ending什么意思美国证监会关于股权激励的规定

2021年1月19日发(作者：情愫)
SECURITIES AND EXCHANGE COMMISSION

(Release No. 34-48108; File Nos. SR-
NYSE-2002-46 and
SR-
NASD-2002-140)

June 30, 2003

Self-Regulatory Organizations; New York Stock Exchange, Inc. and
National Association of Securities Dealers, Inc.; Order Approving NY
SE and
Nasdaq Proposed Rule Changes and Nasdaq Amendment No. 1 and Notice
of Filing and Order Granting Accelerated Approval to NYSE Amendments
No. 1 and 2 and Nasdaq Amendments No. 2 and 3 Thereto Relating to
Equity Compensation Plans

I. Introduction
On October 7, 2002, the New York Stock Exchange, Inc. (
filed with the Securities and Exchange Commission (
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (
1
and
Rule 19b-4 thereunder,
2
a proposal relating to shareholder approval of
equity- com
pensation plans and the voting of proxies. On October 11, 2002, the
NYSE proposal was published for public comment in the Federal Register.
3
On
November 6, 2002, the NYSE filed NYSE Am
endment No. 1 to the proposed rule
change.
4
The Commission received a total of 30 comment letters on the NYSE
proposal.
5
On June 20, 2003, the NYSE filed NYSE Amendment No. 2 to its
proposal.
6

On October 9, 2002, the National Association of Securities Dealers, Inc. (
through its subsidiary, The Nasdaq Stock Market, Inc. (
proposal relating to shareholder approval for stock option plans and other equity
com
pensation arrangements. On October 10, 2002, Nasdaq filed Nasdaq
Am
endment No. 1 to the proposed rule change.
7
On October 17, 2002, the Nasdaq
proposal, as am
ended, was published for comment in the Federal Register.
8
The
Commission received a total of 18 comment letters on the Nasdaq proposal.
9
On
March 24, 2003, Nasdaq filed Nasdaq Amendment No. 2 to the proposed rule
change.
10
On June 23, 2003, Nasdaq filed Nasdaq Am
endment No. 3 to its
proposal.
11
This order approves the NYSE proposal, as am
ended by NYSE
Am
endments No. 1 and 2, and the Nasdaq proposal, as am
ended by Nasdaq
Am
endments No. 1, 2, and 3. The Commission has found good cause to grant
accelerated approval to NYSE Amendments No. 1 and 2 and Nasdaq Amendm
ents
No. 2 and 3, as discussed below, and is soliciting comments from
interested persons
on these am
endments.

II. Description of the NYSE and Nasdaq Proposals

A. NYSE Proposal
The NYSE proposes to adopt new Section 303A(8) of the NYSE's Listed Company
Manual, which would require shareholder approval of all equity- com
pensation plans
and m
aterial revisions to such plans, subject
to limited exemptions.
12
This new rule,
when approved by the Commission, will replace the NYSE's current pilot program

relating to am
endments to Sections 312.01, 312.03 and 312.04 of the NYSE's Listed
Company Manual with respect to the definition of a
plan.
13

Under the NYSE proposal, as amended, an equity compensation plan is defined as a
plan or other arrangement that provides for the delivery of equity securities (either
newly issued or treasury shares) of the listed com
pany to any employee, director or
other service provider as com
pensation for services, including a com
pensatory
grant of options or other equity securities that is not m
ade under a plan. The NYSE
has also proposed changes to clarify certain plans that would not be considered
equity compensation plans under its definition.
14
In addition, the NYSE proposal
provides for certain types of grants that are exem
pted from shareholder approval.
These limited exemptions include: (1) inducem
ent awards to person's first
becoming an employee of the issuer or any of its subsidiaries; (2) m
ergers and
acquisitions, when conversions, replacem
ents or adjust
m
ents of outstanding
options or other equity compensation awards are necessary to reflect the
transaction, and when shares available under certain plans acquired in corporate
acquisitions and m
ergers may be used for certain post
-transaction grants without
further shareholder approval; and (3) plans intended to m
eet the requirements of
Section 401(a) of the Internal Revenue Code
15
(e.g., ESOPs), plans intended to
meet the requirements of Section 423 of the Internal Revenue Code,
16
and parallel
excess plans. The NYSE also proposes that, in circum
stances in which equity
com
pensation plans and am
endments to plans are not
subject to shareholder
approval, the plans and am
endments still must be subject to the approval of the
com
pany's com
pensation committee or a m
ajority of the company's independent
directors. Finally, in its proposal, the NYSE provides a non-exclusive list of
revisions
plans containing an
plans would require shareholder approval.
17

The NYSE also proposes to am
end NYSE Rule 452 to prohibit member organizations
from
voting on equity com
pensation plans unless the beneficial owner of the shares
has given voting instructions. In addition, the NYSE proposes to m
ake conforming
changes to current Sections 303.00, 312.03, 312.04, and 402.08 of the NYSE's
Listed Company Manual.

NYSE Am
endment No. 2 to the NYSE filing proposes a number of changes to the
rules as they were published in the Notic
e of the NYSE Proposal. According to the
NYSE, these changes were m
ade in response to the comment letters and
discussions with Commission staff. As a general matter, the changes provide
additional guidance as to the scope of the NYSE's proposed rule changes, including
the type of m
aterial changes to a plan that m
ust be submitted for shareholder
approval. The NYSE also proposes to include a new section entitled
Rules
before the effective date of the proposed amendments. The basic structure of the
rule as proposed has remained the sam
e as originally submitted. While the Notice of
the NYSE Proposal reflects
the original format of the recommendations m
ade by the
Committee, stating a basic principle and including additional explanation and
commentary, the NYSE states that it intended, through the proposed amendments
to the rule text of Section 303A(8) in NYSE Amendment No. 2 to write the rule
language in a m
ore

1. Significant Changes From
the Original Filing of the NYSE Proposal

The NYSE proposes to clarify the description of plans that are not equity
com
pensation plans to expressly exclude plans that do not provide for delivery of
equity securities of the issuer (e.g., plans that pay in cash), and deferred
com
pensation plans under which employees pay full current m
arket value for
deferred shares.

