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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 Mailto Link Identification Number: 772
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