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Frequently Asked Questions
  Staff Interpretation Letter 2009-12
Identification Number 730
This is in response to your correspondence wherein you asked that the company be granted an exception to NASDAQ’s shareholder approval requirements for a proposed transaction (the “Proposed Transaction”) pursuant to Listing Rule 5635(f).
 
According to the information you provided, in the Proposed Transaction the company would sell shares of its common stock, and warrants exercisable for additional shares, to accredited investors in a private placement. Without the requested exception, shareholder approval would be required pursuant to Listing Rule 5635(d) because the number of shares that could be issued exceeds 20% of the pre-transaction outstanding shares at a price less than the greater of book or market value.
 
Regarding the company’s financial condition, you stated that without the funds that would be raised in the Proposed Transaction, the company would run out of cash in approximately three weeks by which time the company would no longer be financially or operationally viable.  You stated that delaying the Proposed Transaction for the time that it would take to get shareholder approval would be catastrophic to the company leaving it no viable alternative to bankruptcy. The company has already consulted with counsel regarding financial restructuring and bankruptcy. The company has concluded that the Proposed Transaction is its only opportunity to avoid insolvency and the cessation of its operations. The investors are not willing to enter into the Proposed Transaction on terms that would comply with the shareholder approval requirements, such as requiring shareholder approval of any issuance beyond 19.9% of the pre-transaction outstanding shares.
 
You stated that over a year ago, the company engaged an investment banker in an effort to raise sufficient capital to last through the current year and beyond. The effort was unsuccessful, and the engagement was terminated.  Approximately ten months ago, the company successfully completed a private placement but in an amount substantially below its fundraising goal. Additional capital raising efforts have been unsuccessful due in part, the company believes, to the current economic climate.  In the meantime, the company’s cash reserves have been depleted by the increased costs of the development of its subsidiaries’ products. To conserve cash and reduce expenses, the company has reduced its workforce by approximately 67%, closed one of its facilities, reduced management salaries, and negotiated reductions in liabilities.
 
You stated that the Proposed Transaction would rescue the company such that it would be financially and operationally viable. The company believes that following the Proposed Transaction, it will be in compliance with all of the requirements for continued listing on NASDAQ.
 
Based on our review of the circumstances described in your correspondence and on your representations regarding the company’s financial condition, we have determined to grant the exception from the shareholder approval requirements. This determination is based on the company’s belief that the Proposed Transaction is its only opportunity to avoid insolvency and the cessation of its operations. The exception is subject to the following: (i) the company must mail to all shareholders, not later than ten days before the issuance of any securities in the Proposed Transaction, a letter describing the Proposed Transactions and alerting them to its omission to seek the shareholder approval that would otherwise be required; (ii) the letter must indicate that the audit committee, or a comparable body of the board of directors, has expressly approved reliance on the exception; and (iii) the company must also make a public announcement through the news media disclosing the same information as promptly as possible, but no later than ten days prior to the issuance of the securities.
 
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 730
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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