US Capital/Restructuring Policy

Frequently Asked Questions

Display allUpdated: February 13, 2012

1. Under the new Capital Structure Framework, what are ISS' allowable increases for 2012?

   ISS will apply the relevant allowable increase below to requests to increase common stock that are for general corporate purposes (or to the general corporate purposes portion of a request that also includes a specific need):

   1. Most companies: 100 percent of existing authorized shares
   2. Companies with less than 50 percent of existing authorized shares either outstanding or reserved for issuance: 50 percent of existing authorized shares
   3. Companies with one- and three-year total shareholder returns TSRs in the bottom 10 percent of the U.S. market as of the quarter end closest to the company’s most recent fiscal year end:  50 percent of existing authorized shares
   4. Companies at which both conditions (B and C) above are present: 25 percent of existing authorized shares

   If there is an acquisition, private placement, or similar transaction on the ballot (not to include equity incentive plans), the allowable increase will be the greater of (i) twice the amount needed to support the transactions on the ballot, and (ii) the allowable increase as calculated above.

2. Are my company's one- and three-year TSRs in the bottom 10 percent of the U.S. market?

   The reduced allowable increase applies to companies whose one- and three-year TSRs are both below the applicable thresholds below:

   Most Recent Fiscal Year End	One-Year TSR	Three-Year TSR
   Feb. 15, 2011—May 14, 2011	-56.10%	-58.10%
   May 15, 2011—Aug. 14, 2011	-53.70%	-55.70%
   Aug. 15, 2011—Nov. 14, 2011	-64.70%	-55.30%
   Nov. 15, 2011—Feb. 14, 2012	-71.40%	-48.10%

   The universe that we use for the “U.S. market” is the $C set in Standard & Poor’s Research Insight product. To calculate these thresholds, we remove from the set any companies that do not have both one- and three-year TSRs.

3. When does ISS deem a risk of non-approval to be "specific and severe"?

   As an initial matter, please note that for 2012, issuers should disclose any risks associated with shareholders' failure to approve a capitalization proposal in the proxy statement. The types of risks that may influence vote recommendations by virtue of being "specific and severe," if disclosed in the proxy statement, are as follows:

   • In or subsequent to the company's most recent 10-K filing, the company's auditor raised substantial doubts about the company's ability to continue as a going concern;
   • The company states that there is a risk of imminent bankruptcy or imminent liquidation if shareholders do not approve the increase in authorized capital; or
   • A government body has in the past year required the company to increase its capital ratios.
4. When will an issuer's past use of shares drive vote recommendations?

   If, within the past three years, the board adopted a poison pill without shareholder approval, repriced or exchanged underwater stock options without shareholder approval, or placed a substantial amount of stock with insiders at prices substantially below market value without shareholder approval, ISS will typically recommend that shareholders vote against the requested increase in authorized capital on the basis of imprudent past use of shares.

5. What disclosure is required to "declaw" preferred stock?

   Sample Language:

   "The board represents that it will not, without prior stockholder approval, issue or use the preferred stock for any defensive or anti-takeover purpose or for the purpose of implementing any stockholder rights plan."