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Frequently Asked Questions
  Staff Interpretation Letter 2015-3
Identification Number 1140

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.

Publication Date*: 12/2/2015 Identification Number: 1140 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2015-1
Identification Number 1137
This is in response to your correspondence regarding the application of Nasdaq’s shareholder approval rules to certain equity grants. You asked if the Company may rely upon the exception set forth in Listing Rule 5635(c)(4) (the “Rule”) to the shareholder approval requirement for equity grants made in connection with the appointment of a director of a Company subsidiary as an executive officer of the Company.
 
The Company has a majority owned subsidiary, a master limited partnership (the “Subsidiary”), whose general partner (the “GP”) is an indirect wholly-owned subsidiary of the Company. The Subsidiary is listed and publicly traded on a U.S. stock exchange. You stated that, in connection with consideration by the Company’s board of directors of a potential change in management, the board approached a director of the GP to assess that individual’s interest in becoming an executive officer of the Company (the “New Executive Officer”). The board of directors of the GP has determined that the director is an independent director under the rules of the exchange where the Subsidiary is listed. Shortly thereafter, the Company and the New Executive Officer agreed to a framework for compensation, subject to final documentation prepared with the assistance of the Company’s compensation committee. You further stated that the agreed-upon compensation structure included the issuance of options and performance stock units. You asked whether the fact that the New Executive Officer is an independent director of the Subsidiary precludes the availability of the “inducement” grant exception under the Rule.
 
Following our review of the information provided, and subject to the disclosure requirements in the Rule, we determined that the New Executive Officer’s role as an independent director of the Subsidiary does not preclude the availability of the “inducement” grant exception under the Rule. Our determination is based on facts as you described them to us, including that the New Executive Officer was neither an employee nor a director of the Company and that the agreed-upon compensation structure included equity grant(s) to the New Executive Officer.
 
Publication Date*: 3/16/2015 Identification Number: 1137 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2014-5
Identification Number 1132
This is in response to your correspondence asking if an amendment to a shareholder approved equity compensation plan to permit the accrual of cash dividend equivalents for restricted stock units (“RSUs”) would be considered a material amendment requiring shareholder approval under Listing Rule 5635(c) and IM-5635-1 (collectively, the “Rule”).
 
You stated that the Company currently has a shareholder-approved equity compensation plan (the “Plan”) that allows for grants of restricted stock, which may accrue dividends during vesting, and of RSUs, which do not accrue dividends. The Company proposes to amend the Plan to allow for the accrual of cash dividend equivalents with respect to the RSUs. The cash dividend equivalents would not vest until the underlying RSUs vest, and would be payable in cash. You stated that the holders of the RSUs would not be able to elect to receive common stock or stock units in lieu of the cash payment. You stated that there would be no other changes to the Plan and the proposed amendment would not either require or permit the issuance of additional shares under the Plan.
 
Following our review of the information provided, including that the proposed amendment you described would not necessitate the issuance of any shares under the Plan, we have determined that it would not be material for purposes of the Rule and, accordingly, would not require shareholder approval under the Rule.
 
Publication Date*: 11/12/2014 Identification Number: 1132 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2013-8
Identification Number 1111

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.

Publication Date*: 3/5/2014 Identification Number: 1111 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2013-7
Identification Number 1110

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.

Publication Date*: 3/5/2014 Identification Number: 1110 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2013-4  
Identification Number 1090

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.

Publication Date*: 8/29/2013 Identification Number: 1090 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2013-3  
Identification Number 1080
This is in response to your correspondence regarding whether the proposed amendments to outstanding options and warrants would be considered a material amendment requiring shareholder approval under Listing Rule 5635(c) (the “Rule”).

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.

Publication Date*: 5/20/2013 Identification Number: 1080 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2012-3
Identification Number 1061

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.

Publication Date*: 11/30/2012 Identification Number: 1061 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2011-9
Identification Number 699
This is in response to your correspondence regarding whether an amendment to the Plan (the “Amendment”) would require shareholder approval under Listing Rule 5635(c) and IM-5635-1 (collectively, the “Rule”).
 
The company has two classes of common stock, one of which is voting (the “Voting Stock”) and the other is non-voting.  Both classes of common stock are listed on NASDAQ.
 
The Plan, which was approved by the company’s shareholders, provides for the issuance of equity awards to key employees, officers, consultants and advisors of the company.  While the Plan allows the issuance of both classes of the company’s common stock, awards with respect to the Voting Stock can be made only to the Former Recipient, who at the time the shareholders approved the Plan, was the company’s chairman of the board, president, chief executive officer (“CEO”), and the holder of a majority of the outstanding Voting Stock (the “Majority Stake”).  The Plan identifies the Former Recipient by name.
 
The Former Recipient has sold the Majority Stake to the Proposed Recipient and has stepped down from all positions with the company.  The Proposed Recipient is now the chairman of the board and CEO.
 
Pursuant to the Amendment, the name of the Proposed Recipient would replace the name of the Former Recipient in the Plan, such that the Proposed Recipient could receive awards with respect to the Voting Stock and the Former Recipient no longer could.
 
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, and, therefore, would not require shareholder approval under the Rule.  The Amendment would not result in a material expansion in the class of participants because the Proposed Recipient, as CEO and holder of the Majority Stake, would have the same standing as that previously held by the Former Recipient. In addition, the Amendment would not result in an increase in the number of shares to be issued under the Plan, an increase in the benefits to participants, or an expansion in the types of awards available, which are given as examples of material amendments in IM-5635-1.   Please note that you have not asked us to reach, and we have not reached, a conclusion as to the applicability of the Rule to the Amendment other than as addressed herein.
 
Publication Date*: 7/31/2012 Identification Number: 699 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2011-8  
Identification Number 698
This is in response to your correspondence regarding whether certain issuances of the company’s common stock to employees of the Target (the “Employee Issuances”) would require shareholder approval as equity compensation under Listing Rule 5635(c) or IM-5635-1 (collectively, the “Rule”).
 
The company plans to acquire the Target for a combination of cash and shares of common stock.  Specific provisions of the Target’s charter and its loan agreements set forth how consideration must be allocated between the Target’s shareholders and employees in the event the Target is acquired.  Specifically, these provisions require that upon the closing of an acquisition, the Target must distribute a portion of the proceeds: (i) to the Target’s Chief Executive Officer in exchange for shares issued to him upon the establishment of the Target; (ii) to the holders of the Target’s outstanding vested employee stock options; and (iii) to officers, directors, employees, and consultants of the Target in connection with the repayment of certain of Target’s bridge loans.  As a result of the acquisition, all of the Target’s employee stock options would be cancelled, and any shares previously issued upon exercise of options would be transferred to the company for no additional consideration.
 
You stated that these provisions were adopted approximately two years ago and were not adopted in contemplation of the Acquisition.  You also stated that the number of shares of common stock that would be issued in the acquisition, including the Employee Issuances, would be less than 20% of the Company’s pre-transaction outstanding shares.
 
Following our review of the information you provided, we have determined that the Employee Issuances would not require the approval of the company’s shareholders as equity compensation under the Rule because the issuances would be in satisfaction of arrangements which were entered into between the Target and its employees and which did not involve the company.  Our determination is based on the provision of IM-5635-1 which states that shareholder approval is not required under Listing Rule 5635(c) to convert, replace, or adjust outstanding options or other equity compensation awards to reflect an acquisition.  In addition, we note that the charter provisions requiring the Employee Issuances were not adopted in contemplation of the Acquisition.  Please note that you have not asked us to reach, and we have not reached, a conclusion as to the applicability of the shareholder approval requirements in any way other than as addressed herein.
 
Publication Date*: 7/31/2012 Identification Number: 698 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2011-4  
Identification Number 694
This is in response to your correspondence regarding the applicability of the shareholder approval requirements of Listing Rule 5635(c) (the “Rule”) to awards under the Plan (the “Awards”).  Specifically, you asked whether the company could make Awards prior to obtaining shareholder approval.
 
The company conducts all of its operations through a limited liability company which holds substantially all of the company’s assets (the “LLC”).  The company owns substantially all of membership units of the LLC (the “LLC Units”).
 
The Awards would be made to members of the company’s senior management to provide them with the ability to receive cash or, following shareholder approval, equity based on the company’s level of return to shareholders over a specified period of time.  After the Awards vest, they could be redeemed for cash from the company at a price based on the price of the company’s common stock.  Following approval by the company’s shareholders, the Awards could become redeemable for LLC Units, instead of cash.  In addition, after the passage of a specified period of time, and only following approval by the company’s shareholders, the Awards, or the LLC Units into which they may be have been converted, would also be redeemable for shares of the company’s common stock on a one-for-one basis.
 
Following our review of the information you submitted, we have determined that the company may grant the Awards prior to seeking shareholder approval because no shares of the company’s common stock could be issued until after shareholder approval has been obtained.  This determination is based upon your representation that unless such approval has been obtained: (i) the Awards could not be convertible into LLC Units, and (ii) no shares of the company’s common stock could be issued under the Plan.
 
 
Publication Date*: 7/31/2012 Identification Number: 694 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2011-1
Identification Number 691
This is in response to your correspondence regarding the applicability of the shareholder approval requirements of Listing Rule 5635(c) and IM-5635-1 (collectively, the "Shareholder Approval Rule") and the voting rights requirements of Listing Rule 5640 and IM-5640 (collectively, the "Voting Rights Rule") to certain actions which the company would take in connection with a reorganization (the "Reorganization").
 
Currently, the company's authorized capital stock consists of common stock (the "Common Stock"), which is listed on NASDAQ, and preferred stock (the "Preferred Stock"), which is closely-held and not publicly traded. The Preferred Stock carries higher voting power relative to the Common Stock including the right to elect a majority of the members of the board of directors. This dual structure was implemented more than twenty years ago and pre-dates the company's listing on NASDAQ.
 
In the Reorganization, the company would create a holding company structure to replace its current structure. Each outstanding share of the Common Stock and Preferred Stock would be converted into one share of common stock or preferred stock, respectively, of the newly formed holding company, with rights and preferences identical to those prior to the Reorganization. No additional shares of either common stock or preferred stock would be issued in connection with the Reorganization. As such, following the Reorganization, holders of the Common Stock and Preferred Stock would hold shares in the same amounts and percentages, and would have the same voting power, as before the Reorganization. You asked whether this dual class structure of the holding company would comply with the Voting Rights Rule.
 
Additionally, in connection with the Reorganization, the company would adopt certain amendments (the "Amendments") to an equity compensation plan which currently provides for awards of treasury shares of the company's common stock to non-employee members of the company's board of directors (the "Plan"). The awards are typically subject to a vesting period during which the holders of awards have the right to vote and to receive dividends and other cash distributions. The Amendments would: (i) permit the use of authorized but unissued shares as well as treasury shares but would not increase the total number of shares that would be available under the Plan; (ii) authorize the award of restricted stock units ("RSUs"); (iii) permit an equivalent payment to the holders of RSUs when dividends are paid to holders of common stock (the "Dividend Equivalent"); and (iv) provide for certain other changes to more closely conform the Plan's provisions with Section 409A of Internal Revenue Code ("409A").  The 409A changes would: (i) increase the voting power of the company's shares that would need to be required to constitute a change of control from 30% to 50%; (ii) require that changes in the board that might constitute a change in control occur within a twelve-month period rather than over an unspecified period of time; and (iii) implement a delay as required by 409A for the payment of benefits to participants following their separation of service from the board. You asked whether the Amendments would require shareholder approval under the Shareholder Approval Rule.
 
Following our review of the information you provided, we have determined that the holding company's dual class structure would comply with the Voting Rights Rule and that the Amendments would not require shareholder approval under the Shareholder Approval Rule.
 
The dual class structure would comply with the Voting Rights Rule because the issuance of shares in the holding company in exchange for the currently outstanding shares would not disparately reduce or restrict the voting rights of existing shareholders. The voting rights of the holders of both the Common Stock and Preferred Stock would be unaffected by the Recapitalization.
 
