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Staff Interpretation Letter 2013-2 Identification Number 1079

This is in response to your correspondence regarding the applicability of the voting rights requirements of Listing Rule 5640 and IM-5640 (collectively the “Voting Rights Rule”) to a proposed recapitalization (the “Recapitalization”) of the Company. Currently, the Company has a single class of common stock which has one vote per share and is traded on NASDAQ.

According to the information you provided, the Company would seek shareholder approval to replace its current single class structure with a dual class structure. To implement the Recapitalization, the Company would: (i) designate its existing class of common stock as Class B common stock with one vote per share; (ii) create a new class of lower voting Class A common stock; and (iii) distribute in the form of a dividend shares of Class A common stock for each share of Class B common stock. Neither the Class A nor Class B common stock will be convertible into the other. Each class would be treated identically on a per share basis in all matters other than their voting power, including any subsequent reclassification, recapitalization or liquidation.

The Company intends to list the Class A common stock on NASDAQ, where the existing class of common stock is currently traded and is expected to remain. In that regard, the Company also requests that for purposes of compliance with the initial and continued listing requirements contained in Rules 5315, 5450 and 5460, the newly created Class A common stock be designated the “primary equity security” and the current class that will be designated as Class B common stock be designated the “secondary class of common stock.”

Following our review of the information you provided, we have determined that the Recapitalization would comply with the Voting Rights Rule. The Recapitalization would not result in any current shareholder being disenfranchised because immediately after the Recapitalization each shareholder would have the same voting and ownership percentage as immediately before the Recapitalization. In addition, neither the Class A nor Class B common stock will be convertible into the other. Both the Voting Rights Rule and former Securities and Exchange Commission Rule 19c-4, upon which the Voting Rights Rule is based, permit the creation of a lower voting class of securities, subject to certain restrictions, because the voting power of existing shareholders would not be reduced as a result of such action. In reaching this conclusion, we also note that the Company intends to list each class on NASDAQ, and that they have been structured in a way to satisfy the listing requirements. In order to assure continued compliance with the Voting Rights Rule, the Company should consult with us before taking any future action affecting the legal or listing status of either the Class A common stock or Class B common stock.

In addition, we have determined that the newly created Class A common stock can be considered the “primary equity security” for purposes of the initial and continued listing requirements of NASDAQ. Please be advised, however, that we have not otherwise assessed the listing eligibility of the Class A common stock or Class B common stock.

Publication Date*: 4/26/2013 Identification Number: 1079

Staff Interpretation Letter 2012-8 Identification Number 1069

This is in response to your correspondence requesting an exception from the shareholder approval requirements under Listing Rule 5635(f) with respect to proposed issuances of securities (the “Proposed Transactions”). In addition, you asked for a related exception from the voting rights requirements of Listing Rule 5640 and IM-5640 (collectively, the “Voting Rights Rule”).

The Company, a savings and loan holding company, conducts banking operations through its operating subsidiary (the “Bank”) and does not have any significant business or assets apart from its ownership of the Bank. You stated that for the past several years, the Bank has experienced very substantial increases in loan delinquencies and defaults due primarily to unfavorable economic conditions including the downturn in the real estate market in its service area. As a result, the Company has reported substantial losses for each of the past two years and does not have sufficient cash to meet its operating expenses. In its report in the most recent Form 10-K, the Company’s independent auditor included the qualification that there is substantial doubt concerning the Company’s ability to continue as a going

concern.

The banking regulators determined that the Company and the Bank are in “troubled condition” which is a regulatory designation resulting in substantial restrictions on the operations of both the Company and the Bank enforced through Cease and Desist Orders (the “Orders”). Pursuant to the Orders, the Company is required to maintain capital ratios higher than otherwise required and is not permitted to incur, make payments on, or increase any debt without the approval of its regulators. As a result, the Company is in default on a substantial amount of its outstanding debt, including a credit facility which is secured by the assets of the Company (the “Debt”). To preserve capital, the Company has closed two of the five branch offices of the Bank and has sold its headquarters building. In addition, the Company has sold other assets, including non-performing loans.

In the Proposed Transactions, the company would issue common stock, or securities which would be convertible into common stock (the “Convertible Securities”), in exchange for currently outstanding preferred stock and a portion of the Debt. The Convertible Securities would vote on an as-converted basis. The exchange for the preferred stock would be at a 50% discount to the liquidation preference and would also be in satisfaction of accrued but unpaid dividends. The U.S. Treasury Department would also exchange preferred stock it was issued under the Troubled Asset Relief Program and, as a result, would become the largest holder of the Company’s common stock. Concurrently with the completion of these exchanges, the Company would sell shares of common stock in a private placement to unrelated investors at a discount to the market value. You stated that the completion of each part of the Proposed Transactions is conditioned on the completion of each of the other parts. The Company plans to seek the necessary approval of the banking regulators to allow it to retain at the holding company level a substantial portion of the proceeds from the private placement and to invest the remainder in the Bank.

You stated the Company exhaustively explored possibilities to structure a transaction which would comply with the shareholder approval requirements but was unable to do so. Each participant in the Proposed Transactions demanded the contingency that all portions close concurrently. The investors in the private placement agreed to invest only if the improvements in the Company’s capital structure, which would result from the preferred stock exchanges, were certain to occur. The participants in the Proposed Transactions also insisted on full voting power and were unwilling to accept a non-voting security which would be convertible into common stock only after shareholder approval.

The Company’s financial advisory firm approached approximately 175 potential investors over the past 2 years but could not reach an agreement for another source of capital on different terms. Efforts to sell the Company in its entirety were not successful. You stated that based on these efforts, the Company believes that the Proposed Transactions are the only available alternative. In addition, you stated that if it is not able to complete the Proposed Transactions in the very near term, the Company will be forced to file for bankruptcy protection or bank regulatory authorities may appoint a receiver or conservator for the Bank.

The Company expects that as a result of the Proposed Transactions, it would avoid having to seek bankruptcy protection, and the Bank would no longer face the risk of the appointment of a receiver or conservator. In addition, the Company believes that following the closing of the Proposed Transactions it would meet the requirements for continued listing on NASDAQ with the possible exception of the bid price requirement. In that regard, the Company plans to complete a reverse stock split, if necessary, at a ratio sufficient to comply with that requirement. Without the requested exception, shareholder approval would be required pursuant to Listing Rule 5635(b) as the issuance could result in a change of control and pursuant to Listing Rule 5635(d) as the issuance would exceed 20% of the pre-transaction outstanding shares at a price less than the greater of book or market value. Additionally, without the requested exception, the Proposed Transactions would not comply with the Voting Rights Rule because the Convertible Securities would effectively have greater voting rights than the common stock since they would vote on an as-converted basis and would convert at a discount to the market value. You stated that the time that would be required to prepare for and conduct a meeting of stockholders would seriously jeopardize the Company’s continuing existence as an operating entity and that even more urgently, the Company does not have the cash that would be required to hold such a meeting.

Based on our review of the circumstances described in your correspondence and on your representations regarding the Company’s financial condition, we have determined to grant the requested exception to the shareholder approval rules. This determination is based upon your representations that the Company needs to quickly proceed with the Proposed Transaction to avoid bankruptcy and the appointment of a conservator or a receiver for the Bank. In addition, we have determined to grant an exception from the Voting Rights Rule as it applies to the Proposed Transactions because both that rule and former Securities and Exchange Commission Rule 19c-4 permit such an exception where necessary to rescue a company in financial distress. 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 Proposed Transactions and alerting shareholders to the omission to seek their otherwise required approval. The letter must indicate 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.

This exception applies only to the Proposed Transactions and not to any other issuances of securities which you stated may occur following the completion of the Proposed Transactions.

Publication Date*: 1/17/2013 Identification Number: 1069

Staff Interpretation Letter 2012-6 Identification Number 1065

This is in response to your correspondence requesting an exception from the shareholder approval requirements under Listing Rule 5635(f) with respect to a proposed issuance of securities (the “Proposed Transaction”). In addition, you asked about the applicability of the voting rights requirements of Listing Rule 5640 and IM-5640 to the Proposed Transaction.

The Company is in the pharmaceutical industry and has invested substantially all of its efforts and financial resources into the development of a single new pharmaceutical product (the “Product”), which has not yet been approved by the Food and Drug Admiration (the “FDA”). The company expects that the FDA will complete the current stage of its review within approximately three months. The Company has not yet generated any product revenues and has funded its operations through credit facilities and the issuance of debt and equity securities.

You stated that the Company has a working capital deficit of several million dollars and that without additional capital it is in imminent danger of being unable to meet its monthly debt service, office lease, payroll and other obligations. As part of its plan to reduce expenses, the Company has already reduced its workforce by approximately 50% and has temporarily amended its credit agreement to achieve additional liquidity. You also stated that due to the extent of the Company's payment delinquencies, certain vendors performing activities critical to the FDA’s review of the Product have informed the Company that they will cease performing services until past due payments are received. In addition, the Company faces the imminent risk of default under its secured credit facility, which could result in immediate insolvency. As such, you have stated that unless the Company can quickly complete the Proposed Transaction, it would likely have to cease operations or file for bankruptcy protection.

You stated that over the past ten months the Company, together with its financial advisors, has unsuccessfully sought other financing sources and had discussions with over 50 prospective investors. The Company believes that its only viable alternative is the Proposed Transaction. In the Proposed Transaction, the Company would sell shares of voting preferred stock, convertible into shares of common stock, and warrants, exercisable for additional shares of common stock, to several purchasers including two current shareholders. Both the conversion price of the preferred stock and the exercise price of the warrants would be at discount to the market value of the common stock. The number of shares of common stock potentially issuable would equal approximately 65% of the Company’s outstanding shares on a post-transaction basis. The voting power of the preferred stock would be limited to that number of votes equal to the number of shares of common stock into which the preferred stock would be convertible if it were converted at market value on the date of the definitive purchase agreement. The purchasers would be entitled to appoint directors proportional with their ownership position. The number of directors they could appoint would decline proportionally with a decline in their ownership position in the Company.

The Company expects that the Proposed Transaction would be sufficient to fund its operations for the next 12 months and that the Company would satisfy NASDAQ’s continued listing requirements throughout that time. In addition, the Company would be able support the FDA approval process for the Product.

Without the requested exception, the Proposed Transaction would require shareholder approval pursuant to Listing Rule 5635(d) because the issuance would exceed 20% of the pre-transaction outstanding shares at a price less than the greater of book or market value. You stated that a delay in securing shareholder approval would seriously jeopardize the financial viability of the Company, that the purchasers in the Proposed Transaction are unwilling to structure the financing in a manner that would not require shareholder approval, and that the Company does not have sufficient cash to sustain it through a shareholders’ meeting.

Based on our review of the circumstances described in your correspondence and on your representations regarding the Company’s financial condition, we have determined to grant the requested exception to the shareholder approval rules. This determination is based on your representations that the Company needs to quickly proceed with the Proposed Transaction to avoid bankruptcy. The exception is subject to the following: (i) the Company must mail to all shareholders, not later than ten days before the issuance of any securities, a letter describing the Proposed Transaction and alerting shareholders of the omission to seek their otherwise required approval; (ii) the letter must indicate that the audit committee, or a comparable independent body of the board of directors, has expressly approved reliance on the exception; and (iii) the Company must 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 no later than ten days before the issuance of the securities. We note that the Proposed Transaction would comply with Listing Rule 5640 and IM-5640 and therefore does not require an exception from these requirements.

Publication Date*: 12/18/2012 Identification Number: 1065

Staff Interpretation Letter 2012-4 Identification Number 1062

This is in response to your correspondence requesting an exception from the shareholder approval requirements under Listing Rule 5635(f)

with respect to a proposed issuance of securities (the “Proposed Transaction”). In addition, you asked for a related exception from the voting rights requirements of Listing Rule 5640 and IM-5640 (collectively, the “Voting Rights Rule”).

In the Proposed Transaction, the Company would sell to the Investor shares of preferred stock, which would be convertible into common stock at a price below the current market value. The Preferred Stock would vote on an as-converted basis resulting in the Investor owning approximately 73% of the Company’s outstanding shares of voting stock on a post-issuance basis. The Investor would have the right to appoint 4 members of the board of directors which would consist of no more than 7 members. The number of directors the Investor could appoint would decline proportionally with a decline in the Investor’s ownership position in the Company. The Investor is not currently affiliated with the Company.

You stated that, due to a variety of circumstances, the Company is in dire financial condition. While the Company has experienced continuous net losses for approximately fifteen years, it has been able to continue operations through issuances of common and preferred stock and debt. Recently, the Company lost a significant customer, which last year accounted for approximately 42% of its total revenue. Subsequent negotiations with several prospective large customers ended without any sales agreements being reached.

You explained that as its condition has continued to deteriorate, the Company has released most of its employees and has delayed or withheld payments to vendors, resulting in its inability to obtain the products and services necessary to operate its business. The Company has debt maturing in approximately 10 months, which under the current circumstances it would be unable to repay. In addition, approximately five months ago, a patent infringement lawsuit was filed against the Company, significantly hindering its capital raising efforts due to the inherent uncertainty regarding any possible settlement.

The Company’s investment bankers have explored strategic alternatives, including a possible sale and potential sources of capital, and in the process have contacted over forty parties. You stated that until the Proposed Transaction, however, there has not been any viable interest. The Company’s bankruptcy counsel has begun preparing a bankruptcy petition in the event the Company is unable to quickly raise the needed funds.

The Company believes that if it completes the Proposed Transaction it would be able to continue operations for at least twelve months, during which time it would refocus its marketing efforts to compensate for the recent loss of the significant customer and have the opportunity to grow its sales and improve its prospects. The Company would also use the proceeds of the Proposed Transaction to settle its debt for a significantly reduced cash amount and shares of common stock. In addition, the Company agreed to a term sheet for the settlement of the patent infringement lawsuit, which would be funded from the proceeds of the Proposed Transaction. The Company believes that following the Proposed Transaction, it would meet the requirements for continued listing on NASDAQ with the possible exception of the bid-price requirement for which it is currently within the 180-day compliance period (the “Compliance Period”). You stated that the Company would take all steps necessary, including a reverse stock split, to regain compliance with the bid-price requirement by the expiration date of the Compliance Period. In addition, the Company did not timely file its Form 10-Q for its most recently completed quarter. The Company has stated that it expects to file that Form 10-Q within approximately three weeks. In the meantime, the Company issued a press release containing detailed financial information for the quarter.

