Lucent Technologies Inc.
Michael J. Holliday
Corporate Counsel Room 6G-232
600 Mountain Avenue
Murray Hill, NJ 07974
Telephone (908) 582-8801
Facsimile (908) 582-2209
mholliday@lucent.com
April 2, 2001
Mr. Jonathan G. Katz, Secretary
U.S. Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549-0609
Re: File Number: S 7-04-01
Disclosure of Equity Compensation Plan Information
Dear Mr. Katz:
We appreciate the opportunity on behalf of Lucent Technologies Inc. to provide comments on the Disclosure of Equity Compensation Plan Information Proposal. We support the Commission's efforts to improve and simplify financial reporting. Lucent agrees that it is important for shareholders to have information that allows them to determine the potential dilutive effect, if any, of equity compensation plans, whether or not such plans are approved by shareholders. With the suggested changes and clarifications below, we believe that the Proposal can accomplish its goal of informing shareholders with less paperwork and less cost and burden to issuers.
Aggregate Reporting Would Provide Adequate Information about Equity Compensation Plans to Shareholders
Although the proposed rule would require a separate description of each plan, the Commission has asked if aggregated plans would be appropriate for those plans assumed through mergers, consolidations and other acquisition transactions. We believe that reporting for all plans should be aggregated as we describe below.
Currently, Lucent has originated several equity compensation plans and assumed approximately 40 plans through mergers, consolidations and other acquisition transactions. Given our significant number of plans, we believe providing information separately about each plan or each plan not approved by shareholders (we assume this would include plans assumed through mergers, consolidations and other acquisition transactions) would be time-consuming and not result in information easily usable by shareholders. Furthermore, the plans should not be required to be attached as exhibits to the disclosure documents because their sheer number makes attachment not feasible. As exhibits, the attached plans could also convey sensitive information to competitors for talented employees.
Where an issuer has several plans, information in a chart or a narrative for each equity compensation plan will overwhelm shareholders with pages of information. We urge the Commission to permit issuers to aggregate all equity compensation information (except those plans requiring shareholder approval in the current year), not just assumed plans, into three categories: (1) plans approved by shareholders, (2) plans not approved by shareholders and (3) plans assumed through mergers, consolidations and other acquisition transactions. An example of one such table is set forth below.
Equity Compensation Plans Approved by Shareholders
| (a) | (b) | (c) | (d) | (e) |
| Number of Plans | Aggregate Number of Shares for all Plans in this Category | Aggregate Number of securities awarded plus the number of securities to be issued upon the exercise of options, warrants or rights granted during the last fiscal year | Aggregate number of securities to be issued upon exercise of outstanding options, warrants or rights | Aggregate Number of securities remaining available for future issuance. |
We believe that a table for each of the three categories, together with the information presently required by Rule 14a-3, provides shareholders with the information needed to assess dilution issues in easily usable format. None of the other items for which the Commission has sought comments are necessary for such assessment. Furthermore, the addition of such other information would add to the complexity of the tables or other presentation, and would raise questions about the materiality of the additional information.
Disclosure in One Location--Part III of Form 10-K
Under existing rules, an issuer is already obliged to report in its financial statements much of the requested information, including the aggregate number of shares authorized under equity plans, outstanding equity grants and the weighted average exercise price information.1 However, as the Commission notes, these disclosures may not be completely effective, because they are not consistently available in one location or format. We agree that information concerning equity compensation plans proposed in this release should be only in one location, Part III of Form 10-K. In the case of plans for which shareholder approval is being sought, proxy statement disclosure would be appropriate. We assume that a description of the material terms of only the plan(s) being submitted for shareholder approval would be required in the proxy statement.
Narrative Plan Descriptions Should be Required on an On-Going Basis
The provisions also require narrative descriptions of equity compensation plans adopted without shareholder approval during the most recent fiscal year with a cross reference to prior filings for descriptions of plans adopted without shareholder approval in prior years. This requirement should apply only on a future basis. In effect, retroactively requiring a summary of each existing plan could overload the disclosure document the first time all of the existing plans would be described, and would not be feasible. The Commission should clarify that summaries of the material terms of plans for which shareholder approval has not been sought would apply to future, not existing, plans and, in any event, should not apply to plans that have been assumed through mergers, consolidations and other acquisition transactions.
Paper Work Reduction and Burden to the Issuer
Given the over 40 plans in effect at Lucent, we believe that the time burden to implement the changes will be significant for many issuers and substantially greater than the amount estimated by the Commission. In light of the number of our plans, we estimate Lucent's time to report the plans as required by the proposed rule to be much greater than the 2 hours estimated by the Commission.
If we are not permitted to aggregate plans, we estimate that reporting over 40 plans in tabular form would add at least 4 additional pages to the disclosure document. Furthermore, if the Commission requires that a description of all existing plans should initially be disclosed, the additional number of pages would be much greater.
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We appreciate the opportunity to provide our views. If you have any questions or comments concerning these views, please contact the undersigned at 908-582-8801 or Sharon Jacobson at 908-582-1846.
Sincerely,
/s/ Michael J. Holliday
Michael J. Holliday
| 1 | See Exchange Act Rule 14a-3(b) which requires an entity to disclose in its financial statements the number of shares authorized for grants of options or other equity instruments, the number and weighted average exercise prices of options outstanding at the beginning of the years, outstanding at the end of the year, exercisable at the end of the year and granted, exercised, forfeited or expired during the year for each year for which an income statement is presented and the number, weighted average exercise price and weighted average remaining contractual life of options outstanding and options currently exercisable at the date of the latest statement of financial position presented. |