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  Staff Interpretation Letter 2008-25
Identification Number 769
This is in response to your correspondence regarding the applicability of NASDAQ’s shareholder approval requirements to the company’s assumption of certain of the Target’s outstanding equity awards (the “Assumption”).  Specifically, you asked whether the shares of the company’s common stock that could be issued as a result of the Assumption should be excluded when determining whether shareholder approval is required pursuant to Marketplace Listing Rule 4350(i)(1)(C)(ii) and IM-4350-5.
According to the information you provided, the company will acquire the Target in exchange for cash and shares of the company’s common stock.  Upon the closing of the acquisition, under the Assumption, the company will assume certain awards the Target previously made under the Target’s equity compensation plans.  Specifically, the company will assume certain of the Target’s outstanding stock options and purchase rights and will maintain all of the existing terms under the Target’s plan pursuant to which they originally were issued.  Upon issuance of the company's shares in respect of such awards, the company will correspondingly reduce (consistent with the acquisition exchange ratio) the number of shares available under the company’s equity compensation plans.  You stated that all awards that will be assumed could have been granted under the terms of the applicable company plan.
Two of the three company plans that would be reduced in connection with the Assumption have been approved by the company’s shareholders.  The third plan did not require shareholder approval under the requirements in effect at the time of its adoption because it is a broadly-based plan.  The company will not assume any awards under this plan for any person who will become an officer or director of the company as a result of the Acquisition.  You stated that none of the plans was adopted in contemplation of the Acquisition.
Following our review of the information you provided, we have determined that the shares of the company’s common stock that will be issued as a result of the Assumption will not count in determining whether the transaction involves the issuance of 20% or more of the company’s common stock under Listing Rule 4350(i)(1)(C)(ii).  We have reached this conclusion because no additional shares will be available for issuance as a result of the Assumption.  Instead, all such shares will come from the share reserves of the company’s pre-existing equity plans, in a manner consistent with the terms of those plans.  As such, the Assumption will not result in any increase in the potential dilution of the combined enterprise.  Please note that you have not asked us to reach, and we have not reached, a conclusion as to the applicability of the shareholder approval requirements to the Acquisition in any way other than as addressed herein.
Publication Date*: 7/31/2012 Mailto Link Identification Number: 769
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