Shareholder Approval of Equity Compensation Plans:

1
Shareholder Approval of Equity Compensation Plans

• Guidance from the NYSE and NASDAQ

2

• Teleconference Agenda
• Introduction
• Refresher on the NYSE Rules
• Refresher on the NASDAQ Rules
• Discussion and Questions Answers with James
  Duffy, Arnold Golub and Karen Krueger
• Conclusion

3

• Introduction
• Moderator, Broc Romanek, General Counsel,
  Executive Press
• Speakers
• James Duffy, Associate General Counsel, NYSE
• Arnold Golub, Chief Counsel, Listings
  Qualification Department, NASDAQ
• Karen Krueger, Partner, Wachtell, Lipton, Rosen
  Katz
• Mark D. Wincek, Partner, Kilpatrick Stockton
  LLP, Washington
• Jennifer S. Schumacher, Partner, Kilpatrick
  Stockton LLP, Atlanta

4

Refresher on the NYSE Rules for Shareholder
Approval of Equity Compensation Plans
Mark D. Wincek Mwincek_at_kilpatrickstockton.com (202
) 508-5801
5

• Refresher on the NYSE Rules
• Require shareholder approval for adoption or
  material revision of an equity compensation
  plan
• Eliminate exception for broad-based plans
• Eliminate treasury share exception

6

• Refresher on the NYSE Rules
• Definition of Equity-Compensation Plan In
  general
• Plan or other arrangement that provides for the
  delivery of issuers equity securities
• Newly issued or treasury
• To employee, director or other service provider
• As compensation for services
• Whether or not made under a formal plan

7

• Refresher on the NYSE Rules
• Definition of Equity-Compensation Plan
  Exception for certain purchases
• Purchase arrangements made available to
  shareholders generally
• Dividend reinvestment plan
•  Certain employee, director or service provider
  purchases
• Election to buy
• Buy either on market or from issuer
• Buy at fair market value
• Shares may be delivered immediately or deferred
• Direct payment or give up compensation otherwise
  due

8

• Refresher on the NYSE Rules
• Material Revisions
• Increase in the number of shares available
• Provision providing for automatic increases,
  e.g., evergreen formula
• Results in plan being considered a formula plan
• Other examples of formula plans
• Annual grants to directors of equity award of
  specified dollar value
• Matching contributions in stock
• Not a formula Requirement that grants be out of
  treasury/repurchased shares

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• Refresher on the NYSE Rules
• Increase in the number of shares available
• Requirement for formula plans
• Plan must have 10-year or shorter term
• If not, shareholder approval required for
• Each increase in the limit per the formula
• Each grant that results from the formulas
  operation

10

• Refresher on the NYSE Rules
• Increase in the number of shares available
• Discretionary plans Each grant always requires
  shareholder approval
• Plan without a limit on shares
• Not a formula plan

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• Refresher on the NYSE Rules
• Material Revisions
• Increase in the number of shares available
• Expansion of types of awards
• Material extension of plans term
• Material change in how option exercise price is
  determined
• Deleting or limiting any prohibition on option
  repricing

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• Refresher on the NYSE Rules
• Exemptions Shareholder approval not required
• Require approval of independent compensation
  committee (or majority of independent directors)
• Require notice to NYSE

13

• Refresher on the NYSE Rules
• Exemptions Shareholder approval not required
• Employment inducement awards (press release
  required)
• Replacing or adjusting awards to reflect
  merger/acquisition transactions
• Certain post-transaction grants under plans
  acquired in a transaction
• 401(a) qualified plans
• Section 423 ESPPs
• Parallel excess plans

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• Refresher on the NYSE Rules
• Transition Rules
• Rules generally effective June 30, 2003
• Plan with fixed limit Continue to use even if
  not shareholder approved
• Formula plan if either not shareholder approved
  or not limited to 10 years
• Use only during transition period, or
• Amend shareholder-approved formula plan to limit
  term
• Discretionary plan (or portion of a plan)  
• Use only during transition period, and
• Only consistent with past practice

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• Refresher on the NYSE Rules
• Transition Period
• Ends on the first of the following
• Next annual meeting at which directors are
  elected occurring after 12/28/03
• June 30, 2004
• Expiration of the plan

16

Refresher on the NASDAQ Rules for Shareholder
Approval of Equity Compensation Plans
Jennifer Schumacher JSchumacher_at_kilpatrickstockton
.com [phone]
17

Refresher on the NASDAQ Rules

• NASD Rule 4350(i) Shareholder approval required
  when a stock option or purchase plan is
  established or materially amended or other equity
  compensation arrangement made or materially
  amended, pursuant to which stock may be acquired
  by officers, directors, employees, or consultants.

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Refresher on the NASDAQ Rules

• Eliminate exception for broadly-based plans
• Eliminate de minimis exception (which allowed for
  grant of lesser of 1 of common stock or 25,000
  shares)

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Refresher on the NASDAQ Rules

• Exceptions from Shareholder Approval
• Stock purchase plans available on equal terms to
  all security holders (e.g., a dividend
  reinvestment plan)
• Plans that merely provide convenient way to
  purchase shares on open market or from issuer at
  FMV
• Unlike NYSE, NASDAQ rules do not expressly
  approve deferred delivery of shares
• Tax qualified plans and parallel nonqualified
  plans
• Employment inducement grants (for employees only
  not for non-employee directors)

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Refresher on the NASDAQ Rules

• IM-4350-5 provides a list of material amendments,
  including, but not limited to
• Material increase in number of shares
• Material increase in benefits to participants,
  including a change to
• Permit repricing
• Reduce exercise price
• Extend duration of plan
• Material expansion of class of eligible
  participants
• Expansion in types of options or awards provided

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Refresher on the NASDAQ Rules

• Formula plans cannot have a term greater than 10
  years unless shareholder approval obtained every
  10 years.
• Plans with no formula and no limit on number of
  shares (like discretionary plans under NYSE
  rules) require shareholder approval of each grant.

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Refresher on the NASDAQ Rules

• Requirements for use of exemptions (inducement
  grants, qualified plans, parallel plans)
• Approval by independent compensation committee or
  majority of issuers independent directors
• Inducement grants also require press release with
  material terms of grant including recipient and
  number of shares
• Rule 4310(c)(17) - Must notify NASDAQ no later
  than 15 calendar days prior to establishing or
  materially amending a stock option plan, purchase
  plan, or other equity compensation arrangement
  without shareholder approval.

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Refresher on the NASDAQ Rules

• Transition Rules
• None provided

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Discussion and Questions Answers with James
Duffy, Arnold Golub and Karen Krueger
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Conclusion
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Shareholder Approval of Equity Compensation Plans

• Guidance from the NYSE and NASDAQ