Without the requested exception, the Proposed Transaction would require shareholder approval pursuant to: (i) Listing Rule 5635(b) because the issuance could result in a change of control; and (ii) Listing Rule 5635(d) because the issuance would exceed 20% of the pre-transaction outstanding shares at a price less than the greater of book or market value. Additionally, without the requested exception, the Proposed Transaction would not comply with the Voting Rights Rule because the preferred stock would vote on an as-converted basis and would convert at a discount to the market value of the common stock, thereby effectively affording it greater voting rights than the common stock. In addition, depending on the number of directors on the Company’s board, the Investor’s percentage representation on the board could be greater than its percentage ownership in the Company.

You stated that a delay in securing shareholder approval would seriously jeopardize the financial viability of the Company, and the Proposed Transaction is the only available means to avoid an imminent bankruptcy filing. You added that the Company’s current cash position is not sufficient to sustain it through the time that it would take to obtain shareholder approval.

Based on our review of the circumstances described in your correspondence and on your representations regarding the Company’s financial condition, we have determined to grant the requested exception to the shareholder approval rules. This determination is based on your representations that the Company needs to quickly proceed with the Proposed Transaction to avoid bankruptcy. In addition, we have determined to grant an exception from the Voting Rights Rule as it applies to the voting power of the preferred stock because both that rule and former Securities and Exchange Commission Rule 19c-4 permit such an exception where necessary to rescue a company in financial distress. The exception is subject to the following: (i) the Company must mail to all shareholders, not later than ten days before the issuance of any securities, a letter describing the Proposed Transaction and alerting shareholders of the omission to seek their otherwise required approval; (ii) the letter must indicate that the audit committee, or a comparable independent body of the board of directors, has expressly approved reliance on the exception; and (iii) the Company must make a public announcement through the news media disclosing the same information as promptly as possible, but no later than ten days prior to the issuance of the securities.

As an additional matter, you indicated that the Company is considering an investment in a company which is in a related business. The exception granted herein does not apply to such investment, which would be fully subject to the shareholder approval requirements. In that regard, you stated that the Company would not use any of the proceeds from the Proposed Transaction to fund the investment without the prior approval of its shareholders other than the Investor.

Publication Date*: 11/30/2012 Identification Number: 1062

Staff Interpretation Letter 2011-7 Identification Number 697

This is in response to your correspondence regarding the applicability of the voting rights requirements of Listing Rule 5640 and IM-5640 (collectively, the “Voting Rights Rule”) to a proposed action of the company.

The company has common stock, which is listed on NASDAQ, and two other classes of voting securities outstanding – Series 1 Preferred Stock and Series 2 Preferred Stock, both of which were issued prior to the company’s listing on NASDAQ. The company plans to effect a one-for-three reverse split of its common stock to regain compliance with NASDAQ’s minimum bid price requirement for continued listing.

You stated that the number of votes per share of the Series 1 would be adjusted in line with the split ratio such that the voting power of common stock and the Series 1 would not change relative to each other as a result of the reverse split. The number of votes per share of the Series 2 would not be adjusted, however, because the certificate of designation lacks the necessary adjustment provisions. This means that the Series 2 shares would have disproportionately greater voting rights than they are currently entitled to, potentially in conflict with the provisions of the Voting Rights Rule. While the company believes that the failure to include an adjustment provision was an oversight, the company does not believe it can add such a provision now because it has an adverse relationship with the Series 2 holders and is involved in litigation with them.

Currently, the number of votes attributable to the Series 2 equals 0.5% of the company’s outstanding voting power. Following the reverse split, the Series 2 voting percentage would increase to 1.4%. Both before and after the reverse split, the Series 1 represents less than 0.05% of the voting power. As a result of a failure to pro ratably adjust the voting power of the Series 2, the voting percentage of the common stock would decrease from its current 99.5% to 98.6%. We also note that the company today has a controlling shareholder who presently has 60.8% of the voting power; following the transaction this controlling vote would be reduced very slightly to 60.2%.

Generally, NASDAQ believes that when a company effects a reverse split of its voting common stock, the voting power of any other outstanding voting securities should be concomitantly adjusted. In the company’s case, however, the resultant minimal increase in the voting power of the Series 2 shares, as well as the related decrease in the voting power of the common stock, would not have the effect of meaningfully reducing the voting power of existing shareholders, especially given the voting power of the company’s largest shareholder, both before and after the split. In addition, the reverse split is not intended to affect the company’s voting structure but rather has been proposed for the purpose of enabling the company to regain compliance with NASDAQ’s bid price requirement. Accordingly, we have determined that effecting the proposed one-for-three reverse stock split without adjusting the voting power of the Series 2 would not be construed as a violation of the Voting Rights Rule.

Publication Date*: 7/31/2012 Identification Number: 697

Staff Interpretation Letter 2011-3 Identification Number 693

This is in response to your correspondence regarding the applicability of the voting rights requirements of Listing Rule 5640 and IM-5640 (collectively, the “Voting Rights Rule”) to the company’s proposed recapitalization (the “Recapitalization”).

Currently, the company’s capital structure includes a single class of common stock, approximately 70% of which is owned by the Holder, a publicly-traded company. The Holder has announced its intention to separate its businesses into two newly-created separate publicly-traded companies. The Holder would transfer its ownership in the company (“Holdings”) to one of those two new companies (the “New Company”) and would sell up to a 20% interest in the New Company to the public in an initial public offering (the “IPO”). The purpose of the Recapitalization would be to enable the Holder to avoid a significant federal tax liability it would otherwise incur as a result of such transfer (the “Transfer”).

You stated that the Transfer could receive tax-free status under the Internal Revenue Code if the Holder were to have at least 80% of the voting power with respect to the election of the company’s board of directors. As such, in the Recapitalization, (i) each share of the company’s common stock, other than the Holder’s shares, would become one share of newly-created Class A common stock; and (ii) each share of the Holder’s common stock would become one share of newly-created Class B common stock. The holders of the Class A, voting separately as a class, would be entitled to 15% of the voting power in the election of the company’s directors, and the holders of the Class B (i.e., the Holder) would be entitled to 85% of such voting power. The Class A shares and the Class B shares would have

identical rights and preferences in all other respects. You stated that voting power of 85% is necessary because the Internal Revenue Service (the “IRS”) has indicated that it may not view the Holder’s voting power as being maintained at the required 80% level after the IPO because the Holder would no longer be the sole owner of the New Company, which would be the owner of the Holdings following the Transfer. The company believes that the 85% level would eliminate any concern on the part of the IRS.

Pursuant to the Recapitalization, if the New Company’s ownership in the company were to decline to below 50% of the number of shares outstanding of the Class A and Class B stock in the aggregate, all Class B shares would automatically convert into Class A shares. The company would then have only one class of common stock, and the voting arrangement effected by the Recapitalization would automatically lapse.

Following our review of the information you submitted, we have determined that the Recapitalization would not violate the Voting Rights Rule. The Recapitalization would not have the effect of meaningfully reducing the voting power of existing shareholders because the Holder, due to the size of its ownership position, already has complete control over any matter voted on by the company’s shareholders, including the election of directors. The intent of the Recapitalization would be solely to accomplish the significant business purpose of enabling Holder to utilize the resulting substantial tax benefit. In addition, if the New Company’s ownership in the company were to fall to less than a majority, the company’s voting structure would revert to its pre-Recapitalization status.

Publication Date*: 7/31/2012 Identification Number: 693

Staff Interpretation Letter 2011-1 Identification Number 691

This is in response to your correspondence regarding the applicability of the shareholder approval requirements of Listing Rule 5635(c) and IM-5635-1 (collectively, the "Shareholder Approval Rule") and the voting rights requirements of Listing Rule 5640 and IM-5640 (collectively, the "Voting Rights Rule") to certain actions which the company would take in connection with a reorganization (the "Reorganization").

Currently, the company's authorized capital stock consists of common stock (the "Common Stock"), which is listed on NASDAQ, and preferred stock (the "Preferred Stock"), which is closely-held and not publicly traded. The Preferred Stock carries higher voting power relative to the Common Stock including the right to elect a majority of the members of the board of directors. This dual structure was implemented more than twenty years ago and pre-dates the company's listing on NASDAQ.

In the Reorganization, the company would create a holding company structure to replace its current structure. Each outstanding share of the Common Stock and Preferred Stock would be converted into one share of common stock or preferred stock, respectively, of the newly formed holding company, with rights and preferences identical to those prior to the Reorganization. No additional shares of either common stock or preferred stock would be issued in connection with the Reorganization. As such, following the Reorganization, holders of the Common Stock and Preferred Stock would hold shares in the same amounts and percentages, and would have the same voting power, as before the Reorganization. You asked whether this dual class structure of the holding company would comply with the Voting Rights Rule.

Additionally, in connection with the Reorganization, the company would adopt certain amendments (the "Amendments") to an equity compensation plan which currently provides for awards of treasury shares of the company's common stock to non-employee members of the company's board of directors (the "Plan"). The awards are typically subject to a vesting period during which the holders of awards have the right to vote and to receive dividends and other cash distributions. The Amendments would: (i) permit the use of authorized but unissued shares as well as treasury shares but would not increase the total number of shares that would be available under the Plan; (ii) authorize the award of restricted stock units ("RSUs"); (iii) permit an equivalent payment to the holders of RSUs when dividends are paid to holders of common stock (the "Dividend Equivalent"); and (iv) provide for certain other changes to more closely conform the Plan's provisions with Section 409A of Internal Revenue Code ("409A"). The 409A changes would: (i) increase the voting power of the company's shares that would need to be required to constitute a change of control from 30% to 50%; (ii) require that changes in the board that might constitute a change in control occur within a twelve-month period rather than over an unspecified period of time; and (iii) implement a delay as required by 409A for the payment of benefits to participants following their separation of service from the board. You asked whether the Amendments would require shareholder approval under the Shareholder Approval Rule.

Following our review of the information you provided, we have determined that the holding company's dual class structure would comply with the Voting Rights Rule and that the Amendments would not require shareholder approval under the Shareholder Approval Rule.

The dual class structure would comply with the Voting Rights Rule because the issuance of shares in the holding company in exchange for the currently outstanding shares would not disparately reduce or restrict the voting rights of existing shareholders. The voting rights of the holders of both the Common Stock and Preferred Stock would be unaffected by the Recapitalization.

The Amendments would not require shareholder approval because they would not be considered material amendments to the Plan under the Shareholder Approval Rule. The change to permit the use of newly issued shares to fund awards under the Plan would not be material because the Plan already permits the issuance of treasury shares. The Shareholder Approval Rule does not distinguish between treasury shares and newly issued shares largely because an issuance of treasury shares has the same dilutive effect with respect to outstanding shares as an issuance of new shares. The addition of RSUs would not be a material amendment because awards of RSUs would be substantially equivalent to awards of restricted stock, which are already permitted under the Plan. The Dividend Equivalent that would be paid to the holder of RSUs likewise would not be material because the Plan already permits dividends to be paid to holders of restricted stock awards. The 409A changes are not material because they generally restrict, rather than enhance, benefits under the Plan. As such, the Amendments would not result in: (i) an increase of the number of shares that could be issued under the Plan; (ii) a material increase in the benefits to participants; (iii) any expansion of the classes of eligible participants; or (iv) a material expansion in the types of awards available.

Publication Date*: 7/31/2012 Identification Number: 691

Staff Interpretation Letter 2010-15 Identification Number 714

This is in response to your correspondence requesting an exception from the shareholder approval requirements under Listing Rule 5635(f) with respect to a proposed issuance of securities (the “Proposed Transaction”). In addition, you asked for a related exception from the voting rights requirements of Listing Rule 5640 and IM-5640 (collectively, the “Voting Rights Rule”).

The company, a bank holding company, conducts banking operations through its wholly-owned subsidiary (the “Bank”) and has minimal assets beyond its ownership of the Bank. You stated that over the past three years, the Bank (and, consequently, the company) has been severely affected by economic conditions and has been particularly exposed to the downturn in the real estate market, suffering a high level of delinquencies on its outstanding loans. As a result, the company has experienced significant losses, severely impacting its capital and liquidity positions, and it continues to project significant charge-offs and operating losses due to losses in its loan portfolio. The company has instituted cash conservation measures including deferring interest payments on its outstanding trust preferred securities and suspending dividends on its outstanding preferred stock but, nevertheless, expects to have only “nominal” cash within 45 days unless it is able to raise additional capital. You stated that unless the company can resolve its financial difficulties, the Bank faces the potential for the withdrawal of significant customer deposits which could trigger a “run on the bank.” The company’s financial condition makes it more difficult to retain vendor and other contracts necessary to serve customers and thereby avoid customer flight which would further harm the company.

The losses and declining capital position have resulted in stringent enforcement actions by the applicable banking regulators requiring the company and the Bank to raise additional capital in the near-term or else face additional regulatory actions which could include seizure of the Bank and result in the bankruptcy of the company. Over the past several months, the company has attempted to resolve its regulatory problems and improve its capital position through the unsuccessful pursuit of possible financing alternatives. The company abandoned a planned public offering due to market considerations on the advice of its investment banking firm, and it has experienced increasing difficulty attracting outside sources of capital as its financial condition has continued to deteriorate.

In the Proposed Transaction, the company would issue to the Investor shares of common stock, convertible preferred stock, and a warrant exercisable for additional shares during the 18-month period following closing. The securities would be issued, convertible, or exercisable at a discount to the market value of the company’s common stock at the time the Proposed Transaction is consummated. The preferred stock would vote on an as-converted basis.

The company expects that as a result of the Proposed Transaction, it would satisfy the applicable banking regulatory requirements and would no longer face the prospect of the Bank being seized or having to file for bankruptcy. In addition, the company believes that following the closing of the Proposed Transaction, it would meet the requirements for continued listing on NASDAQ with the possible exception of the bid price requirement. In that regard, the company plans to complete a reverse stock split, if necessary, at a ratio sufficient to comply with that requirement.

Without the requested exception, shareholder approval would be required pursuant to Listing Rule 5635(b) because the issuance would result in a change of control and pursuant to Listing Rule 5635(d) because the issuance would exceed 20% of the pre-transaction outstanding shares at a price less than the greater of book or market value. Additionally, the Proposed Transaction would not comply with the Voting Rights Rule because the preferred stock would vote on an as-converted basis and would convert at a discount to the market value, resulting in its effectively having greater voting rights than the common stock.

You stated that the delay resulting from securing shareholder approval would seriously jeopardize the financial viability of the company and that the Proposed Transaction is its only available means to avoid the possibility of regulatory consequences that would likely result in the seizure of the Bank and a bankruptcy filing by the company. In addition, you stated that the company has been unable to structure

a transaction that complies with the shareholder approval requirements and that the Investor demanded full voting rights, on an as-converted basis, as a condition into entering into the Proposed Transaction.

