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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 Mailto Link Identification Number: 853
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