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Frequently Asked Questions
  Staff Interpretation Letter 2005-17  
Identification Number 864
This is in response to your letters regarding the applicability of The NASDAQ Stock Market’s shareholder approval requirements to the company’s proposed private placement (the “Transaction”).  Specifically, you asked about the potential applicability of NASDAQ Marketplace Rules 4350(i)(1)(B) and 4350(i)(1)(D) (the “Rules”) and IM-4350-2.
According to the information you provided, in the Transaction the company will issue Convertible Senior Notes due 2011 (the “Notes”).  The Notes are convertible into common stock initially at a price that is greater than the company’s market and book value per share as of the execution date of the definitive agreement (the “Execution Date”).  Based on the conversion price, the Notes would be convertible into shares of common stock equal to approximately 35% of the currently outstanding shares of common stock.  The conversion price, although subject to certain adjustments, would not be reduced to a price less than the greater of book and market value as of the Execution Date without shareholder approval.
One of the purchasers in the Transaction (the “Shareholder’”) has beneficial ownership of more than 20% of the company’s common stock and is the largest beneficial owner of the company’s common stock.  Following the Transaction, the Shareholder would still be the largest beneficial owner with over 30% of the common stock.  Currently, no other shareholder owns as much as 10% of the company’s common stock.  If shareholder approval of the Transaction is required but not obtained, the company would have to pay a termination fee.  No common shares are issuable, however, prior to obtaining shareholder approval if such approval is required.
Following our review of the information provided, we have concluded that by structuring the Transaction as you described, the company will comply with the Rules and IM-4350-2.  The Transaction does not result in a change of control for purposes of Listing Rule 4350(i)(1)(B), because the Shareholder will be the largest shareholder both before and after the Transaction.  We note that with current ownership of over 30%, the Shareholder’s holding significantly exceeds those of any other shareholder.  The Transaction complies with Listing Rule 4350(i)(1)(D) because the issuance will not be at a price less than the greater of book and market value without prior shareholder approval.  The termination fee is similar to an alternative outcome as defined under IM-4350-2, but because no shares of common stock can be issued prior to obtaining shareholder approval if such approval is required, IM-4350-2 is not implicated.
Publication Date*: 7/31/2012 Mailto Link Identification Number: 864
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