkins Coie attorneys and published by RR Donnelley.

The Securities and Exchange Commission recently adopted final rules to require enhanced compensation and corporate governance disclosure for public company proxy statements and other SEC filings.  The final rules reflect changes that clarify, and in some instances broaden, the proposed rules issued on July 17, 2009.  The SEC designed these amendments to improve corporate disclosures and allow shareholders to make more informed voting and investment decisions.

The deadline is fast approaching for amending deferred compensation arrangements that are subject to Section 409A of the Internal Revenue Code.

The IRS recently issued Revenue Ruling 2008-13, which clarifies the IRS's new position with
respect to the applicability of the performance-based compensation exception for purposes of Section 162(m) of the Internal Revenue Code and grants transition relief to provide public companies an opportunity to review outstanding compensation plans, agreements and other arrangements in light of the IRS's new position.

The Securities and Exchange Commission recently reviewed the executive compensation disclosure of 350 companies under its new rules adopted in 2006. Following this review, the SEC issued comment letters to the companies reviewed and then issued a report that follows the general themes that run throughout these comment letters.

Last week the IRS issued Notice 2007-86, which delays until January 1, 2009 the deferred compensation final regulations of Internal Revenue Code Section 409A and generally provides expanded relief and guidance.  The IRS also separately issued Notice 2007-89, which generally extends for the 2007 tax year prior IRS guidance to employers and other service providers regarding reporting and withholding obligations for annual deferrals of compensation and amounts includible in gross income due to Section 409A violations.  This update summarizes key aspects of both notices and provides practical guidance.

On September 10, 2007, the IRS issued Notice 2007-78 providing limited relief and guidance for the deferred compensation tax rules of Internal Revenue Code Section 409A, including a limited extension until December 31, 2008 of the deadline to adopt documents that comply with Section 409A. This update summarizes the key aspects of the notice and offers practical tips for employers and other service recipients.

This week the IRS issued guidance on identifying "covered employees" for purposes of Section 162(m) of the Internal Revenue Code in response to the SEC's recent amendments to its executive compensation disclosure rules. This Update summarizes the key highlights from this IRS guidance.

Last week the IRS issued the long-awaited final regulations under Section 409A of the Internal Revenue Code, which generally provides that amounts deferred under a "nonqualified deferred compensation plan" are currently includible in taxable income if not subject to a substantial risk of forfeiture, unless the plan meets specified design and operational requirements. Failure to comply with the applicable requirements of Section 409A can result in significant income tax consequences, including a 20% additional tax imposed on the employee or independent contractor.

Perkins Coie is pleased to announce a revised version of the Executive Compensation Disclosure Handbook: A Practical Guide to the SEC's New Rules, a publication written by Perkins Coie attorneys that provides a complete, plain English explanation of the SEC's executive compensation and related disclosure requirements.

The Securities and Exchange Commission amended its new executive officer and director compensation disclosure rules in December 2006 and released Staff guidance on these rules in 2007. The substantial changes to the rules will likely increase the attention and scrutiny the SEC, investors and the public apply to proxy statements and annual reports during ongoing proxy and annual reporting seasons. The revised edition of the Executive Compensation Disclosure Handbook: A Practical Guide to the SEC's New Rules provides an overview of the most significant changes and requirements through mid-February 2007 under the new rules and guidance and offers practical advice to help companies understand, and comply with, the new disclosure requirements.

Perkins Coie is pleased to announce the Executive Compensation Disclosure Handbook: A Practical Guide to the SEC's New Rules. This handbook is the most practical, plain English guide available for public company management, directors and general counsel on the SEC's new requirements for public company disclosure and reporting of executive and director compensation and related issues.

The Securities and Exchange Commission just announced that it has amended its new executive officer and director compensation disclosure rules, effective immediately. The FASB requires companies to recognize the costs of equity awards over the period in which an employee must provide service in exchange for the award under Statement of Financial Accounting Standards No. 123 (revised 2004) Share-Based Payment. The new SEC amendments will more closely align the reporting of equity awards in the Summary Compensation Table and the Director Compensation Table to the amounts that are disclosed in the financial statements under FAS 123R.

The federal securities laws require clear, concise and understandable disclosure about the amount and type of all compensation paid to chief executive officers and other highly compensated executives of public companies. In recent years widespread and increasing interest in executive pay and the perceived inadequacy of current disclosure spawned frequent front-page headlines and heated rhetoric from members of Congress and shareholder advocates. The Securities and Exchange Commission recently adopted comprehensive amendments to its executive officer and director compensation disclosure rules. The new rules retain the combined tabular and narrative format, but attempt to elicit a clearer, more complete picture of all compensation paid to specified executive officers and to directors. The SEC also significantly revised disclosure rules for financial transactions and relationships between companies and executive officers, directors, significant shareholders, and their respective family members, as well as with respect to director independence and other corporate governance matters. Companies must make all disclosures under the new rules in plain English. These changes affect disclosures in proxy and information statements, annual and periodic reports, and registration statements, as well as Form 8-K reporting of compensation arrangements.

