ISS’ FAQs on Equity Plan Data Verification – Roadmap for Proxy Statement Disclosures

by Blank Rome LLP
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If you have a proposal to adopt or amend the company’s equity plan in the proxy statement that you file with the SEC after September 8, 2014, then you can use a new data verification portal recently launched by Institutional Shareholder Services Inc. (ISS) to verify key data points underlying ISS’ evaluation of the plan. ISS explains on its website the mechanics of registering for the Equity Plan Data Verification and requesting modifications after reviewing data points posted by ISS.

One of the most interesting pieces of information provided by ISS in connection with the new portal is Appendix A to the FAQs on Equity Plan Data Verification because it lists the questions that ISS includes in its evaluation of equity plans. The questions are divided into several categories: (i) equity plan provisions, (ii) outstanding stock and convertibles, (iii) equity grant activity, and (iv) shares reserved and outstanding under equity compensation programs.

Listed below are certain questions from each category. Some of these questions can be used as a roadmap for proxy statement disclosures related to equity plan proposals in order to facilitate ISS’ review and evaluation of the plan.

Equity Plan Provisions:

  • Is stock option repricing permitted without shareholder approval?
  • Are cash buyouts of underwater stock options permitted without shareholder approval?
  • Does the plan provide for share recycling, whereby the plan’s share reserve is reduced by the net number of shares delivered through equity awards, not the gross number underlying the original awards?
  • Does the plan contain an evergreen provision, pursuant to which the plan’s share reserve is automatically increased annually?
  • What stock acquisition percentage triggers a change-in-control under the plan?
  • Does the plan provide for tax gross-ups on equity awards?

Outstanding Stock and Convertibles:

  • How many common shares are outstanding (includes all classes of common stock) as of the record date?
  • How many common shares are issuable upon (i) exercise of outstanding warrants, (ii) conversion of outstanding convertible debt, and (iii) conversion of outstanding convertible equity?
  • How many weighted average common shares were outstanding in the past 3 fiscal years, as used in the computation of basic EPS?

Equity Grant Activity:

  • What is the total number of time-vesting options/SARs and full value awards granted in the past 3 fiscal years?
  • What is the number of performance-based options/SARs that vested in the past 3 fiscal years?
  • What is the total number of performance-based full value awards earned in the past 3 fiscal years?

Shares Reserved and Outstanding under Equity Compensation Programs:

  • How many shares are reserved under the proposed new plan or pursuant to the plan amendment?
  • How many shares remain available for grant under all equity compensation plans?
  • How many shares are subject to outstanding awards?

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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