Evergreen Provision

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Apr12

Evergreen Provision

Linda Chan

Know More: Corporate governance 2.0, Corporate governance

Ever read a proxy statement, come across a provision that allows for automatic annual additions to the pool of available shares under a stock option plan, and wonder what it all means?

Shareholders have to approve the allocation of additional shares to stock option plans. However, some companies have established “evergreen” provisions, where additional shares (usually expressed as a percentage of total outstanding shares) are automatically added to the option plan. The additions are generally based on a formula, without the need to obtain shareholder approval each year.

Many institutional investors do not support evergreen provisions. One concern is that the automatic renewal to replenish the stock pool available for stock or options grants dilutes shareholder equity each year.
However, with stock option expensing at fair value required by the Financial Accounting Standards Board since 2005, many companies have amended their stock option plans to drop evergreen provisions. For instance, CFO.com reported in an article in 2005 that Symantec Corporation, a Cupertino, CA information security provider, removed the provision.

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Earnings Releases Oct 21, 2007
In re Netsmart Technologies, Inc., Shareholders Lit. Part II Mar 28, 2007
In re Netsmart Technologies, Inc., Shareholders Lit. Part I Mar 27, 2007
Incorporation Apr 7, 2007

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