In the Delaware Supreme Court's recent opinion in the Disney case, Justice Jacobs provided better "best practices" advice for compensation committee decision making (and by analogy, board and other board committee decision making) than we may have seen in decades. The court also rejected the argument that making a decision in the absence of adequate information and deliberation amounts to bad faith.

The federal securities laws already require clear, concise and understandable disclosure about the amount and type of all compensation paid to chief executive officers and other highly compensated executives of public companies. In recent years widespread and increasing interest in executive pay and the perceived inadequacy of current disclosure spawned frequent front-page headlines and heated rhetoric from members of Congress and shareholder advocates.

Internal Revenue Code Section 409A, along with recent changes in financial accounting rules, has significantly increased the focus of private companies on accurately valuing their common stock for purposes of granting options and other equity incentive awards. Section 409A has upped the ante by imposing severe tax consequences on individuals for certain stock-based compensation that does not comply with the new deferred compensation tax rules, including stock options granted with an exercise price that is less than the fair market value of the company's common stock on the grant date.

The deadline is rapidly approaching for amending nonqualified deferred compensation plans subject to Internal Revenue Code Section 409A to reflect certain transition relief provisions provided by IRS Notice 2005 1. If your plan has taken advantage of any of the following forms of transition relief, it must be amended by December 31, 2005.

The IRS has issued proposed regulations that expand the guidance available for complying with the deferred compensation tax rules of Section 409A of the Internal Revenue Code. Section 409A generally provides that amounts deferred under a nonqualified deferred compensation plan are currently includible in income if not subject to a substantial risk of forfeiture, unless the plan meets specified design and operational requirements. Failure to comply can result in significant federal income tax consequences, including a 20% additional tax.

The Securities and Exchange Commission recently amended Rules 16b-3 and 16b-7 under the Securities Exchange Act of 1934, to clarify that Rule 16b-3 may be relied on to exempt officer and director securities transactions from Section 16(b) short-swing profit recovery, even if the transactions are not compensatory in nature, and Rule 16b-7 may be relied on to exempt stock reclassifications, even if they involve securities with different risk characteristics or change the percentage ownership of the holders.

The Delaware Court of Chancery recently rejected as inadequate a proposed settlement in a derivative action brought against directors and officers of the Fairchild Corporation. This Update highlights the key issues in the Court's rejection and offers practical guidance.

The SEC has adopted a new rule that delays required stock option and other share plan expensing under the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (FAS 123R), for most public companies until their first fiscal year beginning after June 15, 2005; the compliance date for small business issuers is their first fiscal year beginning after December 15, 2005.

On December 20, 2004, the Treasury Department and the Internal Revenue Service issued Notice 2005-1 providing the first installment of guidance for the deferred compensation provisions of the American Jobs Creation Act of 2004, which are contained in new Section 409A of the Internal Revenue Code.

In late November 2004, Alan Beller attracted a packed audience of attentive securities lawyers, in-house company counsel and accountants attending the Federal Regulation of Securities Subcommittee meeting at the American Bar Association's Business Section Fall Meeting in Washington, D.C. The topic? The latest on current and emerging securities law developments.

The FASB has published FASB Statement No. 123 (revised 2004), Share-Based Payment, which requires that the compensation cost relating to stock options, stock appreciation rights, restricted stock or units, employee stock purchase plans and other share-based payment transactions, measured based on the fair value, be recognized in financial statements. FAS 123(R) replaces FAS 123, Accounting for Stock-Based Compensation, and supersedes APB 25, Accounting for Stock Issued to Employees.

Congress recently approved the American Jobs Creation Act of 2004 (H.R. 4520), which includes provisions that impose significant new restrictions on deferred compensation. If these restrictions are not satisfied, deferred compensation amounts are taxable when vested and subject to tax penalties. President Bush is expected to sign the Act, but as of October 19th has not done so. This Update highlights the Act's key changes to deferred compensation requirements and offers practical guidance.

In August 2004, the Internal Revenue Service issued final regulations relating to incentive stock options (ISOs). Although the final regulations are similar to the proposed ISO regulations published last year, the final regulations contain important guidance and changes relating to a number of issues affecting ISOs.

The SEC's recent amendments to Form 8-K, which are effective for reportable events that occur on or after August 23, 2004, expand the number of reportable events and accelerate the filing deadline for most items to four business days. For events that occur prior to August 23, 2004, companies should analyze their reporting obligations using prior Form 8-K and report information as required under that version of the form (although Form 8-Ks filed on or after August 23 must use the new item numbers, even if the information reported corresponds to the requirements of the prior Form 8-K).

In response to an American Bar Association request for guidance, the SEC recently issued interpretive guidance and clarifications addressing equity compensation plan disclosure issues under Regulation S-K, Items 201(d) and 601(b). The SEC's interpretive guidance and clarifications included: Guidance on aggregation of narrative description and filing of non-shareholder-approved individual equity compensation arrangements; Treatment of a non-shareholder-approved amendment to add more securities to a shareholder-approved plan; Disclosure required for assumed equity compensation plans; and Proper location for the equity compensation plan information disclosure required by Item 201(d).