Shareholder Proposals to Expense Stock Options

On December 6, 2002, the Division of Corporation Finance determined that shareholder proposals requesting the expensing of stock options could not be excluded from proxy materials under the ordinary business matters exclusion. In doing so, the Division reversed its earlier position in a no-action letter issued to National Semiconductor Corporation on July 19, 2002.

On July 19, 2002, the Division issued a no-action letter to National Semiconductor Corporation stating that a proposal requesting the board to “establish a policy and practice of expensing stock options in the [c]ompany’s annual income statement the costs of all future stock options issued to [c]ompany executives” could be excluded under Rule 14a-8(i)(7) “as relating to ordinary business matters, (i.e., choice of accounting methods).” Following this no-action letter, the proponents of this proposal asked the Division to submit the issue to the Securities and Exchange Commission for review, arguing that it involved matters of substantial importance that were novel and highly complex. After review by the full Commission, the Commission directed the Division to reconsider, at which time the Division reversed its earlier position, stating that “in the future, we will not treat shareholder proposals requesting the expensing of stock options as relating to ordinary business matters.”

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If you have any questions or would like to learn more about this no-action letter, please contact the lawyer who normally represents you.