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  Listing Council Decision 2008-3  
Identification Number 622
Rule 4340(a):  An issuer must apply for initial listing in connection with a transaction whereby the issuer combines with a non-NASDAQ entity, resulting in a change of control of the issuer and potentially allowing the non-NASDAQ entity to obtain a NASDAQ Listing.  In determining whether a change of control has occurred, NASDAQ shall consider all relevant factors including, but not limited to, changes in the management, board of directors, voting power, ownership, and financial structure of the issuer.  NASDAQ shall also consider the nature of the businesses and the relative size of the NASDAQ issuer and non-NASDAQ entity.  The issuer must submit an application for the post-transaction entity with sufficient time to allow NASDAQ to complete its review before the transaction is completed.  If the issuer's application for initial listing has not been approved prior to consummation of the transaction, NASDAQ will issue a Staff Determination Letter as set forth in Listing Rule 4804 and begin delisting proceedings pursuant to the Listing Rule 4800 Series.
Issue:  The Panel issued a decision that declined to determine whether Staff correctly concluded that the merger between a NASDAQ-listed company and a non-NASDAQ-listed company constituted a reverse merger for purposes of Listing Rule 4340(a).  In issuing its decision, the Panel noted that the company had applied, and was approved, for initial listing.
Determination:  The decision of the Panel was appropriate at the time it was rendered.  The Listing Council also found that Staff’s conclusion that the transaction was a reverse merger was correct.
The company argued that the merger was not a reverse merger, but rather a merger of equals whereby there was no change of control.  As such, the company believed that it was not required to apply for initial listing on NASDAQ.  In support of their position, the company noted that the two companies’ businesses are similar and that the NASDAQ company was larger relative to the non-NASDAQ company both in staffing and manufacturing capabilities.  The Listing Council notes, however, that similarity in business and relative size are but two factors Staff must consider and weigh in its reverse merger analysis.  No one factor of all the factors to be considered by Staff in making its reverse merger determination is dispositive.  Staff must make its determination considering the mix of factors required by the rule.  Consistent with such an analysis, the Listing Council finds evidence supporting that a change of control had occurred based on applying the various factors in the rule to the facts and circumstances of this case.  Post-merger, the non-NASDAQ company’s shareholders own 58% of the merged company’s outstanding voting shares, non-NASDAQ company officers represent 66% of the merged company’s officers, and although there is equal representation on the board of directors by both NASDAQ company- and non-NASDAQ company-affiliated directors, the chairman of merged company’s board of directors is the former non-NASDAQ company’s chairman.  The Listing Council acknowledges that the company’s chief executive officer and chief financial officer have retained these positions in the merged company; however, in the aggregate, the facts and circumstances lead the Listing Council to find that it was reasonable to determine that a change of control had occurred.  Last, the Listing Council notes that a significant change in financial structure had occurred as evidenced by the fact that the non-NASDAQ company was treated as acquiring the NASDAQ company for accounting purposes.
Based on the foregoing, the Listing Council affirms the decision of the Panel.
Publication Date*: 7/31/2012 Mailto Link Identification Number: 622
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