This excerpt taken from the VOXW DEF 14A filed Oct 29, 2009.
Description of the Option Exchange Program
Implementing the Option Exchange Program. Eligible Participants will be offered the opportunity to participate in the Option Exchange Program pursuant to an Offer to Exchange which will be filed with the Securities and Exchange Commission, or the SEC, on Schedule TO. From the time the Option Exchange Program commences, Eligible Participants will be given at least 20 business days to make an election to surrender all of their Eligible Options in exchange for New Options. The New Options will be granted on the day the Option Exchange Program expires. Even if the Option Exchange Program is approved by our stockholders, our board will retain the authority, in its sole discretion, to terminate or postpone the program at any time prior to the closing of the Option Exchange Program or to exclude certain Eligible Options or Eligible Participants from participating in the Option Exchange Program due to tax, regulatory or accounting reasons or because participation would be inadvisable or impractical. Stockholder approval of the Option Exchange Program applies only to this specific exchange program. If we were to implement a different stock option exchange program in the future, we would once again need to seek stockholder approval.
Outstanding Options Eligible for the Option Exchange Program. To be eligible for exchange under the Option Exchange Program, an option must have an exercise price that is greater than or equal to $2.25. As of October 9, 2009, options to purchase approximately 1,107,508 shares of our common stock were outstanding, of which options to purchase approximately 861,199 shares would be eligible for exchange under the Option Exchange Program.
Eligibility. The Option Exchange Program will be open to all of our domestic and certain of our foreign employees and directors, who hold Eligible Options. To be eligible, an individual must be employed and providing services to us or be one of our directors at the time the Offer to Exchange commences. Additionally, in order to receive the New Options, an Eligible Participant who surrenders his or her Eligible Options for exchange must be an employee on the date the New Options are granted. Individuals who have given or received notice of termination on or prior to the expiration date of the Option Exchange Program will not be eligible to participate. As of October 9, 2009, approximately 50 employees held Eligible Options.
Exchange Ratios. In the proposed Option Exchange Offer, Eligible Participants would be offered a onetime opportunity to exchange all of their Eligible Options for New Options covering a smaller number of shares calculated using an exchange ratio of 1.15 to 1.00. We intend for the fair value of the New Options to be approximately equal to the fair value of the Eligible Options surrendered based on a Black-Scholes valuation methodology calculated by an independent third party as of the close of the Option Exchange Program.
The following table shows the number of shares underlying outstanding Eligible Options in each exercise price range above $2.25 per share as of October 9, 2009, and the number of New Options to be issued based on the proposed 1.15 to 1.00 exchange ratio. The exchange ratio set forth in the table was determined based upon a Black-Scholes calculation of the assumed fair value of the Exchange Options and New Options. This Black-Scholes calculation takes into account factors that include original grant price, remaining vesting period, remaining option term and volatility.
New Options granted in accordance with the actual exchange ratios will be rounded down to the nearest whole share on a grant-by-grant basis. Adjustments to any of the assumptions used to calculate the information in the above table will result in a change to the number of shares underlying New Options that may be granted under the Option Exchange Program.
Election to Participate. Participation in the Option Exchange Program will be voluntary. Eligible Participants will only be permitted to exchange all or none of their Eligible Options for New Options.
Exercise Price of New Options. All New Options will be granted with an exercise price equal to the closing price of our stock on the Nasdaq Capital Market on the day of the close of the Option Exchange Program.
Term of the New Options. The New Options will have a new expiration date of seven years from the date of grant.
Other Terms and Conditions of the New Options. Other terms and conditions of the New Options will be set forth in option agreements to be entered into as of the New Option grant date. Any additional terms and conditions will be comparable to the existing terms and conditions of the Eligible Options. All New Options will be nonstatutory stock options granted under our 2003 Plan regardless of the tax status of the Eligible Options tendered for exchange.
Return of Surrendered Eligible Options to Plan. Consistent with the terms of the 2003 Plan, the pool of shares available for the grant of future awards under our 2003 Plan will be increased by that number of shares equal to the difference between (a) the number of shares underlying surrendered Eligible Options granted under the 2003 Plan and (b) the number of shares underlying all New Options granted under the 2003 Plan.
Accounting Treatment. We have adopted the provisions of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123 (Revised), or SFAS 123(R), regarding accounting for share-based payments. Under SFAS 123(R), we are required to recognize any incremental compensation cost of the stock options granted in the Option Exchange Program. Incremental compensation cost is measured as the excess, if any, of the fair value of each New Option granted to employees in exchange for surrendered Eligible Options, measured as of the date the New Options are granted, over the fair value of the Eligible Options surrendered in exchange for the New Options, measured immediately prior to the cancellation. Such incremental compensation cost, if any, is recognized ratably over the vesting period of the New Options. However, because the exchange ratios will be calculated to result in the fair value of Eligible Options surrendered being equal to the fair value of the New Options replacing them, we do not expect to recognize any incremental compensation expense for financial reporting purposes as a result of the Option Exchange Program. As would be the case with Eligible Options, in the event that any of the New Options are forfeited prior to their vesting due to termination of service, the compensation cost for the forfeited New Options will not be recognized.
U.S. Federal Income Tax Consequences. The following is a summary of the material United States federal income tax consequences of the Option Exchange Program for those Eligible Participants who are subject to United States federal income tax. This summary is based on the federal tax laws in effect as of the date of this proxy statement. Changes to these laws could alter the tax consequences described below. A more detailed summary of the applicable tax considerations to Eligible Participants will be provided in the Option Exchange Program. This summary does not discuss all of the tax consequences that may be relevant to an Eligible Participant in light of his or her personal circumstances, nor is it intended to be applicable in all respects to all categories of Eligible Participants.
We believe that the exchange of Eligible Options for New Options pursuant to the Option Exchange Program should be treated as a non-taxable exchange, and no income should be recognized for United States federal income tax purposes by the Eligible Participants upon the issuance of the New Options. All New Options will be nonstatutory stock options, even if the exchanged options are incentive stock options. As a result, upon the exercise of the New Options, the Eligible Participants will recognize ordinary compensation income equal to the excess, if any, of the fair market value of the purchased shares on the exercise date over the exercise price paid for those shares. Upon disposition of the shares, the Eligible Participants will recognize capital gain or loss (which will be short-term or long-term depending on whether the shares were held for more than one year from the date of exercise) equal to the difference between the selling price and the fair market value of the shares on the date of exercise. The holding period for the shares acquired through the exercise of an option will begin on the day after the date of exercise. If Eligible Options that are incentive stock options are not exchanged in the Option Exchange Program, then such options may be deemed to be newly granted for United States federal income tax purposes, depending on the final terms of the Option Exchange Program.
There will be no tax consequences to us with respect to the Option Exchange Program or the exercise of New Options (or Eligible Options not exchanged) except that we will be entitled to a deduction when an Eligible Participant has compensation income. Any such deduction will be subject to the limitations of Section 162(m) of the Internal Revenue Code.
Potential Modifications to Terms to Comply with Governmental Requirements. The terms of the Option Exchange Program will be described in an Offer to Exchange that we will file with the SEC. Although we do not anticipate that the SEC will require us to modify the terms significantly, it is possible we will need to alter the terms of the Option Exchange Program to comply with comments from the SEC. Changes in the terms of the Option Exchange Program may also be required for tax purposes for participants in the United States as the tax treatment of the Option Exchange Program is not entirely certain.