Self-regulatory organizations such as the New York and American Stock Exchanges and NASDAQ require that listed companies must obtain approval of their shareholders for stock options and other equity sharing plans. Three exceptions to the shareholder approval requirement arise during a merger or acquisition:

1. Acquiring company shareholder approval is not needed for rolling over to the company making the acquisition options granted by the company being acquired. However, the rollover must be into options that are substantially equal to the options originally granted by the company being acquired. Also, if the rollover has the potential to cause the issuance of twenty percent or more of the outstanding shares of the acquiring company, then shareholder approval of the transaction will be required notwithstanding that the issuance of shares is contingent upon the exercise of rolled-over options.
   
2. There is a limited exception to acquiring company shareholder approval requirements for options and other equity grants that are made by the acquiring company pursuant to an existing plan of the acquired company. Further shareholder approval is not needed if the plan already has been approved by shareholders of the acquired company and if the options are granted within the original term and up to the amounts allowed in the plan approved by shareholders of the acquired company. This limited exception applies so long as the potential for issuing shares of the acquiring company pursuant to the options will not exceed twenty percent of the acquiring company's shares.
   
3. Options and other equity to be awarded to employees of the company being acquired also are exempt from the requirement for approval by shareholders of the acquiring company if the awards are made as part of a plan to induce the employees to remain with the acquiring company. Although shareholder approval of such retention awards is not required by the self-regulatory organizations, the acquiring company must issue a press release announcing any such retention award programs.

Each of the option or equity sharing events described above must be approved by the independent compensation committee of the acquiring company or by a majority of independent directors of the acquiring company. Thus, an additional layer of approval is required for stock option or other equity compensation plans even if approval by shareholders of the acquiring company is not required.

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