8-KLeadership ChangesExhibits & Filings

Monster Beverage Corp 8-K Report, Executive Changes (Jan 8, 2007)

Filed January 8, 2007For Securities:MNST

Summary

This 8-K filing from Hansen Natural Corporation (now Monster Beverage Corp.) on January 8, 2007, addresses critical updates to executive and director stock option agreements. The company proactively amended these agreements, effective December 31, 2006, to comply with Section 409A of the Internal Revenue Code. This action was taken to mitigate potential penalties for 'discount options' where the exercise price was potentially lower than the fair market value at the grant date, especially for individuals subject to Section 16(a) disclosure requirements. The amendments aim to protect option holders from adverse tax consequences stemming from the ongoing Special Committee Investigation into past stock option grants. Investors should note that these changes are primarily a precautionary measure related to tax code compliance and not necessarily indicative of any confirmed wrongdoing in the original grant dates or pricing, though the Special Committee Investigation remains ongoing.

Key Highlights

  • 1Hansen Natural Corporation (MNST) filed an 8-K on January 8, 2007, detailing amendments to stock option agreements for executives and directors.
  • 2Amendments were made effective December 31, 2006, to comply with Section 409A of the Internal Revenue Code.
  • 3The changes address 'discount options' to avoid potential penalties for option holders.
  • 4These amendments are a response to IRS Notice 2006-79 and the company's ongoing Special Committee Investigation into stock option grants.
  • 5The company states these amendments are not based on findings of required adjustments to grant dates or exercise prices, but rather to minimize Section 409A risks.
  • 6The exercise price of amended options is set to the fair market value on the grant date, with provisions for adjustment if the Special Committee Investigation revises the grant date.
  • 7The filing includes the Form of Amendment to Stock Option Agreement as an exhibit.

Frequently Asked Questions

The company amended its stock option agreements to ensure compliance with Section 409A of the Internal Revenue Code. This was done to prevent potential penalties for 'discount options' where the exercise price might have been below the fair market value on the grant date, particularly for executives and directors subject to Section 16(a) disclosure rules.

The company explicitly states that the amendments are not a result of any findings that the original grant dates or exercise prices require adjustment. Instead, they are a proactive measure to mitigate potential tax penalties under Section 409A, in light of IRS guidance and the ongoing Special Committee Investigation.

Effective December 31, 2006, the amended agreements set the exercise price to the fair market value of the stock on the original grant date. If the Special Committee Investigation determines that the grant date needs to be adjusted, the exercise price will be recalculated based on the fair market value on the adjusted grant date.

Section 409A of the Internal Revenue Code governs nonqualified deferred compensation. For stock options, it imposes strict rules regarding the timing and form of compensation. Options granted with an exercise price below the fair market value on the grant date ('discount options') can lead to significant penalties for the option holder if not properly corrected, especially if they are considered deferred compensation under Section 409A.