The Amendments would not require shareholder approval because they would not be considered material amendments to the Plan under the Shareholder Approval Rule. The change to permit the use of newly issued shares to fund awards under the Plan would not be material because the Plan already permits the issuance of treasury shares.  The Shareholder Approval Rule does not distinguish between treasury shares and newly issued shares largely because an issuance of treasury shares has the same dilutive effect with respect to outstanding shares as an issuance of new shares. The addition of RSUs would not be a material amendment because awards of RSUs would be substantially equivalent to awards of restricted stock, which are already permitted under the Plan. The Dividend Equivalent that would be paid to the holder of RSUs likewise would not be material because the Plan already permits dividends to be paid to holders of restricted stock awards. The 409A changes are not material because they generally restrict, rather than enhance, benefits under the Plan. As such, the Amendments would not result in: (i) an increase of the number of shares that could be issued under the Plan; (ii) a material increase in the benefits to participants; (iii) any expansion of the classes of eligible participants; or (iv) a material expansion in the types of awards available.
 
Publication Date*: 7/31/2012 Identification Number: 691 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2010-18  
Identification Number 717
This is in response to your correspondence regarding whether certain proposed awards of shares of common stock (the “Awards”) would require shareholder approval under Listing Rule 5635(c) (the “Rule”).
 
Pursuant to the proposal, three significant shareholders of the company (the “Holders”), including the company’s Chief Executive Officer (the “CEO”), would award shares that they currently hold in the company to certain of the company’s executive officers or other members of senior management (the “Managers”). The company has not adopted a shareholder-approved plan pursuant to which it could issue shares of common stock as equity compensation. As such, the proposal is designed to reward and incentivize the Managers, given their role in producing extraordinary operating results for the company and the resulting benefits accruing to the Holders.
 
You indicated that the Holders would determine which of the Managers would receive Awards, and the number of shares each would receive, and that the Awards would be transferred from the Holders directly to the Managers. You stated that while no new shares would be issued by the company, and the Holders would not receive any payment or reimbursement for the shares being transferred, the Awards would nonetheless be accounted for as if actually made by the company, with a compensation charge taken in the company’s income statement for the fair market value of the stock involved.
 
Following our review of the information you provided, we have determined that the Awards are equity compensation. We reached this conclusion based on the accounting treatment of the proposal, pursuant to which the company will treat the Awards as compensation, and because the purpose of the Awards is stated to be to reward the Managers for their service to the company. We also considered that the CEO, as one of the Holders, will be involved in administering the program and choosing the recipients. While no new shares are being issued by the company, given that this compensation is being paid to the Managers in the form of shares of common stock, we believe it is appropriate to treat the Awards as equity compensation and apply the Rule. Accordingly, the Awards would require shareholder approval under the Rule as equity compensation.
 
 
Publication Date*: 7/31/2012 Identification Number: 717 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2010-17
Identification Number 716
This is in response to your correspondence regarding whether a proposed amendment to the Plan (the “Amendment”) would require shareholder approval under Listing Rule 5635(c) and IM-5635-1 (collectively, the “Rule”). The Amendment would affect the timing of the availability of awards as determined under the Plan’s formula for automatic annual increases to the number of shares reserved for issuance (the “Evergreen Provision”).
 
The facts of the matter as they have been submitted to us, and upon which we have based our consideration of this issue, are summarized below.
 
The Plan, which was adopted approximately seven years ago and approved by the company’s shareholders, will terminate on the tenth anniversary of its adoption and contains a provision limiting the aggregate number of shares that may be issued (the “Plan Maximum”). Under the Evergreen Provision, but subject to the Plan Maximum, the number of shares reserved for issuance automatically increases annually by the lesser of a specified percentage of the total shares outstanding (“Annual Percentage Limit”) or a specified fixed number of shares (“Annual Share Limit”).   
 
For the first several years of the Plan, the company’s total shares outstanding (“TSO”) was such that the Annual Percentage Limit resulted in fewer shares being reserved for issuance than would have been reserved under the Annual Share Limit. As a result of increases in the TSO over time, however, the Annual Percentage Limit now exceeds the Annual Share Limit to such an extent that in all likelihood, the remaining annual increases will be limited to the Annual Share Limit.
 
Under the Amendment, on the date of the next scheduled annual increase, the company would be permitted to increase the number of shares available for issuance under the Plan by the aggregate number of shares that otherwise would have been added pursuant to the three remaining annual increases under the Annual Share Limit (the “Final Increase”). That is, the Final Increase would equal the Annual Share Limit multiplied by three. After the Final Increase, the Evergreen Provision would no longer be operative and, accordingly, no additional shares would be added to the Plan in subsequent years absent shareholder approval. The Final Increase would not cause the Plan to exceed the Plan Maximum.
 
You have submitted that the company’s purpose in adopting the Amendment would be to gain increased flexibility in structuring its compensation programs in furtherance of its business needs and hiring plans over the coming months. Awards under the Plan would be broad-based and would not be limited to officers and directors.
 
Following our review of the information that you have provided, we have determined that the Amendment is not material for purposes of the Rule and, therefore, would not require shareholder approval under the Rule. The Amendment would affect only the timing of the availability of awards over the Plan’s final three years and would not increase the potential dilutive effect over the life of the Plan. It would not cause the number of shares issuable to exceed the shareholder-approved Plan Maximum. In addition, the Amendment would not result in a material increase in the benefits to participants, a material expansion of the class of eligible participants, or an expansion in the types of awards available.
 
 
Publication Date*: 7/31/2012 Identification Number: 716 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2009-16
Identification Number 734
This is in response to your correspondence regarding whether proposed amendments (the “Amendments”) to the Plans would require shareholder approval under Listing Rule 5635(c) and IM-5635-1 (collectively, the “Rule”).  The Amendments, as described below, would extend the period of time following the termination of certain optionee’s service with the company that outstanding vested stock options could be exercised (the “Post-termination Exercise Period”).
 
According to the information you provided, both Plans were approved by the company’s shareholders and provide for a limited Post-termination Exercise Period. Currently, unless the option agreement provides otherwise, the Post-termination Exercise Period is generally 90 days for executive officers and other employees and six months for non-employee members of the board of directors.
 
You stated that pursuant to the Amendments, the Post-termination Exercise Period would be extended for vested options held by executive officers and non-employee board members (“Officers and Directors”) because these individuals may from time to time be precluded from selling shares of the company’s stock as a result of being in possession of material, non-public information during the Post-termination Exercise Period. The Amendments would extend the Post-termination Exercise Period for Officers and Directors to 12 months, but in no event later than the expiration of the option as set forth in the option agreement. Both Plans currently authorize the plan administrator to extend the post-termination exercisability of stock options.
 
Following our review of the information you provided, we have determined that the Amendments would not require shareholder approval under the Rule. As a general matter, extending the term of an option is not a material amendment provided that the extension is not beyond the maximum term permissible under the plan. Moreover, the Plans specifically permit the extension of exercise periods. As set forth in IM-5635-1, if a plan permits a specific action without further shareholder approval, then no such approval would generally be required. In addition, the Amendments would not result in an increase in the number of shares available for issuance, a material increase in the benefits to participants, a material expansion of the class of eligible participants, or an expansion in the types of awards available. Accordingly, the Amendments are not material amendments, and, therefore, would not require shareholder approval under the Rule.
 
Publication Date*: 7/31/2012 Identification Number: 734 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2009-13
Identification Number 731
This is in response to your correspondence regarding the applicability of NASDAQ’s shareholder approval requirements of Listing Rules 5635(b) and 5635(d) (the “Rules”) to a proposed issuance of common stock (the “Proposed Offering”).  In addition, you asked whether the Proposed Offering would be aggregated with a prior private placement (the “Prior Offering”) so as to cause the Prior Offering to violate Listing Rule 5635(d).  Relevant to the applicability of the Rules is whether the Proposed Offering would be a public offering pursuant to IM-5635-3.
 
According to the information you provided, prior to the public announcement of the Proposed Offering, the company would spend approximately four days contacting and meeting with approximately 30 to 40 institutional investors to identify potential core institutional investors. These institutions would be asked to sign confidentiality agreements or otherwise commit to maintain the confidentially of any material non-public information. If the company determines to proceed with the Proposed Offering, then shortly after the close of the market the company would file a preliminary prospectus with the Securities and Exchange Commission specifying the number of shares to be offered and publicly announce the Proposed Offering by means of a press release that would contain information about the offering including how to obtain a copy of the preliminary prospectus. The Proposed Offering would be conducted by underwriters on a firm commitment basis. The shares which would be issued would be registered under the company’s effective shelf registration statement.
 
You stated that promptly after the public announcement, the underwriters would undertake a broad and active marketing effort in the United States and Europe from approximately 4:30 p.m. EDT until shortly before the opening of the market the morning after the public announcement. During that period, the underwriters would expect to: (i) conduct a road show with the company involving telephonic or in-person meetings with approximately 30 to 40 institutional investors; (ii) make available an internet road show to prospective investors; (iii) undertake retail marketing through a network of more than 1,500 brokers to several thousand retail accounts; and (iv) distribute electronic copies of the preliminary prospectus to more than 100 prospective institutional investors and more than 1,500 retail brokers.
 
You stated that the Proposed Offering would be priced shortly before the opening of the market the morning after the public announcement at a discount to the prior day’s closing price in a range, approximately 5 % to 10%, expected to be customary for underwritten offerings of comparable companies. In addition, you stated that you expect purchasers in the Proposed Offering will include 15 to 30 or more institutional investors and 300 to 500 retail investors. The number of shares that would be issued in the Proposed Offering exceeds 20% of the company’s pre-transaction shares of outstanding common stock.
 
Following our review of the information you provided, we have determined that the Proposed Offering would be a public offering under IM-5635-3 because: (i) the offering would be a firm commitment offering of registered securities; (ii) the offering would be broadly marketed to both retail and institutional potential investors; (iii) the company expects that there would be many purchasers in the offering including both retail and institutions; (iv) the discount to the market is expected to be in a range consistent with underwritten offerings of comparable companies; and (v) the company would have little control over the Proposed Offering. Accordingly, because the Proposed Offering would be a public offering, shareholder approval would not be required under the Rules, and the Proposed Offering would not affect the compliance of the Prior Offering with the Rules. NASDAQ is expressing no opinion on whether shareholder approval is required under any other provision of Listing Rule 5635.
 
Publication Date*: 7/31/2012 Identification Number: 731 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2009-9
Identification Number 727
This is in response to your correspondence regarding proposed amendments to the company’s stock purchase plans (the “Amendments”).  You asked whether the Amendments would require shareholder approval under Listing Rule 5635(c) and IM-5635-1 (collectively, the “Rule”).
 
According to the information you provided, the company has two stock purchase plans: one for eligible employees in the United States (the “U.S. ESPP”), which is designed to qualify under Section 423 of the Internal Revenue Code, and one for eligible employees who are neither U.S. citizens nor U.S. residents for tax purposes (the “Non-U.S. ESPP”). The company obtained shareholder approval of the U.S. ESPP, as required by Section 423 of the Internal Revenue Code. The Non-U.S. ESPP has not been approved by shareholders; such approval was not required under the Listing Rules in effect at the time the Non-U.S. ESPP was adopted.
 
You stated that Section 423 generally does not permit qualified employee stock purchase plans to provide different terms or conditions for one or more subgroups of employees. For this reason, the company maintains the Non-U.S. ESPP, which operates in a manner that complies with Section 423 except for variations due to differences in local law. For example, the securities or employment laws in some countries may require that separate bank accounts be created for each employee’s payroll deductions under a stock purchase plan, while other countries may prohibit such segregation of funds. You stated that other than variations due to such local law differences, the material features of the Plans are the same, including those relating to the purchase price, the length of the offering period, and the maximum amount that a participant can purchase during an offering period.
 
Pursuant to the Amendments, the company would add a specified number of shares of its common stock (the “Shares”) to the shares available under the Non-U.S. ESPP and would correspondingly reduce, on a one-for-one basis, the number of shares available under the U.S. ESPP. You stated that the company is seeking to make the Amendments because it projects that the Non-U.S. ESPP does not have a sufficient number of shares available for future issuances.
 
