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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 Mailto Link Identification Number: 717
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