This is in response to your correspondence regarding whether a proposed amendment (the “Amendment”) to the Plan would require shareholder approval pursuant to Listing Rules 5635(c) and IM-5635-1 (collectively, the “Rule”). 

According to the information you provided, eligible participants under the Plan include directors, employees, and certain consultants.  Awards available for issuance under the Plan are share units which give the participant the right to receive one common share of the company. The Plan provides for three-year vesting schedule with one-third of the award becoming vested annually upon the anniversary of the grant date, subject to terms and conditions the Company may set in its discretion.

Currently, a provision of the Plan prohibits the acceleration of vesting of awards. Pursuant to the Amendment, the board of directors of the Company (the “Board”) will be granted the authority to determine the vesting provisions of the awards issued pursuant to the Plan and to change such provisions, including the authority to accelerate the vesting provisions.

Following our review of the information you provided, we have determined that the Amendment would not be material under the Rule.  Generally, a change in the vesting terms for an award is not a material amendment, provided that the change does not result in either an extension in the term of the award beyond the maximum allowable term under the plan or in an addition to the aggregate shares available.  The Amendment would not change the Plan in either of the aforementioned ways.  Further, other provisions of the Plan permit the issuance of awards that could be subject to accelerated vesting.  Accordingly, the Rule does not require shareholder approval for the Amendment.

This is in response to your correspondence asking if an amendment to a shareholder approved employee stock purchase plan (the “Plan”) removing the term of the Plan, which is currently scheduled to expire in about six months, would require shareholder approval under Listing Rule 5635(c) and IM-5635-1 (collectively, the “Rule”).

You stated that the Plan is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”), and is available for participation by all employees of the Company and certain subsidiaries, subject to limited exceptions to eligibility as permitted under Section 423 of the Code. The Plan became effective approximately nine and a half years ago, following its approval by the shareholders of the Company as required by Section 423 of the Code. The terms of the Plan provide that it will continue in effect for approximately ten years following effectiveness, unless sooner terminated under the terms of the Plan (the “Term”).

You stated that the Company proposes to remove the Term (the “Amendment) but does not intend to increase the total number of shares authorized and available for purchase under the Plan. You stated that the Amendment will be approved by the independent members of the Company’s board of directors but does not require shareholder approval under the terms of the Plan. You also stated that Section 423 of the Code does not require that the Amendment be approved by the Company’s shareholders. Finally, you stated that the Amendment will not affect any of the other material terms of the Plan. 

Following our review of the information you provided, we have determined that the Amendment would not require shareholder approval under the Rule because following the Amendment the Plan will continue to be a tax qualified, non-discriminatory employee benefit plan that meets the requirements of Section or 423 of the Code and the Amendment will be approved by the Company's a majority of the Company's independent directors as required by Listing Rule 5635(c)(2).

This is in response to your correspondence asking if the Company may satisfy the disclosure requirements set forth in Listing Rule 5635(c)(4) (the “Rule”) related to the exception to the shareholder approval requirement for equity awards issued to certain new employees by issuing a press release disclosing the material terms of the inducement grant prior to the grant’s date.

The Company intends to grant equity awards to employees of certain businesses that the Company is acquiring (the “Acquisitions”), in each case as an inducement material to such employees entering into employment with the Company upon the closing of the Acquisitions (the “Inducement Awards”). The Company’s compensation committee approved the Inducement Awards and the terms of the Inducement Awards will be communicated to employees prior to the closing date of the Acquisitions.

You stated that for administrative reasons, the Inducement Awards will not be granted until approximately three months following the closing date of the Acquisitions. You further stated that such a delay is due to the Company’s preexisting policy of processing equity grants on a quarterly basis rather than on a rolling basis. Pursuant to this policy the Inducement Awards will be issued on the nearest scheduled grant date. You indicated that all material terms of the Inducement Awards will be determined prior the closing date of the Acquisitions and such terms, including the number of shares underlying the Inducement Awards and their vesting schedule, will not be impacted by the delay. There are no material conditions that grantees must satisfy after closing in order to receive an Inducement Award.

You indicated that the Company intends to issue a press release describing the Inducement Awards on the closing date of the Acquisitions, which will be after all material terms are determined and disclosed to the recipients, but before the grant date of the Inducement Awards. You confirmed that, given that the press release will be issued before the Inducement Awards are granted, if there is a subsequent material change with respect to the Inducement Awards, the Company would issue another press release updating the facts of the original press release.

