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July 30th, 2010
Volume 3, No. 7

In this Issue:

Keeping Up With SOS

Webcasts on August 26th - Performance Plans

SOS Employment Opportunities

M&A: Processing

Product Spotlight: SOS 6039 Services & Solutions

SOS Across Our Desk

SOS Xposé

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Latest Webcast Materials from BOTH of our July Presentations:

Hey Wait, Wasn't I Supposed to be Rich by Now?: Communicating Value to Private Company Stock Plan Participants:
Presented on July 21st



Employee Education on a Shoestring Budget: How to Get it Done within Your Limited Means:
Presented on July 22nd



SOS Employment Opportunities
From the SOS Library:

Electronic Delivery of Section 6039 Participant Statements

A recorded demo of "Email Xpress", the SOS automated solution for emailing participant stock plan confirmations and statements, is now available:

Email Xpress Demo

Our Services:

People Solutions

Data & Technology Solutions

Strategic Solutions

Contact Us:


Ideas or Questions:

Do you have ideas for our next newsletter or webcast? Topics you're dying to see addressed but haven't yet? Please send us an e-mail with your ideas to:

Keeping Up with SOS

"Conference season" seems to be year-round for equity compensation. Just when we'd finished preparing for/presenting at the last round of annual, the next spate of submissions is due. At SOS, we make our best effort to attend and present at as many industry conferences as possible. So we thought we'd take a moment to remind you of just a few of the conferences that SOS will be attending and presenting at this year. We hope that you'll take a moment to stop by and chat with us, we love to talk shop!

The SF NASPP All-day Conference on August 11. SOS will join Pam Ellis of Solium Capital and Wendy Jennings of Riverbed Technologies to discuss the revised Section 6039 requirements.

The SF GEO Meeting on September 2. Elizabeth Dodge of SOS, and Dan Walter, of Performensation will present "Internet, The Next Generation: Leveraging Web Tools in Stock Plans".

The NASPP National Conference: September 20th-23rd in Chicago. SOS will present at three different sessions and the pre-conference session "Practical Guide to Performance-Based Awards":

Elizabeth Dodge, CEP
Vice President
Stock & Option Solutions

Need an easy way to stay up-to-date on industry news? Follow us on Twitter or become a fan on Facebook.

Free Webcast:

Performance Plan-tastic: Handling the Perks and Pitfalls of Performance

August 26th, 2010

Click here to register.

Please join us for our next free webcast on August 26th at 11am Pacific Time, 2pm Eastern Time.


Are you currently wrestling with performance shares? Or are you still just dreading the day that management gently informs you that they've just implemented a performance plan? And praying that it's not a broad-based plan with insanely complicated goals and metrics?

Whichever camp you're in, our expert panel will review some of the challenges inherent in performance plans, some common (and some unusual) designs we're seeing in the marketplace, cover the accounting treatment, and give you tips to tackle and handle your performance plans and still have time for your day job and maybe even a life outside of work.


(One hour of Certified Equity Professional continuing education credit is available for attending. See the CEPI website for more information on CEP continuing education requirements.)

SOS Employment Opportunities

As we hit the year's midway point, and the economy continues its recovery, we've seen a rapid and continuous increase in the demand for qualified equity compensation professionals to meet our clients' and partners' needs. We are currently seeking excellent candidates interested in day-to-day stock adminstration, or high-level consulting with the SOS Team, as well as those looking for change of scenery through our temp-to-perm and direct placement services.

To learn more about these exciting opportunities, please click here.

M&A: Processing

The second in a three part series on Mergers & Acquisitions

Last month we talked about due diligence, the questions to be asked, and many of the things you should be considering once your company has decided to acquire / or to be acquired by another company. Read more from last month's topic: Due Diligence for Mergers and Acquisitions.

We continue our second in a series of three by addressing the common processes involved when it comes to updating the system of record with the people and awards impacted by the terms of the acquisition.

Probably one of the most challenging areas that you will face during the M & A process is that of integrating data between systems. As we mentioned earlier timing issues are key and you will have come up with a plan during those integration meetings. You can choose to defer the consolidation and run parallel systems for a period of time or to do the consolidation immediately following the close.

