Presenting a live 110 ‐ minute teleconference with interactive Q&A Executive Compensation Tax Issues in Mergers and Acquisitions Navigating Tax Rules for Stock Options Deferred Navigating Tax Rules for Stock Options, Deferred and Equity Compensation, Golden Parachutes, and More THURS DAY, APRIL 11, 2013 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: S S tuart M Finkelstein Partner Skadden Arps Slate Meagher & Flom New Y tuart M. Finkelstein, Partner, Skadden Arps Slate Meagher & Flom , New Y ork ork Regina Olshan, Partner, Skadden Arps Slate Meagher & Flom , New Y ork Attendees seeking CPE credit must listen to the audio over the telephone. Please refer to the instructions emailed to registrants for dial-in information. Attendees can still view the presentation slides online. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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EXECUTIVE COMPENSATION, EMPLOYEE BENEFITS AND TAX ISSUES IN CORPORATE M&A TRANSACTIONS Presented by Stuart M. Finkelstein Regina Olshan Skadden Arps Slate Skadden, Arps, Slate, Skadden Arps Slate Skadden, Arps, Slate, Meagher & Flom LLP, Meagher & Flom LLP, New York New York
6 2. Post-Signing/Pre-Closing M&A TIMELINE 4. Post-Closing 1. Pre-Signing 3. Closing
7 PRE-SIGNING 1.
1. PRE-SIGNING A. Structuring the Deal B. Conducting Diligence C. Negotiating the Transaction Document D. Considering Retention/Employment Arrangements 8
9 A. Structuring the Deal
1. PRE-SIGNING A A. Structuring the Deal St t i th D l Transaction generally may be structured as a stock purchase/reverse subsidiary merger or asset acquisition and may be taxable or tax free subsidiary merger or asset acquisition and may be taxable or tax-free Treatment of target’s outstanding equity awards In stock acquisitions outstanding equity awards are usually In stock acquisitions, outstanding equity awards are usually assumed/substituted; more rarely, cashed out and canceled In an asset transaction, outstanding awards generally remain subject to the seller’s equity plan, and there is a termination of employment of seller’s seller s equity plan, and there is a termination of employment of seller s employees for purposes of equity plan Employees generally are given a specified period post-closing in which to exercise stock options; other awards generally terminate upon the termination of p ; g y p the employees’ employment at the closing of the transaction. 10
1. PRE-SIGNING A A. Structuring the Deal St t i th D l The most common types of awards that may be outstanding at target include: Stock options: A right to purchase shares of company stock at a specified price, generally referred to as the “exercise price” Stock appreciation rights (SARs): A right to receive a cash payment based on the excess if any of the value of company common stock on the on the excess, if any, of the value of company common stock on the exercise date over the value of the stock on the grant date Restricted stock: Grant of shares of company stock subject to vesting restrictions restrictions Restricted stock units (RSUs): The right to receive a share of stock (or cash value of a share of stock) upon vesting or a later date 11
1. PRE-SIGNING A. Structuring the Deal: Treatment of Equity Awards A St t i th D l T t t f E it A d Considerations for determining treatment of equity awards: g q y business decisions/use of cash dilution of acquiror’s shareholders prevalence of out-of-the-money options l f t f th ti ability to achieve retention benefits through continuation of awards terms of the applicable equity compensation plans legal compliance issues raised in diligence legal limitations (e.g., consent requirements, substitution limitations) Section 280G golden parachutes and potential gross-ups g p p g p administrative burden considerations: equity tracking, employee communications, accounting, SEC registration international compliance 12
1. PRE-SIGNING A A. Structuring the Deal: Treatment of Equity Awards St t i th D l T t t f E it A d Determine type and scope of outstanding equity awards; identify key holders and Determine type and scope of outstanding equity awards; identify key holders and terms of outstanding grants (e.g., vested versus unvested) Determine whether the underlying equity plan permits or frustrates the proposed treatment of outstanding awards g Assumption or substitution of equity awards permitted? Cash out of outstanding awards permitted? Acceleration required? Ability to cancel awards without consent, particularly out-of-the-money options? Notice requirements and/or ability of option holders to exercise? If the desired treatment is not permitted under the terms of the equity plan, the target may need to obtain consents from award holders prior to the closing 13
1. PRE-SIGNING A. Structuring the Deal: Treatment of Equity Awards A St t i th D l T t t f E it A d Determine whether treatment of equity awards should vary by type of equity award Determine whether treatment of equity awards should vary by type of equity award, holder or based on vested status or exercise price (compared to per share price applicable in the transaction) Should options, SARs, restricted stock and RSUs be treated differently (e.g., one or more types of the target’s outstanding equity awards may be inconsistent with acquiror’s employee equity program)? Should employee-held equity awards be treated differently from awards held by non-employee p y q y y y p y directors/consultants? Should certain key employee equity awards be treated differently than equity awards held by employees generally? Does the plan allow for such disparate treatment? Should vested and unvested stock options be treated differently? If permitted by the terms of the applicable target plan, should in-the-money stock options be treated differently from out-of-the-money options? 14
1. PRE-SIGNING A A. Structuring the Deal: Equity/409A Considerations St t i th D l E it /409A C id ti Review of Section 409A Review of Section 409A Section 409A of the Internal Revenue Code governs the timing of elections to defer compensation, the timing of distributions of deferred compensation and the reporting and taxation of deferred compensation the reporting and taxation of deferred compensation. Amounts are generally considered to be deferred if an individual obtains a legally binding right in one tax year to receive compensation in a later tax year. g y g g y p y A violation of Section 409A may result in immediate inclusion in income of the vested deferred amounts and penalty taxes and interest to the employee and may also result in penalties for reporting and withholding violations by the may also result in penalties for reporting and withholding violations by the service recipient company. 15
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