Based on our review of the circumstances described in your correspondence and on your representations regarding the company’s financial condition, we have determined to grant the requested exception to the shareholder approval rules. This determination is based on your representations that the company needs to quickly proceed with the Proposed Transaction to avoid the seizure of the Bank and the company’s declaring bankruptcy. In addition, we have determined to grant an exception from the Voting Rights Rule as it applies to the voting power of the preferred stock because both that rule and former SEC Rule 19c-4 permit such an exception where necessary to rescue a company in financial distress. These 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, a letter describing the Proposed Transaction and alerting shareholders of the omission to seek their otherwise required approval; (ii) the letter must indicate that the audit committee, or a comparable independent body of the board of directors, has expressly approved reliance on these exceptions; and (iii) 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 to be in the letter as promptly as possible but no later than ten days before the issuance of the securities.

Publication Date*: 7/31/2012 Identification Number: 714

Staff Interpretation Letter 2010-14 Identification Number 713

This is in response to your correspondence requesting an exception from the shareholder approval requirements under Listing Rule 5635(f) with respect to a proposed issuance of securities (the “Proposed Transaction”). In addition, you asked for a related exception from the voting rights requirements of Listing Rule 5640 and IM-5640 (collectively, the “Voting Rights Rule”), with respect to the Investor’s proposed voting power (the “Voting Power”) and board representation.

In the Proposed Transaction, the company would sell shares of non-convertible preferred stock and warrants to the Investor for cash. The warrant exercise price would equal the closing bid price of the common stock immediately prior to entering into the definitive agreement for the Proposed Transaction, and the number of shares of common stock that could be issued upon exercise of the warrants would exceed the number of currently outstanding shares. Shareholder approval would otherwise be required pursuant to Listing Rule 5635(b) because the issuance would result in a change of control.

The Voting Power of the Investor would be based on the dollar value of the investment, as a percentage of the company’s overall market value immediately post-transaction, not to exceed 45% of the votes outstanding. The Investor would also have the right to designate 25% of the company’s board of directors upon closing. If the Investor’s ownership position were thereafter to decline to below 25%, the number of directors so appointed would decline such that the percentage of the board that it could appoint would remain approximately equal to its declining percentage ownership interest in the company. Below 7.5% ownership, the Investor’s right to designate a director would be eliminated.

You have indicated that the company is in dire financial condition as a result of a variety of factors, including criminal activity by former executives, earnings restatements and the overall decline in commodity prices, and that as a result, the company is over-leveraged and facing imminent default under its subsidiaries’ credit facilities. For more than a year, the company attempted unsuccessfully to restructure its credit facilities and raise needed capital. Pursuant to the terms of those credit facilities, only cash on hand in a subsidiary can be used to repay that subsidiary’s debt. In that regard, you have advised that the credit facility of one subsidiary matures in approximately one week, requiring a lump-sum payment of approximately $20 million. The subsidiary, however, has less than $2 million in available cash. The company expects that a default on that credit facility would lead to cross-defaults on other subsidiary credit agreements.

Without the Proposed Transaction, the company has no way to cure the impending defaults, or to restructure its debt, so that its only available option would be to file for bankruptcy protection. However, the company’s lenders have agreed to a restructuring of the outstanding debt, contingent on the closing of the Proposed Transaction, which would reduce the interest rate, and provide the company one year until the next debt-reduction payment would be due. The company thus expects that the Proposed Transaction would resolve its short-term financial issues and ensure its long-term financial viability. In addition, the Investor has committed to make additional funds available to the company, as needed, for 18 months following the closing of the Proposed Transaction. The company expects that, following the closing, it will remain in compliance with all of NASDAQ’s continued listing requirements.

You have also advised us that the company was unable to structure the Proposed Transaction such that it would not require shareholder approval. The company also explored with the Investor the possibility of limiting the issuance of warrants to 19.9% of the pre-transaction outstanding shares and then obtaining shareholder approval for the remainder of the issuance, but the Investor rejected that approach. In any event, the amount of any correspondingly smaller initial investment would not be adequate either to satisfy the lenders or to sustain the company for the time that it would take to seek shareholder approval.

Based on the foregoing, we have determined to grant the requested exception to the shareholder approval rules. This determination is based on your representations that the company needs to quickly proceed with the Proposed Transaction to avoid declaring bankruptcy. This exception is subject to the following conditions: (i) the company must mail to all shareholders, not later than ten days before the

issuance of any securities, a letter describing the Proposed Transaction and alerting shareholders of the omission to seek their otherwise required approval; (ii) the letter must indicate that the audit committee, or a comparable independent body of the board of directors, has expressly approved reliance on the exception; and (iii) 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 to be in the letter as promptly as possible, but no later than ten days before the issuance of the securities.

With respect to the Voting Rights Rule, we have determined that no exception is necessary because the Voting Power would be consistent with the Investor’s ownership position in the company, as would the board designation rights.

Publication Date*: 7/31/2012 Identification Number: 713

Staff Interpretation Letter 2010-12 Identification Number 711

This is in response to your correspondence requesting certain exceptions from NASDAQ Rules. Specifically, the company is requesting an exception from NASDAQ’s shareholder approval requirements under Listing Rule 5635(f), as well as a related exception from the voting rights requirements of Listing Rule 5640 and IM-5640 (collectively, the “Voting Rights Rule”), both with respect to a proposed issuance of preferred stock (the “Preferred Stock”). The Acquirer would acquire the Preferred Stock in order to influence the outcome of an upcoming vote of the company’s shareholders to approve the proposed merger of the company with a wholly-owned subsidiary of the Acquirer (the “Acquisition”). The company is a bank holding company, and its primary subsidiary is a commercial bank (the “Bank”). For the reasons described below, we are unable to grant the requested exceptions.

You stated that the financial condition of the Bank (and consequently the company) has severely deteriorated. The company has experienced substantial losses over the past two years and continues to project substantial losses on a going forward basis; the company’s and the Bank’s credit ratings have been downgraded by all rating agencies to “junk” status; the Bank is not in compliance with mandatory banking regulatory capital ratios; and the applicable federal banking regulators have instituted enforcement actions that make it necessary for the company to raise a significant amount of capital within a limited period of time. Failure to raise the necessary capital would result in additional regulatory actions, which could include seizure of the Bank. You indicated that the company’s attempts to raise the required capital have failed and that the company is left with no practical alternative to the Acquisition.

Pursuant to the Acquisition agreement, the company’s common shareholders would be able to elect to receive either cash or shares of the Acquirer’s common stock in exchange for their shares of the company’s common stock. In addition, the United States Department of the Treasury has agreed to sell to the Acquirer, at a discount, company securities that the Treasury previously purchased as part of its Capital Purchase Program. The closing of the Acquisition is subject to the approval of the company’s shareholders, and it is contemplated by the parties that the Acquirer would have the ability to vote its newly acquired shares of Preferred Stock in favor of the Acquisition. The Preferred Stock would represent 39.9% of the voting power of the company. As consideration for the Preferred Stock, the company would receive 1,000 shares of the Acquirer’s common stock, which, based on current prices, has a value of approximately $70,000.

You indicated that the Acquirer sought the Preferred Stock as a way to reduce the uncertainty regarding the outcome of the company's shareholder vote on the Acquisition. You suggested that reducing the uncertainty surrounding the vote would also help address regulators’ and depositors’ concerns about the Bank. You advised that if the company does not receive the requested exceptions, the Acquirer would have the contractual right to terminate the agreement with the company and not proceed with the Acquisition.

Without the requested exceptions, the issuance of the Preferred Stock would require shareholder approval pursuant to Listing Rule 5635(b) because the issuance would result in a change of control and pursuant to Listing Rule 5635(d) because the issuance would exceed 20% of the pre-transaction voting power at a price less than the greater of book or market value. Additionally, without the requested exceptions, the issuance of the Preferred Stock would violate the Voting Rights Rule because the voting power of the Preferred Stock would be disproportionally high relative to the dollar value of the Acquirer’s investment.

Based on our review of the circumstances described in your correspondence, we have determined not to grant the requested exceptions. We have made this determination because we do not believe that the proposed issuance of the Preferred Stock meets the specific requirements of Listing Rule 5635(f), which you cited as the basis for your request.

Under Listing Rule 5635(f), the financial viability exception may be available “when a delay in securing stockholder approval would seriously jeopardize the financial viability of the enterprise” and certain other specified criteria are satisfied. Thus, in a typical situation, relief under this rule is granted in anticipation of a capital-raising transaction when a company might not survive financially if the transaction to provide the needed capital were to be delayed long enough to allow the company to hold a shareholder vote.

The facts here are fundamentally different. The company would need to solicit shareholder approval of the Acquisition and would not receive material new capital before such vote is held even if the financial viability exception were to be granted with respect to the Preferred Stock issuance. While the company may have presented a compelling case as to its financial distress, its financial position would not improve until the Acquisition closed because the company would raise only a nominal amount of capital through the issuance of the Preferred Stock.

Given these facts, we conclude that “the delay in securing stockholder approval” for the Preferred Stock would not by itself “jeopardize the financial viability of the company. [See Listing Rule 5635(f)]. This is the case because eliminating such a delay with respect to the Preferred Stock issuance would neither accelerate the availability of needed capital nor advance in time the proposed ultimate resolution of the company’s difficulties. At the same time, the understandable desire of the Acquirer to achieve greater certainty with respect to the outcome of the shareholder vote on the Acquisition or to influence such outcome is not an acceptable basis for an exception under Listing Rule 5635(f). Accordingly, it would not be appropriate to grant a financial viability exception on these facts, and issuing the Preferred Stock without obtaining shareholder approval would violate the Rules. For the same reasons, we do not believe it is appropriate to grant an exception to the Voting Rights Rules for the issuance of the Preferred Stock.

Publication Date*: 7/31/2012 Identification Number: 711

Staff Interpretation Letter 2010-11 Identification Number 710

This is in response to your correspondence requesting an exception under Listing Rule 5635(f) from the shareholder approval requirements and from the voting rights requirements of Listing Rule 5640 and IM-5640 (collectively, the “Voting Rights Rule”) with respect to the proposed transactions described below (the “Proposed Transactions”).

According to the information you provided, in the Proposed Transactions the company would: (i) issue shares of common stock and convertible preferred stock to the Investor in a private placement (the “Investment”); and (ii) issue shares of common stock and/or convertible preferred stock to the United States Department of Treasury (the “Treasury”) in exchange for shares of the company’s non-convertible preferred stock currently held by the Treasury (the “Treasury Exchange”). The issuance price of the common stock and the conversion price of the preferred stock both would be less than the market value of the common stock, and the convertible preferred stock would vote on an as-converted basis. You stated that the Treasury Exchange is a condition precedent to the Investment.

You indicated that the company is a bank holding company, and its subsidiary is a nationally chartered bank (the “Bank”). The Bank has been drastically impacted by economic deterioration in the markets its serves and by declining asset quality, and the company, therefore, has experienced significant losses and projects substantial additional losses going forward. As a result, the Bank is not in compliance with mandated regulatory capital ratios, and the applicable federal banking regulators have implemented enforcement actions, which resulted in the company and the Bank entering into agreements with those regulators requiring them to increase their leverage and capital ratios. In order to satisfy these agreements, the company must raise a significant amount of capital within a limited amount of time. The agreements also provide that if the company fails to meet the prescribed capital ratios within the prescribed timeframes, it must submit a plan to sell, merge or liquidate the Bank, which you stated would likely result in a complete loss to the company’s shareholders, or face additional regulatory action having the same effect. Recently, several rating agencies have downgraded the company’s credit ratings and the Bank’s deposit ratings.

You stated that over the past several months, the company unsuccessfully attempted to develop other capital raising opportunities or identify a merger partner. Despite these efforts, which resulted in several dozen prospective counterparties entering into confidentiality agreements and conducting due diligence, the company has been unable to generate any firm proposal other than the Proposed Transactions. The company believes that the Proposed Transactions are its only available means of addressing its capital needs within the timeframe available and that the delay in seeking shareholder approval could result in it having to seek bankruptcy protection. In that regard, you stated that there is a very high risk of depositor attrition, and the attendant risk of near-term regulatory action against the company, resulting from the delay and uncertainty associated with obtaining shareholder approval. With respect to voting rights of the preferred stock, the company believes that such rights are consistent with an investor’s reasonable expectations for protection of its investment in the context of this type of transaction.

The company expects that as a result of the Proposed Transactions it would satisfy the banking regulatory requirements and would no longer face the prospect of having to liquidate or file for bankruptcy. In addition, the company believes that following the consummation of the Proposed Transactions, it would meet the requirements for continued listing on NASDAQ with the possible exception of the bid price requirement. In that regard, the company plans to complete a reverse stock split, if necessary, at a ratio sufficient to comply with that requirement.

Without the requested exceptions, the Proposed Transactions would require shareholder approval pursuant to Listing Rule 5635(b) because the issuance would result in a change of control and Listing Rule 5635(d) because the issuance would exceed 20% of the pre-

transaction outstanding shares at a price less than the greater of book or market value. Additionally, without the requested exception, the Proposed Transactions would not comply with the Voting Rights Rule because the preferred stock would vote on an as-converted basis and would convert at a discount to the market value, resulting in its effectively having greater voting rights than the common stock.

Based on our review of the circumstances described in your correspondence and on your representations regarding the company’s financial condition, we have determined to grant the requested exception to the shareholder approval rules. This determination is based on your representations that the company needs to quickly proceed with the Proposed Transactions to avoid additional regulatory actions and the loss of additional deposits, either of which could lead to the company’s declaring bankruptcy or facing regulatory action having the same effect. In addition, we have determined to grant an exception from the Voting Rights Rule as it applies to the voting power of the preferred stock because both that rule and former SEC Rule 19c-4 permit such an exception where necessary to rescue a company in financial distress. These 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, a letter describing the Proposed Transactions and alerting shareholders of the omission to seek their otherwise required approval; (ii) the letter must indicate that the audit committee, or a comparable independent body of the board of directors, has expressly approved reliance on these exceptions; and (iii) 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 to be in the letter as promptly as possible but no later than ten days before the issuance of the securities.

Publication Date*: 7/31/2012 Identification Number: 710

Staff Interpretation Letter 2010-9 Identification Number 708

This is in response to your correspondence regarding whether the company’s proposed recapitalization (the “Recapitalization”) would satisfy the requirements of Listing Rule 5640 and IM-5640 (collectively, the “Voting Rights Rule”).

According to the information you provided, the company would seek shareholder approval to replace its current single class voting structure with a dual class structure. To implement the Recapitalization, the company would: (i) effect a one-for-five reverse split of its common stock; (ii) reclassify each whole share of common stock as a share of new Class B common stock with one vote per share; (iii) create a new class of lower voting Class A common stock with one-twentieth of a vote per share; and, (iv) distribute to the Class B holders four shares of Class A for each share of Class B.

