-
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U
PAUL J, CHASE , 3JOHN LOOAN O'DONNELLHARRY F WKYHERLEO P.
ARNABOLDI. JR.WM F SONDERICKERJAMES C. TOLANROGER MULVIHILL
JOHN F WALSH. JR.LEONARD J CONNOLLYEDWARD A VROOMAN
JA-MES B. KCANEYE. SHEARELL ANDACWS
JOHH A. MCFARLANDVICTOM A MACMCINSKI. JA.MARTIN J. DEVER,
JR.
THOMAS MANICK
ANDPEW J COSENTIHO
GLENN J POOUSTPAUL OLUCK
WILLIAM M. 00005
BRAOLCY H. STEIN
BRUCE 8 W,00
BARBARA J. KELLY
ANGELO 0 SAVINO
SCOTT LANGLEYAIC;IARD A. GOLDMAN
ALAN T OALLANTY
DENNIS P. SPATES
ROY B. LARSON
8 3
OLWINE, CONNELLY, CHASE, O'DONNELL & WEYH
000077
CHARLES H. MCCAOHEYWILLIAM F DOWNEY
JAMES C. HANSEN
STEPHEN A. MAOIDA
HIRAM KNOTT
PETER ARON
MICHAEL E, TWOMEY
RONALD N JEWELL
GAMY HOPPE
MICHAEL L SPAFFORD
KEVIN J. LAKE
COWARD A. SMITH
ANNEMARIE O DICOLA
NANCY PRAHOrER
CLAUDIA. BAUM
JOSEPH C TORTORICI
LIZABETH A. VEVURKA
DEREK CP MACKENZIECORNELIUS M COUR™EYCHARLES 8. FRIEDMANTERRENCE
M BENNETT
WILLIAM A KAPELLROONEY M ZERIC405 0 SAMIOS
PAUL 1 RACHLINKENNETH B WEINER
NORA C .c CARDENAS
Gentlemen:
299 PARKAVENUE, NEW YORK, N. Y. 10171
212207·1800 .TELECOPIER: 753·2742
753 1747
AAP:FAX. 088·6120
CABLE ADOMESS OLCONCH
TELEX·,WX NUMBER,
TWI OCCOW HYK
710 SIt·6170
I: 0 9'·1:CH 0 42":·,1, e5 OW :litoN FINANCE
SEP 2 R1887-
September 16, 1987
PUBLIC AVAILABILITY DATE: 11-20-87ACT SECTION RULE
1934 16(b) 16b- 3
REOD S.E.(1fr ly M
SEP1 71987
29JJOHN E. CONNELLY, JR.
ROBERT H. GROGAN
RENATO C OIALLOFWINZI
FRANK W. GAINES, JR.'COUNSIL
WASHINGTON OFFICE
ROBERT LHOCCLE'
TIMOTHY J. rITZJIBBON
ROXANNE S. CLEMENTS
SUITE Bec
1850 K STRCCT. N W.
WASHINGTON. O. C 20006
(202) 659·4871
.NOTADMIT.EO IN
NE..0.K
WRITERS DIRECT LINE
1845(212) 207·
Section 16(b); Rule 16b-3
Supplement to Anitec Image Technology Corp.Request for No Action
Advice regarding ,
Incentive Stock Option Plan
This letter supplements and amends our priorletter submitted on
behalf of Anitec Image Technology Corp.,a Delaware corporation (the
"Company"), dated July 27, 1987,in which we requested your
concurrence with certain inter-pretations expressed therein of Rule
16b-3 promulgated underthe Securities and Exchange Act of 1934 (the
"1934 Act") asthey relate to proposed amendments to the Company's
Incen-tive Stock Option Plan (the "Plan").
Based on your advice, we have revised the proposedamendments to
the Company's Plan to require that an optionholder's election to
deliver already-owned stock, or to havethe Company withhold shares,
upon exercise of a non-qualified option to satisfy the related tax
obligation mustbe made either during the ten-day "window period"
set forthin Rule 16b-3 (e)(3)(ili) or at least six months prior
tothe-date that the option exercise becomes taxable. A copyof the
proposed amendments to the Company's Plan, asrevised, is attached
hereto as Exhibit A.
