It's not often that I have an opportunity to blog about Federal Trade Commission decisions because, well, the FTC doesn't really have much to do with stock compensation. But they do oversee the Hart-Scott-Rodino Antitrust Improvement Act of 1976, which means they are responsible for updating the filing thresholds imposed under the act on an annual basis. And those filing thresholds could end up being very important in the context of your executive compensation program.
The HSR Act, as it is known to its friends, was enacted to provide the FTC and the Department of Justice with advance notice of large mergers and acquisitions, by requiring the entities involved in the transaction to file reports with both agencies. A trap for the unwary, however, is that the HSR Act applies to individuals as well as corporations. Where an individual acquires voting stock that exceeds the filing thresholds specified under the Act, that individual is responsible for making the required filings.
While the HSR Act can apply to any individual, in the context of equity compensation, it is most likely to be a concern when executives amass significant amounts of company stock as a result of their transactions in the company's stock plans. As administrator of your company's stock plan, this is where you come in and why it's a good idea for you to be familiar with the HSR Act.
The filing requirements apply only to acquisitions that exceed a specified threshold, defined in terms of the value of the individual's holdings in the company as a result of the acquisition. Acquisitions that don't cause an individual's holdings to exceed this threshold aren't subject to the HSR Act filing requirements.
Even acquisitions that do exceed this threshold may not trigger the filing requirement. For the filings to be required, one of the following conditions must be met:
Where neither of the about conditions apply, the HSR Act filing requirements would not be triggered.
The thresholds increase annually. As just announced by the FTC, effective February 28, the thresholds are as follows:
Penalties for failing to make these filings can be $40,000 per day! Thats right—PER DAY! This isn't something to take lightly or to just hope that someone else in your company is monitoring it. If you have executives nearing the ownership threshold at which filings can be required, raise the red flag.
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