Following our review of the information you provided, we have determined that the Amendments would not require shareholder approval under the Rule because the Shares would come from the available share reserve that shareholders approved for the U.S. ESPP and the terms of the Non-U.S. ESPP are substantially the same as those of the U.S. ESPP. The Amendments would not result in an increase in the number of shares available for issuance, a material increase in the benefits to participants, a material expansion of the class of eligible participants, or an expansion in the types of awards available.
 
Publication Date*: 7/31/2012 Identification Number: 727 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2009-6  
Identification Number 724
This is in response to your correspondence regarding whether proposed amendments (the “Amendments”) to the Plan would require shareholder approval pursuant to Listing Rule 5635(c) and IM-5635-1 (collectively, the “Rule”).
 
According to the information you provided, the Plan is intended to meet the requirements of Section 423 of the Internal Revenue Code (the “Code”).  Plans that meet the requirements of Section 423 do not require shareholder approval under the Rule. As required by the Code, the Plan was approved by the company’s shareholders subsequent to its adoption.  Pursuant to the Amendments, the company would establish a component of the Plan not intended to meet the requirements of Section 423 (the “Non-423 Component”) to facilitate participation in the Plan by employees located in certain countries outside the United States (“Non-U.S. Employees”), in compliance with local laws and regulations, without running afoul of the Section 423 requirements. Employees residing in the United States and working for the company, a subsidiary, or an affiliate of the company in the United States would not be permitted to participate in the Non-423 Component.
 
Participants in the Non-423 Component would be subject to substantially the same requirements as participants in the Section 423 component. The amount of permissible contributions, the limit on the number of shares a participant may purchase, and the purchase price would be the same for both components. The establishment of the Non-423 Component would not result in the creation of a new plan.  Instead, the Non-423 Component would be a part of the Plan, and the number of shares available under the Plan would not be increased as a result of the establishment of the Non-423 Component. The types of awards available under the Plan would not be expanded by the Amendments.  Further, the Amendments would not generally change the eligibility requirements of the Plan, although participation in the Non-423 Component would be permitted for employees not otherwise eligible to the extent required by local law, and the company’s compensation committee would be permitted to expand eligibility in the Non-423 Component to the non-U.S. employees of entities which are not subsidiaries of the company, but in which the company has an equity or ownership interest.
 
Following our review of the information you provided, we have determined that the Amendments as described herein, including the establishment of the Non-423 Component, would not require shareholder approval under the Rule.  In that regard, we note that the provisions of the Non-423 Component would be substantially the same as those of the Plan. The Non-423 Component would provide the company’s non-U.S. employees with substantially the same benefits as currently provided under the Plan. All shares issued under the Non-423 Component would come from the authorized share reserve of the Plan and would, therefore, not increase the number of shares available under the Plan. Further, the change in the eligibility requirements described above would not materially expand the class of eligible participants.  As such, the Amendments would not result in an increase in the number of shares available for issuance, a material increase in the benefits to participants, a material expansion of the class of eligible participants, or an expansion in the types of awards available. Therefore, the Amendments (including the establishment of the Non-423 Component) would not be material amendments to the Plan and would not require shareholder approval under the Rule.  Please be advised that we are expressing no opinion as to the status of the Plan, or the impact of the Amendments, under the Code.
 
Publication Date*: 7/31/2012 Identification Number: 724 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2009-3  
Identification Number 721
This is in response to your correspondence regarding the applicability of Marketplace Listing Rule 4350(i)(1)(A) and IM-4350-5 (collectively, the “Rule”) to the Plan if a proposed amendment (the “Amendment”) were to be adopted.  Under the Amendment, the Plan’s evergreen provision (the “Evergreen Provision”) would be eliminated.  The Evergreen Provision currently provides that the number of awards available under the Plan automatically increases annually by a specified percentage of the total shares of common stock outstanding, subject to an annual maximum.  Pursuant to the Rule, a plan that contains an evergreen provision cannot have a term in excess of ten years unless shareholder approval is obtained every ten years.  The Plan does not have an expiration date.
 
Pursuant to the Amendment, the Evergreen Provision would be eliminated prior to the ten-year anniversary of the date that shareholders last approved the Plan.  Following the effectiveness of the Amendment, the Plan would continue to operate without an expiration date, but with a fixed number of shares available for issuance.  No additional shares would be added to the Plan except pursuant to the Plan’s existing provisions relating to the forfeiture or termination of outstanding awards or the provisions relating to protection against dilution, such as adjusting for stock splits.
 
Following our review of the information you provided, we have determined that the Amendment is not a material amendment to the Plan under the Rule.  In that regard, we note that the Amendment would not provide (i) any increase in the number of shares to be issued under the Plan; (ii) any increase in the benefits available to participants; (iii) any expansion of the class of participants; or (iv) any expansion in the types of options or awards available.  As such, shareholder approval is not required under the Rule for either the Amendment or the Plan following the Amendment.  In addition, we have determined that following the Amendment, the Plan could continue to operate without a specific expiration date because it would then have a fixed number of shares available for issuance.  Finally, the Plan would continue to be considered a grandfathered Plan, not subject to the requirements of the Rule, following the Amendment because the Plan was adopted prior to June 30, 2003, and the Amendment is not a material amendment to the Plan.
 
 
Publication Date*: 7/31/2012 Identification Number: 721 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2009-1  
Identification Number 719
This is in response to your correspondence regarding whether a proposed amendment (the “Amendment”) to the Plan would require shareholder approval pursuant to Marketplace Listing Rule 4350(i)(1)(A) and IM-4350-5 (collectively, the “Rule”).  You stated that the purpose of the Amendment would be to eliminate an inconsistency regarding the Plan’s eligibility requirements.
 
According to the information you provided, the Plan was originally adopted and approved by shareholders approximately six years ago.  Certain amendments to the Plan were adopted and approved by shareholders approximately three years ago (the “Plan Amendments”).  The amendments did not relate to the eligibility requirements.  The Plan, both as originally adopted and as amended, contains a provision relating to eligibility (the “Eligibility Provision”) which states that awards may be made to officers, employees, or consultants of the company or a subsidiary or an affiliate.  However, as a result of what you described as an apparent scrivener’s error, the Plan Amendments introduced a definition of a “Participant” in another section of the Plan as any employee of the company, a subsidiary or an affiliate.  This definition does not include “officers” or “consultants.”
 
You stated that it has always been the company’s intent and practice to allow awards to be made to not only employees, but also to officers and consultants, and that the change in the definition of “Participant” in the Plan as amended was apparently an inadvertent error.  Notwithstanding this definition, the Plan as amended contains the Eligibility Provision, which allows for awards to be made to officers and consultants as well as employees.  Moreover, the proxy statements for the shareholders' meetings at which the shareholders approved the Plan and the Plan Amendments each specifically stated that the company’s officers, employees and consultants would be eligible to participate in the Plan.
 
You stated that to eliminate the inconsistency, the company would adopt the Amendment to revise the definition of “Participant” to make it consistent with the Eligibility Provision and make other conforming changes.
 
Following our review of the information you provided, we have determined that the Amendment would not require shareholder approval under the Rule because it would not be a material amendment to the Plan.  The Amendment would not expand the class of eligible participants because officers and consultants are already eligible to participate in the Plan under the Eligibility Provision.  Furthermore, the proxy statements for the meetings where the company’s shareholders approved the Plan and the Plan Amendments each stated that such persons are eligible to participate.  In addition, the Amendment would not result in: (i) any increase in the number of shares available under the Plan; or (ii) any material increase in benefits to participants; or (iii) any expansion in the types of options or awards available.
 
 
Publication Date*: 7/31/2012 Identification Number: 719 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2008-32
Identification Number 776
This is in response to your correspondence regarding whether a proposed amendment (the “Amendment”) to the Plan would require shareholder approval pursuant to Marketplace Listing Rule 4350(i)(1)(A) and IM-4350-5 (collectively, the “Rule”).
 
According to the information you provided, the Plan currently provides for awards of various types including Restricted Stock awards (“Restricted Stock Awards”), which are awards of common stock subject to forfeiture by the recipient.  Pursuant to the provisions of the Plan, the Plan’s administrator has the sole discretion: (i) to determine the conditions under which Restricted Stock Awards are required to be forfeited;  and (ii) to establish the restricted period (the “Restricted Period”), which is the period of time that Restricted Stock Awards are subject to forfeiture.  The Plan does not require that the Restricted Period have a minimum length.  In addition, the Plan authorizes the administrator to waive, at its discretion, any forfeiture provisions in outstanding awards.
 
Pursuant to the Amendment, the Plan would provide for awards of Common Stock that are not subject to forfeiture (“Stock Awards”).
 
Following our review of the information you provided, we have determined that the Amendment is not a material amendment under the Rule.  In that regard, we note that the Amendment would not result in a material increase in benefits to participants, or in an expansion of the types of awards available, because the administrator currently has the authority to make awards that are substantially the equivalent of the Stock Awards.  Specifically, the administrator has the authority to grant Restricted Stock Awards with a nominal Restricted Period and to waive any forfeiture provisions, thereby permitting the administrator to grant what are effectively Stock Awards.  We also note that the Amendment would not result in an increase in the number of shares to be issued under the Plan or in an expansion of the class of eligible participants.
 
Publication Date*: 7/31/2012 Identification Number: 776 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2008-31  
Identification Number 775
This is in response to your correspondence regarding the applicability of Marketplace Listing Rule 4350(i)(1)(A) (the “Rule”) to the company’s  proposed establishment of an employee stock trust (the “Trust”) and the issuance of shares of the company’s common stock to the Trust.  As described below, shares issued to the Trust (“Trust Shares”) would subsequently be used to fulfill the company’s obligations under certain of its equity compensation plans or arrangements (“Equity Plans”).
 
According to the information you provided, the Trust would be a funding vehicle, allowing the company to set aside funds, primarily in the form of shares of common stock, to satisfy its ongoing obligations under its employee benefit plans.  The company would create the Trust and issue shares of its common stock to the Trust for no consideration.  The Trust would be administered by an independent trustee.  For financial reporting purposes, the Trust would be consolidated with the company.  For tax purposes, assets of the Trust would be treated as assets of the company until distributed to the beneficiary.
 
Shares held in the Trust would be transferred only for uses either approved by the company’s shareholders or for which shareholder approval is not required under NASDAQ rules.  The number of shares available for issuance under an equity plan or arrangement which contains a limit on the number of shares available would be reduced by the number of Trust Shares used to fulfill the company’s obligations under such plan or arrangement.  As such, the Trust could not be used to increase the number of shares that could be issued under any of the company’s Equity Plans.
 
You indicated that the company wishes to establish the Trust to further foster an employee ownership culture and to offer employees an additional level of security with respect to the company’s ability to fund benefits under its employee benefit plans.
 
Following our review of the information you provided, we have determined that the establishment of the Trust, and the issuance of shares of the company’s common stock to the Trust, would not require shareholder approval under the Rule.  We have reached this conclusion because: (i) the Trust Shares would be used for Equity Plans only for which shareholder approval has been obtained or is not required; and (ii) the Trust could not be used to increase the number of shares that could be issued under any of the company’s Equity Plans.  Please note that you have not asked us to reach, and we have not reached, a conclusion as to the applicability of the shareholder approval requirements in any way other than as addressed herein.
 
Publication Date*: 7/31/2012 Identification Number: 775 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2008-28  
Identification Number 772
This is in response to your correspondence regarding whether an exchange program under the Plans (the “Exchange Program”) and an amendment to Plan 2 (the “Plan 2 Amendment”) would require shareholder approval pursuant to Marketplace Listing Rule 4350(i)(1)(A) and IM-4350-5 (collectively, the “Rule”).
 
According to the information you provided, under the Exchange Program the company would offer certain of its employees the opportunity to: (i) exchange certain underwater stock options granted under Plan 1 for a lesser number of new options with an exercise price equal to the current fair market value at the time the new options are granted; and (ii) exchange certain underwater stock options granted under Plan 2 for a lesser number of restricted stock units (“RSUs”).  Although the exchange ratio has not been determined, the company intends that the Exchange Program would be a value-for-value exchange under Financial Accounting Standard No. 123(R), such that the fair market value of a new stock option or a new RSU, as applicable, would equal the fair market value of the original option.  Current and former executive officers and members of the company’s board of directors would not be eligible to participate.
 
