Spring - Loaded Stock Awards
Posted on Jan 1, 2022 4:00am PST
Bless the SEC for they have recently promulgated new guidance for Spring-Loaded
Stock Awards (SLSA).In past years, executive stock compensation awards
or grants just prior to the announcement of significant event, while maybe
scrutinized, were never subject to enforcement action.They are now.
The trigger for this recent action by the SEC was the SLSA by Eastman Kodak
in 2020.The day before the announcement of a $765 million government backed
loan to produce drugs to combat COVID-19, the firm granted SLSAs to executives.Post
the public disclosure the stock jumped up by 12 times.
This new SEC guidance applies mostly to public companies, and will also
impact those poised to go public.The unstated principle is whether a private
company with many shareholders should be impacted.Compliance at the SEC
involves more about the valuation of the SLSAs prior to a positive, material
financial event.This valuation is to be premised on the anticipated stock
price which will result from the better-than-expected results or disclosure
of a major transaction.
The effect of this SEC directive is intended for public companies.At the
same time, how will shareholders of privately held firms respond when
they are not privy to the impending significant news event and/or not
part of the stock option grants?And will the Board of the private entity
bear any liability or even require a fairness opinion?Time will tell.