Our request for your- concurrence in the analysisand conclusion
expressed in our July 27 letter relating tonon-"window period"
elections to use the tax withholdingfeature is hereby
withdrawn.
.E
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5-
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- „ We are still respectfully requesting that th*staff.concur in
our conclusions expressed in the July 27letter as they relate to
the proposed amendments to the yPlan, as revised and set forth on
Exhibit A attached hereto,that, (1) the election by an optionee
under -the Plan to' havea portion of the shares of common stock of
the Companyotherwise issuable to the optionee withheld to
satisfy_federal, state, and local tax withholding requirements
willbe exempt from the operation of Section 16(b) of the 1934Act by
reason of Rule 16b-3; (2) the election by an optioneeunder the Plan
to deliver shares of common stock of theCompany, other than those
received upon the relatedexercise, to satisfy federal, state, and
local tax withhold-ing requirements will similarly be exempt; and
(3) theseelecti'ons will.qualify for exemption by reason of Rule
16b-3even if the proposed amendments as revised by this letterare
not submitted to the Company's shareholders forapproval.
Should you have any questions or comments aboutthis supplemental
letter, please call'the undersigned, or,in his"absence, Stephen A.
Magida-at (212) 207-1835.
.
. . 571
1,
000078
, (c Stp=*y,
Paul I. Rachlin
The Securities and Exchange Commission,Office of Chief
Counsel,
Division of Corporate Finance,450 Fifth Street, N.W.,
Washington, D.C. 20549.
Attention: Mike Prozan, Esq.
FEDERAL EXPRESS
-
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PAUL J. CHASE
JOHN LOGAN O'DONNELLHAARY F. WEYHER
LEO P ARHAB-01. JR.WM. F SONDERICKER
JANISE. TOLAM
ROGER MULVIHILL
JOHN r WALSH. JR.
LEONARD J. CONNOLLYEDWARD A. VROOMAN
JAHES S. MIANCY
2. SHERRELL ANDREWS
JOHN A. MCFAMUHO
VICTOR A HACHCINSKI, JR.
MARTIN J DEVER. JR.
THOMAS MANICK
ANDREW J. COSCUTIHO
GLENN J. POOUST
PAUL GLUCK
WILLIAM K. 00000BRADLEY H. STEINBRUCC O *000
BARBARA J KELLY
ANGELO 0. SAVINO
SCOTT LANGLEYRICHARD A. OOLOMAN
ALAN T GALLANTY
DENNIS P. SPATES
ROY 8 LARSON
Alt ' '
' 6 .C.0.7f,\11· 01-WINE, CONNELLY, CHASE. O'DONNELL &
209 PARK AVENUE, NEW YORK, N. Y. 10171
CHARLES M McCAOHEY
WILLIAM r OOWNZY
JAMES C HANSEN
STEPHEN A MAGIDA
HIRAM KNOTT
PETER ARON
MICHAEL K. TWOMEY
RONALD R. JEWELL
OARY HOPPE
MICHAEL L. SPAFFORD
KEVIH J. LAKE
COWARO A SMITH
ANNEMARIE 0.0,COLANANCY PMAHOFER
CLAUDE A BAUM
JOSEPH C. TORTORIC:
LIZABETH A VEVURICA
DEREK O P MAC KENZIE
CORNELIUS M. COURTNEY
CHARLES 8. FRIEDMAN
TERRENCE M BENNETT
WILLIAM A. KAPELL
ROONCY M. ZERBE
GUS 0 SAMIOS
PAUL I AACHLIN
KENNETH 8 WEINER
NOMA C CE CARDENAS
Gentlemen:
212207·1800
TE'ECOPIER 753·2742
753·2747
RAP'FAX: 688 61,6
CABLE ADDRESS' OLCONCH
TELEX•n¥X NUMBER.
