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Frequently Asked Questions
  Staff Interpretation Letter 2010-7  
Identification Number 706
This is in response to your correspondence asking whether the shareholder approval that the company previously obtained with respect to the Proposed Transactions is sufficient for purposes of Listing Rules 5635(b) and 5635(d) (the “Rules”).
According to the information you provided, the Proposed Transactions would consist of: (i) an exchange transaction with the United States Department of Treasury (the “Treasury”) (the “Treasury Exchange”); and (ii) an exchange offer, which would be made to the holders of the company’s outstanding trust preferred securities (the “Trust Preferred”) (the “Trust Preferred Exchange”). Currently, as a result of its investment in the company under the Troubled Asset Relief Program, the Treasury owns shares of the company’s non-convertible preferred stock (the “Preferred Stock”) and a warrant (the “Warrant”) exercisable for shares of common stock. The Warrant cannot be exercised for 20% or more of the company’s pre-transaction outstanding shares of common stock at a discount, or if such exercise would result in a change of control, unless shareholder approval is first obtained. The Trust Preferred is held by investors other than the Treasury.
At a shareholders’ meeting held approximately three months ago, the company received shareholder approval for the Trust Preferred Exchange under Listing Rule 5635(d) and for the issuance of its common stock to the Treasury in exchange for the Preferred Stock under Rules 5635(b) and (d). In the proposal in its proxy statement, the company said that it would complete the Trust Preferred Exchange within three months of the date of shareholder approval.
Following the shareholders’ meeting and before consummating the Treasury Exchange, the company and the Treasury continued to negotiate terms. As a result, the final terms of the Treasury Exchange differ in some respects from what was presented to shareholders. Under the final terms, the company would issue shares of convertible preferred stock (the “New Preferred”) to the Treasury, rather than shares of common stock. The conversion price, and the maximum number of shares of common stock that could be issued upon conversion, would be consistent with the terms of the common stock issuance that shareholders approved. In addition, the company would issue a new warrant (the “New Warrant”) to the Treasury in exchange for the Warrant. The New Warrant would contain a provision that would allow its exercise only to the extent such exercise is consistent with NASDAQ’s Rules (the “Exercise Limitation”).
The company had been waiting to finalize the Treasury Exchange before commencing the Trust Preferred Exchange. As such, the company will not complete the Trust Preferred Exchange within three months of the receipt of shareholder approval; instead, it now expects to complete the Trust Preferred Exchange within approximately six months of such approval. Otherwise, the Trust Preferred Exchange would be on the same terms as approved by shareholders.
Following our review of the information you provided, we have determined that NASDAQ will not require further shareholder approval of the Proposed Transactions under the Rules. We have reached this conclusion because in the Treasury Exchange the issuance of the common stock upon the conversion of the New Preferred would be on the same terms as the common stock issuance approved by the shareholders, including the pricing and the maximum number of shares that could be issued. Because of the Exercise Limitation, the New Warrant could not be exercised if such exercise could result in either a change of control or an issuance of 20% or more of the pre-transaction outstanding shares at a discount without shareholder approval. As such, the requirements of the Rules would be satisfied with respect to the New Warrant.  The Trust Preferred Exchange would not require further shareholder approval because it would be on the terms which were approved by the company’s shareholders. We do not believe that the additional time required in this case to complete the Trust Preferred Exchange requires the company to seek additional shareholder approval under NASDAQ rules.
Publication Date*: 7/31/2012 Mailto Link Identification Number: 706
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