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  Staff Interpretation Letter 2005-26  
Identification Number 873
This is in response to your letters regarding the potential applicability of The NASDAQ Stock Market’s shareholder approval requirements to a proposed issuance of securities in connection with a proposed Exchange Offer (the “Exchange Offer”) involving the company’s Convertible Notes due 2007 (the “Notes”).  Specifically, your question relates to Marketplace Rules 4350(i)(1)(B) and 4350(i)(1)(D)(ii) (the “Rules”).
According to the information you provided, the Notes were initially issued in 2003 with each $1,000 principal amount convertible into a fixed number of shares of common stock plus $500 cash.  In the Exchange Offer, for each $1,000 principal amount, the company will offer the holders of the Notes the same number of shares of common stock, plus an amount of cash that is not less than $500 and not more than the difference between the $1,000 principal amount and the market value of the shares exchanged immediately prior to the expiration of the exchange offer.  You stated that the total consideration to be paid by the company in the exchange will be less than the original principal amount of the notes tendered.  As a result of the exchange, the company will not have the obligation to pay interest on the tendered notes and will retire the debt for less than the principal amount.
In addition, you stated that as a result of the Exchange Offer, no participant will own, or have the right to acquire, 20% or more of the outstanding common stock of the company on a post-transaction basis.
You stated that the offer is subject to the federal tender offer laws and that based on guidance the SEC has provided via No Action letters, the value of the shares issued in the Exchange Offer will be determined based on the closing bid price two business days prior to the expiration of the offer.
Following our review of the information you submitted, we have concluded that the issuance of securities in connection with the Exchange Offer does not require shareholder approval pursuant to the Rules.  NASDAQ views the Exchange Offer to be a new transaction for purposes of the Rules because the company is receiving additional benefits by entering into the Exchange Offer.  Specifically, the Notes will be retired for less than their principal amount and the company will save the interest otherwise payable on the notes.  In addition, based on your representations regarding the applicability of the federal tender offer laws, it is not inappropriate to determine market value as the closing bid price two days prior to the expiration of the tender offer.  As a result, shareholder approval is not required under Listing Rule 4350(i)(1)(D)(ii) because the issuance of the common stock will be at market value.
Furthermore, shareholder approval is not required for the transaction pursuant to Listing Rule 4350(i)(1)(B) because the transaction will not result in a change of control.  This conclusion is based on your representation that the Exchange Offer will not result in any participant owning, or having the right to acquire, 20% or more of the outstanding common stock of the company on a post-transaction basis.
Publication Date*: 7/31/2012 Mailto Link Identification Number: 873
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