TWX OCCOW HYK
710 Sol·6170
im. 000079L- /1567
811 8 5 1987=.54%10.00*P*ELLY. JR.RENATO C CALLORCHZIFRANK W
qAINES. JIM.OFFICE OF CHIEF :01jNSEL COU41%6 - .. CORPORATION
FINA:r-
-.-- «41$4,ON OFFICEROOERT'L. HOEGLE'
July 27, 1987
TIMOTHY J. FITZOIBBON'
ROXANNE 5. CLEMENTS.
SUITE 890
1850 K STACIT, N W.
WASHINGTON. D. C. 20006
(2021 6594071
NOT AO.ITTED IN
.CW .0.M
WRITER'S DIRECT LINE
1835(212) 207*
Section 16(b); Rule 16b-3
Anitec Image Technology Corp.Request for No Action Advice
Regarding
Incentive Stock Option Plan
On behalf of Anitec Image Technology Corp., aDelaware
corporation (the "Company"), we are writing torequest your
concurrence with the interpretations of Rule16b-3 promulgated under
the Securities Exchange Act of 1934(the "1934 Act") expressed in
this letter as they relate toproposed amendments to the Company's
Incentive Stock OptionPlan.
THE COMPANY
The Company designs, manufactures and marketsphotographic films,
papers and processing chemicals for the
' graphic arts industry. The Companys common stock isregistered
under Section 12(g) of the 1934 Act and is quotedon NASDAQ. The
Company has timely filed all reports andstatements required to be
filed under the 1934 Act.
THE PLAN
In April 1985, the Company's Board of Directorsadopted the
Incentive Stock Option Plan (the "Plan"). TheCompany's stockholders
approved the adoption of the Plan
1 ..1,1 .,
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M /111 , ,"111 7/ 11., 111 1,111" , ./' p . '"/1' 111' • ' '1
.
-
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000080
shortly thereafter. The Plan provides for the grant ofincentive
stock options and non-qualified stock options tokey employees of
the Company and its subsidiaries. Thepurpose of the Plan is to
establish a close identity ofinterests between the Company and its
subsidiaries and theirrespective employees, and to assist the
Company in retainingthese employees and attracting new executives
and other keyemployees.
For your reference, a copy of the Plan is attachedas Exhibit A
to this letter. We would like to draw yourattention to Section 19
of the Plan which enables an optionholder to deliver shares of the
Company's common stock tosatisfy, in whole or in part, the exercise
price of anyoption granted under the Plan. For purposes of this
letter,you may assume that the Plan in its present form
complieswith the applicable provisions of Rule 16b-3.
THE PROPOSED AMENDMENTS
Anitec is proposing to amend the Plan to allowoption holders to
satisfy tax withholding obligations inconnection with the exerci 3e
of a non-qualified stock optionby having the Company withhold a
number of shares deliver-able on exercise or by tendering to the
Company a number ofalready-owned shares which have a value equal to
thewithholding amount. A copy of the proposed amendments isattached
as Exhibit B to this letter.
Unlike prior similar plan amendments considered bythe Staff (see
discussion below), the Plan, as amended, willnot require that an
option holder's election to deliveralready-owned stock, or to have
the Company withhold shares,upon exercise of a non-qualified option
to satisfy therelated tax obligation must be made either during the
ten-day "window period" set forth in Rule 16b-3(e)(3)(ili) or
atleast six months prior to the date that the option
exercisebecomes taxable. However, the exercise of a
non-qualifiedstock option within six months of its date of grant
will beprohibited.
The Compensation Committee of the Board ofDirectors, which
administers the Plan and all of whose mem-bers are "disinterested
persons" within the meaning of Rule16b-3(b)(3), will reserve the
absolute right to disapproveany election to deliver already-owned
stock, or to withholdstock, to satisfy the optionee's tax
obligation.
