On June 30, 2003, the SEC approved newly adopted NYSE and NASDAQ listing standards that expand shareholder approval requirements for equity compensation plans, including stock option plans. Under the new rules, plans adopted by NYSE- and NASDAQ- listed companies are subject for the first time to comprehensive shareholder approval requirements.
The new NYSE and NASDAQ rules require shareholder approval of all equity compensation plans, as well as "material" plan revisions, subject to limited exceptions. The NYSE and NASDAQ rules provide a non-exclusive list of plan revisions that are considered "material" for purposes of this requirement. "Material revisions" could include, for example, an increase in the number of shares available under the plan, a material expansion of the class of plan participants, or an expansion of the types of awards available under the plan.
The SEC also approved amendments to NYSE Rule 452, relating to broker voting of shares held in "street name" on equity compensation plans. The amendments provide that a broker that is a member of the NYSE is permitted to vote on equity compensation plans only when the beneficial owner of the voting securities has given the broker specific voting instructions.
The new rules became effective on June 30, 2003. Existing plans are grandfathered unless material modifications are made to those plans (i.e., shareholder approval of existing plans is not required unless and until a material revision is made to such plans).
The text of the new rules is available on the SEC's website at http://www.sec.gov/rules/final/33-8220.htm.
This Corporate Finance article is a publication of the Business Transactions/Corporate Finance Group of Davis Wright Tremaine LLP. It is not intended, nor should it be used, as a substitute for specific legal advice as legal counsel may only be given in response to inquiries regarding particular situations.