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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 Mailto Link Identification Number: 790
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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