During those discussions you will be looking at rational for this decision:

If you run parallel you will have some financial reporting challenges, because you now have two platforms, two different systems and two places to ensure imports are properly imported and necessary updates are made. On the positive side there is little disruption from the employee perspective. If, on the other hand, you do an immediate consolidation (a more common approach) then you will be asking management for and hoping for a trading blackout period. Some companies may be okay with a short black out due to the merge but if they are not, and trading is allowed for the entire close period then you will have reconciling items which are a challenge. The good news is that the financial reporting will be simpler and of better quality because all the data is in one place. In either case, weigh the risks, and discuss with the integration team what other departments are doing and come up with the solution that best suits your company's goals.

At this point you have done much due diligence, gathered information and gotten to know the acquisition team both internally and your counterparts from the target company. The closing date is fast approaching. Do you know what you need to do once you have an official close? Have you worked out a detailed project plan so that you know step by step what is happening, when and by whom? Have you performed a test run? If you have done all of this then you are ready for what's next. Closing Day!

The closing activities are all about timing and execution. It is not uncommon to have an accelerated timeline relative to your test run [what does this mean?]. Even if you have performed all the steps previously discussed, be sure to expect some tweaks from what you learned during your test run and phase. As the company being acquired, it's time to close out plans and systems, accelerate and or convert awards, reconcile, reconcile, reconcile and assist in the consolidation process. If your company is the one doing the acquiring, then chances are that you will be the one consolidating data from the target company with your own. How will you get everything loaded into your system, give new employees access to their converted awards and ensure that everything reconciles from the original source - before the exchange ratio has been applied through the post integration, will the forecast be right, can you account for differences? There is a lot to be certain of, so between the due diligence phase and the closing events, your best chance for success is to outline how you will address the following items:

  1. New employees - Scrub the target company system for names, address completeness, employee ID sequences, employee tax rates, year-to-date taxes , leave of absence data, and special fields that you will want to retain for reporting purposes that easily identify these new employees, if any.

  2. Terms of the deal - If accelerations and cash outs are part of the deal, these must be completed first. Know who is responsible for completing that step - target administrator or buyer? This can be tremendous time killer if not planned for properly. Consider proper taxes on releases or cash outs, what is the system of record for taxes? How are Non-US locations, Non-Employee Directors taxed? How will you prepare and deliver the confirmation of these transactions? Reconciling following the acceleration and cash out is no easy task. Much forecasting has taken place to determine what those end numbers are, when the final day hits, be sure you can track back to those numbers or explain where differences occurred.

  3. Converting Data - If no accelerations are involved and the company is converting only the outstanding grants and awards, then how do you convert and get those converted records into your system? What is the change (if any) to the remaining vesting period? To prepare you will want to do a data review and audit. Several things you want to identify before you begin:

    a) What is the system of record from which the grants and awards are coming? Is it the same platform you currently use or something new? Do you have a manner to upload these records to your system and what are the requirements of your system to do that? It's customary to perform a gap analysis to ensure that you can get what you need out of the target system and to determine how you will fill in those items you cannot extract (if any) when the time comes. Think in terms of accounting for these new grants and awards and what information will be required from current system to the new system. How will you get that information into your final file if it doesn't come out as a part of the extract? In addition to the grant detail, don't overlook the new employee detail. If employee addresses lack completeness, how will you be filling in those gaps? Will the new employees be retaining their existing employee ID or will you need a mapping table to get them loaded in the system?

    b) Will you be able to use the target system to apply the conversion ratio or bring it all over and perform a cancel / regrant? If not, you will have to manage the conversion outside the system, so consider each step in the process carefully, what must happen before you extract the data (if anything), and how will you reconcile the conversion of the data back to what accounting has forecasted?

    c) Can the records be extracted to include pertinent data: employee name and ID, grant ID, vesting schedule, vesting schedule adjustments, grant date, Plan ID, price, FMV and special fields that have been previously used for reporting purposes that you may want to bring over?

    d) What is the grant ID sequence? If you already have that sequence in your system, you will need to assign a new grant ID (and even if not, you may want to consider new numbers). Have you considered the best approach from an employee perspective as well as from an accounting perspective? You can help your new employees by using part of the existing number and perhaps adding a prefix for accounting (if space allows). This gives you and your employees a way to quickly and easily identify acquired grants on every report and communication.

    e) Plan details: Because you are acquiring new grants and awards, before you can load the grants / awards you will also need to set up the acquired plan. This may involve several plans or a single one, depending on what is acquired and/or assumed. You will have naming convention to determine as they could be the same as your company plan ID names - especially common when named after a year - 2009 etc. What are the terms of the plan? Hopefully by now you have read the plan and understand what can be issued, what happens at termination and so forth.

    f) Section 16 Officers and Directors: Know who they are and know what their role will be if they are to remain on board. Identify all special handling both in the system and outside the system. Review forms filed and what is going to be necessary going forward.