The NYSE proposes to m
odify the language of the rule to clarify that shareholder
approval is required for pre- existing plans that were not approved by shareholders
and that have neither an evergreen formula nor a specific number of shares
available under the plan. However, the NYSE proposes to provide a transition period
for requiring shareholder approval for such plans.
18
In addition, the NYSE has
specified that, during the period prior to approval, the plan m
ay be utilized, but only
in a m
anner consistent with past practi
ce.

In the section entitled
define the concept of
i.e., that contain a formula for autom
atic
increases in the shares available) or
19
(i.e., plans that provide for
autom
atic grants pursuant to a form
ula), and proposes to introduce the concept of


on the num
ber of shares available and is not a
formula plan. The NYSE proposes that
each grant under such a discretionary plan will require shareholder approval
regardless of whether the plan has a term
of not m
ore than 10 years. In addition,
the NYSE represents that the proposed language under
to evergreen plans clarifies that an evergreen plan that was approved by
shareholders but that does not have a ten- year term
must be: (1) approved by
shareholders before any shares that becom
e available as a result of a form
ulaic
increase are utilized, or (2) amended to include a term
of no more than ten years
from
the date the plan was adopted or last approved by shareholders. If the plan
were am
ended to include such term
, shareholder approval would not be required.
No action would be required, however, if a plan were frozen at the level of shares
available at the tim
e the rule becom
es effective. The enum
erated list of
Revisions

to
substantive am
endment to the definition of

The NYSE proposal has been amended to clarify that repricings that have
commenced prior to the date of effectiveness of the proposal (i.e., exchange offers
to optionees) will not be subject to shareholder approval (assuming that such
repricing did not require shareholder approval under existing NYSE rules).

The NYSE proposal has also been am
ended to clarify that inducem
ent awards are
available for rehires following a bona fide period of em
ployment interruption. The
NYSE further proposes to clarify that inducem
ent awards include grants to new
em
ployees in connection with a m
erger or acquisition. In addition, the NYSE
proposes to include a requirement
that listed
com
panies must provide prompt public
disclosure following the grant of any inducem
ent award in reliance on the
exemption.
20

With respect to the proposed exception for parallel nonqualified plans, the NYSE
proposes to redesignate the exception as applying to
proposes to add an additional condition relating to em
ployer equity contributions
that a plan must satisfy in order to be deem
ed a parallel excess plan.

The NYSE proposes to add a requirem
ent that an issuer must notify the NYSE in
writing when it uses any of the exemptions from the shareholder approval
requirements.

The NYSE has not m
ade any changes to the proposed amendments to NYSE Rule
452. The NYSE proposes, however, a transition period that will make the am
ended
rule applicable only to shareholder meetings that occur on or after the 90
th
day
following the date of the SEC order approving the am
ended rule. In addition, the
NYSE proposes to m
ake a conform
ing change to NYSE Rule 452 subsection .11(9) to
reflect the am
endments that are being proposed to NYSE Rule 452
subsection .11(12), and proposes to reflect
the proposed am
endments to NYSE Rule
452 in Section 402.08 of the NYSE's Listed Company Manual (
Vote Stock

2. Am
ended New Section 303A(8) of the NYSE's Listed Company Manual

As am
ended by NYSE Am
endments No. 1 and 2, proposed new Section 303A(8) of
the NYSE's Listed Company Manual will read as follows:

8. Shareholders must be given the opportunity to vote on all
equity-compensation plans and material revisions thereto, with limited
exemptions explained below.


Equity- com
pensation plans can help align shareholder and m
anagement interests,
and equity-based awards are often very im
portant com
ponents of employee
com
pensation. To provide checks and balances on the potential dilution resulting
from
the process of earm
arking shares to be used for equity-based awards, the
Exchange requires that all equity- com
pensation plans, and any m
aterial revisions to
the term
s of such plans, be subject to shareholder approval, with the limited
exemptions explained below.

Definition of Equity-Compensation Plan


An
delivery of equity securities (either newly issued or treasury shares) of the listed
com
pany to any employee, director or other service provider as compensation for
services. Even a com
pensatory grant of options or other equity securities that is not
made under a plan is, nonetheless, an
pensation plan
purposes.

However, the following are not
pensation plans
and other costs of the plan are paid for by the listed com
pany:


Plans that are m
ade available to shareholders generally, such as a typi
cal
dividend reinvest
m
ent plan.


Plans that m
erely allow employees, directors or other service providers to
elect to buy shares on the open m
arket or from
the listed com
pany for their
current fair market value, regardless of whether:


the shares are delivered immediately or on a deferred basis; or


the paym
ents for the shares are m
ade directly or by giving up
com
pensation that is otherwise due (for example, through payroll
deductions).

Material Revisions


A
the following:


A m
aterial increase in the num
ber of shares available under the plan (other
than an increase solely to reflect a reorganization, stock split, m
erger,
spinoff or similar transaction).


If a plan contains a formula for autom
atic increases in the shares
available (sometimes called an
atic
grants pursuant to a form
ula, each such increase or grant will be
considered a revision requiring shareholder approval
unless
the plan
has a term
of not m
ore than ten years.

This type of plan (regardless of its term
) is referred to below as a

atic grants pursuant to a form
ula
are (1) annual grants to directors of restricted stock having a certain
dollar value, and (2)
credited to a participant's account based upon the am
ount of
com
pensation the participant elects to defer.


If a plan contains no limit on the number of shares available and is
not a form
ula plan, then each grant under the plan will require
separate shareholder approva
l
regardless
of whether the plan has a
term
of not more than ten years.