Neither the Class A nor the Class B would be convertible into the other except under limited circumstances relating to what you described as potential changes in law or regulations. Under such circumstances, the Class A could convert into the Class B on a share-for-share basis. Following the Recapitalization, the consent of the holders of the Class A, voting as a separate class, would be required for the company to take certain actions that would adversely affect the Class A holders. In addition, the Class A would be provided certain other protections including the right to be treated identically to the Class B on a per share basis in any subsequent reclassification or recapitalization. The company expects that both the Class A and Class B would be listed on NASDAQ.

Following our review of the information you provided, we have determined that the Recapitalization would comply with the Voting Rights Rule. The Recapitalization would not result in any current shareholder being disenfranchised because immediately after the Recapitalization, each shareholder would have the same voting and ownership percentage as immediately before the Recapitalization. In addition, the high-vote Class B would not be convertible into the low-vote Class A. Both the Voting Rights Rule and former Securities and Exchange Commission Rule 19c-4, upon which the Voting Rights Rule is based, permit the creation of a lower voting class of securities, subject to certain restrictions, because the voting power of existing shareholders would not be reduced as a result of such action. In addition, we note that the company intends to list each class of common stock on NASDAQ. In reaching the conclusions described herein relating to the applicability of the Voting Rights Rule, we have not otherwise assessed the listing eligibility of the Class A and Class B. However, the company should consult with us before taking any further action affecting the legal or listing status of either the Class A or Class B.

Publication Date*: 7/31/2012 Identification Number: 708

Staff Interpretation Letter 2010-8 Identification Number 707

This is in response to your correspondence requesting an exception under Listing Rule 5635(f) from the shareholder approval requirements and from the voting rights requirements of Listing Rule 5640 and IM-5640 (collectively, the “Voting Rights Rule”) with respect to the proposed transactions described below (the “Proposed Transactions”).

According to the information you provided, in the Proposed Transactions the company would: (i) sell shares of convertible preferred stock to institutional investors; (ii) issue shares of convertible preferred stock to the United States Department of Treasury (the “Treasury”) in exchange for shares of the company’s non-convertible preferred stock currently held by the Treasury; (iii) change the exercise price of an

existing warrant held by the Treasury to purchase common stock; and (iv) potentially, pay a fee to the Treasury in shares of the company’s common stock in connection with the exchange. The preferred stock would be convertible into common stock at a conversion price that would be less than the market value of the common stock and would vote on an as-converted basis. You stated that each component of the Proposed Transactions is conditioned upon the substantially concurrent consummation of each of the other components.

You indicated that the company, a bank holding company, faces challenges resulting from current and prior year losses, driven by credit quality issues, and is categorized as being under-capitalized under applicable banking regulatory guidelines. You further stated the company has been adversely impacted by severe declines in housing prices and property values in its primary market areas as approximately 75% of its loan portfolio is secured by real estate. The company has experienced increased loan delinquencies and foreclosures and decreased demand for its products and services. The company incurred significant losses over the last five quarters, and it began deferring interest payments on its outstanding trust preferred securities approximately six months ago. The company’s principal banking subsidiary (the “Subsidiary”) is currently in default under an agreement with its primary banking regulators to raise additional capital. The company has been informed by the Federal Deposit Insurance Corporation (the “FDIC”) that if it does not raise capital in the very short term, the FDIC will place the Subsidiary into receivership. You stated that such receivership would result in the company’s becoming insolvent and filing for bankruptcy.

You also stated that for so long as uncertainty as to its financial viability continues, the company risks negative impact on its ability to attract new deposits and faces the possibility of additional deposit outflows. In addition, the company expects to face increasing drains on its liquidity over the next three to six weeks as a result of limitations imposed under agreements with its banking regulators.

The company expects that as a result of the Proposed Transactions, it would satisfy the banking regulatory guidelines applicable to both the company and the Subsidiary, and would no longer face the prospect of having to file for bankruptcy. In addition, the company believes that for at least one year following consummation of the Proposed Transactions, it would meet the requirements for continued listing on NASDAQ with the possible exception of the bid price requirement. In that regard, the company plans to complete a reverse stock split, if necessary, at a ratio sufficient to comply with that requirement.

Without the requested exceptions, the Proposed Transactions would require shareholder approval pursuant to Listing Rule 5635(b) because the issuance could result in a change of control and Listing Rule 5635(d) because the issuance would exceed 20% of the pre-transaction outstanding shares at a price less than the greater of book or market value. Additionally, without the requested exception, the Proposed Transactions would not comply with the Voting Rights Rule because the preferred stock would vote on an as-converted basis and would convert at a discount to the market value, resulting in it effectively having greater voting rights than the common stock.

You stated that the company is unable to structure a transaction that would satisfy NASDAQ’s shareholder approval and voting rights requirements, in large part because of the amount of capital it needs to raise to meet the regulatory capital requirements. In addition, you stated that the company believes that the Proposed Transactions may be its final opportunity to raise the capital necessary to successfully address its difficulties and that the delay in seeking shareholder approval could result in it having to seek bankruptcy protection.

Based on our review of the circumstances described in your correspondence and on your representations regarding the company’s financial condition, we have determined to grant the requested exception to the shareholder approval rules. This determination is based on your representations that the company needs to quickly proceed with the Proposed Transactions to avoid the FDIC placing the Subsidiary into receivership and the company declaring bankruptcy. In addition, we have determined to grant an exception from the Voting Rights Rule as it applies to the voting power of the preferred stock because both that rule and former SEC Rule 19c-4 permit such an exception where necessary to rescue a company in financial distress. These 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, a letter describing the Proposed Transactions and alerting shareholders of the omission to seek their otherwise required approval; (ii) the letter must indicate that the audit committee, or a comparable independent body of the board of directors, has expressly approved reliance on these exceptions; and (iii) 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 to be in the letter as promptly as possible but no later than ten days before the issuance of the securities.

Publication Date*: 7/31/2012 Identification Number: 707

Staff Interpretation Letter 2010-3 Identification Number 702

This is in response to your correspondence regarding the rights that certain shareholders would have to nominate members of the board of directors (the “Nomination Rights”) following the company’s acquisition of the Target (the “Acquisition”). Your questions relate to the applicability of the voting rights requirements of Listing Rule 5640 (the “Voting Rights Requirements”) and the director nomination

requirements of Listing Rule 5605(e) and IM-5605-7 (collectively, the “Nominations Rule”).

According to the information you provided, in connection with the Acquisition the company would enter into an agreement with the shareholders of the Target (the “Target Holders”) and certain of the company’s existing shareholders (the “Company Holders”) setting forth the Nomination Rights. As part of the Acquisition consideration, the Target Holders would receive securities (the “Exchangeable Securities”), which would become exchangeable at the Target Holders’ option, generally one year after issuance, either for shares of the company’s common stock or preferred stock which would be immediately convertible into common stock (the “Preferred Stock”).

Pursuant to the Nomination Rights, once the Exchangeable Securities become exchangeable, the Target Holders would have the right to nominate members of the board such that the percentage of the company’s board members that they could nominate would approximately equal their percentage equity ownership interest in the company (the “Ownership Percentage”) and would decline pro ratably with a decline in their Ownership Percentage. The Ownership Percentage would be determined by dividing: (i) the sum of the number of shares of common stock held by the Target Holders and any shares of common stock issuable to them upon exchange of the Exchangeable Securities and Preferred Stock that are then exchangeable at the Target Holders’ option, by (ii) the sum of the total number of shares of common stock outstanding and the number of shares of common stock issuable upon exchange of the Exchangeable Securities and Preferred Stock that are then exchangeable at the Target Holders’ option. The maximum number of directors the Target Holders could nominate would equal the product of: (i) the Ownership Percentage, and (ii) the total number of directors on the company’s board, provided that if such product is not a whole number, it would be rounded up to the next whole number unless such rounding would result in the right to nominate a majority of the board, in which case it would be rounded down to the next whole number.

In addition, the Nomination Rights would entitle the Company Holders, who would own approximately 15% of the company’s outstanding equity securities following the Acquisition, to nominate one board member for so long as they held more than 5% of the company’s outstanding common stock.

Following our review of the information you provided, and in response to your request, we have concluded that in determining compliance with the Voting Rights Requirements, the Exchangeable Securities may be used in calculating the Ownership Percentage as described above to the extent that they are currently exchangeable at the Target Holders’ option for shares of the company’s common stock or Preferred Stock, which is immediately convertible into common stock. In addition, we have concluded that the Nomination Rights proposed for the Company Holders for so long as they hold more than 5% of the company's outstanding shares is consistent with Listing Rule 5605(e), which states that independent director oversight of director nominations shall not apply in a case where the right to nominate a director legally belongs to a third party. Please be advised that notwithstanding this conclusion, the company remains subject to Listing Rule 5605, including those provisions relating to board committee composition and the requirement to have a majority of independent directors on the board.

Publication Date*: 7/31/2012 Identification Number: 702

Staff Interpretation Letter 2009-27 Identification Number 745

This is in response to your correspondence requesting: (i) an exception under Listing Rule 5635(f) from the shareholder approval requirements, and (ii) an exception from the voting rights requirements of Listing Rule 5640 and IM-5640 (collectively, the “Voting Rights Rule”), with respect to a proposed transaction (the “Proposed Transaction”).

According to the information you provided, in the Proposed Transaction the company would issue shares of its common stock and convertible preferred stock in exchange for certain of its outstanding debt securities (the “Notes”). The issuance price of the common stock, and the conversion price of the preferred stock, would be less than the market value of the common stock. The preferred stock would vote on an as-converted basis. The holders of the Notes (the “Noteholders”) do not include any officers or directors of the company.

The company provides freight transportation services. You stated that the overall economic conditions and credit crisis beginning last year have had a significant detrimental impact on the company’s financial condition and continue to negatively impact its customers’ needs to ship goods which, in turn, causes a reduction in the volume of freight the company ships and in the price it receives for its services. In addition, shipping volumes have declined as a result of customers’ switching to other carriers due to their concerns regarding the company’s financial stability. For each of its most recently completed two fiscal quarters, the company’s operating revenues were down approximately 50% compared to the year-earlier periods. The company continues to experience reduced revenue, operating losses, and negative cash flow, and did not make the most recently due interest payment on the Notes. As a result of its financial condition, the company is restricted from accessing a significant portion of its revolving credit facility (the “Credit Facility”).

You stated that the Proposed Transaction is a necessary step for the company to address its near-term liquidity issues and to stabilize its financial condition. Subject to the completion of the Proposed Transaction, the company’s lenders under the Credit Facility have

agreed to allow the company to defer the payment of interest and fees otherwise due (the “Deferral”). After the completion of the Proposed Transaction, and subject to compliance with certain borrowing conditions, the lenders will allow the company to again access the blocked portion of the Credit Facility. In addition, the company has obtained significant concessions from its unionized employees who have agreed to wage reductions and to allow the company to defer contributions to pension funds (the “Concessions”). You stated that the Concessions are essential to the company’s remaining a going concern, and the continuation of the Concessions is contingent on the completion of the Proposed Transaction in the near-term. Other measures the company has taken include the consolidation of operations and the sale of excess property and equipment.

Without the requested exceptions, the Proposed Transaction would require shareholder approval pursuant to: (i) Listing Rule 5635(b) because the issuance could result in a change of control; and (ii) Listing Rule 5635(d) because the issuance would exceed 20% of the pre-transaction outstanding shares at a price less than the greater of book or market value. Additionally, without the requested exception, the Proposed Transaction would not comply with the Voting Rights Rule because the preferred stock would effectively have greater voting rights than the common stock because it would vote on an as-converted basis and would convert at a discount to the market value.

You stated that the delay in securing shareholder approval would seriously jeopardize the company’s financial viability and that unless the Proposed Transaction is completed within approximately three weeks, the company will likely file for bankruptcy. The company does not have cash sufficient to sustain it for the time that it would take to get shareholder approval of the Proposed Transaction. Moreover, the Noteholders were unwilling to enter into a transaction that would satisfy the shareholder approval and voting rights requirements.

The company believes that if it completes the Proposed Transaction, it will have sufficient liquidity to continue in business as a going concern and to continue operations for at least approximately nine months. The company expects that the benefits of the Proposed Transaction, which include the Deferral, the Concessions, and the availability of the Credit Facility, as well as the elimination of future interest payments associated with the Notes, will further improve the company’s liquidity position and overall financial condition. In addition, the company believes that following the Proposed Transaction, it will meet the requirements for continued listing on NASDAQ with the possible exception of the bid-price requirement. In that regard, the company plans to complete a reverse stock split, if necessary, at a ratio sufficient to comply with that requirement.

Based on our review of the circumstances described in your correspondence and on your representations regarding the company’s financial condition, we have determined to grant the requested exception to the shareholder approval rules. This determination is based on your representations that the company needs to quickly proceed with the Proposed Transaction to avoid bankruptcy. In addition, we have determined to grant an exception from the Voting Rights Rule as it applies to the voting power of the preferred stock because both that rule and former Rule 19c-4 permit such an exception where necessary to rescue a company in financial distress. The exception is subject to the following: (i) the company must mail to all shareholders, not later than ten days before the issuance of any securities, a letter describing the Proposed Transaction and alerting shareholders of the omission to seek their otherwise required approval; (ii) the letter must indicate that the audit committee, or a comparable independent body of the board of directors, has expressly approved reliance on the exception; and (iii) the company must make a public announcement through the news media disclosing the same information as promptly as possible, but no later than ten days prior to the issuance of the securities.

Publication Date*: 7/31/2012 Identification Number: 745

Staff Interpretation Letter 2009-26 Identification Number 744

This is in response to your correspondence requesting: (i) an exception under Listing Rule 5635(f) from the shareholder approval requirements, and (ii) an exception from the voting rights requirements of Listing Rule 5640 and IM-5640 (collectively, the “Voting Rights Rule”), with respect to a proposed transaction (the “Proposed Transaction”).

According to the information you provided, in the Proposed Transaction the company would issue to the Investor: (i) preferred stock convertible into common stock, (ii) warrants exercisable for additional common shares, and (iii) a non-convertible senior secured note. The conversion price of the preferred stock and the exercise price of the warrants would be at a discount to the market value of the common stock. The preferred stock would vote on an as-converted basis. As a condition to closing, the Investor requires that members of the company’s management (the “Insiders”) purchase securities in the Proposed Transaction.

You stated that for the past several years the company has experienced net losses and negative working capital as its current liabilities have exceeded its current assets. The company has been able to operate under these conditions due primarily to advance payments made to it by its largest customer (the “Customer”) and to a credit facility (the “Credit Facility”) provided by a bank (the “Bank”). Both of these arrangements, however, recently changed in ways detrimental to the company. Approximately four months ago, the Customer notified the company that it was reducing the amount of business it does with the company and, as a result, would require the company to repay a significant amount in advance billings. The company had not anticipated this business reduction or the repayment requirement because it was unprecedented over the course of a long relationship with the Customer. In addition, approximately six months ago, the

Bank suspended the Credit Facility as a result of the company’s failure to comply with various covenants.

