July 30, 2018

M&A Equity Awards: Conserving Shares Under Buyer’s Equity Plan

In public company deals, target company equity awards are frequently converted into awards under the buyer’s equity plan, and new awards under the buyer’s plan are also often made to target executives who will be retained post-closing. This Hunton Andrews Kurth memo outlines exemptions under NYSE & Nasdaq rules that a buyer can use to make M&A related awards without putting a dent in the shares reserved under its shareholder approved equity plans. This excerpt addresses how shares available under the target’s plan can be used for post-closing awards:

The share reserve under a preexisting shareholder-approved target equity plan may be used for post-transaction grants without additional shareholder approval under certain circumstances. Shares available under such a preexisting plan may be used for post-transaction grants of acquiror equity awards (assuming the acquiror remains a publicly-traded company), under either the preexisting target equity plan or another plan (such as the acquiror’s equity plan), without further shareholder approval, under the following conditions:

– The shares must be available under a plan that was not adopted in contemplation of the M&A transaction.
– The number of shares available for grants is appropriately adjusted to reflect the M&A transaction.
– The time during which those shares are available for grant is not extended beyond the period when they would have been available under the preexisting plan absent the M&A transaction.
– The equity awards are not granted to individuals who were employed, immediately before the transaction, by the acquiror and such grants are therefore generally limited to grants to employees of the target and its subsidiaries who continue employment with the acquiror post-transaction.

The memo also outlines exemptions that would permit outstanding target equity awards to be converted into or replaced by awards denominated in shares of the buyer’s stock without shareholder approval.

John Jenkins