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NYSE, Nasdaq Rules Requiring Shareholder Approval of Stock Option Plans Approved
Washington, DC, July 8, 2003 - The Securities and Exchange Commission has approved rules and rule amendments proposed by the New York Stock Exchange and the Nasdaq Stock Market requiring shareholder approval of all equity compensation plans, including stock option plans, and material revisions to such plans.
In November 2002, the NYSE and Nasdaq proposed rules that would require shareholder approval of most equity compensation plans. The approved rules contain certain limited exemptions, not requiring shareholder approval of, among other things, employment inducement awards, certain grants, plans and amendments involving a merger or acquisition, and certain tax qualified, non-discriminatory benefit plans.
The NYSE and Nasdaq rules also state that equity compensation plans and amendments not subject to shareholder approval must be approved by the company’s independent compensation committee or a majority of the company’s independent directors.
The NYSE and Nasdaq rules each require shareholder approval of “material revisions” to equity compensation plans, including:
- a material increase in the number of shares available under the plan (other than an increase solely to reflect a reorganization, stock split, merger, spin-off or similar transaction);
- an expansion of the types of awards available under the plan;
- a material expansion of the class of participants in the plan;
- a material extension of the term of the plan; and
- a material change to limit or delete any provisions prohibiting repricing of options in a plan or for determining the exercise price of options under a plan.
The NYSE and Nasdaq rules also:
- address shareholder approval of repricing of options;
- make clear that if a plan contains a formula for automatic increases in the shares available (evergreen plan) or for automatic grants pursuant to a formula (formula plan), each increase or grant requires prior shareholder approval unless the plan has a term of not more than ten years;
- do not require shareholder approval of equity compensation plans adopted before the effectiveness of the NYSE and Nasdaq rules; and
- prohibit broker-dealers from voting proxies on equity compensation plans unless the beneficial owner has given voting instructions.
The Institute strongly supports the NYSE and Nasdaq rules and, in an earlier comment letter on the proposed rules, stated that such measures would help ensure that corporate management's decisions regarding stock option plans are aligned with their shareholders' best interests.
The Institute specifically commended the NYSE and Nasdaq for proposing similar rules, and noted that their coordinated approach would ensure that the NYSE and Nasdaq do not compete on the basis of differences in their rules.
Additional information about the Institute’s support for efforts to restore investor confidence in the integrity of the securities markets and the accuracy of financial information is available on this website.