You stated that as a result of the foregoing factors, the company is currently in severe financial distress and has been required to delay substantial payments past due to its clients and vendors, negatively impacting the company's business and its ability to generate revenues. On several recent occasions, the company was able to meet its payroll obligations only after the receipt of funds from clients within 24 hours of the time such obligations were due. Currently, the amount of the company’s accounts payable exceeds its available cash.

Approximately six months ago, the company began considering various financing alternatives and believed that it would be able to raise sufficient funds in a transaction that would not require shareholder approval. As its financial condition continued to deteriorate, however, the company concluded that it would need to raise more funds than would be provided by the transactions then under consideration. As a result, the company entered into negotiations with the Investor leading to the Proposed Transaction. The Investor was unwilling to enter into a transaction that would satisfy the shareholder approval and voting rights requirements.

Without the requested exceptions, the Proposed Transaction would require shareholder approval pursuant to: (i) Listing Rule 5635(b) because the issuance would result in a change of control; (ii) Listing Rule 5635(c) because the issuance at a discount to the Insiders would be considered equity compensation; and (iii) Listing Rule 5635(d) because the issuance would exceed 20% of the pre-transaction outstanding shares at a price less than the greater of book or market value. Additionally, without the requested exception, the Proposed Transaction would not comply with the Voting Rights Rule because the preferred stock would effectively have greater voting rights than the common stock because it would vote on an as-converted basis and would convert at a discount to the market value.

You stated that the company has concluded that a delay in closing the Proposed Transaction to secure shareholder approval would seriously jeopardize its financial viability. The company believes that if it does not consummate the Proposed Transaction as soon as possible, its financial position will continue to deteriorate and it will be unable to meet its current obligations, resulting in the company being forced to cease all or a substantial portion of its operations and/or file for bankruptcy.

The company believes that if it is able to consummate the Proposed Transaction, its working capital deficit would be significantly reduced immediately and then eliminated within approximately five months as a result of projected earnings. In addition, the company believes that following the Proposed Transaction, it will meet the requirements for continued listing on NASDAQ.

Based on our review of the circumstances described in your correspondence and on your representations regarding the company’s financial condition, we have determined to grant the requested exception to the shareholder approval rules. This determination is based on your representations that the company needs to quickly proceed with the Proposed Transaction to avoid bankruptcy and that the Insiders did not negotiate the terms of the Proposed Transaction and are participating only at the insistence of the lead investor and on the same terms as that investor. In addition, we have determined to grant an exception from the Voting Rights Rule as it applies to the voting power of the preferred stock because both that rule and former Rule 19c-4 permit such an exception where necessary to rescue a company in financial distress. The exception is subject to the following: (i) the company must mail to all shareholders, not later than ten days before the issuance of any securities, a letter describing the Proposed Transaction and alerting shareholders of the omission to seek their otherwise required approval; (ii) the letter must indicate that the audit committee, or a comparable independent body of the board of directors, has expressly approved reliance on the exception; and (iii) the company must make a public announcement through the news media disclosing the same information as promptly as possible, but no later than ten days prior to the issuance of the securities.

Publication Date*: 7/31/2012 Identification Number: 744

Staff Interpretation Letter 2009-18 Identification Number 736

This is in response to your correspondence regarding the applicability of the shareholder approval requirement of Listing Rule 5635(d) (the “Shareholder Approval Rule”) and the voting rights requirements of Listing Rule 5640 and IM-5640 (collectively, the “Voting Rights Rule”) to a proposed issuance of securities (the “Proposed Offering”).

According to the information you provided, in the Proposed Offering the company would offer shares of a newly designated senior common stock (the “Senior Common”) at a fixed price (the “Offering Price’) in a continuous private placement on a best-effort basis over a twenty-four month period (the “Offering Period”). The company expects that during the Offering Period, it will accept subscription agreements which would become effective twice monthly. In addition, each holder of the Senior Common would be entitled to reinvest distributions that would be paid on the Senior Common for additional shares of Senior Common at the Offering Price. Except where required by law, the Senior Common would be non-voting.

The Senior Common would be convertible into shares of the company’s class of common stock which is listed on NASDAQ (the “Common Stock”). The number of shares of Common Stock that could be issued exceeds 20% of the pre-offering outstanding shares. The

conversion price would be equal to the greater of the highest book or market value per share during the Offering Period. The book value would be that value attributable to the company’s common stockholders’ equity and would not give effect to the company’s outstanding preferred stock.

Following our review of the information you provided, we have determined that the Proposed Offering, structured as you described, would satisfy the Shareholder Approval Rule and the Voting Rights Rule. Although the potential issuance exceeds 20% of the pre-offering outstanding shares, shareholder approval would not be required under the Shareholder Approval Rule because the conversion price could not be less than the greater of book or market value per share. The Proposed Offering would comply with the Voting Rights Rule because the issuance of the Senior Common would not disparately reduce or restrict the voting rights of existing shareholders in that it is non-voting, except as required by law. Please note that you have not asked us to reach, and we have not reached, a conclusion as to the applicability of the Listing Rules in any way other than as addressed herein.

Publication Date*: 7/31/2012 Identification Number: 736

Staff Interpretation Letter 2009-17 Identification Number 735

This is in response to your correspondence requesting: (i) an exemption under Listing Rule 5635(f) from NASDAQ’s shareholder approval requirements and (ii) an exemption from the voting rights requirements of Listing Rule 5640 and IM-5640 (collectively, the “Voting Rights Rule”), with respect to a proposed transaction (“Proposed Transaction”). The company is a provider of investment banking and brokerage services.

According to the information you provided, the company proposes to issue to multiple investors (the “Investors”) preferred stock convertible into shares of the company’s common stock and warrants exercisable for additional common shares. Approximately 90% of the securities would be purchased by persons or entities not currently affiliated with the company. The remainder would be purchased by officers, directors, or employees of the company (the “Insiders”) who would be participating in the Proposed Transaction as a condition imposed by the lead outside investor and on the same terms as all other Investors. The purchase price would be a price less than the greater of book or market value, and the number of common shares that could be issued upon conversion and exercise exceeds 20% of the pre-transaction outstanding shares.

As such, without the requested exceptions, the Proposed Transaction would require shareholder approval pursuant to: (i) Listing Rule 5635(b) because the issuance would result in a change of control; (ii) Listing Rule 5635(c) because the issuance at a discount to the Insiders would be considered equity compensation; and (iii) Listing Rule 5635(d) because the issuance would exceed 20% of the pre-transaction outstanding shares at a price less than the greater of book or market value. Additionally, without the requested exception, the Proposed Transaction would not comply with the Voting Rights Rule because the preferred stock would effectively have greater voting rights than the common shares as, although it would vote on an as-converted basis, it would convert at a discount to the market value.

According to the information you submitted, the severity of the company’s current financial situation is largely a result of litigation brought against it in connection with the activities of a former client and a former employee of the company (the “Litigation”). The company has spent several million dollars in legal fees over the past year in connection with the Litigation and recently entered into a tentative settlement with the litigants for an amount equal to approximately 75% of the amount of its most recently reported stockholders’ equity. The company believes that a binding settlement agreement cannot be reached unless the company has access to the funds that would be raised in the Proposed Transaction. The proceeds from the Proposed Transaction would be used to provide funds for the settlement and to inject funds into the company’s operations.

You have also indicated that the company is operating in a challenging economic environment. The financial impact of these problems has made it difficult for the company’s broker-dealer subsidiary, which comprises substantially all of the company’s revenues, to remain in compliance with the FINRA minimum net capital requirements. Non-compliance with these requirements could result in FINRA forcing the company to cease operations.

While the company has maintained operations over the past few months through a series of bridge financings, it believes that the Proposed Transaction will provide sufficient funding for the settlement of the litigation and its continued operations. The company’s management believes that without the Proposed Transaction, the company may be forced to dissolve in the near future, and the stockholders likely would receive nothing in such dissolution. The company has unsuccessfully explored alternative financings including structures that would satisfy the shareholder approval requirements.

With respect to the participation of the Insiders, you stated that the lead investor is not willing to invest unless such Insiders also participate and that such a refusal would likely preclude a successful consummation of the Proposed Transaction. The terms of the transaction were negotiated with the lead investor, and the Insiders are required to accept the same terms. With respect to the voting power of the preferred stock, you stated that all of the terms of the securities were heavily negotiated with the lead investor and that the

company believes that the Proposed Transaction represents the best available option for achieving value for its stockholders and, thus, is in the best interest of stockholders.

In the Proposed Transaction, the company expects to raise sufficient capital to continue operating. The company expects that if it completes the Proposed Transaction, it will meet the requirements for continued listing on NASDAQ with the possible exception of the bid-price requirement. In that regard, the company has committed, if necessary, to complete a reverse stock split of a ratio sufficient to comply with that requirement.

Publication Date*: 7/31/2012 Identification Number: 735

Staff Interpretation Letter 2009-15 Identification Number 733

This is in response to your correspondence regarding the applicability of NASDAQ’s shareholder approval requirements of Listing Rules 5635(b), 5635(d), and IM-5635-2 (the “Rules”) to a proposed issuance of securities (the “Proposed Transaction”). In addition, you asked about the applicability of the voting rights requirements of Listing Rule 5640 and IM-5640 (the “Voting Rights Requirements”) to rights that the Investor in the Proposed Transaction would receive allowing it to designate members to serve on the company’s board of directors and to have non-member board observers (the “Designation Rights”).

The company has two classes of common stock, Class A, which is listed on NASDAQ, and Class B, which is not publicly traded (collectively, the “Common Stock”). The Class A has one vote per share, and the Class B has ten votes per share. The number of shares of Class A outstanding equals approximately 97% of the shares of Common Stock outstanding, and the number of shares of Class B outstanding equals approximately 3% of the shares of Common Stock outstanding. The aggregate voting power of the Class A is approximately 79% of the company’s total outstanding voting power, and the Class B, approximately 21%. The company’s chief executive officer owns all of the Class B shares. No other shareholder owns as much as 10% of the company’s outstanding voting power or outstanding shares of Common Stock.

According to the information you provided, in the Proposed Transaction the company would issue to the Investor: (i) non-convertible senior secured notes with an aggregate principal amount equal to approximately three times the current aggregate market value of the company’s outstanding shares of Common Stock; and (ii) warrants to purchase shares of Class A equal in number to approximately 55% of the pre-transaction outstanding shares of Common Stock, subject to the restrictions described below (the “Warrants”). On a post-transaction basis, the potential issuance would equal approximately 36% of the then outstanding shares of Common Stock and approximately 31% of the company’s then outstanding voting power.

Pursuant to the Designation Rights, upon the closing of the Proposed Transaction one designee of the Investor would be added to the company’s board of directors (the “Board”), representing not more than 11% of the total number of members of the Board. Following shareholder approval of the Proposed Transaction, the Investor would be entitled to a second designee on the Board, with the two designees representing not more than 20% of the total number of members of the Board. In addition, the Investor would be entitled to have one or two non-voting observers attend meetings of the Board. At any given time, the number of designees together with the number of observers would not exceed two. The audit, nomination, and compensation committees could exclude the observers from the proceedings at the discretion of the respective committee. The Designation Rights would include step-downs for reduced Board representation if the size of the Investor’s stake in the company were to decrease.

Absent shareholder approval, the exercise price of the Warrants would not be less than the greater of book or market value prior to entering into the binding agreement (the “Exercise Price Restriction”). In addition, absent shareholder approval, a holder of the Warrants would not be entitled to exercise Warrants if immediately following such exercise: (i) the aggregate voting power of such holder (or any group including such holder) would exceed 19.9% of the aggregate voting power of the company; or (ii) the aggregate shares of the class of common stock underlying the Warrants owned by such holder (or any group including such holder) would exceed 19.9% of the company’s aggregate outstanding common shares (the “Ownership Limitation”).

The Exercise Price Restriction and the Ownership Limitation would apply until such time as shareholder approval is obtained. The Warrants would not be exercisable to any extent until the earlier of: (i) shareholder approval; (ii) the holding of a specified maximum number of meetings of the company’s shareholders at which shareholder approval would be sought; and (iii) a specified maximum period of time after the closing of the Proposed Transaction during which the company would be permitted to seek shareholder approval pursuant to the agreement relating to the Proposed Transaction. The interest rate on the notes would increase over time unless shareholder approval has been obtained.

Following our review of the information you provided, we have determined that the Proposed Transaction, structured as you described and as summarized above, would satisfy the requirements of the Rules. Given the Ownership Limitation, the Proposed Transaction could

result in a change of control only after shareholder approval is obtained, thereby satisfying Rule 5635(b). Given the Exercise Price Restriction, the exercise price could be less than the greater of book or market value only after shareholder approval is obtained, thereby satisfying Rule 5635(d). With respect to IM-5635-2, no shares of common stock could be issued in the Proposed Transaction (i.e., the Warrants would not be exercisable to any extent), unless either: (i) shareholder approval has been obtained, or (ii) shareholder approval could no longer be sought pursuant to the terms of the agreement. As such, absent shareholder approval, the Warrant would be exercisable only if there would not be a subsequent shareholder vote to approve the Proposed Transaction, and then only to the extent permissible under the Exercise Price Restriction and the Ownership Limitation. Accordingly, the Proposed Transaction complies with IM-5635-2. In addition, the Designation Rights satisfy the Voting Rights Requirements given the economics of the Proposed Transaction relative to the company’s aggregate market value and because such rights would decline if the size of the Investor’s stake in the company were to decrease.

Publication Date*: 7/31/2012 Identification Number: 733

Staff Interpretation Letter 2009-11 Identification Number 729

This is in response to your correspondence regarding the applicability of NASDAQ’s voting rights requirements of Listing Rule 5640 and IM-5640 (collectively, the “Rule”) to the voting structure that would be implemented in connection with the combination of the company and the Merger Partner.

The company currently has one class of common stock; each share has one vote. The Parent owns over 50% of the company’s outstanding shares of common stock with the voting power limited to approximately 48% pursuant to an agreement between the company and the Parent entered into approximately one year ago. The Holder has the substantial ability to control the Parent through his position as Chairman of the Parent and his approximately 35% voting power in the Parent. The Merger Partner would have two classes of common stock, Class A with one vote per share and Class B with 10 votes per share.