Plan 1 specifically authorizes a reduction in the exercise price of any grants, sales, or awards (the “Repricing Provision”).  While Plan 2 specifically prohibits such a reduction, it provides that awards may be bought out for a payment in cash or shares of common stock.  Plan 2 currently allows for awards of stock options and stock purchase rights (“SPRs”).  Under the provisions of Plan 2, the administrator is authorized to determine the terms and conditions of any SPR, including the number of shares covered by the SPR, and the price to be paid, which could be zero or par value.
 
Under the Plan 2 Amendment, awards of RSUs would be specifically authorized.  RSUs would be awards of restricted stock subject to a vesting schedule, such that the common stock underlying the RSUs would not be issued until after any applicable vesting requirements are satisfied.  Plan 2 already authorizes the granting of restricted stock pursuant to the SPRs.  You stated that the accounting and tax treatments applicable to the RSUs are the same as those for awards of restricted stock, and that upon vesting, the economic benefits of a RSU are the same as those of restricted stock, and that the disclosure and registration requirements are the same under federal securities laws for RSUs and restricted stock.
 
Following our review of the information you provided, we have determined that neither the Exchange Program nor the Plan 2 Amendment would require shareholder approval under the Rule because neither would be a material amendment.  Specifically, with respect to Plan 1, while the effect of the Exchange Program is equivalent to a repricing of the options, Plan 1 already permits such a repricing under the Repricing Provision.  With respect to Plan 2, the Plan 2 Amendment does not result in a material increase in benefits to participants, or in an expansion of the types of awards available, because the RSUs are substantially the equivalent of restricted stock, awards of which are currently permissible under the Plan.  Further, the Exchange Program would not be a material amendment to Plan 2 because Plan 2 provides that awards may be bought out for shares of common stock, which is what will occur under the Exchange Program.
 
Publication Date*: 7/31/2012 Identification Number: 772 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2008-27
Identification Number 771
This is in response to your correspondence regarding whether the course of action the company is considering taking under its equity compensation plans (the “Exchange Program”) would require shareholder approval pursuant to Marketplace Listing Rule 4350(i)(1)(A) and IM-4350-5 (collectively, the “Rule”).  Under the Exchange Program, as more fully described below, the company would offer certain of its employees the opportunity to cancel underwater stock options, previously granted under the Plans, in exchange for a lesser number of restricted stock units (“RSUs”).
 
According to the information you provided, the Exchange Program is expected to be open for approximately one month and would be available to the company’s employees who are employed throughout the duration of the Exchange Program.  However, you stated that executive officers of the company and members of its board of directors would not be eligible to participate.  The exchange ratio has not been set but would be determined based on the exercise price of the exchanged options.
 
The RSUs would be granted from Plan 1 from its currently authorized share reserve.  Pursuant to the provisions of Plan 1, the company may modify, or accept the cancellation of, outstanding options, whether or not granted under Plan 1, in return for new options at the same or a different exercise price.  In addition, each of Plan 2, Plan 3, and Plan 4 provides that the company may replace outstanding options with new options for the same or a different number of shares, at the same or a different exercise price.  As such, each of the Plans permits options to be re-priced.
 
Plan 1 permits the grant of stock options at a discounted exercise price, provided the exercise price is at least $0.0001 per share.  You indicated that the grant of an option issued at such a nominal exercise price is essentially identical to the grant of an RSU for economic, tax, and accounting purposes.
 
Following our review of the information you provided, we have determined that the Exchange Program would not require shareholder approval under the Rule because it would not be a material amendment to the Plans.  Specifically, while the effect of the Exchange Program is equivalent to a re-pricing of the options, each of the Plans already permits such a re-pricing.  Further, Plan 1, from which the new RSUs would be granted, already allows for the grant of stock units.  Plan 1 further provides that the company may replace outstanding options with new options, whether or not the outstanding options were granted under Plan 1, and such new options could be granted with a nominal exercise price.  Given that you have indicated that the economic, accounting, and tax treatment of options with such a nominal exercise price are the same as RSUs, we do not consider it a material amendment to the Plans to permit the issuance of RSUs in the Exchange Program.  In addition, the Exchange Program would not result in an increase in the number of shares available under the Plans because the RSUs would be granted from the currently authorized share reserve of Plan 1.  Finally, the Exchange Program would not expand the class of eligible participants.
 
Publication Date*: 7/31/2012 Identification Number: 771 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2008-25
Identification Number 769
This is in response to your correspondence regarding the applicability of NASDAQ’s shareholder approval requirements to the company’s assumption of certain of the Target’s outstanding equity awards (the “Assumption”).  Specifically, you asked whether the shares of the company’s common stock that could be issued as a result of the Assumption should be excluded when determining whether shareholder approval is required pursuant to Marketplace Listing Rule 4350(i)(1)(C)(ii) and IM-4350-5.
 
According to the information you provided, the company will acquire the Target in exchange for cash and shares of the company’s common stock.  Upon the closing of the acquisition, under the Assumption, the company will assume certain awards the Target previously made under the Target’s equity compensation plans.  Specifically, the company will assume certain of the Target’s outstanding stock options and purchase rights and will maintain all of the existing terms under the Target’s plan pursuant to which they originally were issued.  Upon issuance of the company's shares in respect of such awards, the company will correspondingly reduce (consistent with the acquisition exchange ratio) the number of shares available under the company’s equity compensation plans.  You stated that all awards that will be assumed could have been granted under the terms of the applicable company plan.
 
Two of the three company plans that would be reduced in connection with the Assumption have been approved by the company’s shareholders.  The third plan did not require shareholder approval under the requirements in effect at the time of its adoption because it is a broadly-based plan.  The company will not assume any awards under this plan for any person who will become an officer or director of the company as a result of the Acquisition.  You stated that none of the plans was adopted in contemplation of the Acquisition.
 
Following our review of the information you provided, we have determined that the shares of the company’s common stock that will be issued as a result of the Assumption will not count in determining whether the transaction involves the issuance of 20% or more of the company’s common stock under Listing Rule 4350(i)(1)(C)(ii).  We have reached this conclusion because no additional shares will be available for issuance as a result of the Assumption.  Instead, all such shares will come from the share reserves of the company’s pre-existing equity plans, in a manner consistent with the terms of those plans.  As such, the Assumption will not result in any increase in the potential dilution of the combined enterprise.  Please note that you have not asked us to reach, and we have not reached, a conclusion as to the applicability of the shareholder approval requirements to the Acquisition in any way other than as addressed herein.
 
 
Publication Date*: 7/31/2012 Identification Number: 769 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2008-21
Identification Number 765
This is in response to your correspondence regarding whether the company’s proposed cancellation of previously granted stock options and the granting of new options (the “Cancellation and Issuance”) would require shareholder approval pursuant to Marketplace Listing Rule 4350(i)(1)(A) and IM-4350-5 (collectively, the “Rule”).  You stated that the company believes that the actions comprising the Cancellation and Issuance are authorized under the Plans’ current provisions.  Both Plans were approved by the company’s shareholders.
 
According to the information you provided, under the Cancellation and Issuance, the company would cancel certain options granted under the Plans and grant new options (the “Replacement Options”) to the optionees whose options were cancelled.  Prior to any cancellation becoming effective, the company would obtain the written consent from each optionee whose options would be cancelled.  All the Replacement Options would be granted under Plan 2 using currently available grants.  No changes would have to be made to Plan 2 for the Replacement Options to be granted.
 
Both Plans contain provisions authorizing the plan administrator: (i) to establish a program that would allow an optionee to exchange an award under the plan for one or more other types of awards on terms as determined by the administrator, and (ii) to offer to buy out for a payment in cash or shares or other consideration any grant previously made.
 
Following our review of the information you provided, we have determined that the Cancellation and Issuance would not be a material amendment to the Plans under the Rule because the specific actions that would be involved are specifically permitted by the provisions of the Plans.  As such, the Cancellation and Issuance would not require shareholder approval under the Rule
Publication Date*: 7/31/2012 Identification Number: 765 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2008-15  
Identification Number 760
This is in response to your correspondence regarding whether the establishment of an equity compensation plan (the “Plan”) for the Subsidiary would require the approval of the company’s shareholders under Marketplace Listing Rule 4350(i)(1)(A).
 
According to the information you provided, the Subsidiary is a wholly-owned subsidiary of the company and currently represents less than 10% of the company’s overall revenues.  You stated that in order to provide an incentive to employees of the Subsidiary, the Subsidiary intends to create the Plan, which would authorize the grant of stock options and other equity-based awards based solely on the common stock of the Subsidiary.  No award under the Plan would be exercisable for, or convertible into, any of the company’s equity securities.  Eligible participants would be officers, directors, employees, and consultants of the Subsidiary.  The Plan would be subject to the approval of the Subsidiary’s board of directors and of the company, as the sole stockholder of the Subsidiary.  Generally, awards under the Plan would be exercisable only in connection with a liquidity event, such as an initial public offering of the Subsidiary.
 
Following our review of the information you provided, we have determined that the approval of the Plan by the company’s shareholders is not required pursuant to the Rule because no shares of the company’s equity securities could be issued under the Plan.  In reaching this determination, we also took into account the size of the Subsidiary relative to the size of the company.
 
 
Publication Date*: 7/31/2012 Identification Number: 760 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2008-4  
Identification Number 749
This is in response to your correspondence regarding whether the company’s proposed course of action (the “Proposal”) with respect to Plan 1 and Plan 2 (collectively, the “Plans”) would require shareholder approval pursuant to Marketplace Listing Rule 4350(i)(1)(A) and IM-4350-5 (collectively, the “Rule”).  The Plans are equity compensation plans.  Under the Proposal, as more fully described below, the company would increase the exercise price of certain outstanding stock options and make a cash payment to the affected optionees.
 
According to the information you provided, in the course of a review of its financial statements, the company discovered that it may have used an incorrect date of grant for determining the exercise prices of certain options that were awarded under the Plans.  As a result, some of those options may have exercise prices less than market value as of the correct grant date (the “Correct Date”) for financial reporting and tax purposes.  You stated that such misdated options may be deemed to result in “deferred compensation” under Internal Revenue Code Section 409A and, therefore, may subject the optionees to significant adverse taxation upon vesting and exercise, contrary to the company’s intent.  The company believes that the Proposal would have the effect of eliminating the adverse taxation while preserving the original compensatory benefits.  The Proposal would be conducted as a tender offer under the rules of the Securities and Exchange Commission and would be open for at least 20 business days.
 
Under the Proposal each misdated option held by a current employee (excluding current or former executive officers) would be amended to adjust the exercise price to the lower of: (i) the fair market value of the common stock on Correct Date (the “Correct Date Price”), and (ii) the closing price of the common stock on the last day of the offer.  The amended exercise price is called the “Revised Price”.  Thereafter, the company would either:
 
    1. If the Revised Price is higher than the original exercise price for the option, the company would pay the affected optionee an amount of cash equal to the increase in the exercise price for each affected option; or
 
(2) If the Revised Price is the same as, or lower than, the original exercise price, the option will be repriced to the Correct Date Price and then cancelled and replaced with a new option having an exercise price equal to the original exercise price.  In this situation the optionee will not receive a cash payment.
 
As a result of the Proposal, no optionee will receive a corrected option with an exercise price of less than the original price or receive a cash payment in excess of the minimum increase in the exercise price necessary to avoid the consequences of Section 409A.
 
Pursuant to the provisions of each of the Plans, the plan administrator has the authority to amend, modify, or cancel any outstanding award with the consent of the holder.  Neither of the Plans specifically prohibits the company’s ability to: (i) cancel an outstanding award and issue a replacement award, or (ii) conduct any other action that may be interpreted as repricing.
 
