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Frequently Asked Questions
  Staff Interpretation Letter 2009-8
Identification Number 726
This is in response to your correspondence regarding the applicability of NASDAQ’s shareholder approval requirements to a proposed issuance of securities in exchange for the Old Notes (the “Exchange”).  You asked about the potential applicability of Listing Rules 5635(b) and 5635(d)(2) (the “Rules”).
According to the information you provided, approximately one year ago the company issued the Old Notes, which are convertible into shares of the company’s common stock. In the Exchange, for each $1,000 principal amount of the Old Notes, the company would issue to each participating note holder: (i) a lesser principal amount of new notes (the “New Notes”) convertible into shares of common stock (the “Conversion Shares”); (ii) a specified amount of cash (the “Cash Component”); and (iii) a specified number of shares of common stock or warrants exercisable for such shares (the “New Common Shares”). The Conversion Shares include shares of common stock that could be issued: (i) in connection with interest payments on the New Notes; and (ii) as a result of adjustments to the conversion rate, other than adjustments relating to stock splits and similar events.
The total number of shares of common stock that could be issued as a result of the Exchange (the “Aggregate Issuance”), which is calculated as the sum of the Conversion Shares and the New Common Shares, exceeds 20% of the pre-transaction outstanding shares. However, the Aggregate Issuance would be subject to a maximum number of shares (the “Maximum”) such that the price per share (the “Price”), calculated as described below, would not be less than the greater of book or market value prior to entering into the agreement for the Exchange. The Price will be calculated by dividing the face amount of the Old Notes that are exchanged, less the Cash Component paid by the company, by the Aggregate Issuance. In addition, the company will not effectuate the Exchange if it could result in any stockholder owning 20% or more of the company’s outstanding stock or voting power (the “Ownership Maximum”). The holders of the New Notes would not have any board representation, and there would be no additional agreement between the company and the note holders.
You stated that following the issuance of the Old Notes, the company’s financial and liquidity positions have been negatively impacted as a result of the worsening global and national economic conditions, giving rise to the need for the company to seek additional sources of financing. The Exchange would decrease the amount of indebtedness, delay for at least two years payments that otherwise would be due under the Old Notes, provide greater operational and financial flexibility, and provide terms under the New Notes that would be more favorable than those under the Old Notes.
Following our review of the information you submitted, we have determined that the Exchange would not require shareholder approval under the Rules. Given that the Exchange would not result in any stockholder exceeding the Ownership Maximum, the Exchange would not result in a change of control and, therefore, would not require shareholder approval under Listing Rule 5635(b). In addition, the Exchange is considered to be a new transaction under Listing Rule 5635(d) because of the amount of time that has elapsed since the issuance of the Old Notes and the ensuing significant changes in circumstances giving rise to the company’s need to enter into the Exchange. As such, because the Exchange is structured such that the Price is not less than the greater of book or market value, the Exchange would not require shareholder approval under Listing Rule 5635(d). Please note that you have not asked us to reach, and we have not reached, a conclusion as to the applicability of the shareholder approval requirements in any way other than as addressed herein.
Publication Date*: 7/31/2012 Mailto Link Identification Number: 726
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