This type of plan is referred to below as a
requirement that grants be m
ade out of treasury shares or
repurchased shares will not, in itself, be considered a limit or
pre- established formula so as to prevent a plan from
being
considered a discretionary plan.


An expansion of the types of awards available under the plan.


A m
aterial expansion of the class of em
ployees, directors or other service
providers eligible to participate in the plan.


A m
aterial extension of the term
of the plan.


A m
aterial change to the m
ethod of determining the strike price of options
under the plan.


A change in the m
ethod of determining
the
closing price on the date of grant to the average of the high and low
price on the date of grant is an exam
ple of a change that the
Exchange would not view as m
aterial.


The deletion or limitation of any provision prohibiting repricing of options.
See the next section for details.

Note that an am
endment will not be considered a
rather than expands the scope of the plan in question.

Repricings


A plan that does not
contain a provision that specifically
permits
repricing of options
will be considered for purposes of this listing standard as
prohibiting
repricing.
Accordingly any actual repricing of options will be considered a m
aterial revision of
a plan even if the plan itself is not revised. This consideration will not apply to a
repricing through an exchange offer that commenced before the date this listing
standard becam
e effective.


the sam
e effect:


Lowering the strike price of an option after it is granted.


Any other action that is treated as a repricing under generally accepted
accounting principles.


Canceling an option at a tim
e when its strike price exceeds the fair m
arket
value of the underlying stock, in exchange for another option, restricted
stock, or other equity, unless the cancellation and exchange occurs in
connection with a m
erger, acquisition, spin-off or other similar corporate
transaction.

Exemptions


This listing standard does not require shareholder approval of em
ployment
inducem
ent awards, certain gra
nts, plans and amendm
ents in the context of
mergers and acquisitions, and certain specific
types of plans, all as described below.
However, these exempt grants, plans and amendments m
ay be made only with the
approval of the
com
pany's independent com
pensation committee or the approval of
a m
ajority of the com
pany's independent directors. Com
panies must also notify the
Exchange in writing when they use one of these exem
ptions.

Employment Inducement Awards


An em
ployment inducem
ent award is a grant of options or other equity-based
com
pensation as a m
aterial inducem
ent to a person or persons being hired by the
listed company or any of its subsidiaries, or being rehired following a bona fide
period of interruption of em
ployment. Inducem
ent awards include grants
to new
em
ployees in connection with a m
erger or acquisition. Promptly following a grant of
any inducem
ent award in reliance on this exemption, the listed com
pany must
disclose in a press release the m
aterial terms of the award, including the recipient(s)
of the award and the num
ber of shares involved.

Mergers and Acquisitions


Two exem
ptions apply in the context of corporate acquisitions and m
ergers.

First, shareholder approval will not be required to convert, replace or adjust
outstanding options or other equity- com
pensation awards to reflect the transaction.

Second, shares available under certain plans acquired in corporate acquisitions and
mergers m
ay be used for certain post-transaction grants without further
shareholder approval. This exemption applies to situations where a party that is not
a listed company following the transaction has shares available for grant under
pre-existing plans that
were previously approved by shareholders. A plan adopted in
contem
plation of the m
erger or acquisition transaction would not be considered


Shares available under such a pre- existing plan m
ay be used for post-transaction
grants of options and other awards with respect to equity of the entity that is the
listed company after the transaction, either under the pre-existing plan or another
plan, without further shareholder approval, so long as:


the number of shares available for grants is appropriately adjusted to reflect
the transaction;


the tim
e during which those shares are available is not extended beyond the
period when they would have been available under the pre-existing plan,
absent the transaction; and


the options and other awards are not granted to individuals who were
em
ployed, immediately before the transact
ion, by the post- transaction
listed company or entities that were its subsidiaries immediately before the
transaction.

Any shares reserved for listing in connection with a transaction pursuant to either of
these exem
ptions would be counted by the Exchange in determining whether the
transaction involved the issuance of 20% or m
ore of the com
pany's outstanding
common stock and thus required shareholder approval under Listed Company
Manual Section 312.03(c).

These m
erger-related exemptions will not result in any increase in the aggregate
potential dilution of the combined enterprise. Further, mergers or acquisitions are
not routine occurrences, and are not likely to be abused. Therefore, the Exchange
considers both of these exem
ptions to be consistent with the fundam
ental policy
involved in this standard.

Qualified Plans, Parallel Excess Plans and Section 423 Plans


The following types of plans (and material revisions thereto) are exempt from
the
shareholder approval requirement:


plans intended to m
eet the requirements of Section 401(a) of the Internal
Revenue Code
21
(e.g., ESOPs);


plans intended to m
eet the requirements of Section 423 of the Internal
Revenue Code;
22
and



Section 401(a) plans and Section 423 plans are already regulated under the Internal
Revenue Code and Treasury regulations. Section 423 plans, which are stock
purchase plans under which an employee can purchase no more than $$25,000
worth of stock per year at a plan-specified discount capped at 15%, are also
required by the Internal Revenue Code to receive shareholder approval. While
Section 401(a) plans and parallel excess plans are not required to be approved by
shareholders, U.S. GAAP requires that the shares issued under these plans be

pensation expense on the incom
e statem
ent) by
the company issuing the shares.

An equity-com
pensation plan that provides non-U.S. employees with substantially
the sam
e benefits as a
com
parable Section 401(a) plan, Section 423 plan or parallel
excess plan that the listed
company provides to its U.S. em
ployees, but for f
eatures
necessary to com
ply with applicable foreign tax law, are also exempt from

shareholder approval under this section.