This is in response to your correspondence asking if an amendment to a shareholder approved employee stock purchase plan (the “ESPP”) changing certain purchase limitations would be considered a material amendment and, as a result, require shareholder approval under Listing Rule 5635(c) and IM-5635-1 (collectively, the “Rule”).

You stated that the Company has an ESPP that does not satisfy the tax qualification requirement of Section 423 of the Internal Revenue Code because only certain employees of the Company are eligible to participate, and as a result, is an equity compensation plan that requires shareholder approval under the Listing Rules. The ESPP provides an eligible participant (“Participant”) the opportunity to purchase shares of Company common stock on a quarterly basis (the “Offering Period”), subject to certain limits. In a single Offering Period, a Participant is allowed to purchase shares of common stock subject up to a maximum number of shares and the percentage of compensation that a participant may use to purchase shares is capped. The ESPP also contains a calendar year limitation on total payroll deductions.

You stated that the Company is proposing two changes to the ESPP (together, the “Amendment”). First, the Company proposes to reduce the maximum percentage of a Participant’s compensation that may be used to purchase shares during each Offering Period. Second, the Company proposes to increase the maximum dollar amount a Participant may spend to purchase shares during a calendar year. You stated that the proposed Amendment would not increase the maximum number of shares a Participant may purchase during an Offering Period and would not increase the total number of shares authorized and available for purchase under the ESPP.

Following our review of the information you provided, we have determined that the Amendment would not be a material amendment for purposes of the Rule. While the Amendment changes certain purchase limitations, there will be no increase in the maximum number of shares to be issued under the ESPP. As such, while the Amendment may affect the timing of when certain awards could be made, it will not increase the overall dilution possible under the ESPP. Furthermore, the Amendment does not result in any material increase in benefits to the Participants or any material expansion in the class of participants eligible to participate in the ESPP. Finally, the Amendment does not result in any expansion in the types of awards provided under the ESPP.

This is in response to your correspondence regarding the effect of a planned business combination between the company and the Target (the “Business Combination”) under Listing Rule 5635(c) and IM-5635-1 (collectively, the “Rule”). You asked whether grants from the company’s existing equity plans would require shareholder approval under the Rule after the Business Combination is completed.

In the Business Combination, a holding company (“HoldCo”) will be formed and the company and the Target will each merge into separate newly created subsidiaries of HoldCo. The company’s shareholders will receive one newly issued HoldCo ordinary share for each company share owned, and the Target’s shareholders will receive a number of Holdco ordinary shares for each Target share owned that would result in the Target shareholders owning X percent of HoldCo. You stated that the company’s President/Chief Executive Officer will become the Chief Executive Officer of Holdco and that the company’s Chief Financial Officer will become the Chief Financial Officer of HoldCo. Additionally, you stated that the company will be considered the acquirer for accounting purposes under U.S. GAPP. Upon closing you stated that you expect HoldCo will be listed on the NASDAQ Stock Market, where the company is now listed, and a foreign market, where the Target is now listed.

You indicated that the company currently maintains the Incentive Plan, which is a shareholder approved plan that provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance units and performance shares to service providers of the company and certain related entities, and both the U.S. ESPP and the Offshore ESPP, which allow U.S. and non-U.S. employees, respectively, to purchase the company’s equity. The outstanding awards under each Plan will be assumed by HoldCo and adjusted by the exchange ratio of 1:1, and therefore, the number of shares subject to such awards and the exercise price will remain the same.

Following our review of the information provided, we have concluded that the Business Combination will be treated as a substitution listing event under Listing Rule 5250(e)(4). We have reached this conclusion because the company’s shareholders will own substantially more than 50% of the HoldCo’s shares following the Business Combination, and it is supported by the fact that the company’s CEO and CFO will maintain those roles at HoldCo and by your representation that the company will be considered the acquirer in the transaction under U.S. GAAP. As such, HoldCo may assume the company’s Incentive Plan without any restrictions on future grants or awards to the eligible participants of HoldCo under the Incentive Plan. Furthermore, since the U.S. ESPP is designed to satisfy the requirements of Section 423, and the Offshore ESPP is a plan that provides non-U.S. employees with the substantially the same benefits as the U.S. ESPP, HoldCo may assume both the U.S. ESPP and the Offshore ESPP without shareholder approval under the Rule.

This is in response to your correspondence asking whether a proposed amendment to the company’s Equity Plan (the “Amendment”) would be considered a material amendment requiring shareholder approval under Listing Rule 5635(c) (the “Rule”).