Following our review of the information you provided, we have determined that the Proposal would not require shareholder approval under the Rule because it would not be a material amendment to the Plans.  In that regard, pursuant to IM-4350-5, a material amendment includes any material increase in benefits to participants, including any material change to: (i) permit a repricing (or decrease in exercise price) of outstanding options; or (ii) reduce the price at which options may be offered.  Because the Proposal would result in an increase (or no change), rather than a decrease, in the exercise price, the Proposal is not material under the Rule.  Further, the Proposal would not result in an increase in the number of shares to be issued under the Plan, an expansion of the class of eligible participants, or an expansion in the types of awards available.  Finally, based on these facts, the cash payment to be made in connection with the change in exercise price to employees other than current and former executive officers does not raise concerns under the Rule.  These conclusions are based on your representations that the purpose of the Proposal is to address the tax consequences of Section 409A.
 
Publication Date*: 7/31/2012 Identification Number: 749 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2007-35
Identification Number 811
This is in response to your correspondence regarding whether a proposed amendment (the “Amendment”) to the Plan would require shareholder approval pursuant to Marketplace Listing Rule 4350(i)(1)(A) and IM-4350-5 (collectively, the “Rule”).  Pursuant to the Amendment, the authority to accelerate the vesting of awards would be extended to include certain awards of restricted stock units (“RSUs”) to non-employee members of the board of directors.
 
According to the information you provided, eligible participants under the Plan include officers, directors, employees, and consultants.  Awards under the Plan include stock options, stock appreciation rights, restricted stock, and RSUs. The Plan provides for annual automatic awards of RSUs (“Non-Discretionary RSUs”) to each non-employee director who owns less than a specified percentage of the company’s outstanding shares of common stock.  Such RSUs vest 50% upon the board member’s continued board service through the end of the calendar year in which the award is made, and the remaining 50% upon the member’s continued service through the end of June of the succeeding calendar year.
 
Currently, a provision of the Plan authorizes the acceleration of vesting of awards.  However, another provision states that the board has the authority to determine when an award shall become exercisable, and the duration of the exercise period, except for awards of Non-Discretionary RSUs (the “RSU Limitation”).  Pursuant to the Amendment, the RSU Limitation would be removed thereby allowing the acceleration of the vesting of the Non-Discretionary RSUs.  Nothing in the Plan prohibits the issuance of discretionary awards (including RSUs) to non-employee directors, or the acceleration of the vesting schedule of such awards.
 
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 RSUs that could be subject to accelerated vesting.  Accordingly, the Rule does not require shareholder approval for the Amendment.
 
Publication Date*: 7/31/2012 Identification Number: 811 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2007-28
Identification Number 804
This is in response to your correspondence regarding whether a proposed amendment to the Plan would require shareholder approval pursuant to Marketplace Listing Rule 4350(i)(1)(A) and IM-4350-5 (collectively, the “Rule”).  Pursuant to the Amendment, the company would increase the per person annual limitation on the number of awards of restricted stock (“Restricted Stock Awards”).  Restricted Stock Awards include awards of shares of restricted stock and awards of restricted stock units.  The Plan also provides for awards of stock options.
 
The Plan, which was approved by the company’s shareholders, currently provides that during any calendar year, no person may be granted: (i) options covering more than 300,000 shares of common stock or (ii) Restricted Stock Awards covering more than 50,000 shares (the “Annual Restricted Stock Limitation”).  In addition, the Plan specifies a maximum number of shares of common stock available for issuance over the life of the Plan with respect to: (i) all awards (the “Aggregate Plan Limitation”) and (ii) Restricted Stock Awards (the “Aggregate Restricted Stock Limitation”).  The Amendment would increase the Annual Restricted Stock Limitation to 200,000 shares but would not increase either the Aggregate Plan Limitation or the Aggregate Restricted Stock Limitation.
 
Following our review of the information you provided, we have determined that the Amendment is not a material amendment under the Rule. In that regard, we note that notwithstanding the increase in the Annual Restricted Stock Limitation, neither the Aggregate Plan Limitation nor the Aggregate Restricted Stock Limitation would be affected by the Amendment.  In addition, the Amendment would not expand either the class of participants or the types of awards available.  Accordingly, the Rule does not require shareholder approval for the Amendment.
 
Publication Date*: 7/31/2012 Identification Number: 804 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2007-26
Identification Number 802
This is in response to your correspondence regarding whether a proposed issuance of restricted common stock (the “Stock”) for the benefit of certain of the employees of the company’s subsidiaries in South Africa (the “Subsidiaries”) would require shareholder approval pursuant to Marketplace Listing Rule 4350(i)(1)(A) (the “Rule”).
 
According to the information you provided, the Stock would be issued for the benefit of the black employees of the Subsidiaries to ensure that the company’s South African operations comply with South African legislation, specifically, the Broad-Based Black Empowerment Act (the “Act”) and the Codes of Good Practice (the “Codes”) adopted under the Act.  The Act is aimed at the economic empowerment of black people through socio-economic strategies and is intended to address what had been the systematic exclusion of black South Africans from participation in the economy under the former Apartheid system.  The Act addresses the concern that not all South Africans have been meaningfully integrated into the post-Apartheid economy.  The Codes provide a framework for measuring an enterprise’s black economic empowerment.  A key element in this measurement is the provision of equity ownership in and control of South African operations to blacks, black-owned business partners, and other qualified entities.
 
You stated that the Act requires every South African government or public entity to take into account an enterprise’s score when issuing licenses and making procurement decisions.  In addition, the Act has encouraged other entities, including private businesses, to similarly take this score into account in making purchasing decisions.  As such, complying with the Codes, including the ownership provisions, both promotes the Act’s goal of enhancing broad-based black economic empowerment and transforming the South African economy, and enhances a company’s competitive position within South Africa.
 
You stated that the Stock would be issued to allow the company’s South African operations to satisfy the equity ownership requirements adopted under the Codes and to enhance the company’s competitive position in South Africa by having a status acceptable to potential customers.  The Stock would be issued to a Trust, which would benefit current and future black employees of the Subsidiaries and, to the extent shares are not distributed to those beneficiaries, a non-governmental organization created to further the education of blacks.  You stated that the Stock would not be issued for compensatory purposes.  Employees that benefit from the Trust would not see their compensation reduced as a result and would remain eligible for all compensation arrangements, including stock based compensation, paid to similarly-situated employees at the Subsidiaries.  You represented that the issuance would not be treated as compensatory under South African law.  The total number of shares of Stock to be issued would equal approximately one-hundredth of one percent of the company’s outstanding shares.
 
Following our review of the information you provided, we have determined that the issuance of the Stock will not require shareholder approval under the Rule because it is not an equity compensation arrangement within the intent of the Rule.  The issuance is not a component of a compensation program for employees, but, instead, would take place only as a result of the unique regulatory environment in South Africa.  Most importantly, the issuance will allow the company to comply with the Act and the related socio-economic strategies necessary to address the substantial difficulty caused by Apartheid.
 
Publication Date*: 7/31/2012 Identification Number: 802 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2007-21
Identification Number 797
This is in response to your correspondence asking whether the company’s proposed course of action (the “Proposal”) with respect to the Plan would require shareholder approval pursuant to Marketplace Listing Rule 4350(i)(1)(A) and IM-4350-5 (collectively, the “Rule”).  Under the Proposal, as more fully described below, the company would modify certain stock options granted under the Plan to avoid adverse tax consequences under Internal Revenue Service Code Section 409A (“409A”).
 
According to the information you provided, certain options were granted with an exercise price less than fair market value on the date of grant (the “Discounted Options”).  You stated that under 409A, any stock option with an exercise price less than fair market value on the date of grant constitutes deferred compensation and must comply with Section 409A.  As such, the optionholders would be subject to potentially significant additional taxation at the time of vesting.  You stated that it was not the company’s intent for the optionholders to be subject to these adverse tax consequences.
 
Under the Proposal, to prevent the application of 409A to the optionholders, the company would: (i) increase the exercise price per share of the Discounted Options to the fair market value as of the date of grant and
(ii) pay the optionholder the amount equal in value to the difference between the original exercise price and the revised exercise price (the “Payment”).  The Payment would be in cash or in shares of common stock in the form of restricted stock units (“RSUs”).  The RSUs issued as Payment would be granted under the Plan subject to the maximum number of shares reserved under the Plan.  These RSUs would be subject to the same vesting schedule as the options for which the exercise price was increased.  Optionholders who are employees of the company at the time the Payment is made would receive the Payment in RSUs.  Cash, instead of RSUs, would be paid: (i) for fractional shares and (ii) if the number of RSUs that otherwise would be issuable to an optionholder would be less than a minimum that may be established by the company.  If the optionholder is no longer an employee at the time the Payment would be made, the Payment would be made in cash and would be made only for those options that would be vested as of the date of the employee’s termination.
 
Pursuant to the Plan, the administrator may at any time offer to buy out an option for a payment in cash or in shares of common stock based on terms and conditions established by the administrator.  The Plan provides for awards of both stock options and shares of common stock (including restricted shares), although it does not currently provide for RSUs.  An award of an RSU typically results in the issuance of restricted stock on a deferred basis after vesting requirements are met.
 
Following our review of the information you provided, we have determined that the Proposal would not be a material amendment to the Plan under the Rule and, therefore, would not require shareholder approval under the Rule.  This conclusion is based on your representations that the purpose of the Proposal is to address the tax consequences of 409A.  The Proposal would not result in a material increase in benefits to the participants.  In that regard, the exercise price would increase rather than decrease, and the Payment would equal the value of the difference between the revised exercise price and the original exercise price.  The Payments would be consistent with the Plan’s provisions that authorize the company to buy back outstanding options for cash or stock.  In addition, adding RSUs to the permissible types of awards under the Plan is not an expansion in the types of awards available because the Plan already authorizes awards of restricted stock, and RSUs are substantially equivalent to awards of restricted stock.  Further, because any shares that would be issued as a Payment would be subject to the Plan’s authorized share reserve, the Proposal would not increase the number of shares available under the Plan.  We also note that the Proposal would not result in an expansion of the class of eligible participants.
 
Publication Date*: 7/31/2012 Identification Number: 797 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2007-16
Identification Number 792
This is in response to your correspondence regarding whether recently adopted amendments (the “Amendments”) to the Plans require shareholder approval pursuant to Marketplace Listing Rule 4350(i)(1)(A) and IM-4350-5 (collectively, the “Rule”).
 
According to the information you provided, pursuant to the Amendments, any unvested options granted under the Plans to non-employee members of the company’s board of directors will become fully vested and exercisable in the event of a change in control, as such term is defined in the Plans.  No other changes will be made to the Plans pursuant to the Amendments.  You stated that the company was not in discussions with any party at the time it amended the Plans, nor is it currently in discussions with any party, to consummate the type of transaction that would constitute a change of control that would trigger this acceleration of vesting.
 
Following our review of the information you provided, we have determined that the Amendments are not material under the Rule.  In that regard, we note that the Amendments will not result in any material increase in the number of shares to be issued under the Plan; any material increase in the benefits to participants; any material expansion to the class of participants; or any expansion in the types of options or awards available.  Accordingly, the Rule does not require shareholder approval for the Amendments.
 
 
Publication Date*: 7/31/2012 Identification Number: 792 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2007-14  
Identification Number 790
This is in response to your correspondence regarding whether the company’s proposed course of action (the “Proposal”) with respect to the Plan would require shareholder approval pursuant to Marketplace Listing Rule 4350(i)(1)(A) and IM-4350-5 (collectively, the “Rule”).  Under the Proposal, as more fully described below, the company would extend the term of certain options granted under the Plan.
 
According to the information you provided, approximately eight months ago the company announced that it initiated an investigation regarding the timing of its past stock option grants and related issues.  Pending the completion of the investigation, the company has not filed its required periodic financial reports with the Securities and Exchange Commission (the “SEC”).  You stated that the rules of the SEC prohibit the company from processing stock option exercises while it is delinquent in its filings (the “Blackout Period”).  The company expects that during the Blackout Period certain stock options granted under the Plan, and which otherwise would have been exercised, will expire (the “Expiring Options”).
 