The term

meaning of the Em
ployee Retirement Incom
e Security Act (
23
that is
designed to work in parallel with a plan intended to be qualified under Internal
Revenue Code Section 401(a) to provide benefits that exceed the li
mits set forth in
Internal Revenue Code Section 402(g) (the section that limits an em
ployee's annual
pre-tax contributions to a 401(k) plan), Internal Revenue Code Section 401(a)(17)
(the section that limits the am
ount of an em
ployee's com
pensation that can be
taken into account for plan purposes) and/or Internal Revenue Code Section 415
(the section that limits the contributions and benefits under qualified plans) and/or
any successor or similar limitations that m
ay hereafter be enacted. A plan will not be
considered a parallel excess plan unless (1) it covers all or substantially all
em
ployees of an em
ployer who are participants in the related qualified plan whose
annual com
pensation is in excess of the limit of Code Section 401(a)(17) (or any
successor or similar limits that m
ay hereafter be enacted); (2) its term
s are
substantially the sam
e as the qualified plan that it parallels except for the
elimination of the limits described in the preceding sentence and the limitation
described in clause (3); and (3) no participant receives employer equity
contributions under the plan in excess of 25% of the participant's cash
com
pensation.

Transition Rules


Except as provided below, a plan that was adopted before the date of
the Securities
and Exchange Commission o
rder approving this listing standard will not be subject
to shareholder approval under this section unless and until it is materially revised.

In the case of a discretionary plan (as defined in
whether or not previously approved by shareholders, additional grants m
ay be
made after the effective date of this listing standard without further shareholder
approval only for a limited transition period, defined below, and then only in a
manner consistent with past practice. See also
applying this rule, if a plan can be separated into a discretionary plan portion and a
portion that is not discretionary, the non-discretionary portion of the plan can
continue to be used separately, under the appropriate transition rule. For example,
if a shareholder-approved plan permits both grants pursuant to a provision that
makes available a specific num
ber of shares, and grants pursuant to a provision
authorizing the use of treasury shares without regard to the specific share limit, the
form
er provision (but not the latter) m
ay continue to be used after the transition
period, under the general rule above.

Similarly, in the case of a formula plan (as defined in
that either (1) has not previous
ly been approved by shareholders or (2) does not
have a term
of ten years or less, additional grants m
ay be m
ade after the effective
date of this listing standard without further shareholder approval only for a limited
transition period, defined below.

The limited transition period described in the preceding two paragraphs will end
upon the first to occur of:


the listed com
pany's next annual meeting at which directors are elected
that
occurs m
ore than 180 days after the effective date of this listing standard;


the first anniversary of the effective date of this listing standard; and


the expiration of the plan.

A shareholder-approved formula plan m
ay continue to be used after the end of this
transition period if it is am
ended to provide for a term
of ten years or less from
the
date of its original adoption or, if later, the date of its m
ost recent shareholder
approval. Such an am
endment m
ay be made before or after the effective date of
this listing standard, and would not itself be considered a
revision
requiring shareholder approval.

In addition, a formula plan may continue to be used, without shareholder approval,
if the grants after the effective date of this listing standard are m
ade
only
from
the
shares available immediately before the effective date, in other words, based on
formulaic increases that occurred prior to such effective date.

Broker Voting


In addition, the Exchange will preclude its m
ember organizations from giving a
proxy to vote on equity-compensation plans unless the beneficial owner of the
shares has given voting instructions. This is codified in NYSE Rule 452. Am
ended
Rule 452 will be effective for any m
eeting of shareholders that occurs on or after the
90
th
day following the date of the Securities and Exchange Commission order
approving the rule change.

The NYSE will establish a working group to advise with respect to the need for, and
design of, m
echanisms to facilitate im
plementation of the proposal that brokers
may not vote on equity-com
pensation plans presented to shareholders without
instructions from the beneficial owners. This will not delay the effectiveness of the
broker-
m
ay-not- vote proposal.

B. Nasdaq Proposal
Nasdaq proposes to am
end NASD Rule 4350(i) to require shareholder approval for
stock option plans or other equity compensation arrangements (subject to
exceptions specified in the rule), adopt
shareholder approval for stock option plans or other equity com
pensation
arrangements, and to m
ake related conform
ing changes to NASD Rules
4310(c)(17)(A) and 4320(e)(15)(A).

Nasdaq Am
endments No. 2 and 3 to the Nasdaq filing proposes a number of
changes to the rules as they were published in the Notice of the Nasdaq Proposal.
According to Nasdaq, these changes were made in response to the comment letters
and discussions with Commission staff. The Nasdaq proposal, as am
ended by
Nasdaq Am
endments No. 2 and 3, is described below.

1. Nasdaq Proposal Amended by Nasdaq Amendm
ents No. 2 and 3

Specifically, Nasdaq proposes to eliminate the exception for broadly-based plans,
and also proposes to eliminate the de minimis exception to NASD Rule
4350(i)(1)(A), which allows for the grant of the lesser of 1% of the number of
shares of common stock or 25,000 shares, without shareholder approval. Nasdaq
believes that
this exception is not in accord with the
concept of restricting the use of
unapproved options.

Nasdaq proposes to retain its current exception for warrants or rights offered
generally to all shareholders. In Nasdaq Amendment No. 3, Nasdaq proposed an
am
endment to this exception to exclude stock purchase plans available on equal
term
s to all security holders of the com
pany (such as a dividend reinvest
m
ent plan)
from
shareholder approval. In addition, the Nasdaq proposal would not
require
shareholder approval for tax qualified, non-discriminatory benefit plans as these
plans are regulated under the Internal Revenue Code and Treasury Depart
ment
regulations. Along with tax qualified, non-discriminatory employee benefit plans,
the Nasdaq proposal also provides an exception for parallel nonqualified plans.
Nasdaq represents that the proposed amendm
ents to NASD Rule 4350(i) would not
have any effect on any shareholder approval or other requirements under the
Internal Revenue Code or other applicable laws or requirements for such plans.

Furthermore, Nasdaq proposes to retain its
current exception for inducem
ent grants
to new em
ployees because Nasdaq believes that, in these cases, a
company has an
arm's length relationship with the new em
ployees, and its interests are directly
aligned with the shareholders. In Nasdaq Amendment No. 3, Nasdaq amended its
proposal to apply this exception to persons previously employed by the issuer
following a bona fide period of non-em
ployment.

