SecProbe.io

CORRESP
1
filename1.htm

Letter to the SEC

 August 19, 2008

 Office of Mergers & Acquisitions

 Securities and Exchange Commission

 100 F. Street, NE

 Washington, DC 20549

 Attention: Celeste Murphy, Special Counsel

Re:
Kopin Corporation—Cash Tender Offer for Eligible Options

 Dear Ms. Murphy:

 Kopin Corporation, a Delaware corporation (the “Company”), proposes to make an Offer to
Purchase Eligible Options (the “Offer”) pursuant to which it is offering eligible employees of the Company the opportunity to have the Company purchase their eligible options to purchase shares of the Company’s common stock for
the right to receive certain cash payments. The Offer is being conducted for the compensatory purpose of providing eligible employees with an opportunity to avoid or minimize potential adverse personal tax consequences under Section 409A of the
Internal Revenue Code, as amended (the “Code”), with respect to their eligible options. The expected details of the Offer are described further below and will be more fully described in a Schedule TO to be filed with the Securities
and Exchange Commission (the “Commission”) prior to commencement of the Offer.

I.
FACTUAL BACKGROUND

A.
The Company

 The Company is a
Section 12(b) reporting company under the Exchange Act of 1934, as amended (the “Exchange Act”), and as of August 8, 2008 it had approximately 67,731,514 shares of common stock outstanding. Shares of the Company’s
common stock are principally traded on the Nasdaq National Market of the NASDAQ Stock Market LLC, and on August 8, 2008 the last reported sale price of the Company’s common stock on the Nasdaq National Market was $3.21 per share. As of
August 8, 2008, options to purchase 6,308,026 shares of the Company’s common stock were issued and outstanding under the Company equity incentive plans, including eligible options to purchase up to 213,148 shares of the Company’s
common stock. As disclosed in the Company’s Form 10-K for the fiscal year ended December 30, 2006, the Company determined that the applicable “measurement dates” of certain stock options determined for financial reporting
purposes differed from the stated dates of grant of such stock options used at the time such stock options were granted. The Company further determined that for financial reporting purposes certain of such stock options, including the eligible
options in the proposed Offer, were granted with an exercise price per share less than the fair market value of the Company’s common stock on the applicable “measurement dates” determined for financial reporting purposes.

 August 19, 2008

 Page 2

B.
Section 409A of the Internal Revenue Code

 Section 409A of the Code and regulations thereunder provide that stock options issued with an exercise price less than the fair market value of the underlying stock on the applicable “grant dates” as determined for tax
purposes that were unvested as of December 31, 2004 constitute deferred compensation within the meaning of and subject to Section 409A of the Code. Holders of these options may be subject to adverse personal tax consequences under
Section 409A of the Code with respect to these options. By virtue of our determination with respect to the applicable “measurement dates” of certain stock options, including the eligible options in the proposed Offer, for financial
reporting purposes, such stock options may be deemed to have been granted with an exercise price less than the fair market value of our common stock on the applicable “grant dates” determined by the IRS for tax purposes. While not
entirely clear under Section 409A of the Code and the proposed regulations, without remedial action holders of such options will likely be subject to U.S. federal income taxation in the year in which such stock options vest (as opposed to the
year in which they are exercised) in an amount equal to the difference between the fair market value of the underlying stock and the exercise price, and be subject to an additional twenty percent (20%) penalty tax on such amount plus interest
penalties. Holders of such options may also be subject to similar taxation under state law.

 Under the guidance promulgated by the Internal Revenue Service and the Department of the Treasury under Section 409A of the Code (the “Interpretive Guidance”), an eligible outstanding stock option subject to
Section 409A of the Code may be amended to provide for, or permit holders of such options to elect, fixed payment terms that are consistent with Section 409A of the Code; provided that in order to avoid the adverse personal tax
consequences of Section 409A of the Code, the option must be amended or the election must be made on or before December 31, 2008.1
Accordingly, the Company believes that the Offer provides eligible employees with the opportunity to avoid or minimize potential adverse personal tax consequences of Section 409A of the Code with respect to their eligible options.

