Potential Corporate Governance Issue; Seeking Assistance

While doing research on another nano cap I came across a very interesting potential corporate governance issue in the companies proxy report that I wanted to ask you about.  Emphasis below is mine.

The Exercise Price of each share of Common Stock which may be purchased upon exercise of any Option granted under the Plan shall not be less than 100% of the Fair Market Value of the Common Stock on the day immediately preceding the Date of Grant; provided, however, that the Committee shall have discretion, with respect to a Non-Qualified Stock Option, to establish an Exercise Price at less than the Fair Market Value on the day immediately preceding the Date of Grant to the extent that such Option is designed to comply with the requirements of Section 409A of the Code.

This is the first time I have seen anything said like that in any kind of financial report before and I wanted to make sure I am reading the paragraph right.  Are they saying that they the committee have the discretion to award options to people that are lower than the market value as long as it is a non-qualified option and it is the day before the grant date? I am not very well versed in options so please correct me if I am wrong.

This company issues a ton of options so this could be a major issue.  Also isn’t this or shouldn’t this be illegal?  They say below this that they do not allow the repricing of options after they are issued and I know years ago a bunch of companies got in trouble for repricing their options but isn’t this pretty much the same thing?

Thanks a lot for any help you all could offer as I want to make sure I am understanding everything properly before blasting the company.