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  Staff Interpretation Letter 2018-1
Identification Number 1517
This is in response to your correspondence requesting an exception under Listing Rule 5635(f) to Nasdaq's otherwise applicable shareholder approval requirements with respect to a proposed issuance of securities (the "Proposed Transaction").
A few years ago, the Company completed a private placement of convertible notes (the "Notes") due in approximately two months. You stated that the Company does not currently have sufficient funds available to repay the Notes upon maturity and does not expect to be able to generate sufficient funds from operations to do so. You represented that the Company expected to pay off the Notes at maturity by utilizing an existing credit facility, which recently became unavailable to the Company due to certain adverse operational developments that left the Company unable to satisfy the conditions for release of funds under the credit facility. If the Company does not repay the Notes as they become due, such default may result in cross default and acceleration of the other outstanding indebtedness, which could force the Company to seek bankruptcy protection. We also understand the Company has sought advice from bankruptcy counsel.
In the Proposed Transaction, the Company will issue to certain holders of the Notes, in exchange for their Notes, new convertible notes (the "New Notes"). The initial conversion price of the New Notes is expected to be at a premium to the current market price of the Company's common stock. However, due to make-whole provisions in the New Notes, the effective conversion price of the New Notes may potentially be at a discount to the market value. Accordingly, without the requested exception, shareholder approval would be required pursuant to Listing Rule 5635(d) because the issuance would exceed 20% of the pre-transaction outstanding shares at a price that may be less than the greater of book or market value.
You stated that the Proposed Transaction would sufficiently reduce the outstanding principal amount of the Notes so that the Company would be in a position to retire the remaining Notes outstanding when they become due.
You further stated that the Company has been unsuccessful in obtaining alternative financing that could reasonably be expected to be completed before the maturity of the Notes, given its current capital structure and the depressed pricing of potential asset sales, among other things. You represented that the Proposed Transaction is currently the only viable alternative with a reasonable likelihood of permitting the Company to repay the Notes at maturity and avoid a Chapter 11 process. You stated that holders of the Notes with whom the Company is negotiating indicated to the Company that the Proposed Transaction is the only transaction in which they are currently willing to engage that would permit the Company to repay the Notes at maturity. As a result, the Company believes it would not be able to consummate the Proposed Transaction if it were delayed to obtain shareholder approval prior to the issuance of securities in the Proposed Transaction. You also represented that the Company expects that the Proposed Transaction would enable the Company to meet the requirements for continued listing on Nasdaq for at least the next year.
Based on our review of the circumstances described in your correspondence and on your representations regarding: (i) the Company's financial condition, (ii) the dire consequences to the Company should it not obtain the financing provided by the Proposed Transaction, and (iii) the Company's expectation that it will remain in compliance with all applicable continued listing requirements upon completion of the Proposed Transaction, we have determined to grant the requested exception to the shareholder approval rules. In order to rely upon this exception, the Company must mail to all shareholders, not later than ten days before the issuance of any securities, a letter describing the terms of the Proposed Transaction (including the number of shares of common stock that could be issued and the consideration received) and alerting shareholders to the omission to seek the otherwise required approval. The letter must indicate that the Company is relying on a financial viability exception to the shareholder approval rules and that the audit committee, or a comparable independent body of the board of directors, has expressly approved reliance on this exception. The Company must also make a public announcement by filing a Form 8-K, where required by rules of the SEC, or by issuing a press release, disclosing the same information as required in the letter as promptly as possible but not later than ten days before the issuance of the securities.
Publication Date*: 4/24/2018 Mailto Link Identification Number: 1517
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