In the merger, a holding company (the “Holding Company”) would be formed such that the Merger Partner and the company each would become wholly-owned subsidiaries of the Holding Company. The Holding Company would be NASDAQ listed, and the Merger Partner and the company both would cease to be listed. The Holding Company would be comprised of assets contributed by both the Merger Partner and the company. The Holding Company would have two classes of common stock, Class A with one vote per share and Class B with 15 votes per share. In the merger, each shareholder of the company would receive one share of Holding Company Class A for each share of the company’s common stock. Each holder of Merger Partner Class A and Class B, except the Holder and its affiliates (collectively, the “Holders”), would receive 1.1 shares of Holding company Class A common stock for each share held. The Holders would receive 1.1 shares of Holding Company Class B common stock for each share of Merger Partner Class B stock held. As a result, the Holders would own all of the Holding Company’s Class B common stock. The voting power of the Class B would be limited to 24% of the aggregate voting power of the Holding Company with any excess to be voted in the same manner, pro ratably, as all other shareholders. The shares of Holding Company Class B would automatically convert into Class A upon any proposed public transfer to a non-affiliate. In addition, the Holding Company would be able to re-purchase the Class B upon certain future events.

You stated that the ultimate purpose of the merger is to put the control of the company in the hands of all of its shareholders rather than one controlling shareholder, the Parent. In that regard, the Holders effective voting power would be reduced from 48% of the company to 24% of the Holding Company. In addition, the Holders would lose their current ability to block certain significant transactions and governance changes. You further stated that the company believes that simplifying the ownership structure would eliminate stock overhang and arbitrage issues, increase liquidity, and remove confusion over the valuation and trading of the company’s common stock.

Following our review of the information you provided, we have determined that the voting structure of the Holding Company would not violate the Rule. The Holding Company’s structure would effectively continue a voting structure similar to that of both the Merger Partner and the company, but would provide more meaningful voting rights to the Holding Company’s public shareholders. While the company does not have a dual-class structure currently, the Holders effectively control approximately 48% of the voting power of the company through the control of the Merger Partner and can block significant transactions and governance changes. As such, the public holders of the company have limited voting power today, and the proposed transaction would therefore serve to enhance their voting power rather than to disenfranchise them. In addition, the proposed structure would provide a path towards the elimination of the dual-class structure in favor of a single class of common stock, requiring the conversion of the Class B into Class A under certain circumstances. As a result, the voting power of the current stockholders of the company would not be reduced or restricted by the formation of the Holding Company. Rather, the net result of the transaction would be to enhance the voting rights of the public shareholders at the expense of the Holders because the Holders would no longer be able to control the company. In addition, the fact that the holders of the Class B common stock of the Merger Partner (other than the Holders) would receive Class A common stock in the merger is permissible because those holders currently have little or no voting control with respect to the existing Class B shares as the Holders own more than 90% of the aggregate Class B shares. In reaching these determinations, we note that the proposed transaction is a bona fide transaction being effected for legitimate business purposes aside from the changes to the voting structure and that, through the structure, the Holders’ voting power

would remain proportionate to, or less than, their current voting power.

Publication Date*: 7/31/2012 Identification Number: 729

Staff Interpretation Letter 2009-5 Identification Number 723

This is in response to your correspondence wherein you asked that the company be granted an exception to the shareholder approval requirements pursuant to Marketplace Listing Rule 4350(i)(2) for the issuance of warrants in connection with a proposed amendment to the financial covenants under the company’s Term Loan Agreement (the “Amendment”).

Under the Amendment, the holders of the Term Loan have agreed to, among other things, provide relief from the financial covenants for one year in exchange for warrants to purchase more than 20% of the shares outstanding at a price less than both book and market value. Additional warrants with the same terms could be issued 90 days and 150 days after the effective date of the Amendment if at least 75%

of the Convertible Notes are not converted into equity securities of the company. The company also agreed that the Term Loan holders would be allowed to designate a number of board members that would be approximately proportional to their post-exercise ownership interest in the company on a fully diluted basis.

Without the requested exception, shareholder approval would be required pursuant to: (i) Listing Rule 4350(i)(1)(B) because the issuance could result in a change of control; and (ii) Listing Rule 4350(i)(1)(D)(ii) because the issuance would exceed 20% of the pre-transaction outstanding shares at a discount to the greater of book or market value. Additionally, without an exception, the Amendment would not comply with the voting rights rule contained in Listing Rule 4351 because the Term Loan holders would be able to appoint members to the board based on their post-exercise ownership interest, and not their actual equity interest in the company.

According to the information you provided, the Amendment is necessary to avoid the default and potential cross-default and cross-acceleration of the company’s debt obligations. You stated that the company’s financial predicament is not the result of insufficient cash. You explained that the recent economic downturn has affected the company’s ability to meet certain financial ratios required by the Term

Loan that were set approximately 2 years ago based on then-current projections, and in light of a relatively stable economy. Because these ratios are calculated on a rolling four-quarter basis, the company expects to fail to meet these ratios early this year because the results from the first and second quarters last year will be replaced with current results reflecting the severe economic slow-down. The Amendment would provide the company with at least four quarters of relief from its financial covenants. In addition, the company’s independent auditors indicated that they would be unable to provide a “clean” audit opinion for its most recently completed fiscal year absent the Amendment, loan modifications to other loan agreements and significant borrowings thereunder, or an infusion of capital. A going concern opinion would result in a default under the Revolving Line of Credit, which in turn, could allow the Term Loan holders to declare the full amount of the Term Loan to be immediately due and payable. Furthermore, you stated that default under the Revolving Line of Credit would trigger a cross-default of the Convertible Notes resulting in the potential for cross-acceleration of all three debt instruments. The company does not have the cash on hand to satisfy repayment of the debt instruments and would be unable to arrange alternate borrowings. As a result, you stated that failure to enter into the Amendment will result in a cross-acceleration of these loans, which would require the company to seek bankruptcy protection.

You stated that the company has been in negotiations with the holders of the Term Loan for approximately four months and has explored numerous alternatives, including a possible sale of the company, to avoid the need for an amendment to the Term Loan. However, due to the prevailing instability in the credit and financial markets, the company has been unable to enter into any other refinancing transaction. The company proposed various amendments to the Term Loan holders which would have not required shareholder approval. However, the

Term Loan holders insisted that the stock issuance be completed in a manner necessitating complying with, or obtaining an exception from, NASDAQ’s shareholder approval requirements, and the company was unable to identify any viable alternatives.

The company believes that the Amendment would enable it to secure a supply of inventory sufficient to meet its needs for at least the next several months. The company expects that if it receives the exceptions discussed above and completes the Amendment, it will meet the requirements for continued listing on NASDAQ for the next several months, except for the bid-price requirement. In that regard, the company has committed, if necessary, to complete a reverse stock split of a ratio sufficient to comply with the bid-price requirement.

Based on our review of the circumstances described in your correspondence and on your representations regarding the company’s financial condition, we have determined to grant the exception from the shareholder approval requirements. This determination is based on your representations regarding the company’s inability to find alternative sources of capital and its likely need to seek bankruptcy protection in the event that the Amendment is delayed. In addition, we have determined to grant an exception from the voting rights requirement of Listing Rule 4351. In that regard, we note that under the former SEC Rule 19c-4, as well as under the Listing Rule 4351, it is appropriate to consider whether an issuance is designed to rescue a company in financial distress.

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 Amendment, a letter describing the Amendment and alerting them to its omission to seek the shareholder approval that would otherwise be required; (ii) the letter must indicate that the audit committee, or a comparable body of the board of directors, has expressly approved reliance on the exceptions; and (iii) the company must also make a public announcement through the news media disclosing the same information as promptly as possible, but no later than ten days prior to the issuance of the securities.

Publication Date*: 7/31/2012 Identification Number: 723

Staff Interpretation Letter 2008-30 Identification Number 774

This is in response to your correspondence regarding the applicability of the voting rights requirements of Marketplace Listing Rule 4351 (the “Voting Rights Requirements”) to certain rights that the Investor would receive allowing it to designate members to serve on the company’s board of directors (the “Designation Rights”) in connection with a proposed transaction (the “Proposed Transaction”).

According to the information you provided, in the Proposed Transaction, the company would issue to the Investor a convertible note (the “Note”) and warrants. The Notes would be convertible into shares of the company’s common stock, and the warrants would be exercisable for additional common shares. The closing of the Proposed Transaction would be contingent on the approval of the company’s shareholders. The Investor already owns shares of the company’s common stock and shares of preferred stock (the “Preferred Stock”) which are convertible into additional common shares.

The Designation Rights would allow the Investor to designate members of the board (the “Investor Representatives”), such that the percentage of the company’s board members that the Investor could designate would approximately equal its percentage equity ownership interest in the company (the “Ownership Percentage”) and would decline pro ratably with a decline in its Ownership Percentage. The maximum number of Investor Representatives would equal the product of: (i) the Ownership Percentage (calculated as described below), and (ii) the total number of directors on the company’s board, including the number of Investor Representatives appointed or appointable to the board, provided that if such product is not a whole number, it would be rounded up to the next whole number.

For purposes of determining the Designation Rights, the Ownership Percentage would be determined by dividing: (i) the sum of the number of shares of common stock held by the Investor and any shares of common stock issuable upon conversion of the Preferred Stock and Note that are currently convertible at the Investor’s option, by (ii) the sum of the total number of shares of common stock outstanding, any shares of common stock issuable upon conversion of the Preferred Stock and Note that are currently convertible at the Investor’s option, and any shares of common stock issuable upon conversion of any similar securities that are currently convertible at the holder’s option. The Ownership Percentage would not give effect to any shares of common stock that are issuable upon the future exercise of warrants.

The company’s board is divided into three classes with staggered three-year terms, and the Investor Representatives would be appointed across each class in as equal proportion as possible. Once appointed, an Investor Representative would be nominated for re-election at the company’s annual meeting of stockholders at which such Investor Representative’s current term would expire. If the Ownership Percentage decreases after the initial appointment of the Investor Representatives, the number of Investor Representatives that the Investor is entitled to have would decrease pro ratably. To effect such a decrease, one or more of the Investor Representatives whose term was expiring would not be nominated for re-election at the company’s next annual meeting. No decrease in the number of Investor Representatives would be affected by resignations from the board or by intra-term removals. If the Ownership Percentage falls below 21%, the Investor would have no further Designation Rights.

Following our review of the information you provided, we have concluded that the Designation Rights as described above would comply with the Voting Rights Requirements because the percentage of the board members that the Investor would be entitled to designate would approximately equal its percentage ownership interest in the company and would decline pro ratably with a decline in its ownership interest. Note that the Investor may not include the warrants in calculating the Ownership Percentage and may not designate any more directors than as calculated above. Please be advised that if an Investor Representative were to resign intra-term, the Investor could appoint a representative to fill the vacancy only to the extent justified by the above calculations at the time the vacancy would be filled.

Publication Date*: 7/31/2012 Identification Number: 774

Staff Interpretation Letter 2008-12 Identification Number 757

This is in response to your correspondence wherein you asked that the company be granted an exception to the shareholder approval requirements pursuant to Marketplace Listing Rule 4350(i)(2) for a transaction (the “Proposed Transaction”) under consideration by the company. In addition, you asked that to the extent necessary, the company be granted an exception to the voting rights requirements of Marketplace Listing Rule 4351 with respect to Investor’s right to appoint members of the company’s board of directors (the “Board”).

According to the information you provided, in the Proposed Transaction, the company would issue to the Investor: (i) non-convertible senior secured notes (the “Notes”); and (ii) shares of common stock equal to approximately 62% of the pre-transaction outstanding shares at a discount to market value. As such, without the requested exception, shareholder approval would be required pursuant to: (i) Marketplace Listing Rule 4350(i)(1)(B) because the issuance would result in a change of control; and (ii) Marketplace Listing Rule 4350(i)(1)(D)(ii) because the issuance would exceed 20% of the pre-transaction outstanding shares at a discount to the market value.

Pursuant to the Proposed Transaction, the Investor would have the right to appoint members of the Board (the “Board Rights”). The percentage of the company’s Board that the Investor could appoint would be consistent with its percentage ownership interest in the company. If the ownership position were to decline, the number of directors the Investor could appoint would decline pro ratably such that the percentage of the Board that it could appoint would remain approximately equal to its percentage ownership interest in the company. As such, the Board Rights comply with Listing Rule 4351.

You stated that as a result of several events since 2005, the company’s business has deteriorated significantly. Among those events is a decline in revenue due to a new federal law that impacted the company’s customers such that the customers were less likely to purchase the company’s products. As a cost-savings measure, the company eliminated approximately 27% of its work force during the first quarter of the current year. Nonetheless, without the Proposed Transaction, the company likely could not fund its operations longer than approximately one month. You stated that any delay in closing the Proposed Transaction to seek shareholder approval most likely would cause the company to seek the protections of bankruptcy.

Over the past several months, the company explored other financing alternatives but was unsuccessful in finding a suitable transaction. The company expects that the Proposed Transaction would provide sufficient capital for it to survive its current difficulties and succeed in

executing its business plans. Further, the company expects that if it completes the Proposed Transaction, it will meet the requirements for continued listing on NASDAQ over the next several months with the possible exception of the bid-price requirement.

Based on our review of the circumstances described in your correspondence and on your representations regarding the company’s financial condition, we have determined to grant the exception from the shareholder approval requirements. This determination is based on your representations regarding the company’s inability to fund its operations and its likely need to seek bankruptcy protection in the event that the Proposed Transaction is delayed. The exception is 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 Proposed Transaction, a letter describing the Proposed Transaction and alerting them to its omission to seek the shareholder approval that would otherwise be required; (ii) the letter must indicate that the audit committee, or a comparable body of the board of directors, has expressly approved reliance on the exception; and (iii) the

company must also make a public announcement through the news media disclosing the same information as promptly as possible, but no later than ten days prior to the issuance of the securities. Because the Board Rights comply with the voting rights requirements, an exception to Listing Rule 4351 is not needed.

Publication Date*: 7/31/2012 Identification Number: 757

Staff Interpretation Letter 2007-23 Identification Number 799

This is in response to your correspondence regarding the applicability of NASDAQ’s shareholder approval and voting rights requirements to the company’s proposed issuance of securities (the “Transaction”). Specifically, you asked about the potential applicability of Marketplace Rules 4350(i)(1)(B), 4350(i)(1)(D), 4351 and IM-4350-2 (the “Rules”).

According to the information you provided, in the Transaction the company would issue shares of non-voting exchangeable preferred stock (the “Preferred Stock”) to the Investor in a private placement. Although the final terms have not been reached, the number of common shares that could be issued in the event of an exchange could exceed 20% of the pre-transaction total shares outstanding at a price that is less than market value. The Preferred Stock would be exchangeable for common stock only if shareholder approval is first obtained. The holder of the Preferred Stock would have no voting rights other than the right to consent to any amendment of the terms or to the

creation or issuance of any capital stock or debt securities that rank senior to or equal with the Preferred Stock, or as otherwise required by applicable state law.