,
WE-
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1.,
,
DISCUSSION
1. Share Withholding Election
3
000081
Under the Plan as proposed to be amended, aparticipant will have
the discretion to elect to satisfy taxwithholding obligations by
using shares of common stockalready owned or issuable on an option
exercise. We realizethat en argument might be made that this
discretion isequivalent to the right to receive, to a certain
extent,either stock gr a cash equivalent (taxes paid) on exerciseof
an option and that using stock to satisfy tax
withholdingobligations arguably resembles a cash settlement of a
stockappreciation right, which in turn must comply with Rule
16b-3(e). However, we believe that the proposed amendments aremore
like the surrender of stock as payment for an optionexercise,
herein referred to as a stock-for-stock optionexercise, than a cash
settlement of an SAR, and shouldtherefore be analyzed in that
context. Nevertheless, theproposed amendments to the Plan will
satisfy most of therequirements of Rule 16b-3(e).
The staff has previously taken the position that,so long as
certain of the requirements of Rule 16b-3(e) aremet, that Rule
exempts from the operation of Section 16(b)of the 1934 Act the
election by a Plan participant to have aportion of the shares
otherwise issuable to that parcicipantwithheld to satisfy tax
withholding requirements. PrimarkCorporation, (February 23, 1987);
Baxter TravenolLaboratories, Inc., (February 10, 1986). In the
letterscited, the staff relied upon Rule 16b-3(e), which
exemptscertain cash settlements of SARs.
With respect to SARs, however, Rule 16b-3(e)requires that the
election to receive a cash payment uponexercise of the SAR and the
actual exercise of the SAR,occur during a ten-day "window" period
as defined in Rule16b-3(e)(3)(iii). The proposed amendments to the
Plan allowoption holders to elect to use stock to pay tax
withholdingobligations outside any window period and without a
six-month prior election. The staff has expressed the view inprior
interpretative letters that, so long as the electionto deliver
already-owned stock or to have shares of stockwithheld to pay the
participant's tax liability is madewithin either of the
aforementioned time periods, the actualexercise of the option need
not occur during a windowperiod. Baxter Travenol Laboratories, Inc.
(February 10,1986); Eli Lilly & Co. (July 23, 1986).
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51
4
000082
We submit that such timing restrictions on the useof stock to
satisfy tax withholding obligations areinconsistent with the need
for flexibility in the area oftax withholding and are unnecessary
to further the -underlying purposes of Rule 10-3. The timing
restrictionson the use of the 3tock withholding feature derive from
itsanalogy to SARs. In certain respects, however, the use ofstock
to satisfy tax withholding obligations bears a closerresemblance to
a stock-for-stock option exercise. Notably,Rule 16b-3 does not
require a prior election by optionholders for stock-for-stock
option exercises.
Under Rule 16b-3 the "surrender or delivery to theissuer of its
stock as payment upon the exercise of a stockoption" is not
considered a "sale" of stock. From theperspective of the employee
option holder, the paymentrequired upon exercising an option is the
sum of the optionprice and the tax required to be withheld on
exercise. Webelieve that the word "payment" in Rule 16b-3's
stock-for-stock exercise exemption should encompass the
taxwithholding obligations which arise on exercise of theoption. In
Primark, see above, for example, the Staffconcluded that the use of
already-owned stock to satisfy taxwithholding obligations was not a
"sale" of stock underSection 16(b). The Staff's conclusion is
entirely consistentwith the proposition that the delivery of stock
to satisfytax withholding obligations is analogous to the surrender
ofstock in payment of the option price, which under Rule 16b-3is
not a "sale" of stock.
Since Rule 16b-3 does not require option holdersto make an
election to use stock as payment of the optionprice during a window
period or at least six months prior toexercise, the Rule should not
be construed to impose suchrestrictions on an election to use stock
to pay the taxwithholding obligation. Furthermore, we believe that
theelimination of such timing restrictions, consistent with
thetreatment of stock-for-stock option exercises, creates
nosignificant opportunity for speculative abuse, and isconsistent
with the need for flexibility in the area of taxwithholding.
