Board Diversity
Reference Library - Advanced Search


** To make multiple selections, select the first criterion and then press and hold the Ctrl Key **
1- 1 of 1 Search Results for:
Libraries:   Staff Interpretation Letters
Filters:   All Years; Shareholder Approval; All
Search   Clear

Expand All Printer Friendly View Mailto Link 
Page: 1 of 1
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 Mailto Link Identification Number: 786
Page: 1 of 1
App Store       Google Play       Listing Center Content RSS Feed
The Nasdaq Stock Market, Nasdaq, The Nasdaq Global Select Market, The Nasdaq Global Market, The Nasdaq Capital Market, ExACT and Exchange Analysis and Compliance Tracking system are trademarks of Nasdaq, Inc.
FINRA® and Financial Industry Regulatory Authority, Inc.® are registered trademarks of Financial Industry Regulatory Authority, Inc.