The Investor would have the right to designate one member of the company’s seven-member board of directors for so long as it owns at least 50% of the Preferred Stock, or in the event of an exchange for common, for so long as it owns at least: (i) 10% of the company’s total stock outstanding or (ii) 50% of the common stock acquired pursuant to the Exchange. If shareholder approval is not received within one year of closing, the Preferred Stock would be entitled to receive cumulative cash dividends at an annual rate of 10%. If still outstanding after four years, the Preferred Stock would become redeemable for cash at the option of either the company or the holder. The holder may require the company to redeem the Preferred Stock for cash upon the occurrence of certain events, such as liquidation or

a change of control.

Following our review of the information you provided, we have concluded that the Transaction, structured as you described, would comply with the Rules because no common shares or voting power (except limited voting power as describe above) could be issued until after shareholder approval is obtained. Specifically, the Transaction would comply with: (i) Listing Rule 4350(i)(1)(B) because a change in control could not occur without shareholder approval, and (ii) Listing Rule 4350(i)(1)(D) because the issuance could not reach 20% of the pre-transaction outstanding shares or voting power without shareholder approval. Further, IM-4350-2 is not implicated because no shares of common stock could be issued prior to the shareholder vote. In addition, the right to designate one director would be consistent with the voting rights provisions of Listing Rule 4351 because the percentage of the board of directors that may be appointed by the Investor would not exceed its percentage economic contribution to the company. Please be advised that you have not asked us to reach, and we have not reached, a conclusion as to whether any director designated by the Investor would be eligible to be an independent director or to Publication Date*: 7/31/2012 Identification Number: 799

Staff Interpretation Letter 2007-11 Identification Number 787

This is in response to your correspondence wherein you asked whether the company’s proposed process for the selection of the members of its board of directors (the “Nominations Process”) pursuant to a shareholders agreement (the “Shareholders Agreement”) would comply with the requirements of Marketplace Listing Rule 4350(c)(4)(A) and IM-4350-4 (collectively, the “Rule”). In addition, your question relates to the applicability of the voting rights requirements of Listing Rule 4351 (the “Voting Rights Requirements”) with respect to the rights that the Target Owner and the Chairman would have to nominate directors (the “Nomination Rights”).

According to the information you provided, the company will acquire, subject to the approval of its shareholders, certain assets from the Target Owner in exchange for cash and common stock. In connection with the acquisition, the Shareholders’ Agreement will be entered into among the company, the Chairman, and the Target Owner. Following the closing, the Target Owner will own approximately 40% of the company’s then outstanding shares of common stock, and the Chairman will own approximately 9%.

Pursuant to the Shareholders’ Agreement, the membership of the company’s nine-member board would be determined as follows. Initially, the Target Owner will have the right to nominate four directors (the “Target Owner’s Directors”), two of whom must be

independent, and the Chairman will have the right to nominate one independent director (the “Chairman’s Director”). The board will also include the company’s Chief Executive Officer. The remaining three directors will be nominated by the company’s nominating committee and must qualify as independent directors.

If their ownership positions were to decline, the number of directors the Target Owner and the Chairman could nominate would decline pro ratably such that the percentage of the board that each could nominate would remain approximately equal to their percentage equity interest in the company. The nominating committee would be responsible for nominating directors to fill any vacancies created in this manner. Pursuant to the Shareholders’ Agreement, for so long as either the Target Owner or the Chairman has the right to nominate one or more directors, the other has agreed to vote in favor of such nominee(s).

Following our review of the information you provided, we have concluded that the Nominations Process complies with the Rule and that the Nomination Rights comply with the Voting Rights Requirements. Specifically, the Nominations Process is consistent with Listing Rule 4350(c)(4)(D), which states that independent director oversight of director nominations shall not apply in a case where the right to nominate a director legally belongs to a third party. In the company’s case, the Shareholders’ Agreement provides the Target Owner and the Chairman with the legal right to nominate board members as described above. Regarding the Voting Rights Requirements, the Nomination Rights would comply because the percentage of the board members that the Target Owner and the Chairman would be entitled to nominate would approximately equal their percentage equity ownership interest in the company and would decline pro ratably with a decline in their ownership positions. Please be advised that notwithstanding this conclusion, the company remains subject to the provisions of Rules 4350(c) and 4350(d) including those relating to board committee composition and the requirement to have a majority of independent directors on the board.

Publication Date*: 7/31/2012 Identification Number: 787

Staff Interpretation Letter 2006-46 Identification Number 855

This is in response to your correspondence regarding the potential applicability of the shareholder approval requirements of Marketplace Rules 4350(i)(1)(A) and 4350(i)(1)(D) and the voting rights requirements of Listing Rule 4351 to certain proposed actions, which you described. Specifically, the company would distribute as a stock dividend (the “Dividend’), on a pro rata basis to all current shareholders, shares of its recently authorized non-voting Class A common stock (the “Class A”) and, as a result, would make certain adjustments (the “Adjustments”) to the Plans. You asked whether: (i) the Adjustments would require shareholder approval under Listing Rule 4350(i)(1)(A); (ii) the distribution of the Dividend would require shareholder approval under Listing Rule 4350(i)(1)(D); and (iii) the company could continue to issue shares of its existing common stock (the “Common Stock”) after the distribution of the Dividend.

According to the information you provided, the company’s shareholders approved the creation of the Class A, which would have no voting

rights, except as required under applicable state law. Pursuant to the capital structure in place at the time of the company’s initial public offering, the company currently has shares of two classes of common stock issued and outstanding: (i) Common Stock with one vote per share, which is listed on NASDAQ; and (ii) Class B common stock with 10 votes per share, which is not listed on NASDAQ. No shares of the Class A have been issued yet. Neither existing class will be convertible into shares of the Class A.

You stated that following the distribution of the Dividend, the company would implement the Adjustments as follows: (i) each outstanding option under the Plans would become exercisable for the same number of Class A shares as are paid on a single share of the Common Stock, in addition to the single share of Common Stock each outstanding option is already entitled to receive upon exercise; (ii) each outstanding share of restricted Common Stock issued under the Plans would receive the number of shares of Class A paid on a single share of the Common Stock, which Class A shares would be subject to the same restrictions as the Common Stock; (iii) the reserve under the Plans would be increased on the date of the Dividend by the number of Class A shares that would be payable through the Dividend on the shares remaining unissued in the Plans (the “Reserve Increase”); and (iv) all share numbers under the Plans (such as the cap on grants per individual) would be adjusted accordingly. Notwithstanding the Reserve Increase, the number of shares of Common Stock that may be subject of awards would be limited to the number that would have been available prior to the Reserve Increase. Shares of the Class B are not available for awards under the Plans.

You stated that the Adjustments are authorized by provisions of the Plans, which require that in the event of a stock dividend, adjustments must be made in the number and class of shares which may be delivered under the Plans, and in the number and class of and/or price of shares subject to outstanding options, stock appreciation rights, and restricted stock granted under the Plans, as the appropriate committee of the board of directors, in its sole discretion, shall determine to be appropriate to prevent the dilution or diminishment of awards.

Following our review of the information you provided, we have concluded that the Adjustments will not require shareholder approval under Listing Rule 4350(i)(1)(A) because they are specifically authorized by the Plans. Further, shareholder approval of the Dividend is not required under Listing Rule 4350(i)(1)(D) because it is a pro -rata distribution to all shareholders and, as such, is not dilutive with respect to the percentage of the company’s outstanding shares or voting power held by a shareholder. With regard to Listing Rule 4351, future issuances of Common Stock would be permitted, even after the issuance of the Class A, because the Class A is non-voting. As such, the Class A has no voting power that could be reduced or restricted by a future issuance of Common Stock.

Publication Date*: 7/31/2012 Identification Number: 855

Staff Interpretation Letter 2006-35 Identification Number 844

This is in response to your correspondence regarding the applicability of Marketplace Listing Rule 4351 and IM-4350-1 (collectively, the “Voting Rights Rule”) to certain rights (the “Rights”) that the Investor would have in connection with a proposed transaction (the “Proposed Transaction”). The Rights relate to the composition of the board of directors (the “Board Rights”), the right to veto certain corporate actions (the “Veto Rights”), and the removal and replacement of the chief executive officer (the “CEO Rights”).

According to the information you provided, in the Proposed Transaction, subject to shareholder approval: (i) the company would issue shares of its common stock to the Investor such that that the Investor would own 51% of the company’s outstanding shares immediately following the issuance, and (ii) the company would receive a cash payment from the Investor and the Investor’s ownership interest in certain of the Investor’s subsidiaries.

Pursuant to the Board Rights, the Investor would be entitled to designate or nominate up to four of the seven members of the company’s board of directors, representing approximately 57% of the Board.

Pursuant to the Veto Rights, the consent of the Investor would be required for certain actions of the company, including the selection of the chief financial officer, the approval of certain budgets and business plans, material financings and acquisitions, certain issuances or repurchases of securities, amendments to the by-laws and charter, declaration of dividends, the disposition of assets, entering into voluntary bankruptcy proceedings or dissolution, and certain mergers, consolidations, investments or similar events.

Pursuant to the CEO Rights, beginning two years after closing of the Proposed Transaction, under certain circumstances when the Board is unable to reach a decision on the appointment or removal of the CEO, two of the board members nominated by the Investor pursuant to the Board Rights would have the right to appoint an interim CEO, until such time as the full board reaches a decision.

The Investor would have the Rights only for so long as it holds more than 50% of the company’s outstanding shares except that it could temporarily retain the Rights under a grace period provision (the “Grace Period Provision”). Under the Grace Period Provision, the Investor would retain the Rights for a period of time (the “Grace Period”) if its ownership of the company’s common stock were to decrease to between 40% and 50% of the outstanding shares as a result of the issuance of additional shares of the company’s stock to third parties at a time when the Investor would not be able to purchase additional shares of the company’s stock because such purchase could

reasonably be expected to result in a violation of applicable law. Under these circumstances, the Grace Period would apply only if the Investor made a binding and irrevocable commitment to purchase additional shares such that it would continue to hold a greater than 50% ownership interest when such purchase would no longer reasonably be expected to result in a violation of applicable law, at the market price at the time when the purchase is actually completed. If at any time, however, the Investor’s interest were to fall below 40%, the Grace Period would end immediately, although the Investor would still be committed to purchase the shares. Otherwise, the Grace Period would end at the earlier of the date of the company’s next periodic filing, after the beginning of the Grace Period, or the due date of such filing. The determination as to whether a purchase of stock by the Investor could reasonably be expected to result in a violation of law will be made by independent counsel to the company’s Audit Committee.

Following our review of the information you provided, we have determined that the Rights would not violate the Voting Rights Rule. The Veto Rights and the CEO Rights are not actions or issuances that would disparately reduce or restrict the voting rights of shareholders, and the Board Rights are consistent with the Investor’s proposed ownership interest in the company. In addition, we note that subject to a possible limited-duration extension pursuant to the Grace Period Provision, the Rights would not be exercisable if the Investor’s ownership position were to fall below 50%.

Publication Date*: 7/31/2012 Identification Number: 844

Staff Interpretation Letter 2006-18 Identification Number 828

This is in response to your correspondence regarding whether the company’s proposed issuance of the Preferred Stock would comply with the voting rights requirements set forth in Marketplace Listing Rule 4351, IM-4351 and IM-4350-1 with respect to the voting power (the “Voting Power”) and the right to appoint members of the company’s board of directors (the “Board Rights”).

According to the information you provided, the company would sell to the Investor the Preferred Stock, which would be convertible into shares of the company’s common stock at a price that is greater than the closing bid price immediately before the company and the Investor enter into a binding agreement to issue the securities. The Preferred Stock would not contain any price-based adjustment provisions or economic anti-dilution protection. You indicated that because the transaction could result in a change of control, the company will obtain shareholder approval to issue the Preferred Stock. Each share of Preferred Stock would automatically convert into common stock immediately upon transfer to any person other than certain affiliates of the Investor or if the holder of such shares experiences a change of control. In addition, the Investor has entered into an agreement to purchase additional shares of the company’s common stock (the “Common Shares”) from a third party (the “Common Stock Purchase”). The Common Stock Purchase and the Preferred Stock issuance are contingent on each other.

Pursuant to the Board Rights, the holders of the Preferred Stock would be entitled to appoint that number of directors to the board such that the Investor’s board representation is consistent with its percentage ownership interest in the company (the “Investor Percentage”). The Investor Percentage as of a particular date would be calculated by dividing: (a) the sum of the Common Shares and the shares of

common stock issuable upon conversion of the Preferred Stock, by (b) the total shares of common stock outstanding, including those issuable upon the conversion of the Preferred Stock. If the Investor Percentage were to decline, the number of directors the Investor would be entitled to appoint would decline proportionally, subject to a pre-established formula setting forth the permitted board representation for various ranges of the Investor Percentage.

Pursuant to the Voting Rights, the Preferred Stock would vote on an as-converted basis. In addition, the terms of the Preferred Stock would contain approval rights such that until the Investor Percentage is less than 20%, the company could not take any of the following actions without the approval of the majority of the outstanding shares of Preferred Stock: (i) change the size of the board of directors; (ii) sell or issue any additional shares of the Preferred Stock, except under certain limited circumstances; (iii) acquire any business or assets if the purchase price exceeds a specified size; or (iv) amend the company’s certificate of incorporation or by-laws relating to the rights of the Preferred Stock.

Following our review of the information you provided, we have determined that the Voting Power and the Board Representation would satisfy the voting rights requirements. In that regard, (i) the Preferred Stock would not have higher voting power than as if converted at the market value immediately preceding the company and the Investor entering into the binding agreement to issue the Preferred Stock, and (ii) the Board Rights will be consistent with the ownership interest attributable to the holder of the Preferred Stock and would decline proportionally if the ownership interest were to decline.

Publication Date*: 7/31/2012 Identification Number: 828

Staff Interpretation Letter 2006-15 Identification Number 825

This is in response to your correspondence regarding the potential applicability of the shareholder approval requirements of Marketplace Rules 4350(i)(1)(B) and 4350(i)(1)(D) (the “Rules”) to a proposed issuance of securities (the “Proposed Transaction”). In addition, you asked about the potential applicability of the voting rights requirements of Listing Rule 4351 (the “Voting Rights Rule”).

According to the information you submitted, in the Proposed Transaction, the company would issue shares of Preferred Stock (the “Initial Preferred Shares”) and a warrant (the “Warrant”) to purchase additional shares of Preferred Stock (the “Additional Preferred Shares”) to an investor (the “New Investor”). The Initial Preferred Shares would be convertible into more than 20% of the pre-transaction outstanding shares, and the Additional Preferred Shares into approximately 10%.

