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Frequently Asked Questions
  Staff Interpretation Letter 2006-36
Identification Number 845
This is response to your correspondence regarding the applicability of Marketplace Rules 4350(i)(1)(A) and 4350(i)(1)(C)(ii) and IM-4350-5 to the company’s proposed assumption of certain outstanding stock options (the “Options”) of Target, a privately-held corporation, in connection with the company’s planned acquisition of Target (the “Acquisition”).
 
The Options will include both options that were issued pursuant to the Target’s shareholder-approved plans and options that were awarded without shareholder approval (“Non-Plan Options”).  No further awards will be made under the Target’s option plans following the Acquisition.
 
Any outstanding Options will be adjusted to reflect the Acquisition and, subject to the limitation described below, will become exercisable for shares of the company’s common stock.  However, to the extent that shares issuable pursuant to such Options together with other shares issuable in the Acquisition would equal or exceed 20% of the company’s pre-Acquisition total shares outstanding, the company will exchange newly granted options (the “Exchanged Options”), issued under a plan approved by the company’s shareholders, for such number of Non-Plan Options as would be necessary in order for the 20% threshold not to be reached when the shares issuable pursuant to the Exchanged Options are not counted.  The company has advised that its Plan specifically contemplates exchanges of options in the event of a merger or acquisition such as the exchange being proposed in the Acquisition and allows for such awards to be made without regard to the stock price at the time of issuance of the options when options are granted pursuant to the assumption of, or substitution for, other options in a qualifying manner.
 
Following our review of the information you provided, we have determined that the assumption of the Options in connection with the Acquisition will not require shareholder approval under Listing Rule 4350(i)(1)(A) because IM-4350-5 provides that shareholder approval under Listing Rule 4350(i)(1)(A) is not required to convert, replace, or adjust outstanding options in connection with an acquisition, without regard to whether such options have been approved by the target’s shareholders.  Pursuant to IM-4350-5, shares issuable pursuant to the Options will be considered in determining whether the Acquisition involves the issuance of 20% or more of the company’s stock and thereby triggers the shareholder approval requirements under Listing Rule 4350(i)(1)(C).  Finally, to the extent the company issues Exchanged Options, shares underlying such Exchanged Options would not be considered in determining whether shareholder approval of the Acquisition is required under Listing Rule 4350(i)(1)(C) if the Exchanged Options and the underlying shares will be issued pursuant to a shareholder-approved plan that contemplates such an issuance and will reduce the number of shares otherwise available in that plan.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 845
material_search_footer*The Publication Date reflects the date of first inclusion in the Reference Library, which was launched on July 31, 2012, or a subsequent update to the material. Material may have been previously available on a different Nasdaq web site.
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