However, the Interpretive Guidance provides that with respect to any such amendment or election
made on or after January 1, 2008 and on or before December 31, 2008, the amendment or election may apply only to amounts that would not otherwise be payable in 2008 and may not cause an amount to be paid in 2008 that would not otherwise be
payable in 2008.2 Accordingly, eligible employees who participate in the Offer will be provided, effective upon the expiration of the Offer, with a
contractual right to receive a cash payment payable in lump sum on the first regular payroll date of the Company after January 1, 2009 or, if earlier on the date their eligible option would otherwise expire (e.g., because of termination
of employment after the expiration of the Offer in 2008).3 If such cash payment were paid in

 1

 Section 3.02 of Notice 2006-79, 2006-43 IRB 763 (October 4, 2006), as superceded and replaced in Section 3(B)
of Notice 2007-86, 2007-46 IRB 990 (October 22, 2007). This relief is not available to stock options granted to persons who, as of the applicable dates of grant, were subject to the disclosure requirements of Section 16(a) of the Exchange Act
with respect to such issuer. See, Section 3.07 of Notice 2006-79.

 2

 Section 3.02 of Notice 2006-79, 2006-43 IRB 763 (October 4, 2006), as superceded and replaced in Section 3(B)
of Notice 2007-86, 2007-46 IRB 990 (October 22, 2007).

 3

 The Company believes earlier payment is required under the Interpretative Guidance in cases where the Eligible Option
would have otherwise expired in 2008, to avoid postponing to a later year any payment which could otherwise only have been made under the Eligible Option by exercise on its expiration in 2008. However, because of the terms of the proposed Offer and
of the Eligible Options, it is highly unlikely that any Eligible Option would in fact expire in 2008 (but for the Offer) so as to cause payment to be made earlier than the general payment date, to wit, with the first payroll in 2009.

 August 19, 2008

 Page 3

 2008 (except as noted), the purchase would not be effective to permit eligible employees to avoid or minimize potential adverse personal tax consequences
under Section 409A of the Code.

C.
The Offer to Purchase Eligible Options

 Some
of the Company’s employees hold stock options with exercise prices that may be lower than the fair market value of the Company’s common stock on the applicable “grant date” determined for tax purposes. Holders of these options
may therefore be subject to adverse personal tax consequences under Section 409A of the Code with respect to any of these options (or portions thereof) that were unvested as of December 31, 2004. To address this situation, the Company
is offering to purchase eligible options from eligible employees to provide them with the opportunity to avoid or minimize such potential adverse taxation, that is, to in effect change the payment date for any deferred compensation considered
inherent in the option as allowed under the Interpretative Guidance.

 An option to
purchase the Company’s common stock will be subject to the Offer only to the extent that option (or portion thereof) meets the following conditions (an “Eligible Option”): (i) the option was granted under a Company Plan;
4 (ii) the option was granted, for tax purposes, with an exercise price per share that is less than the fair market value per share of the
Company’s common stock on the applicable date of grant determined for tax purposes (as determined by the Company); (iii) the option is held by an Eligible Employee (as defined below); (iv) the option is outstanding on the Offer
expiration date; and (v) the option was unvested as of December 31, 2004.

 An individual is eligible to participate in the Offer only to the extent that such individual meets the following criteria (an “Eligible Employee”): (i) the individual is an employee of the Company (or any Company
subsidiary) at the commencement of the Offer and at the expiration of the Offer; (ii) the individual holds an Eligible Option; (iii) the individual is or may be subject to income taxation in the United States with respect to that option;
and (iv) the individual is not a current or former Section 16 Officer or Director5 at the commencement of the Offer and at the expiration
of the Offer. No current or former Section 16 Officers and Directors are eligible to participate in the Offer.

 Eligible Employees who participate in the Offer will be provided, effective upon the expiration of the Offer, with a contractual right to receive a cash payment (“Cash Payment”) at a future date in an
amount equal to the fair market value of their Eligible Options determined by the Company using “Black-Scholes”. The Cash Payment will be payable in lump sum on the first regular payroll date of the Company after January 1, 2009
(and/or, if earlier, with respect to any Eligible Expiring Options6 purchased in the Offer, on the date(s) such Eligible Expiring Options would have
otherwise expired but for the Eligible Optionee’s participation in the Offer). The Cash Payment will not be subject to any vesting conditions or otherwise subject to forfeiture. The delay in payment of the Cash Payment is

 4

 The term “Company Plans” refers to the 2001 Equity Incentive Plan, as amended, and the 2001
Supplemental Equity Incentive Plan, as amended.

 5

 The term “Section 16 Officers and Directors” refers to officers and directors of the Company subject to
Section 16 of the Exchange Act.

 6

 The term “Eligible Expiring Option” refers to an Eligible Option that would have expired during the
period commencing on the date immediately following the Offer Expiration Date and ending on January 1, 2009 but for it being purchased in the Offer (for example, because of termination of employment during such period).