The Equity Plan, which was established prior to the company’s listing on the NASDAQ Stock Market, contains an annual award limit of 500,000 shares per person (the “Limit”). You indicated that the Limit is a plan feature used to preserve the deductibility of compensation to certain employees. You indicated that the company interprets the Equity Plan to require the Limit to be adjusted proportionately for certain changes in the company’s capitalization, including, but not limited to, a reverse stock split.

Just prior to listing, the company effected a one-for-five reverse stock split and, as a result, the Limit was adjusted proportionately downward to 100,000 shares. According to the information you provided, the Amendment would restore the Limit to 500,000 shares. The Amendment would not prevent other adjustments to the Limit due to future changes to the company’s capitalization, including future reverse stock splits. You stated that the Amendment will not result in any increase in the total number of shares available for issuance under the Equity Plan.

Following our review of the information provided, we have determined that the Amendment would not be a material amendment for purposes of the Rule. While the Amendment increases the Limit, there will be no increase to the maximum number of shares to be issued under the Equity Plan. As such, while the Amendment may affect the timing of when certain awards could be made, it will not increase the overall dilution possible under the Equity Plan. Furthermore, the Amendment does not result in any material increase in benefits to the participants or any material expansion in the class of participants eligible to participate in the plan. Finally, the Amendment does not result in any expansion in the types of awards provided under the Equity Plan.

This is in response to your correspondence regarding whether certain proposed actions in connection with the payment by the Company of an extraordinary cash dividend would be considered material amendments to the Company's equity compensation plans, requiring shareholder approval under Listing Rule 5635(c) and IM-5635-1 (collectively, the “Rule”). You indicated that the Company is considering paying an extraordinary cash dividend, which would equal approximately 25% of the Company's current stock price.

Under the Company's stock plans (the “Stock Plans”), the Company currently has outstanding stock options, stocks appreciation rights (“SARs”), and restricted stock units (“RSUs”) (collectively, the “Awards”). The Company also maintains an ESPP, which is designed to qualify under Section 423 of the Internal Revenue Code of 1986, as amended.

The Company proposes to amend the Stock Plans to allow for adjustments of the Awards upon the payment of an extraordinary cash dividend by the Company (the “Plan Amendments”). Under the Plan Amendments, the Company would make a cash payment upon vesting of an outstanding RSU in an amount equal to the amount of the extraordinary cash dividend. Adjustments to options and SARs would vary based on the tax effect of the adjustment to the recipient. Wherever permissible under guidance issued by the IRS, the Company would reduce the exercise price of the option or SAR by the amount of the extraordinary dividend (the “Exercise Price Adjustment”). However, you stated that under this IRS guidance, where the post-adjusted exercise price of a stock option or SAR would be equal to or less than 30% of the underlying stock price immediately following the adjustment, the IRS would recharacterize the award, resulting in a change in the Award's tax status to the recipient. In these cases, the Company would reduce the Award's exercise price to the extent permissible under the IRS guidance without a change in the recipient's tax status (the “Partial Adjustment”). In addition, the Company will make a cash payment to the recipient in an amount equal to the difference between the amount of the extraordinary cash dividend and the Partial Adjustment. The Plan Amendments would be approved by the independent compensation committee of the Company's board of directors.

The Company also proposes to amend the ESPP to preserve the existing intrinsic value through a proportionate adjustment to the number of shares and purchase price for shares purchasable during the ESPP offering period when an extraordinary cash dividend is paid (the “ESPP Amendments”). The ESPP Amendments would be approved by the independent compensation committee of the Company's board of directors. You have represented that implementing the ESPP Amendments as proposed without shareholder approval would not affect the treatment of the ESPP under Section 423 of the Internal Revenue Code.

Following our review of the information provided, we have determined that the Plan Amendments you described would not be material amendments for purposes of the Rule. We note that the proposed Plan Amendments to provide cash payments to affected participants in the Plans are not subject to the Rule, which only applies to equity compensation. Further, reducing the exercise price of the outstanding stock options and SARs would not increase the intrinsic value of the Awards and such reduction would not provide any additional benefit to the recipients, other than that one-time adjustment to reflect the extraordinary dividend. Therefore, the Exercise Price Adjustment and Partial Adjustment would not result in a material increase in the benefits to the participants. In addition, the Plan Amendments would not result in: a material expansion in the class of participants; a material increase in the number of shares to be issued under the Stock Plans; or an expansion in the types of awards available. As a result, shareholder approval is not required for the Plan Amendments under the Rule.

