This is in response to your correspondence, wherein you described a proposed issuance of securities in connection with a restructuring of the company’s debt (the “Restructuring”). With respect to the Restructuring, you asked that the company be granted
exceptions to the shareholder approval requirements pursuant to Marketplace Listing Rule 4350(i)(2) and to the voting rights requirements of Marketplace Rules 4351 and IM-4351 (collectively, the “Voting Rights Rule”).
According to the information you provided, in the Restructuring the company would replace its existing senior secured credit facility with one or more new credit facilities. In addition, the company would refinance its indebtedness underlying certain outstanding
convertible notes through an exchange offer that would include the issuance of: (i) senior subordinated notes; (ii) new convertible notes that would be convertible into Series B preferred stock; and (iii) Series A preferred stock. Both the Series A and the
Series B would be convertible into common stock.
The potential issuance of common stock exceeds 20% of the pre-transaction outstanding shares and could be at a price less than the greater of book and market value, and it could result in a change of control. As such, without the requested exception,
shareholder approval would be required under Rules 4350(i)(1)(D)(ii) and 4350(i)(1)(B).
In addition, you stated that in connection with the Restructuring the company would adopt a management incentive plan (“MIP”) pursuant to which certain senior management employees could receive shares of common stock as equity compensation. The total
amount of shares reserved under the MIP would be 10% of the company’s outstanding stock. Without the requested exception, shareholder approval would be required for the MIP under Listing Rule 4350(i)(1)(A).
You stated that certain of the preferred stock that would be issued in the Restructuring would be entitled to vote on an as-converted basis and may be convertible at a discount to the market price of the common stock (the “Voting Power”). In addition,
four of the seven members of the company’s board of directors would be designated, at least initially, by certain of the holders of the company’s outstanding debt, and the board representation may be at a percentage that exceeds the debt holders’ relative
contribution to the company (the “Board Representation”). Without the requested exception, the Voting Power and the Board Representation would not be permitted under the Voting Rights Rule. You stated that the company has been advised that the lenders would
not agree to any limitation on these voting rights and believes that attempts to impose limits would greatly endanger the prospects of effecting the restructuring.
In your submission, you stated that the company must restructure its debt immediately or it will almost certainly be forced to file for bankruptcy, and it does not believe that it has time to obtain shareholder approval. The company is currently in default
under its credit agreement due to violations of financial covenants in the third and fourth quarters of last year.
Based on our review of the circumstances described in your letters and on your representations regarding the company’s financial condition, we have determined to grant the exception from the shareholder approval requirements with the limitation that such
exception will not apply to the MIP. This limited exception is based on your representations regarding the company’s inability to meet its financial commitments and its likely need to seek bankruptcy protection in the event that the Restructuring is delayed.
In addition, we have determined to grant an exception from the Voting Rights Rule applicable to the Voting Power and the Board Representation. In that regard, we note that under the former Rule 19c-4, as well as under the Voting Rights Rule, it is appropriate
to consider whether an issuance is designed to rescue a company in financial distress. Be advised that the MIP will require shareholder approval under Listing Rule 4350(i)(1)(A). As a general matter, we do not believe that an issuance of securities as equity
compensation is an appropriate application of Marketplace Listing Rule 4350(i)(2). Further the exceptions do not apply to any other requirements and, notwithstanding the granting of the exception with regard to Board Representation, the company remains subject
to NASDAQ’s board independence and committee requirements including Marketplace Rules 4350(c) and 4350(d).
The exceptions are subject to the following: (i) the company must mail to all shareholders, not later than ten days before the issuance of any securities in the Restructuring, a letter describing the Restructuring and alerting them to its omission to seek
the shareholder approval that would otherwise be required and describing the Voting Rights and Board Representation; (ii) the letter must indicate that the audit committee, or a comparable body of the board of directors, has expressly approved the exceptions;
and (iii) the company must issue a press release that includes the information required to be included in the shareholder mailing