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Frequently Asked Questions
  Staff Interpretation Letter 2008-29  
Identification Number 773
This is in response to your correspondence regarding the applicability of NASDAQ’s shareholder approval requirements to two proposed issuances of securities by the company (the “Proposed Transactions”).  Specifically, you asked whether for purposes of Marketplace Listing Rule 4350(i)(1)(D)(ii) (the “Rule”), either or both of the Proposed Transactions would be aggregated with a prior transaction (the “Prior Transaction”).
 
According to the information you provided, approximately one year ago the company and the Investors entered into the agreements relating to the Prior Transaction, pursuant to which the company issued to the Investors shares of its common stock, at a discount to market value, and the Prior Transaction Notes.  The Prior Transaction Notes are not convertible into common stock.  The number of shares of common stock issued in the Prior Transaction was less than 20% of the company’s pre-transaction total shares outstanding.  The proceeds from the Prior Transaction were used to strengthen the company’s balance sheet and to provide liquidity.
 
You stated that approximately two years before entering into the Prior Transaction, the company issued the Senior Notes, which are also non-convertible.  Subsequent to the Prior Transaction, Investor One purchased a portion of the Senior Notes from certain of their holders (the “Senior Note Holders”), and simultaneously, the Senior Note Holders purchased a portion of the Prior Transaction Notes from Investor One.
 
Beginning approximately eight months ago, the company entered into individually negotiated transactions (the “Completed Note Exchanges”), whereby it issued shares of common stock, at a discount to market value, in exchange for the Senior Notes.  The Investors were not a party to the Completed Note Exchanges.  The number of shares issued in the Completed Note Exchanges was less than 10% of the company’s total shares outstanding prior to the first exchange.
 
In the Proposed Transactions, the company would issue, in a series of individually negotiated transactions, shares of its common stock at a discount to market value: (i) in exchange for the Prior Transaction Notes held by holders other than the Investors; and (ii) in exchange for the Senior Notes held by one or more of the Investors.
 
In the Proposed Transactions, the company would not receive any cash proceeds but would reduce its indebtedness.  You stated that there are no contingencies between or among the Prior Transaction and the Proposed Transactions and that the Proposed Transactions were not contemplated at the time of the Prior Transaction.  You further stated that changes in circumstances subsequent to the Prior Transaction gave rise to the need for the Proposed Transactions.  Specifically, you referenced changes in the financial markets, particularly with respect to the ability of financial institutions to access the capital markets.  As a result of these changes, and based on the company’s discussions with its banking regulator, the company’s new senior management has focused on de-leveraging the company.  You stated that the Proposed Transactions would not involve any officer, director, employee or consultant, or their affiliated entities.
 
Following our review of the information you provided, we have determined that shares issued in the Proposed Transactions would not be aggregated with shares issued in the Prior Transaction under the Rule because: (i) approximately one year passed between the Prior Transaction and the Proposed Transactions, (ii) circumstances changed since the Prior Transaction, (iii) the Proposed Transactions were not contemplated at the time of the Prior Transaction, and (iv) the need for the Proposed Transactions arose only after the closing of the Prior Transaction.  We do note, however, that shares issued in the Proposed Transactions would be aggregated with shares issued in the Completed Note Exchanges in determining whether shareholder approval is required.  We also note that you have not asked us to reach, and we have not reached, a conclusion as to whether any provision of Listing Rule 4350(i) would require shareholder approval of the Proposed Transactions.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 773
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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