Under Listing Rule 5635(c)(2) , shareholder approval is not required for the adoption or amendment of a tax qualified, non-discriminatory employee benefit plan, including a plan that meets the requirements of Section 423 of the Internal Revenue Code, if such plans are approved by a company's independent compensation committee. Since the ESPP and the ESPP Amendments are designed to satisfy the requirements of Section 423, and the ESPP Amendments will only be implemented with approval of the Company's independent compensation committee, shareholder approval is not required for the ESPP Amendments.

Prior to the Company's listing on NASDAQ, the Company's subsidiary sold units consisting of one share of common stock and one warrant to purchase additional shares of common stock to certain of its officers, a non-executive employee and current and former directors. Separately, following a holding company reorganization, the Company sold warrants at fair market value based on the Black-Scholes valuation model to certain members of senior management and to certain directors. Finally, the Company issued options to purchase common stock under a shareholder approved equity plan (“Equity Plan”) to two non-executive employees. The warrants and options, which are not publicly traded, are exercisable into the Company's listed common stock and are owned by current or former officers, non-executive employees and directors of the Company or the subsidiary.

The Company is proposing to amend the terms of the warrants and the Equity Plan to allow for the adjustment of the exercise price of the warrants and options upon the distribution of an extraordinary cash dividend by the Company (the “Amendments”). Any adjustment under the Amendments would be at the discretion of a committee of the board of directors, provided, however, that no adjustment could increase the intrinsic value of a warrant or option as measured before the ex-dividend date of the extraordinary cash dividend.

Following our review of the information provided, we have determined that the Amendments you described would not be a material amendment for purposes of the Rule. In that regard, we note that the proposed Amendments would not increase the intrinsic value of a warrant or option and, therefore, would not result in an increase in the benefits to the participants. In addition, the Amendments would not result in: a material expansion in the class of participants; an increase in the number of shares to be issued under the Equity Plan or upon exercise of the warrants; or an expansion in the types of awards available. As a result, shareholder approval is not required for the Amendments under the Rule.

This is in response to your correspondence regarding whether a proposed amendment to the terms of the Preferred Units (the “Amendment”) would require shareholder approval as equity compensation to the Director under Listing Rule 5615(a)(4)(H) (the “Rule”).  The Company is a limited partnership with its common units listed on NASDAQ.  The Preferred Units, which are not publicly traded, are convertible into the listed common units on a one-for-one basis.

Following the issuance of the Preferred Units to the Investor nearly two years ago, the Director, an affiliate of the Investor, joined the board of directors of the general partner of the Company.  Prior to the issuance, neither the Director nor the Investor was affiliated with the company.

Currently, the Company is permitted to pay quarterly distributions on the Preferred Units in cash or by issuing additional Preferred Units as payment-in-kind (the “PIK Distributions”).   Pursuant to the Amendment, the quarterly distributions would be payable only as PIK Distributions through the end of next year.  Currently, the original issuance price of the Preferred Units is used to calculate the number of Preferred Units issuable as PIK Distributions.  As such, the number of Preferred Units issuable as PIK Distributions is equal to the total dollar amount of the distributions divided by the original purchase price.  The current market price of the Company’s common units is greater than the original issuance price of the Preferred Units. 

Under the Amendment, instead of being based on the original issuance price, the PIK Distributions would be based on a fixed price equal to an approximate 10% discount to the current market price of the common units subject to a maximum and minimum threshold (“the Amended PIK Price”).  The Amended PIK Price would be capped at an amount which would be approximately 59% greater than the original issuance price, and would not be less than the original issuance price.  Thus, the Amendment could potentially increase, but could not reduce, the price applicable to the PIK Distributions and, correspondingly, could reduce the number of Preferred Units issued as PIK Distributions.  The Amendment would not change the minimum aggregate dollar amount of the quarterly distributions. 

Because it would pay quarterly distributions as PIK Distributions rather than in cash, the Company would achieve its purpose of having additional funds available for capital expenditures.  Likewise, the Investor would achieve its purpose of increasing its equity stake in the Company.

Following our review of the information that you provided, we have determined that the Amendment would not be material for purposes of the Rule and, therefore, would not require shareholder approval as equity compensation. We have reached the conclusion because the Amendment could potentially increase, but could not decrease, the price used to calculate the number of units to be issued with respect to PIK Distributions, and would not result in an increase in benefits available to the Investor.   In addition, the Amendment could reduce the number of Preferred Units issuable as PIK Distributions, resulting in fewer common units being issuable upon conversion.