 August 19, 2008

 Page 4

 required by Section 409A of the Code and Interpretive Guidance. The right to receive the Cash Payment will be evidenced by a nontransferable written
agreement executed by the Company and delivered to Eligible Employees who participate in the Offer promptly following the expiration of the Offer.

II.
DISCUSSION

A.
Compliance with Rule 13e-4(f)(5)

 Exemptive Orders

 In response to requests to accommodate the
compensation policies and practices of issuers conducting exchange offers for employee stock options conducted for compensatory purposes to address the potential materially adverse tax treatment of such options under Section 409A of the Code,
the Commission granted case-by-case relief7 and general exemptions8 from the “prompt payment” requirements of Rule 13e-4(f)(5) for such exchange offers in order to permit issuers to delay the payment of cash consideration offered in such exchange offers.

 While the Offer does not technically fall within the scope of the exemptions provided by the 409A Exchange Offer Exemptive Orders because
the Company is offering to purchase Eligible Options for the right to receive Cash Payments rather than offering to exchange such options for amended options or new Company securities, the Company believes that the Offer otherwise meets the criteria
for such exemptive relief. Specifically, (i) the Offer is being made to Eligible Employees for compensatory purposes in order to provide such employees with an opportunity to avoid or minimize potential adverse personal tax consequences under
Section 409A of the Code; (ii) the delay in the payment of the Cash Payment is required by the Section 409A of the Code and Interpretive Guidance; (iii) Eligible Employees participating in the Offer will be provided, effective as
of the expiration of the Offer, with a contractual right to receive the Cash Payment, and the Cash Payment will be paid on the first regular payroll date of the Company after January 1, 2009 (and/or, if earlier, with respect to any Eligible
Expiring Options purchased in the Offer, on the date(s) such Eligible Expiring Options would have otherwise expired but for the Eligible Optionee’s participation in the Offer); (iv) the vesting and exercisability provisions of the Eligible
Options will not be amended in the Offer (although not applicable to the Offer); (v) the Offer is not being made to current or former Section 16 Officers and Directors; and, as discussed further below (vi) the Company has determined
that, aside from the prompt payment issue and the fact that the Company is offering to purchase Eligible Options for the right to receive Cash Payments rather than offering to exchange such options for amended options or new Company securities, it
otherwise would be able to rely on the relief granted in the Exchange Offer Exemptive Order.

 7

 Adobe Systems Incorporated, SEC No-Action Letter (avail. Feb. 28, 2007); CNET Networks, Inc., SEC No-Action Letter
(avail. Feb. 28, 2007); Juniper Networks, Inc., SEC No-Action Letter (avail. Mar. 6, 2007) (the “Juniper 409A Exchange Offer”); and Chordiant Software, Inc., SEC No-Action Letter (avail. Mar. 26, 2007) (collectively, the
“Non-Vesting 409A Exchange Offers”) and HCC Insurance Holdings, Inc., SEC No-Action Letter (avail. Jun. 12, 2007); and Microtune, Inc., SEC No-Action Letter (avail. Sept. 13, 2007) (collectively, the “Vesting 409A Exchange
Offers” and together with the Non-Vesting 409A Exchange Offers, the “409A Exchange Offers”).

 8

 See the general exemptions provided in Chordiant Software, Inc. (Mar. 26, 2007) and Microtune, Inc. (Sept. 13,
2007) (together, the “409A Exchange Offer Exemptive Orders”).

 August 19, 2008

 Page 5

 No-Action Letters

 In the context of issuer tender offers conducted primarily for compensatory purposes, the Staff
historically granted relief from the requirements of Rule 13e-4(f)(5) where requiring otherwise would defeat the valid compensatory purpose for undertaking such tender offers. The staff of the Division of Corporate Finance (the
“Staff”) specifically granted relief from the “prompt payment” requirements of Rule 13e-4(f)(5) in the context of issuer exchange offers for compensatory purposes to address issues arising under Section 409A of
the Code.9 In the 409A Exchange Offers, the primary compensatory purpose of the offer was to provide eligible employees with an opportunity to avoid
or minimize adverse personal tax consequences under Section 409A of the Code and similar adverse taxation under state law.

 The
Company believes that the future Cash Payment feature of the Offer is nearly identical to that of the 409A Exchange Offers. In the 409A Exchange Offers, the issuers provided eligible employees with a contractual right to payment of the cash portion
of the consideration at a future date. In the Non-Vesting 409-A Exchange Offers, such cash consideration was generally paid on the first regular payroll date of the issuer in January of the year following the year in which the option was purchased
in the offer. In the Vesting 409A Exchange Offers, the cash consideration payable with respect to the vested portion of the