In addition, Nasdaq states
that,
for
these purposes, inducem
ent grants would include grants of options or stock to new
em
ployees in connection with a m
erger or acquisition.

In addition, the proposed amendments to NASD Rule 4350(i) would clarify that
plans involving a m
e
rger or acquisition would not require shareholder approval in
two situations. First, Nasdaq will not require shareholder approval to convert,
replace or adjust outstanding options or other equity com
pensation awards to
reflect the transaction. Second, Nasdaq represents that shares available under
certain plans acquired in corporate acquisitions and mergers may be used for
certain post-transaction grants without further shareholder approval. Nasdaq
clarifies that
this exception applies to situations where the
target/acquired company,
which is no longer a listed com
pany following the transaction, has shares available
for grant under its pre-existing plans that were previously approved by its
shareholders. Nasdaq represents that these shares m
ay be used for
post-transaction grants of options and other equity awards by the acquiring/listed
com
pany (after appropriate adjust
m
ent of the number of shares to reflect the
transaction), either under the pre-existing plan or another plan, without further
shareholder approval, so long as: (1) the tim
e during which those shares are
available for grants is not extended beyond the period when they would have been
available under the pre-existing plan, absent the transaction, and (2) such options
and other awards are only granted to individuals who were employed by the
target/acquired company at the tim
e the m
erger or acquisition was consummated.
Nasdaq would view a plan adopted in contem
plation of the m
erger or acquisition
transaction as not pre-existing for purposes of this exception. Nasdaq believes that
this exception is appropriate because it believes that it will not result in any increase
in the aggregate potential dilution of the com
bined enterprise.

Nasdaq states that, under the proposed amendments to the NASD Rule 4350(i),
inducem
ent grants, tax qualified, non-discriminatory benefit plans, and parallel
nonqualified plans are subject to approval by either the issuer's compensation
committee, or a m
ajority of the issuer's independent directors. Nasdaq also notes
that a company would not be permitted to use repurchased shares to fund options
without prior shareholder approval. Nasdaq represents, however, that plans that
merely provide a convenient way to purchase shares on the open market or from
the issuer at fair m
arket value would not require shareholder approval.

The Nasdaq proposal further clarifies that m
aterial amendments to plans would
require shareholder approval. The accom
panying proposed
Material
endme
nts that are considered
material, and clarifies that while general authority to am
end a plan would not
obviate the need for shareholder approval, if a plan permits a specific action without
further shareholder approval, then no such approval would be required.
24
Certain
provisions in a plan, however, cannot be am
ended without shareholder approval.
For example, plans that contains a form
ula for automatic increases in the shares
available or for autom
atic grants pursuant to a dollar- based formula cannot have a
term
in excess of
ten years unless shareholder approval is obtained every ten years.
In addition, plans that impose no limit on the number of shares available for grant
would require shareholder approval of each grant under the plan. A requirement
that grants be m
ade out of treasury shares or repurchased shares will not alleviate
these additional shareholder approval requirements. The proposed
Material
presenting them
for shareholder approval, issuers should strive to m
ake plan terms
easy to understand. In that regard, Nasdaq recommends that plans m
eant to permit
repricing use explicit terminology to m
ake this clear.

With respect to im
plementation of the proposed am
endments
to NASD Rule 4350(i),
Nasdaq proposes that am
ended NASD Rule 4350(i) becom
e effective upon SEC
approval, and that existing plans be grandfathered.
25
Nasdaq represents that any
material modification to plans in place or adopted after the effective date of NASD
Rule 4350(i) would require shareholder approval.

Separately, Nasdaq represents that Nasdaq staff intends to consider further
changes to provide greater transparency to investors, including a possible
disclosure requirement with respect to situations where an issuer relies upon an
exception to the shareholder approval requirements of NASD Rule 4350(i)(1)(A).

Lastly, Nasdaq proposes to m
ake conforming changes to NASD Rules 4310(c)(17)(A)
and 4320(e)(15)(A). These proposed changes will require issuers to notify Nasdaq
on the appropriate form
no later than 15 calendar days prior to establishing or
materially am
ending a stock option plan, purchase plan or other equity
com
pensation arrangement pursuant to which stock m
ay be acquired by officers,
directors, em
ployees, or consultants without shareholder approval.

2. Am
ended NASD Rule 4350(i) and IM-4350-5

As am
ended by Nasdaq Amendments No. 2 and 3, NASD Rule 4350(i)(1)(A) and
proposed new

(i) Shareholder Approval

(1) Each issuer shall require shareholder approval prior to the
issuance of designated securities under subparagraph (A), (B), (C),
or (D) below:

(A) when a stock option or purchase plan is to be established
or m
aterially amended or other equity compensation
arrangement m
ade or materially amended pursuant to which
options or stock m
ay be acquired by officers, directors,
em
ployees, or consultants, except for:

(i) warrants or rights issued generally to all security
holders of the com
pany or stock purchase plans
available on equal terms to all security holders of the
com
pany (such as a dividend reinvest
m
ent plan); or

(ii) tax qualified, non-discriminatory employee benefit
plans (e.g., plans that m
eet the requirements of
Section 401(a) or 423 of the Internal Revenue Code)
or parallel nonqualified plans, provided such plans are
approved by the issuer's com
pensation committee or a
majority of
the issuer's independent directors; or plans
that m
erely provide a convenient way to purchase
shares on the open market or from the issuer at fair
market value; or

(iii) plans or arrangements relating to an acquisition or
merger as permitted under IM-4350-5; or

(iv) issuances to a person not previously an em
ployee
or director of the com
pany, or following a bonafide
period of non- employment, as an inducem
ent m
aterial
to the individual's entering into em
ployment with the
com
pany, provided such issuances are approved by
either the issuer's com
pensation committee com
prised
of a m
ajority of independent directors or a m
ajority of
the issuer's independent directors.

