Conserving Equity Plan Share Reserves After M&A Transactions

Business Point

One might assume that a public company’s acquisition of another business would be a drain on that company’s equity plan share reserve because of conversion of the target company’s equity awards into awards based on the acquiror’s stock or new grants to target employees. But that is not necessarily the case. Several exemptions are available under the stock exchange listing rules that avoid the requirement for shareholder approval, and can, in certain circumstances, help avoid an M&A-related drain on the acquiror’s equity plan share reserve.

Technical Points

There are two M&A-related exemptions to the general NYSE and NASDAQ listing rules that require compensatory equity grants be made pursuant to shareholder-approved equity plans (i.e., NYSE Listing Company Manual Rule 303A.08 and NASDAQ Listing Rule 5635(c) and IM-5635-1).