The Plan allows for the grant of both Incentive Stock Options (“ISOs”) and Non-Statutory Stock Options (“NSOs”).  The Plan provides that ISOs have a maximum term of ten years but does not limit the term of NSOs.  Typically, although it is not required to do so, the company has chosen to limit the term of NSOs to 10 years.  Pursuant to the Proposal, the company would extend the term of the Expiring Options, including both ISOs and NSOs.  You stated that consistent with the provisions of Section 409A of the Internal Revenue Code, the extended term would expire thirty days after the end of the Blackout Period.  Any ISO that is extended would lose its status as an ISO and would become, instead, a NSO.  The Expiring Options that the company will extend are held by approximately 40 individuals.  You advised that one of them is currently a Section 16 officer at the company; however, this individual was not such an officer when the Expiring Options were granted, and he had no role in the events currently being investigated relating to the timing of past option grants.  You advised that no other Section 16 officers or company directors will be eligible for an extension under the Proposal.
 
Following our review of the information you provided, we have determined that the Proposal would not be a material amendment to the Plan under the Rule.  Any ISO that is extended would become a NSO and, under the Plan, the company already has the authority to award NSOs with a term of its choosing.  As such, the Proposal would not result in a material increase in benefits to participants.  In addition, the Plan provides that the plan administrator has the authority to modify or amend awards so long as such modification or amendment would not impair the optionee’s rights.  Further, the Proposal would not result in an increase in the number of shares to be issued under the Plan, an expansion of the class of eligible participants, or an expansion in the types of awards available.  Accordingly, the Rule does not require shareholder approval of the Proposal.
 
Publication Date*: 7/31/2012 Identification Number: 790 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2007-10
Identification Number 786
This is in response to your correspondence regarding whether a proposed amendment (the “Amendment”) to the Plan would require shareholder approval pursuant to Marketplace Listing Rule 4350(i)(1)(A) and IM-4350-5 (collectively, the “Rule”).  The Amendment would set forth that the company may, with the consent of the affected optionees, amend outstanding options to increase the exercise price to the extent necessary to avoid adverse tax consequences under Section 409A of the Internal Revenue Code.
 
According to the information you provided, the company has determined that certain stock options (the “Options”) it previously awarded to over 2,000 of its employees had exercise prices that were less than the fair market value of the underlying shares.  You stated that the aggregate dollar amount involved was sufficiently small such that no restatement of the company’s financial statements is required.
 
You stated that any stock option with an exercise price less than fair market value on the date of grant constitutes deferred compensation under Section 409A of the Internal Revenue Code.  As such, the optionees would be subject to significant adverse tax consequence at the time of vesting.  To alleviate the unfavorable tax treatment, the company would permit the optionees to elect to increase the exercise prices to the fair market value of the underlying shares as of the grant date.  The amount of the permitted increase would be approximately 5% of the original exercise price.  The current market price of the shares underlying the Options is more than 100% higher than the original exercise price.  The company intends to make cash payments to certain optionees electing to increase their exercise price; such payments will be equal to the difference between the new exercise price and the original exercise price for each share underlying the Options.  Executive officers of the company would not receive the cash payment.
 
The Plan currently provides that shareholder approval is required for increases or decreases in the exercise prices of outstanding options.  You stated that the restriction with regard to an increase in exercise price was an inadvertent result of a prior amendment to the Plan, which was adopted by the company’s board of directors to prohibit exercise price reductions without shareholder approval.  The Amendment would allow for increases in exercise prices to the extent necessary to avoid adverse tax consequences under Section 409A.
 
Following our review of the information you provided, we have determined that the Amendment would not require shareholder approval under the Rule because it would not be a material amendment to the Plan.  The Amendment would, under the very specific, limited circumstances described above, allow for an election to increase the exercise prices.  The Amendment would not result in an increase in the number of shares to be issued under the Plan, an expansion of the class of eligible participants, or an expansion in the types of awards available.  Furthermore, based on these facts, the cash payment to be made in connection with the change in exercise price to the rank-and-file employees, who are optionees, does not raise concerns under the Rule.
 
 
Publication Date*: 7/31/2012 Identification Number: 786 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2007-2
Identification Number 778
This is in response to your correspondence regarding whether a proposed amendment (the “Amendment”) to the Plan would require shareholder approval pursuant to Marketplace Listing Rule 4350(i)(1)(A) and IM-4350-5 (collectively, the “Rule”).  The Amendment, as more fully described below, would set forth that increases in the exercise prices of certain outstanding stock options is permitted under the Plan.  Executive officers and directors are not eligible to receive awards under the Plan.
 
According to the information you provided, the company recently discovered that it may have used an incorrect date of grant for some options that have been awarded under the Plan.  As a result, some of those options (the “Below Market Options”) may have exercise prices less than fair market value as of the correct grant date for financial reporting purposes.  You stated that under Internal Revenue Code Section 409A (“409A”), holders of such options could be subject to unfavorable tax consequences which were not contemplated at the time the grants were made.  To alleviate the unfavorable tax treatment, the company is considering amending the Below Market Options to increase the exercise price to the fair market value as of the correct grant date.
 
Pursuant to a specific provision of the Plan, the company’s board of directors (the “Board”) does not have the authority to: (i) reprice any option so that the exercise price becomes less than the fair market value on the grant date or (ii) take any other action that is treated as a repricing under generally accepted accounting principles.  You stated that the company believes that this provision was intended solely to withhold authority from the Board to reduce exercise prices and does not believe that the intent was to deny the authority to increase exercise prices.  The Board is contemplating the Amendment to clarify that this provision does not prohibit an increase in an exercise price to the fair market value as of the correct grant date.  After making the Amendment, the company would offer to amend eligible options to increase their exercise price.  You stated that under generally accepted accounting principles, including FAS 123(R), the company would not record any additional expense as a result of the amendments to the Below Market Options.  While FAS 123(R) does not define a repricing, under FAS 123 and FIN 44, which were in effect when the plan was adopted, these amendments would not have been treated as a repricing, which would require the recognition of additional total compensation expense.
 
Following our review of the information you provided, we have determined that the Amendment would not require shareholder approval under the Rule because it would not be a material amendment to the Plan.  In that regard, pursuant to IM-4350-5, a material amendment includes any material increase in benefits to participants, including any material change to: (i) permit a repricing (or decrease in exercise price) of outstanding options or (ii) reduce the price at which options may be offered.  Because the Amendment would permit an increase, rather than a decrease, in the exercise price, the Amendment is not material under the Rule.  Further, the Amendment would not result in an increase in the number of shares to be issued under the Plan, an expansion of the class of eligible participants, or an expansion in the types of awards available.  Accordingly, the Rule does not require shareholder approval of the Amendment.
 
Publication Date*: 7/31/2012 Identification Number: 778 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2007-1
Identification Number 777
This is in response to your correspondence regarding the company’s proposal to establish an international employee stock purchase plan (the “IESPP”).  You asked whether the adoption of this plan and the related amendment to the company’s existing employee stock purchase plan (the “ESPP”) would require shareholder approval pursuant to Marketplace Listing Rule 4350(i)(1)(A) and IM-4350-5 (collectively, the “Rule”).
 
According to the information you provided, the ESPP is a shareholder-approved plan designed to qualify under Section 423 of the Internal Revenue Code.  The ESPP is a payroll-deduction based plan that enables employees of the company to purchase shares of the company’s common stock at a discount.  Under the IESPP, employees of the company’s foreign subsidiaries would be entitled to purchase shares of the company’s stock at substantially the same terms as those of the ESPP but subject to the laws of the foreign jurisdictions.  The share reserve previously approved by the shareholders for the ESPP would be used for issuances under both the ESPP and the IESPP.  The Amendment would specify that each share of stock issued under the IESPP would automatically reduce, on a one-for-one basis, the number of shares available under the ESPP.
 
You stated that while employees of the company’s foreign subsidiaries are eligible to participate in the ESPP, the company has determined to establish the IESPP to allow certain differences from the ESPP to comply with applicable local laws relating to tax, securities, and employment.  For example, the securities or employment laws in some countries require that separate bank accounts be created for each employee’s payroll deductions while other countries may prohibit such segregation of funds.  You stated that it is not permissible under Section 423 to provide different terms or conditions for one or more subgroups of employees and that the company therefore needs to establish the IESPP to ensure that its employees in the United States can continue to purchase shares under the ESPP on a tax-favored basis.
 
Following our review of the information you provided, we have determined that the Amendment and the adoption of the IESPP will not require shareholder approval under the Rule.  In that regard, we note that all shares issued under the IESPP will come from the same share reserve that shareholders approved for the ESPP.  Further, the terms of the IESPP are substantially the same as the terms of the ESPP.  The IESPP will be broadly available to employees of the company’s foreign subsidiaries.  These employees can purchase shares through a payroll deduction, at a discount that cannot exceed 15%, identical to the terms of the ESPP, and subject to a limitation on the maximum purchase size that is identical to the limit on the ESPP.  As such, the IESPP provides non-U.S. employees with substantially the same benefits as a comparable tax qualified, non-discriminatory employee benefit plan that the company provides to its U.S. employees (the ESPP).  The Amendment will not result in an increase in the number of shares available for issuance, a material increase in the benefits to participants, a material expansion of the class of eligible participants, or an expansion in the types of awards available.  Therefore, the Amendment (and the creation of the IESPP) is not a material amendment to the ESPP.
 
 
Publication Date*: 7/31/2012 Identification Number: 777 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2006-44  
Identification Number 853
This is in response to your correspondence regarding the potential applicability of the shareholder approval requirements of Marketplace Listing Rule 4350(i)(1)(A) and IM-4350-5 (collectively, the “Rule”) to the company’s proposed transferable stock option program (the “Program”) under the Plan.
 
According to the information you provided, under the Program, employees of the company could transfer eligible options (the “Eligible Options, as defined below) to certain third-party buyers (the “Buyers”) in exchange for a cash payment in an amount established through an auction process.  When transferred Eligible Options are exercised by the Buyer, the number of shares subject to such Eligible Options would be deducted from the Plan’s share reserve.  Eligible Options would be all vested stock options granted under the Plan on and after a certain date.
 
An Eligible Option that is transferred to a Buyer would be amended immediately after such transfer.  The amendments (the “Amendments”) would:  (1) reduce the term (the “Term”) of an Eligible Option to the lesser of:  (i) a two year period beginning on the date of transfer, or (ii) its remaining term; (2) remove provisions relating to post-employment exercise and other provisions relating to employment with the company;
(3) allow for the net exercise of Eligible Options where the Buyer would pay the applicable exercise price through the cancellation of a portion of the shares subject to the Eligible Options; and (4) replace the current anti-dilution provisions with provisions that specifically set forth the circumstances where they would apply and the type of adjustment that would be made.
 
Currently, the Plan contains provisions that authorize the Plan administrator to: (1) institute a program giving Plan participants the opportunity to transfer any outstanding awards to a financial institution selected by the administrator; and (2) extend the period during which Plan awards could be exercised following the termination of employment.  In addition, the Plan provides that the acceptable forms of consideration for the exercise of options,  in addition to cash, include other shares of the company’s stock, consideration received under a cashless exercise program, and such other consideration as permitted by applicable laws.  Finally, the Plan permits anti-dilution adjustments to be made as determined by the Plan administrator.
 
Following our review of the information you submitted, we have determined that shareholder approval of the Amendments is not required pursuant to the Rule.  As stated in IM-4350-5, if a plan permits a specific action without further shareholder approval, then no such approval would generally be required.  In that regard, the Plan specifically permits the administrator to adopt a program, such as the Program, which permits the transfer of awards to a financial institution. In addition, the Plan permits the administrator to extend the post-termination employment exercise period of Plan awards.  Further, the Plan permits the administrator to accept any consideration permissible by law for the option exercise price and to make anti-dilution adjustments on a discretionary basis.  The Term reduction is not a material change under IM-4350-5 because it shortens, rather than lengthens, the duration of options.  Please note that we are not ruling on other aspects of the Program, including other amendments which you stated would be made, but did not delineate.
 
Publication Date*: 7/31/2012 Identification Number: 853 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2006-42
Identification Number 851
This is in response to your correspondence regarding whether shareholder approval pursuant to Marketplace Listing Rule 4350(i)(1)(A) (the “Rule”) would be required of certain proposed actions (the “Proposal”)  involving the Plan.
 