* * * * *

IM-4350-5. Shareholder Approval for Stock Option Plans or Other Equity
Compensation Arrangements


Employee ownership of com
pany stock can be an effective tool to align em
ployee
interests with those of other shareholders. Stock option plans or other equity
com
pensation arrangements can also assist in the recruit
m
ent and retention of
em
ployees, which is especially critical to young, growing com
panies, or com
panies
with insufficient cash resources to attract and retain highly qualified employees.
However, these plans can potentially dilute shareholder interests. As such, Rule
4350(i)(1)(A) ensures that shareholders have a voice in these situations, given this
potential for dilution.

Rule 4350(i)(1)(A) requires shareholder approval when a plan or other equity
com
pensation arrangement is established or materially amended. For these
purposes, a m
aterial am
endment would include, but not be lim
ited to, the following:

(1) any m
aterial increase in the number of shares to be issued under the plan
(other than to reflect a reorganization, stock split, m
erger, spinoff or similar
transaction);

(2) any m
aterial increase in benefits to participants, including any material
change to: (i) permit a repricing (or decrease in exercise price) of
outstanding options, (ii) reduce the price at which shares or options to
purchase shares m
ay be offered, or (iii) extend the duration of a plan;

(3) any m
aterial expansion of the class of participants eligible to participate
in the plan; and

(4) any expansion in the types of options or awards provided under t
he plan.

While general authority to am
end a plan would not obviate the need for shareholder
approval, if a plan permits a specific action without further shareholder approval,
then no such approval would generally be required. However, if a plan contains
a
formula for autom
atic increases in the shares available (sometimes called an

atic grants pursuant to a dollar-based formula
(such as annual grants based on a certain dollar value, or matching contributions
based upon the am
ount of
compensation the participant elects
to defer), such plans
cannot have a term
in excess of ten years unless shareholder approval is obtained
every ten years. However, plans that im
pose no limit on the number of shares
available for grant would require shareholder approval of each grant under the plan.
A requirem
ent that grants be m
ade out of treasury shares or repurchased shares
will not alleviate these additional shareholder approval requirements.

As a general matter, when preparing plans and presenting them
for shareholder
approval, issuers should strive to m
ake plan terms easy to understand. In that
regard, it is recommended that plans m
eant to perm
it repricing use explicit
terminology to m
ake this clear.

Rule 4350(i)(1)(A) provides an exception to the requirement for shareholder
approval for warrants or rights offered generally to all shareholders. In addition, an
exception is provided for tax qualified, non-discriminatory employee benefit plans
as well as parallel nonqualified plans
26
as these plans are regulated under the
Internal Revenue Code and Treasury Depart
m
ent regulations.

Further, there is an exception for inducem
ent grants to new employees because in
these cases a company has an arm's length relationship with the new em
ployees.
Inducem
ent grants for these purposes include grants of options or stock to new
em
ployees in connection with a m
erger or acquisition. The rule requires that such
issuances m
ust be approved by the issuer's com
pensation committee or a m
ajority
of the issuer's independent directors.

In addition, plans or arrangements involving a m
erger or acquisition do not require
shareholder approval in two situations. First, shareholder approval will not be
required to convert, replace or adjust outstanding options or other equity
com
pensation awards to reflect the transaction. Second, shares available under
certain plans acquired in acquisitions and mergers m
ay be used for certain
post- transaction grants without further shareholder approval. This exception
applies to situations where the party which is not a listed com
pany following the
transaction has shares available for grant under pre-existing plans that m
eet the
requirements of this Rule 4350(i)(1)(A). These shares m
ay be used for
post- transaction grants of options and other equity awards by the listed com
pany
(after appropriate adjust
m
ent of the num
ber of shares to reflect the transaction),
either under the pre-existing plan or arrangement or another plan or arrangem
ent,
without further shareholder approval, provided: (1) the tim
e during which those
shares are available for grants is not extended beyond the period when they would
have been available under the pre-existing plan, absent the transaction, and (2)
such options and other awards are not granted to individuals who were em
ployed by
the granting com
pany or its subsidiaries at the tim
e the m
erger or acquisition was
consummated. Nasdaq would view a plan or arrangement adopted in contem
plation
of the m
erger or acquisition transaction as not pre-existing for purposes of this
exception. This exception is appropriate because it will not result in any increase in
the aggregate potential dilution of the combined enterprise.

In this regard, any
additional shares available for issuance under a plan or arrangement acquired in a
connection with a m
erger or acquisition would be counted by Nasdaq in determining
whether the transaction involved the issuance of 20% or more of the company's
outstanding common stock, thus triggering the shareholder approval requirements
under Rule 4350(i)(1)(C).

Inducem
ent grants, tax qualified non- discriminatory benefit plans, and parallel
nonqualified plans are subject to approval by either the issuer's compensation
committee com
prised of a majority of independent directors, or a m
ajority of the
issuer's independent directors. It should also be noted that a
com
pany would not be
permitted to use repurchased shares to fund option plans or grants without prior
shareholder approval.

III. Summary of Comments

The Commission received a total of 32 comment letters on the NYSE and Nasdaq
proposals.
27
Sixteen comment letters generally supported the proposals requiring
shareholder approval of all equity com
pensation plans based on the general premise
that these proposals would improve corporate governance standards overall and
would help restore investor confidence in the m
arketplace.
28
Several other
commenters were supportive of certain aspects of the proposals, but expressed
concerns about som
e or all of the exceptions in the proposed rules.
29
Five
comment
letters commented only on specific aspects of the NYSE and Nasdaq proposals.
30

Four comment letters stated
that
there should be a collective bargaining agreement
exception.
31
Another comment letter supported shareholder approval solely for
plans including senior executives and directors.
32
One comment letter stated that
com
panies' com
pensation practices should not be micro-m
anaged and that
shareholder approval should be required only for plans that
ownership over a certain threshold (e.g., 1% to 2%) or on plans where a potential
for self dealing exists (e.g., for top m
anagement and directors).
33
One comment
letter found the proposals to be too
com
plicated and stated
that
may be to eliminate stock options from
a com
pany's source of funds for
em
ployees.
34