  4. Post conversion communications - How will you provide statements to your new employees, showing them how the original grant or award changed? Providing the employees with a Pre-statement from the original system along with but a good communication plan around what is reflected on the post statement is equally important. Having both pieces of information is even better. A statement that shows pre- and post-conversion grants side-by-side is the optimal tool. We've worked with several clients to build these statements and they really simplify communication and reduce confusion.

  5. The final data integration is the result of all of these items and more having been thought carefully through and understanding the tools you will need to help you accomplish the tasks at hand. Will you need IT support to pull information in the target company database? Will you need to split grants to ease the accounting process? Vested shares at acquisition are accounted for as part of the purchase price of the company, but if they are vested and outstanding do you have a way to identify those shares while expensing the unvested portion properly going forward? Depending on the systems involved you may need to prepare custom reports to get the information from the system as well as to properly account going forward. Plan for these items ahead of time. If you have used the target system to apply the ratio, before preceding you must be fully reconciled. How does this conversion line up to the forecast? Once complete - extract the converted data prepare the mapping document. The mapping document will take from the target company all the pertinent details and map to the new fields in the new system or communicate where a particular field has changed - such as the employee ID, grant ID, Plan ID and so forth. You will need to have mapping for grants and employees. Once the mapping is set and scrubbed for changes then you will be ready to load the data.

  6. Set up the Plan and load your new employees. After reconciling the new employees then you will be ready to load the grants.

  7. Reconciliation - The next item of consideration will be the reconciliation process: what tools do you have in place to ensure that you can really reconcile that data. Depending on the decisions made about the approach - reconciliation can be a real challenge. Consider that you are only bringing in the Outstanding - then the vesting recon will need special attention to make sure the grants vest properly.
Next month: M&A: After the Dust Settles

Laura Reis, CEP, Director
Stock & Option Solutions

Laura Reis joined Stock and Option Solutions, Inc. (SOS) in January 2006. As Director for Data Solutions her responsibilities are centered on the management and hands-on application of system changes for specialized projects where changes to data are integral to overall success of the project. Previous projects include reconciliations following data conversions or upgrades, grant accelerations, working with restatement clients, curing 409A grant issues in addition to supporting clients' needs with respect to process improvements and best practices. Before joining SOS, Laura spent 10 years managing the Stock Plan Administration departments for various high tech companies in the San Francisco Bay Area. She has worked for both public and private companies within the high tech industry and worked as a consultant for a couple of years where she focused on training stock plan administrators for daily administration.

Since Laura began her equity compensation profession, she has supported the SF Chapter of NASPP in various roles including Secretary, Director and Chapter President. She has also volunteered from time to time for the CEP Institute.

Laura began her career in 1995 as junior administrator and received her CEP designation in 1997. She earned a BA in Sociology from the University of Northern Colorado.

Product Spotlight: SOS 6039 Services & Solutions

Our line of 6039 solutions and services will simplify your life, save you time and reduce your company's risk by helping you comply with the newly revised Section 6039.

Participant Communications
These new forms, soon to be released by the IRS, must be sent to participants for ISO exercises and ESPP purchases that occurred in 2010 by January 31, 2011.

Substitute forms and aggregate forms are allowable, so forms can be tailored as requested1, for an additional cost.

  • Form 3921 - ISO Exercises
  • Form 3922 - 423 ESPP Transfers2
Methods of Delivery
In-house Software
Customized Crystal Reports templates are installed into your in-house software, allowing you to print these statements just as you would other year-end statements.

To print or email these statements to your participants, our MS Access-based application, SOS 6039 Xpress, can be deployed at your company site. Transaction data is retrieved or exported from your stock plan database. The 6039 Xpress application formats the data, and then emails the statements to hundreds or thousands of participants with just a few clicks3.

Outsourced Stock Plans / ASP Providers
SOS 6039 Xpress can be deployed at your company site, allowing you to keep your sensitive participant data inside your firewall. Vendor data is downloaded from your stock plan database to a pre-specified location. The 6039 Xpress application retrieves the data, formats it, and then can either generate a file for hardcopy printing or email the statement to your participants4.