According to the information you provided, pursuant to the Proposal the company would offer to purchase for cash stock options that have been previously granted to six of the company’s senior executives (the “Designated Executives”). The purchase price would equal the par value of the shares of common stock underlying the options ($0.001 per share), and all options that are purchased would be cancelled. Pursuant to the terms of the Plan, the shares underlying the cancelled options would remain available for issuance in connection with future awards under the Plan. Following the cancellation, the company would grant additional stock options to employees other than the Designated Executives, utilizing the shares that would remain available as a result of the cancellation, in an effort to provide retention and performance incentives to those individuals. You stated that Designated Executives whose options are purchased would not be entitled to or promised any future consideration for their cancelled options and would not be provided any assurance that they will receive the same number of, or any, future equity awards.
 
The company intends to continue to grant new awards under the Plan to employees, including the Designated Executives, in connection with the company’s regularly scheduled annual performance reviews. These grants would be made according to criteria that are consistent with its past practices of reviewing and determining the size of annual awards. The number of shares underlying the options that may be granted to the Designated Executives in connection with the annual performance reviews would be unaffected by the purchase and cancellation and would be based solely on the previously established criteria for such annual awards (which do not consider any prior exercises or cancellations of previously granted options).  You stated that nothing contained in the Proposal will constitute a repricing for purposes of generally accepted accounting principles (“GAAP”).
 
Following our review of the information you provided, we have determined that the Rule does not require shareholder approval of the Proposal.  In that regard, in the purchase of the outstanding options, the Designated Executives would receive cash and not additional stock options or any other form of equity. Further, the Plan provides that shares underlying cancelled options remain available for issuance under the Plan for future awards. In addition, you stated that that the Designated Executives will not receive replacement awards for the awards that are purchased and cancelled and that there is nothing in the Proposal that would constitute a repricing under GAAP. As such, the Proposal will not require shareholder approval under Listing Rule 4350(i)(1)(A).
 
Publication Date*: 7/31/2012 Identification Number: 851 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2006-36
Identification Number 845
This is response to your correspondence regarding the applicability of Marketplace Rules 4350(i)(1)(A) and 4350(i)(1)(C)(ii) and IM-4350-5 to the company’s proposed assumption of certain outstanding stock options (the “Options”) of Target, a privately-held corporation, in connection with the company’s planned acquisition of Target (the “Acquisition”).
 
The Options will include both options that were issued pursuant to the Target’s shareholder-approved plans and options that were awarded without shareholder approval (“Non-Plan Options”).  No further awards will be made under the Target’s option plans following the Acquisition.
 
Any outstanding Options will be adjusted to reflect the Acquisition and, subject to the limitation described below, will become exercisable for shares of the company’s common stock.  However, to the extent that shares issuable pursuant to such Options together with other shares issuable in the Acquisition would equal or exceed 20% of the company’s pre-Acquisition total shares outstanding, the company will exchange newly granted options (the “Exchanged Options”), issued under a plan approved by the company’s shareholders, for such number of Non-Plan Options as would be necessary in order for the 20% threshold not to be reached when the shares issuable pursuant to the Exchanged Options are not counted.  The company has advised that its Plan specifically contemplates exchanges of options in the event of a merger or acquisition such as the exchange being proposed in the Acquisition and allows for such awards to be made without regard to the stock price at the time of issuance of the options when options are granted pursuant to the assumption of, or substitution for, other options in a qualifying manner.
 
Following our review of the information you provided, we have determined that the assumption of the Options in connection with the Acquisition will not require shareholder approval under Listing Rule 4350(i)(1)(A) because IM-4350-5 provides that shareholder approval under Listing Rule 4350(i)(1)(A) is not required to convert, replace, or adjust outstanding options in connection with an acquisition, without regard to whether such options have been approved by the target’s shareholders.  Pursuant to IM-4350-5, shares issuable pursuant to the Options will be considered in determining whether the Acquisition involves the issuance of 20% or more of the company’s stock and thereby triggers the shareholder approval requirements under Listing Rule 4350(i)(1)(C).  Finally, to the extent the company issues Exchanged Options, shares underlying such Exchanged Options would not be considered in determining whether shareholder approval of the Acquisition is required under Listing Rule 4350(i)(1)(C) if the Exchanged Options and the underlying shares will be issued pursuant to a shareholder-approved plan that contemplates such an issuance and will reduce the number of shares otherwise available in that plan.
 
Publication Date*: 7/31/2012 Identification Number: 845 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2006-32    
Identification Number 842
This is in response to your correspondence regarding whether a reduction in the exercise price of outstanding stock options (the “Reduction”) under the company’s equity compensation plans (the “Plans”) would require shareholder approval pursuant to Marketplace Listing Rule 4350(i)(1)(A) and IM-4350-5 (collectively, the “Rule”).
 
According to the information you provided, pursuant to the Reduction, the company would offer option holders under the Plans the opportunity to have the exercise price of “underwater” options reduced to the fair market value of the company’s common stock on the date of the Reduction.  Each of the Plans provides that the company’s board of directors has the authority, in its discretion, to determine the terms and provisions of each option granted and, “with the consent of the holder thereof, modify or amend any provisions (including provisions relating to exercise price)” of any option granted.
 
Following our review of the information you provided, we have determined that the Reduction would not be a material amendment under the Rule because each Plan specially authorizes the company’s board to modify or amend provisions relating to the exercise price of outstanding options.  Pursuant to IM-4350-5, if a plan permits a specific action without further shareholder approval, then no such approval would generally be required.  Accordingly, the Rule does not require shareholder approval for the Reduction.
 
Publication Date*: 7/31/2012 Identification Number: 842 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2006-30  
Identification Number 840
This is in response to your correspondence regarding whether the company’s proposed extension of the termination date of the Plan (the “Extension”) in the manner described below would comply with the shareholder approval requirements of Marketplace Listing Rule 4350(i)(1)(A) and IM-4350-5 (collectively, the “Rule”).
 
According to the information you provided, unless extended, the Plan will expire on the Current Termination Date.  Under the Extension, the termination date would be extended to the New Termination Date.  You stated that the company’s board of directors intends to approve the Extension prior to the Current Termination Date, and prior to obtaining shareholder approval, but no awards would be made pursuant to the Extension unless shareholder approval is obtained.  If shareholder approval is not obtained at the company’s next annual shareholders’ meeting, the Plan will be deemed to have expired as of the Current Termination Date, and no further awards under the Plan will be granted.
 
Following our review of the information you provided, we have determined that the Extension satisfies the requirements of the Rule.  Under the Rule, an extension of the duration of a plan requires shareholder approval.  Although it would be adopted by the company’s board prior to shareholder approval being sought, the Extension satisfies the Rule because no shares of common stock could be issued pursuant to the Extension unless shareholder approval is obtained.
 
Publication Date*: 7/31/2012 Identification Number: 840 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2006-29
Identification Number 839
This is in response to your correspondence regarding whether a proposed amendment (the “Amendment”) to the company’s equity compensation plan (the “Plan”) would require shareholder approval pursuant to Marketplace Listing Rule 4350(i)(1)(A) and IM-4350-5 (collectively, the “Rule”).  Pursuant to the Amendment, the company would be permitted, by means of a net issuance feature (“Net Issuance”), to withhold the taxes that a participant would owe in connection with awards of restricted stock, restricted stock units, and stock appreciation rights (the “Taxes”).
 
According to the information you provided, the Plan originally allowed only for the grant of options to participants.  Thereafter, the Plan was amended, with shareholder approval, to also allow for the award of restricted stock, restricted stock units, and stock appreciation rights.  Due to a clerical error when this amendment was made, the provision that allows for Net Issuance for stock options was not also expanded to include other types of awards.  The Amendment would correct this oversight, such that upon the vesting or exercise of an award, as applicable, the company could withhold from a participant a portion of the shares otherwise issuable equal in value to the dollar amount of the Taxes and would pay that amount to the appropriate tax authorities.  Any such redemption would occur at the fair market value of the shares at the time of withholding.
 
Following our review of the information you provided, we have determined that the Amendment would not be a material amendment under the Rule.  We note that the Amendment would not result in a material increase in benefits to the participants because the market value of the withheld shares would equal the dollar amount of the Taxes.  We also note that the Amendment would not result in an increase in the number of shares to be issued under the Plan, in an expansion of the class of eligible participants, or in an expansion of the types of options or awards available.  Accordingly, the Rule does not require shareholder approval for the Amendment.
 
 
Publication Date*: 7/31/2012 Identification Number: 839 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2006-26  
Identification Number 836
This is in response to your correspondence regarding whether certain proposed amendments (the “Amendments”) to the company’s equity compensation plan (the “Plan”) would require shareholder approval pursuant to Marketplace Listing Rule 4350(i)(1)(A) (the “Rule”).  Pursuant to the Amendments: (i) restricted stock awards (“RSAs”) would be permitted; and (ii) changes would be made to the vesting schedule for certain stock options (the “Vesting Revisions”).
 
According to the information you provided, the Plan currently authorizes the award of stock options, stock appreciation rights, and performance share awards (“PSAs”).  You stated that RSAs would be similar to PSAs, which are awards of the right to receive a specified number of shares of common stock contingent upon the achievement of specified performance objectives, including continued employment, over a specified time period.  RSAs would be awards of restricted stock subject to forfeiture if certain performance criteria are not met and/or employment with the company is terminated prior to the end of the restriction period.  For RSAs, the Plan administrator would have the authority to shorten or terminate the restricted period or waive any other restrictions.  Currently, for PSAs, the Plan administrator has the right to amend the terms of outstanding awards, subject to certain limitations.  In addition, as is currently authorized under the Plan for PSAs, for RSAs the Plan administrator would determine to whom such awards would be granted, the number of common shares subject to each award, and the vesting schedule including any performance criteria.  You stated that RSAs would be treated the same as PSAs for accounting, tax, and financial statement purposes.
 
Under the Vesting Revisions, the vesting period would be changed for stock options awarded to non-employee directors.  Currently, such options are vested and exercisable 50% on the date of grant, 25% one year after the grant date, and the remaining 25% two years after the grant date.  Pursuant to the Vesting Revision, the options would vest in annual increments of 25% beginning one year after the grant date.
 
Following our review of the information you provided, we have determined that the Amendments would not require shareholder approval under the Rule.  In that regard, we note that the addition of RSAs would not result in a material increase in benefits to participants, or in an expansion of the types of awards available, because RSAs would not be materially different from PSAs, which are currently permissible under the Plan.  Both types of awards involve the issuance of common stock, and both are subject to the terms and provisions determined by the Plan administrator.  In addition, the Vesting Revisions would not require shareholder approval because changes to delay vesting are not material amendments under the Rule.  We also note that the Amendments would not result in an increase in the number of shares to be issued under the Plan or in an expansion of the class of eligible participants.  Accordingly, the Rule does not require shareholder approval for the Amendments.
 
Publication Date*: 7/31/2012 Identification Number: 836 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2006-23
Identification Number 833
This is in response to your correspondence regarding the potential applicability of Marketplace Listing Rule 4350(i)(1)(A) (the “Rule”) and IM-4300 to proposed equity awards (the “Awards”) to the Officers.  Your letter relates to whether: (i) the company is subject to the Rule and (ii) the Awards would affect the company’s eligibility to list on NASDAQ.
 
According to the information you provided, the company’s securities were delisted from the New York Stock Exchange and have since traded in the Pink Sheets.  The company has applied to list on NASDAQ.
 
You stated that the Compensation Committee of the company’s board of directors plans to grant the Awards upon confirmation that the Awards would not impair the company’s application to be listed on NASDAQ.
 
Following our review of the information you provided, we have concluded that the Awards would not be subject to the Rule, provided that the agreement relating to the Awards is finalized and the Awards are made prior to the company’s listing on NASDAQ.  Furthermore, granting the Awards prior to listing on NASDAQ would not impair the company’s eligibility for listing, provided that the company’s actions with respect to the Awards are consistent with the assumptions stated herein.  In that regard, the provisions of IM-4300 would not lead to a different conclusion: the agreement would be reached and the Awards made at a time when the company was not listed on NASDAQ or an exchange that imposed corporate governance requirements; over one year would have elapsed since the company’s delisting from an exchange that imposed requirements that would have been applicable; and the delisting from that exchange was unrelated to the Awards or any other shareholder approval concern.  Please note, however, that if the company lists on NASDAQ prior to granting the Awards, the Awards would require shareholder approval under the Rule.
 