Thirteen comment letters supported the NYSE proposed rule change to preclude
broker-dealers from casting proxy votes on equity com
pensation plans without
instructions from the beneficial owner,
35
while three commenters opposed this
provision.
36
Eleven of these commenters, supporting the elimination of broker
voting on equity com
pensation plans, suggested precluding broker-dealers from
voting proxies without instructions on all other m
atters as well.
37
In addition,
several commenters also supported the NYSE proposed rule change that would
eliminate the
3
8

A. Exceptions to Shareholder Approval of Equity Compensation Plans
Several commenters, while agreeing with the general concept of shareholder
approval for all equity com
pensation plans, had concerns with various exceptions
for the general requirement
39
and som
e believed that the ex
ceptions should be
removed from the proposed rules.
40

1. Exception for Inducem
ents Grants

Several commenters were critical of the exception from
the shareholder approval
requirement for inducem
ent options offered in an arms-length transaction.
41
One
commenter, who commented separately on the NYSE and Nasdaq proposals, stated
that this exception could have the effect of encouraging the use of inducem
ent
grants simply to avoid having to acquire shareholder approval to issue shares, and
that this exception should therefore be limited.
42
Another comm
enter stated that
such an exception invites companies to offer huge one-tim
e awards of options to
incoming executives.
43
One commenter, stated that there should not be an
exception for inducem
ent awards from shareholder approval, but noted that
com
panies should anticipate the hiring of new executives and have a
shares available for awards under existing shareholder-approved plans.
4
4
This
commenter was concerned that an exception for inducem
ent awards would provide
an incentive for m
anagement to m
ove between com
panies to take advantage of the
exception in obtaining larger option awards.
45
Another commenter suggested that
the exception should also be m
ade available to individuals who are rehired by an
issuer or one of its subsidiaries after a bona fide interruption of em
ployment.
46
One
commenter suggested that Nasdaq conform
it
s proposal to the NYSE proposal and
permit the issuance of inducem
ent awards to persons who were previously
em
ployees of or served on the board of directors of the issuer.
47

2. Exception for Mergers and Acquisitions

Several commenters were generally critical of the ex
ception from
the shareholder
approval requirement for plans acquired in an acquisition or m
erger.

48
These
commenters specifically opposed the exception for shares available to em
ployees of
the acquired or targeted company, stating that such additional issuances could be
dilutive to the shareholders of the acquiring company. T
wo commenters suggested
that this exception could have
aking the
availability of shares authorized under assumed plans dependent on the
transaction
structure.
49
Another commenter argued that the exception could allow
management to
erger or acquisition to `adopt' a plan that otherwise would
not be approved by their shareholders.
50

3. Exception for Tax Qualified and Parallel Nonqualified Plans

Several commenters were generally critical of the ex
ception from
the shareholder
approval requirement for tax qualified and parallel nonqualified plans.
51
These
commenters stated that shareholder oversight was necessary for tax qualified and
parallel non-qualified plans. In addition, commenters noted that the ex
ception for
parallel nonqualified plans may result in a potential for abuse because participants
in these plans could defer up to 100 percent of their com
pensation into stock if the
plan allowed such deferrals before the application of tax limits.
52

Commenters further noted that parallel nonqualified plans are structured solely to
benefit highly com
pensated em
ployees and, therefore, should be subject to
shareholder approval.
53
One commenter stated that
expensed is not a valid reason to exempt them
from
the shareholder approval
process.
54
Two commenters stated that the definition of parallel nonqualified plan
should be similar to the definition of
Act.
55
Another commenter stated that requiring non-parallel plans to be
substantially similar to tax qualified plans is too narrow and restrictive a standard.
56

One commenter suggested the use of
16b-3(b)(5) under the Act, stating that this definition should replace the reference
to Section 423 plans under this exception.
57
One commenter suggested that the
exception for tax qualified and parallel nonqualified plans should be extended to
cover em
ployee stock option purchase plans that would qualify as noncompensatory
plans under APB Opinion 25 of the Financial Accounting Standards Board.
58

4. Material Revisions to Plans

Several commenters suggested that the NYSE and Nasdaq define
purposes of defining major changes to an equity compensation plan.
59
One
commenter stated that Nasdaq should adopt the NYSE's list of what is considered a

60
Another commenter suggested that the NYSE follow Nasdaq's
approach by defining
er Rule 16b-3 under the
Act.
61
One commenter suggested adopting a

ateriality
ateriality
are handled similarly by the NYSE and Nasdaq.
62
Another commenter, while
supporting a uniform
definition, objected
to
the use of
ateriality,
concept is too vague and subjective.
63
Another commenter suggested that the
definition of
panies have a
practical and enforceable standard that they can apply.
64
One commenter,
separately commenting on both of the NYSE and Nasdaq proposals, suggested that,
because it is difficult to determine what types of changes qualify as m
aterial, the
Commission should require the NYSE and Nasdaq to separately publish, on a
website in real time, determinations of all their staff determinations on requests for
exemptions from
the their rules and listing standards.
65
One
comm
enter stated
that
the definition of
pensation plan should be
clarified so as not to include any decreases in any benefits under the plan, and
thereby subject only m
aterial increases, to any benefits under a plan, to
shareholder approval.
66

5. Repricing of Plans

Several commenters suggested that Nasdaq should address the issue of repricing,
and that it should adopt the NYSE's approach for such repricing provisions in equity
com
pensation plans.
67
Under the NYSE proposal, unless a plan explicitly contains a
repricing provision, shareholder approval would be required for any revisions
deleting or limiting the repricing provisions; a plan that is silent on repricing would
also require shareholder approval in these instances. One commenter, commenting
solely on the NYSE proposal, stated that shareholder approval should not be
required for plans that are silent on repricing.
68
Another commenter suggested that
repricing should only be considered a
plans or for plans that were m
aterially revised after the effective date of the NYSE
proposal.
69