IRS e-Filings
Beginning in 2011 for transactions that occurred in 2010, you must also report these transactions to the IRS. If you have over 250 transactions to report, you will be required to report electronically and SOS can help.
  • Form 3921
  • Form 3922
6039 Xpress for IRS Filing
SOS 6039 Xpress can be deployed at your company site, allowing you to keep your sensitive participant data inside your firewall. Vendor data is retrieved from or downloaded from your stock plan database to a pre-specified location. The SOS 6039 Xpress application retrieves the data, formats it per the detailed IRS file specification, and produces a file that can be submitted via the IRS FIRE (Filing Information Returns Electronically) website. Supports original, corrected, and void record formats.
Expert Assistance with 6039 Compliance
Our consultants have helped companies implement internal and external solutions for complying with the revised regulations. Our consultants can work with your stock plans personnel and other departments to develop documented processes and procedures. This may also include development of customized reports, business requirements documents, and/or specifications to automate the movement of data between the stock plan system and other internal or third-party systems.

1Please note that there are specific IRS requirements for substitute forms and the client will be responsible for compliance if changes to these forms are requested.
2This product is designed for companies whose "first transfer" is the purchase event because the shares are deposited into a brokerage account. If your company instead issues certificates
3To deliver statements exclusively in electronic format, participant consent is required. Please ask us for more details.
4To deliver statements exclusively in electronic format, participant consent is required. Please ask us for more details.

SOS Across Our Desk: Equity Compensation in the News...

What's So New About Say-on-Pay? (from the NASPP Blog) Great article highlighting the SVC NASPP's recent local meeting and speakers...Say on Pay Leads to 38% Drop in CEO Comp.

Option Backdating...we bring you at least one every month
$1.58M backdating settlement at Trident.

To 404(b), or Not to 404(b)...
That is the question.

Around the world...
Baker & McKenzie Country Matrix summarizing selected international tax and legal consequences for employee stock options, employee stock purchase rights, and employee restricted stock and restricted stock units in nearly 40 countries...Orrick looks at developments affecting stock plans in Australia and Israel.

Online Grant Agreements
From the NASPP Blog: Put Your John Hancock Right Here - Online Grant Agreements

Finding and Foiling Fraud
The NASPP Blog on Finding and Foiling Fraud in Stock Plans - written by Guest Blogger, SOS' own Jennifer Namazi!

Want to get these updates as we find them? Follow us on Twitter or become a fan on Facebook.

SOS Xposé

...tender tidbits about people and players in our industry...

New Addition... On July 21st, Matt Abram of EASi and his wife Heather had their second daughter, Sienna (9lbs, 3oz.) Congratulations to you both!

"Pretirement" News...Kevin Feeney of Gartner will be leaving at the end of August and will begin the "pretirement" phase of his life as a visiting professor of accounting at Franklin & Marshall College in Lancaster, Pennsylvania. Good luck, Kevin

Following in the footsteps...Geir Fjugstad's (of Credit Suisse Securities) daughter Brittany Fjugstad recently graduated with honors with degrees in Economics and Finance. Her hard work has paid off in a position at StockCross, assisting Eric Tassell with their Corporate Services business. Geir looks forward to introducing her to everyone at NASPP in Chicago! Congratulations Brittany!

CEP...SOS would like to congratulate the 43 studious and hard-working individuals who passed Level 3 of the CEP Exam this June. To see the list, please click here... Registration for the November 6 CEP exams closes on September 24. There is a lot at stake with equity compensation. Make sure you have the right skills and expertise.

CEP scholarship opportunity...The Certified Equity Professional Institute awards the Marilyn J. Perkins Claassen Memorial Scholarship to two members of the stock plan community who wish to pursue the Certified Equity Professional (CEP) designation through Santa Clara University CEP Institute (CEPI). Application deadline is August 16. For more details, please go here.

In case you didn't know, or just needed a reason: August 15th is National Relaxation Day

Did you miss an issue of Xtra? View our complete newsletter archive here
Miss a webcast? You can find links to recordings, as well as the materials, on our Events page

Information provided in this newsletter is designed for educational and entertainment purposes only and is not provided as professional service or advice. Moreover, this newsletter should not be relied on as legal, accounting, auditing, or tax advice. Anyone reading this newsletter should not act upon this information without seeking professional counsel and/or input from their advisors. The preceding information does not necessarily represent the official views of Stock & Option Solutions, Inc. with respect to any of the issues addressed.
Stock & Option Solutions | (888)SOS-0199