 
Publication Date*: 7/31/2012 Identification Number: 833 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2006-22
Identification Number 832
This is in response to your correspondence regarding whether the company’s proposed course of action (the “Proposal”) with respect to two of its stock option plans (collectively, the “Plans”) would require shareholder approval pursuant to Marketplace Listing Rule 4350(i)(1)(A) and IM-4350-5 (collectively, the “Rule”).  Under the Proposal, as more fully described below, the company would buy back certain outstanding stock options for cash and increase the exercise prices of certain other outstanding options in exchange for a cash payment.
 
According to the information you provided, as permitted under the Plans, certain option grants were made at less than fair market value on the date of the grant.  You stated that under Internal Revenue Service Code Section 409A, any stock option with an exercise price less than fair market value on the date of grant constitutes deferred compensation and must comply with Section 409A.  As such, the optionees likely would be subject to potentially significant additional taxation at the time of vesting.  You stated that it was not the company’s intent for the optionees to be subject to these tax consequences.
 
Under the Proposal, the company would take the following two courses of action to prevent the application of Section 409A to the optionees:
 
  1. Where the fair market value of discounted stock options at the time of grant is known, the company would increase the exercise price of such options to 100% of the fair market value on the stock options’ original date of grant and compensate optionees for the increased exercise price with a cash payment equal to the spread between the original exercise price and the revised exercise price of the stock options (the “Exercise Price Increase”); or
 
(2) Where the fair market value of the stock option cannot be determined, the company would provide optionees with a cash payment equal to the stock options’ current Black-Scholes value in exchange for the cancellation of such stock options (the “Option Repurchase”).
 
Under the provisions of the Plans, the administrator may at any time offer to buy out for a payment in cash or in shares of common stock an option previously granted based on such terms and conditions as the administer shall establish and communicate to the optionees.
 
Following our review of the information you provided, we have determined that the Proposal would not be a material amendment to the Plans under the Rule.  The Proposal would not result in a material increase in benefits to the participants.  In that regard, the Exercise Price Increase would increase rather than decrease the exercise price, and the cash payment to the optionees in connection with that change would equal the difference between the revised exercise price and the original exercise price.  You stated that the Exercise Price Increase and the cash payment would be consistent with the approach envisioned by the Internal Revenue Service in the regulatory proceedings to implement Section 409A.  In making this determination, NASDAQ notes that less than 10% of the options subject to the Exercise Price Increase are presently out of the money.  The Option Repurchase also would not result in a material amendment to the Plans because the Plans specifically permit the company to do so and because the consideration to be paid would be cash, and not equity.  We also note that the Proposal would not result in an increase in the number of shares to be issued under the Plans, an expansion of the class of eligible participants, or an expansion in the types of awards available.  Accordingly, the Rule does not require shareholder approval of the Proposal.  This conclusion is based on your representations that the purpose of the Proposal is to address the tax consequences of Section 409A.
 
Publication Date*: 7/31/2012 Identification Number: 832 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2006-20
Identification Number 830
This is in response to your correspondence regarding a proposed amendment (the “Amendment”) to the company’s equity compensation plan (the “Plan”).  You asked whether the Amendment would require shareholder approval pursuant to Marketplace Listing Rule 4350(i)(1)(A) (the “Rule”).
 
According to the information you provided, the Plan currently provides for the award of restricted stock through stock purchase rights (“Stock Purchase Rights”) and stock options.  The Plan defines Stock Purchase Rights as the right to purchase common stock at a price determined by the Plan administrator.  You stated that the price paid is typically zero or perhaps par value.  You further stated that shares granted pursuant to Stock Purchase Rights may be subject to repurchase by the company, thus making them subject to a vesting schedule.
 
Pursuant to the Amendment, the company would authorize the granting of restricted stock units (“RSUs”) under the Plan.  RSUs would be awards of common stock subject to a vesting schedule such that the common stock underlying the RSUs would not be issued until after any applicable vesting requirements are satisfied.  You stated that in all material respects, the terms and conditions of the RSUs would be the same as the terms and conditions of restricted stock.  Specifically, you indicated that RSUs and Stock Purchase Rights would have the same tax treatment, accounting treatment, and securities law implications.  The Amendment would not increase the maximum number of shares of common stock available under the Plan.
 
Following our review of the information you provided, we have determined that the Amendment would not be a material amendment under the Rule.  In that regard, we note that the Amendment would not result in a material increase in benefits to participants, or in an expansion of the types of awards available, because the RSUs are substantially equivalent to the stock awards currently permissible under the Plan.  We also note that the Amendment would not result in an increase in the number of shares to be issued under the Plan or in an expansion of the class of eligible participants.  Accordingly, the Rule does not require shareholder approval for the Amendment
Publication Date*: 7/31/2012 Identification Number: 830 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2006-16
Identification Number 826
This is in response to your correspondence regarding a proposed amendment (the “Amendment”) to the company’s stock option plan (the “Plan”).  You asked whether the Amendment would require shareholder approval pursuant to Marketplace Listing Rule 4350(i)(1)(A) (the “Rule”).
 
According to the information you provided, the Plan currently provides for the award of stock options, stock awards, and stock retainers.  As defined in the Plan, stock awards are grants of restricted stock subject to vesting, and stock retainers are outright grants of stock which may or may not be subject to vesting.  Pursuant to the Amendment, the company would authorize the granting of restricted stock units (“RSUs”) under the Plan.  RSUs would be awards of common stock subject to a vesting schedule such that the common stock underlying the RSUs would not be issued until after any applicable vesting requirements are satisfied.  The other features of the RSUs would be identical to stock awards under the Plan or, as applicable, stock retainers, including being subject to the same restrictions and to the same limitations with respect to value.  The Amendment would not increase the maximum number of shares of common stock available under the Plan.
 
Following our review of the information you provided, we have determined that the Amendment would not be a material amendment under the Rule.  In that regard, we note that the Amendment would not result in a material increase in benefits to participants, or in an expansion of the types of awards available, because the RSUs are substantially equivalent to the stock awards which are currently permissible under the Plan.  We also note that the Amendment would not result in an increase in the number of shares to be issued under the Plan or in an expansion of the class of eligible participants.  Accordingly, the Rule does not require shareholder approval for the Amendment.
 
Publication Date*: 7/31/2012 Identification Number: 826 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2006-14
Identification Number 824
This is in response to your correspondence regarding whether Marketplace Listing Rule 4350(i)(1)(A) and IM-4350-5 (collectively, the “Rule”) would require shareholder approval of the company’s proposed amendments (the “Amendments”) to its stock option plans, specifically, its Employee Plan and its Director Plan (collectively, the “Plans”). Your question also relates to the voting rights requirements of Listing Rule 4351 (the “Voting Rights Rule”).  Pursuant to the Amendments, in connection with a special stock dividend (the “Dividend”), there would be an adjustment to: (i) the maximum number of shares available under the Plans (the “Share Reserve Increase”), and (ii) the maximum number of shares that may be subject to award for an individual participant under the Employee Plan in any one year (the “Award Increase”).
 
The company has three series of common stock: Series A with one vote per share, a higher voting Series B, and a non-voting Series C, which has no voting power except as required by applicable state law.  In 2005, the company’s board of directors approved the Dividend consisting of one share of Series C for each share of Series A and Series B resulting in the doubling of the aggregate common shares outstanding.  Prior to the payment of the Dividend, there had been no shares of Series C outstanding.
 
According to the information you submitted, the Employee Plan and the Director Plan each provide a maximum number of shares of common stock that may be issued, subject to the anti-dilution and other adjustment provisions of the Plans. In addition, the Employee Plan provides that no person may be granted in any calendar year awards covering more than a certain number of shares of common stock.  The Plans do not otherwise limit the number of shares of any series of common stock that may be the subject of awards.
 
Pursuant to the Share Reserve Increase, the company proposes to double the shares available under the Plans.  Pursuant to the Award Increase, the company proposes to double the maximum number of shares that may be awarded to an individual participant in a calendar year. The increases would reflect the doubling of the number of common shares outstanding resulting from the Dividend.  Notwithstanding the increases that would result from the Amendments, the number of shares of Series B that may the subject of awards will be limited to the number that would have been available prior to the Amendments (the “Series B Limitation”).
 
You stated that both the Share Reserve Increase and the Award Increase are specifically permitted under the provisions of the Employee Plan and the Director Plan, which provide that adjustments can be made to preserve the benefits or potential benefits intended to be made available under the plan following any stock dividend or similar corporate event, including adjustments to any or all of: (i) the number and kind of shares or stock which thereafter may be awarded, optioned, or otherwise made subject to the benefits contemplated by the Plan; and (ii) the number and kind of shares of stock subject to outstanding Awards.
 
Following our review of the information you provided, we have determined that the Rule does not require shareholder approval of either the Share Reserve Increase or the Award Increase because both are specifically permitted by provisions of the Plans. As stated in IM-4350-5, if a plan permits a specific action without further shareholder approval, then no such approval would generally be required. The Voting Rights Rule is not implicated because, as a result of the Series B Limitation, the Amendments cannot increase the number of outstanding shares of the high vote stock.
 
Publication Date*: 7/31/2012 Identification Number: 824 Mailto Link
Frequently Asked Questions
  Staff Interpretation Letter 2006-11
Identification Number 821
This is in response to your correspondence regarding whether a proposed amendment (the “Amendment”) to the company’s stock option plan (the “Plan”) would require shareholder approval pursuant to Marketplace Listing Rule 4350(i)(1)(A) and IM-4350-5 (collectively, the “Rule”). Pursuant to the Amendment, the company would increase the size of automatic awards to non-employee directors and change the grant date for the automatic annual awards to non-employee directors.
 
Currently, the Plan provides that each non-employee director shall receive, upon joining the board of directors, an option to purchase shares (the “Initial Award”), and, thereafter, an annual award (the “Annual Award”) of an option to purchase shares. Pursuant to the Amendment, the Initial Award would increase to 150% of the current award, and the Annual Award, would increase to 120% of the current award. Currently, the Plan provides that the Annual Award shall be made on the last business day of the company’s fiscal year. You stated that changes in accounting rules have made this grant date administratively burdensome. Pursuant to the Amendment, the Annual Award would be made a few weeks before, or possibly one week after, the end of the fiscal year. You indicated that the Amendment to the Initial Award would be applied to the non-employee directors who joined the company’s board of directors since the most recent annual meeting. As a result, these directors will receive the adjusted number of options as part of their Initial Award, although the exercise price of the increased amount will be set at 100% of the fair market value of the stock on the grant date, rather than the date these directors joined the board.  The Amendment would not affect the maximum number of shares available under the Plan. You stated that the company believes the Amendment is necessary because the company’s director compensation package was below the desired market position and could lead to difficulty in attracting directors.
 
Following our review of the information you provided, we have determined that the Amendment is not a material amendment under the Rule.  In that regard, we note that notwithstanding the increase in the size of the Initial Award and the Annual Award, the aggregate number of shares of common stock available under the Plan is not affected by the Amendment. In addition, the Amendment would not expand either the class of participants eligible to participate or the types of awards available. Accordingly, the Rule does not require shareholder approval for the Amendment.  Further, in this case, we believe it is not inappropriate to apply the Initial Award to the individuals appointed since the company’s last annual meeting of shareholders prior to the submission of your request, given that they were appointed “mid-term”, and, at that time, the company was concerned about its director compensation package and had discussed making a change such as the Amendment.
 
Publication Date*: 7/31/2012 Identification Number: 821 Mailto Link
material_search_footer*The Publication Date reflects the date of first inclusion in the Reference Library, which was launched on July 31, 2012, or a subsequent update to the material. Material may have been previously available on a different Nasdaq web site.
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