Although we believe that the use of stock tosatisfy tax
withholding obligations in connection withoption exercises should
not be rigidly cast by analogy as acash settlement of an SAR, the
Plan, as amended, Willcomply with most of the requirements of Rule
16-b(3)(e). Asnoted above, the Company's common stock is registered
underSection 12(g) of the 1934 Act and the Company has been
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5
000083
subject to the reporting requiremen1s of Section 13 of the1934
Act for more than a year and has filed all reports andstatements
required to be filed pursuant to that Section.Accordingly, the
requirements of subparagraph (1) of Rule16b-3(e) are satisfied. The
requirements of subparagraph(2) of Rule 16b-3(e) are satisfied
because the exercise of anon-qualified stock option may not occur
until at least sixmonths after the date of grant of the option
(except thatthe limitation may not apply in the event death
ordisability of the participant occurs prior to the expirationof
the six-month period).
With respect to the requirements of Rule 16b-3(e)(3)(i), all
members of the Compensation Committee, whichadministers the Plan,
are "disinterested persons". ThatCommittee will approve, in
advance, the election to withholdshares, or to deliver already
owned shares, to satisfy theoptionee's tax obligation with respect
to all outstandingand subsequently granted non-qualified stock
options, sub-ject to the Committee's right to disapprove any
election andto revoke its advance approval. The Committee's
actionmeets the requirements of Rule 16b-3(e)(3)(ii) because
theCommittee has both the power to consent to and disapproveany
such election. -
2. Shareholder Approval
Pursuant to paragraph (a)(2)(ii) of Rule 16b-3,for a plan to
enjoy the exemptions provided by Rule 16b-3,any amendment to the
plan must be approved by the share-holders of the Company if the
amendment would:
(A) materially increase the benefits occurring toparticipants
under the plan;
(B) materially increase the number of securitieswhich may be
issued under the plan; or
(C) materially modify the requirements as toeligibility for
participation in the plan.
The proposed amendments do not increase the numberof securities
which may be issued under the Plan or modifythe requirements as to
eligibility for participation in thePlan. The Company also does not
believe that such amend-ments materially increase the benefits
occurring to partici-pants under the Plan.
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7
000085
taxable; and (4) these elections will qualify for exemptionby
reason of Rule 16b-3 even if the proposed amendments arenot
submitted to the Company' s shareholders for approval.
Should you require any additional information,-orwish to discuss
the matter further, please do not hesitateto contact the
undersigned, or in his absence, Paul Rachlinat (212) 207-1845.
Securities and Exchange Commission,Office of Chief Counsel,
Division of Corporate Finance,450 Fifth Street, N.W.;
Washington, D.C. 20549.
Attention: William E. Toomey, Esq.
1.
" PIll M 1 ' lili'I 11 'llr I lillill, 11/1, 9, 1,1'1
Very truly yours,
3*5 8. 04£Stephen A. Magida
1 . '. I Ir ., 1 i,1 P
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, October 20, 1987
RESPONSE OF THE OFFICE OF CHIEF COUNSELDIVISION OF CORPORATION
FINANCE
000086
Re: Anitec Image Technology Corp.Incoming letters dated July 27
and September 16, 1987
On the basis of tha facts presented, it is the view of
thisDivision that a) the election by an optionee under the Plan
tohave a portion of the shares of common stock of the
Companyotherwise issuable to the optionee withheld to satisfy
federal,state and local tax withholding requirements will be exempt
fromthe operation of Section 16(b) of the Securities Exchange Actof
1934 by reason of Rule 16b-3; b) the election by an optioneeunder
the Plan to deliver shares of common stock· of the Company,other
than those received upon the related exercise, to satisfyfederal,
state and local tax withholding requirements will besimilarly
exempt; and c) the proposed amendments providing forthese elections
need not be approved by shareholders pursuantto Rule 16b-3(a).
Because these positions are based upon the representationsmade
to the Division in your letter, it should be noted that
anydifferent facts or conditions might require a different
conclusion.
- 1 111 ' 1111 1, I ' , " 4.-/.--=:- 'll,
Sincerely, ,
6239*-William E. ToomeyAssistant Chief Counsel
, 'El" I,[, I' ," 1/ ?11 .1 111 1/