6. Foreign Exemption

Two commenters suggested that the exem
ption for plans covering employees
residing in non-U.S. jurisdictions should also apply to plans that are designed to
com
ply with local foreign tax laws and under which all full-tim
e employees of the
sponsoring entity are, in general, eligible to participate subject to certain service,
age or other requirements permitted under the foreign jurisdiction's law.
70
Both
commenters stated that Nasdaq should adopt a sim
ilar exempt
ion.
71
One
commenter stated that a transition period should be provided for plans of listed
dom
estic issuers and their affiliates covering employees residing in a non-U.S.
jurisdiction.
72

B. Collective Bargaining Agreements

Four commenters suggested that there be an exception for the shareholder
requirement for equity compensation plans for plans entered into pursuant to a
collective bargaining agreement.
73
Two of the commenters limited this suggestion
to collective bargaining agreements that do not permit participation by officers and
directors.
74
Three of the commenters argued that proposed rules are overly- broad,
would significantly impact the collective bargaining process, and provide
disincentives for parties on both sides of the bargaining table to negotiate equity
com
pensation plans.
75
One commenter stated that a shareholder approval
requirement would deny em
ployees, who have given up pay raises for a num
ber of
years over the term
of the collective bargaining agreement in order to receive stock
options, the opportunity to participate fully in the growth and success of their
com
panies.
76

C. Evergreen Plans

One commenter stated that
because
ber of shares
issued can increase annually depending on the number of shares outstanding.
77

The commenter urged the NYSE and Nasdaq to view increases in the shares
available under an evergreen plan to be a m
aterial revision requiring shareholder
approval.
78
One commenter, commenting solely on the NYSE proposal, requested
clarification on whether, for evergreen plans, the 10-year m
aximum term
for the
plan runs from the effective date of
the proposed rule, the date of
the addition of the
10-year term
, or the date of the origina
l adoption or shareholder approval of the
plan.
79
Two commenters stated that a transition period-not requiring shareholder
approval until the next annual shareholder meeting-should apply to existing
evergreen plans.
80
One
commenter stated that there should be a
period for plans adopted before the effective date that do not limit the num
ber of
shares available for grant, since
these plans will never be required to be am
ended to
increase the number of authorized share.
81
Another commenter suggested that
evergreen increases should not be considered
of: (1) a subsequent m
aterial revision to the plan; (2) the expiration of the term
of
the plan; (3) the later of ten years from the date the plan was adopt
ed or five years
from
the effective date of
the NYSE proposal.
82

The sam
e commenter recommended
that Nasdaq conform
its proposal to the NYSE proposal with respect
to provisions on
the treatm
ent of evergreen plans.
83
One commenter stated that a
shareholder approval requirement
plans.
84
Another commenter requested clarification on whether an evergreen plan
that
was previously approved by a com
pany's shareholders must again be approved
by the shareholders if it is for an unlimited term and has been in existence for m
ore
than ten years.
85

D. Conformity and C
larity

A few
commenters stated
that
the NYSE and Nasdaq proposals should be consistent
with one another.
86
One commenter recommended specific changes to clarify and
conform
the NYSE and Nasdaq proposals.
87
Another commenter suggested that the
NYSE and Nasdaq clarify the proposed rules to indicate that cash- only plans and
benefits would not be subject to shareholder approval.
88
One commenter stated
that
the NYSE and Nasdaq should harmonize their proposals on the
the commenter did not take a position on which approach it believed was m
ore
appropriate.
89
The sam
e commenter suggested that
Nasdaq proposal, should specify the significant and substantive com
ponents of its
[proposed] rule in the rule's text
90
One
commenter praised the NYSE and Nasdaq for proposing similar rules requiring
shareholder approval of equity compensation plans, stating that this
approach ensures that the NYSE and Nasdaq do not compete on the basis of
differences in their rules, encouraging a `race to
the bottom' to attract new listings,
to the detrim
ent of investors.
91

E. Elimination of Broker-
Dealer Voting on Equity Compensation Plans

Several commenters also supported the NYSE proposed rule change to preclude
broker-dealers from voting on equity com
pensation plans without instructions from
the beneficial owner.
92
Som
e of these comm
enters stated that broker-dealers
should be precluded from voting proxies without instruct
ions on all other m
atters as
well.
93
Som
e of these
commenters stated
that votes should be cast by the beneficial
owners- the real parties in interest-and not broker- dealers who tend to side with
management and override their clients' interests.
94
Other commenters pointed out
that, because
com
panies now routinely receive votes from more than 50 percent of
their beneficial owners, broker-dealer votes are no longer necessary to m
eet
quorum requirements.
95
One comm
enter stated that

age where shareholders can vote electronically by telephone, Internet, and
facsimile, in addition to the traditional m
eans of written proxy or participation in
shareholder meetings.
96
One
commenter stated
that
the NYSE should specify when
the proposed new rule eliminating broker voting of equity compensation plans will
becom
e effective and stated that a transition period should be provided.
97

Three commenters opposed the NYSE proposal to eliminate broker-dealer proxy
voting on equity com
pensation plans.
98
Two of these commenters stated that the
elimination of broker voting would harm smaller issuers and result in a significant
increase in cost and adm
inistrative burden.
99
In addition, one commenter stated
that elimination of broker-dealer voting on equity compensation plans, and thereby
designating such plans as
uncertainty of whether there will be a quorum
and, instead suggested as an
alternative that unvoted broker held shares be deem
ed voted in proportion to the
votes actually cast (i.e.,
100

The
commenter further stated
that, while
the issue of broker-dealer voting should be addresses on an industry-wide basis, it
wanted clarification that the NYSE's elimination of broker-dealer voting on equity