The conversion price (the “Conversion Price”) of the Initial Preferred Shares and the Additional Preferred Shares would equal the closing bid price of the common stock immediately preceding the execution of the definitive purchase agreement (the “Closing Bid Price”). In addition, the New Investor would pay $0.125 for each share of common stock that could be issued upon the exercise of the Warrant. The exercise price (the “Exercise Price”) of the Warrant would be no less than the Closing Bid Price. The Initial Preferred Shares, the Additional Preferred Shares, and the Warrant would not contain any “reset” or other price-based adjustments provisions. The company’s market value exceeds its book value.

Currently, the largest shareholder (the “Largest Shareholder”) owns between 35% and 40% of the company’s outstanding shares. On a post-transaction basis after giving effect to the to the total number of common shares that could be issued in the Proposed Transaction, the Largest Shareholder would own more than 25% of company’s outstanding shares, and approximately 1.5% more than the New Investor.

You stated that as a result of the Proposed Transaction, the New Investor would have the right to elect one member to the company’s board of directors, which will have six members. There will be no additional arrangements between the company and the New Investor. The Preferred Stock would vote on as-converted basis. The proceeds of the Proposed Transaction would be used for general corporate

purposes. No officer, director, employee, or consultant of the company would be a purchaser in the Proposed Transaction.

Following our review of the information you submitted, we have concluded that shareholder approval of the Proposed Transaction is not required pursuant to the Rules. Although the issuance would exceed 20% of the pre-transaction outstanding shares, the Conversion Price and the Exercise Price would not be less than the greater of book or market value. Accordingly, shareholder approval is not required pursuant to Listing Rule 4350(i)(1)(D). Further, because the Largest Shareholder would remain the largest shareholder following the Proposed Transaction, the Proposed Transaction would not result in a change of control, and, accordingly, shareholder approval is not required pursuant to Listing Rule 4350(i)(1)(B). Additionally, the requirements of the Voting Rights Rule will be satisfied because: (i) the Preferred Stock will not have greater voting power than as if converted at market value on the date of issuance, and (ii) the percentage of the members of the board of directors that may be appointed by the New Investor will not exceed the New Investor’s relative contribution to the company.

Publication Date*: 7/31/2012 Identification Number: 825

Staff Interpretation Letter 2006-14 Identification Number 824

This is in response to your correspondence regarding whether Marketplace Listing Rule 4350(i)(1)(A) and IM-4350-5 (collectively, the “Rule”) would require shareholder approval of the company’s proposed amendments (the “Amendments”) to its stock option plans, specifically, its Employee Plan and its Director Plan (collectively, the “Plans”). Your question also relates to the voting rights requirements of Listing Rule 4351 (the “Voting Rights Rule”). Pursuant to the Amendments, in connection with a special stock dividend (the “Dividend”), there would be an adjustment to: (i) the maximum number of shares available under the Plans (the “Share Reserve Increase”), and (ii) the maximum number of shares that may be subject to award for an individual participant under the Employee Plan in any one year (the “Award Increase”).

The company has three series of common stock: Series A with one vote per share, a higher voting Series B, and a non-voting Series C, which has no voting power except as required by applicable state law. In 2005, the company’s board of directors approved the Dividend consisting of one share of Series C for each share of Series A and Series B resulting in the doubling of the aggregate common shares outstanding. Prior to the payment of the Dividend, there had been no shares of Series C outstanding.

According to the information you submitted, the Employee Plan and the Director Plan each provide a maximum number of shares of common stock that may be issued, subject to the anti-dilution and other adjustment provisions of the Plans. In addition, the Employee Plan provides that no person may be granted in any calendar year awards covering more than a certain number of shares of common stock. The Plans do not otherwise limit the number of shares of any series of common stock that may be the subject of awards.

Pursuant to the Share Reserve Increase, the company proposes to double the shares available under the Plans. Pursuant to the Award Increase, the company proposes to double the maximum number of shares that may be awarded to an individual participant in a calendar year. The increases would reflect the doubling of the number of common shares outstanding resulting from the Dividend. Notwithstanding the increases that would result from the Amendments, the number of shares of Series B that may the subject of awards will be limited to the number that would have been available prior to the Amendments (the “Series B Limitation”).

You stated that both the Share Reserve Increase and the Award Increase are specifically permitted under the provisions of the Employee Plan and the Director Plan, which provide that adjustments can be made to preserve the benefits or potential benefits intended to be made available under the plan following any stock dividend or similar corporate event, including adjustments to any or all of: (i) the number and kind of shares or stock which thereafter may be awarded, optioned, or otherwise made subject to the benefits contemplated by the Plan; and (ii) the number and kind of shares of stock subject to outstanding Awards.

Following our review of the information you provided, we have determined that the Rule does not require shareholder approval of either the Share Reserve Increase or the Award Increase because both are specifically permitted by provisions of the Plans. As stated in IM-4350-5, if a plan permits a specific action without further shareholder approval, then no such approval would generally be required. The Voting Rights Rule is not implicated because, as a result of the Series B Limitation, the Amendments cannot increase the number of outstanding shares of the high vote stock.

Publication Date*: 7/31/2012 Identification Number: 824

Staff Interpretation Letter 2006-4 Identification Number 815

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 mailingPublication Date*: 7/31/2012 Identification Number: 815

Staff Interpretation Letter 2005-46 Identification Number 893

This is in response to your letters regarding the applicability of the voting rights requirements of Marketplace Listing Rule 4351 (the “Rule”) and the Voting Rights Policy (the “Policy”) set forth in IM-4351 to a proposed issuance of securities (the “Issuance”) by the company to an Investor. Since its initial public offering, the company has had two classes of common stock: (i) Class A which is listed on NASDAQ and which has 1 vote per share, and (ii) Class B which is not publicly traded and which has 10 votes per share. The Investor beneficially owns all of the outstanding shares of the Class B. In the Issuance, subject to the approval of its shareholders, the company would issue additional shares of Class B to the Investor as partial consideration for the acquisition by the company of several businesses currently owned by the Investor.

According to the information you provided, the Class A represents approximately 57% of the company’s aggregate number of common shares, and 12% of the voting power, and the Class B, approximately 43% of the aggregate number of common shares and 88% of the voting power. In addition to its Class B holdings, the Investor controls, through its affiliates, Class A shares, which when combined with its Class B holdings result in the Investor owning 89% of the aggregate voting power of the company.

The company expects to fund the acquisition of the businesses with cash and the issuance of Class B Shares. Following the Issuance, the Investor would hold 67% of the company’s aggregate number of common shares and 93% of the voting power (compared with the current 43% and 89%, respectively).

You stated that the transaction will be a “transformative event” for the company, potentially tripling its equity value. You further stated that the issuance of the Class B would help lessen the possibility that the Investor could inadvertently become an investment company in the event that its voting power in the company fell below a majority while the Investor still held a significant portion of its (the Investor’s ) assets in the form of the company’s common stock.

Following our review of the information you provided, we have determined that the Issuance is consistent with the Rule and the Policy. The Policy provides that “…issuers with existing dual class capital structures would generally be permitted to issue additional shares of

existing super voting stock without conflict with this policy.” Because it was in place at the time of the company’s initial public offering, the company’s capital structure is an “existing” structure for purposes of the applicability of the Rule and Policy. In addition, as stated in IM-4351, the Policy is based on, but more flexible than, former Rule 19c-4 under the Securities Exchange Act of 1934. Thus, NASDAQ will permit corporate actions or issuances that would have been permitted under Rule 19c-4, as well as other actions or issuances that are not inconsistent with the Policy. In the adopting release for Rule 19c-4, the Securities and Exchange Commission stated that in certain circumstances minority shareholders would not necessarily benefit from the Rule’s protection.* We believe that this is such a circumstance. Currently, the company’s Class A shareholders have little voting power because the Investor controls approximately 89% of the overall voting power of the company. Although the Issuance would somewhat affect the voting rights of the existing Class A shareholders by increasing the Investor ’s voting control to 93%, given the Investor’s existing working control of the company, the Issuance would not meaningfully alter the voting disparity that already exists.

Accordingly, based on the foregoing, we have concluded that the Issuance, as described in your letter, would not violate the Rule or the Policy.

*See SEC Release No. 34-25891.

Publication Date*: 7/31/2012 Identification Number: 893

Staff Interpretation Letter 2005-41 Identification Number 888

This is in response to your letters regarding the applicability of The NASDAQ Stock Market’s shareholder approval and voting rights requirements to the company’s proposed issuance of securities (the “Transaction”). Specifically, you asked about the potential applicability of Marketplace Rules 4350(i)(1)(B), 4350(i)(1)(C), 4350(i)(1)(D), and Listing Rule 4351 (the “Rules”). In addition, your question relates to IM-4350-2.

According to the information you provided, in the Transaction the company will issue convertible senior subordinated notes (the “Notes”), the proceeds from which will be used to fund an acquisition. Initially, the Notes are not convertible into any other security. Beginning 180 days after their issuance, the Notes will become convertible into shares of common stock, subject to a limit of 19.9% of the pre-transaction outstanding shares (the “Limitation”), at a price not less than the greater of book and market value.

The market value will be the closing bid price immediately preceding the execution of the definitive agreement (“Market Value”). Within 120 days of the issuance of the Notes, the company will seek shareholder approval for the exchange of the Notes for a new class of preferred stock, the shares of which will be convertible into common stock. Until the Notes are exchanged, any Note conversion that would have been in excess of the Limitation would instead be redeemed for cash, in an amount based on the market value of the common stock on the date on which the conversion notice is given.

The preferred stock will vote on an as-converted basis but will not vote at a heavier rate than as if converted at the market price of the common stock on the date of issuance of the preferred stock. The investors would be entitled to three of seven (approximately 43%) of the seats on the company’s board of directors. Giving effect to their investment, the investors’ relative contribution to the company would be approximately 45% of the market value of the company (based on the minimum expected investment and the current market value).

You stated that: (i) no officer, director, employee, or consultant of the company will participate in the Transaction; and (ii) no director, officer, or substantial shareholder of the company has a 5% or greater interest (nor such persons collectively, 10% or greater) in the assets to be acquired.

Following our review of the information provided, we have concluded that by structuring the Transaction as you described, the company will comply with the Rules. Specifically, under Listing Rule 4350(i)(1)(B), due to the Limitation, the Transaction will not result in a change of control without shareholder approval. Rule 4350(i)(1)(C)(i) is not applicable because no director, officer or substantial shareholder of the company has a 5% or greater interest (nor such persons collectively, 10% or greater) in the assets to be acquired. Rule 4350(i)(1)(C)(ii) and 4350(i)(1)(D) will be satisfied because, due to the Limitation, the issuance cannot exceed 20% of the pre-transaction outstanding shares of common stock without shareholder approval. The Transaction complies with IM-4350-2 because no common shares will be issued prior to the shareholder vote and because the terms of the Transaction will not change as a result of the shareholder vote. Finally, the requirements of Listing Rule 4351 will be satisfied because: (i) the preferred stock will not have greater voting power than as if converted at market value on the date of issuance of the preferred stock, and (ii) the investors’ representation on the board of directors will be consistent with the amount of their investment in the company.

Publication Date*: 7/31/2012 Identification Number: 888

Staff Interpretation Letter 2005-30 Identification Number 877

This is in response to your letters regarding the applicability of Marketplace Listing Rule 4351 (the “Rule”) and the Voting Rights Policy (the “Policy”) set forth in IM-4351 to actions under consideration by the company. Currently, the company has a single class of common stock which has one vote per share and is traded on The NASDAQ National Market.

According to the information you provided, the company intends to seek shareholder approval of an amendment (the “Amendment”) to its Certificate of Incorporation which would create a dual class common stock structure by: (i) increasing the authorized number of shares of all classes of capital stock; (ii) authorizing a new class of common stock designated as Class A common stock, which would have one-twentieth of a vote per share; (iii) reclassifying the company’s existing common stock as Class B common stock, which would have one vote per share; and (iv) effecting a one-for-four reverse split of the Class B common stock. Promptly after the effectiveness of the Amendment, the company will distribute as a stock dividend seven shares of Class A common stock for each outstanding share of Class B common stock. The Amendment and the dividend will not change the relative voting power of any stockholder of the company and will not disparately reduce or restrict the voting rights of any stockholder. The heavier voting Class B common stock will not be convertible into the lighter voting Class A common stock, nor will the Class A common stock be convertible into Class B common stock.

The company expects to issue Class B common stock in the future upon the exercise of currently outstanding options (“Outstanding Options”). Other than through the exercise of these options, the company does not expect any other future issuances of the Class B common stock.

You stated that the Amendment will contain a provision that will require any person who acquires more than 10% of the outstanding shares of the Class B after the completion of the recapitalization to commence a public tender offer to acquire a corresponding proportion

of the shares of the Class A except that such provision will not be triggered for certain specified acquisitions of Class B shares, including acquisitions by gift.

The owner of over 60% of the company’s outstanding shares of common stock has advised the company that after the recapitalization he intends to transfer by gift (the “Transfer”) to one or more members of the company’s management, such number of his Class B shares as would be necessary to give them up to 45% of the aggregate voting power. Because the Transfer may be accounted for as a compensatory issuance from the company under Generally Accepted Accounting Principles, the company will seek shareholder approval of the Transfer. In the proxy proposal seeking such approval, the company will state that it expects to record a compensation expense as a result of the Transfer.

Following our review of the information you provided, we have determined that the company’s dual class structure as described above would be in compliance with both the Rule and the Policy provided that, following the reclassification and the issuance of the stock dividend, no additional shares of Class B stock may be issued without the prior approval of NASDAQ. This restriction on future issuances of Class B stock does not apply to shares issuable upon the exercise of the Outstanding Options as described above but would apply to future grants of options on Class B shares after the effectiveness of the Amendment. The Amendment will not result in any current shareholder being disenfranchised, as their voting rights will remain the same. Further, both the Rule and Policy, and the SEC’s former Rule 19c-4 upon which the Rule and Policy are based, permit the creation of a lower voting class of shares because such shares do not disenfranchise the existing holders. Nonetheless, the restriction on future issuances of the heavier voting Class B stock is an appropriate safeguard against potential shareholder disenfranchisement as a result of the new structure.

Publication Date*: 7/31/2012 Identification Number: 877

Staff Interpretation Letter 2005-22 Identification Number 869

This is in response to your letter regarding the applicability of Marketplace Listing Rule 4351 (the “Rule”) and the Voting Rights Policy IM-4351 (the “Policy”) to an issuance of securities in connection with the company’s reincorporation from State X to State Y.

According to the information you provided, the company currently has the following three classes of stock authorized: Common Stock, Class B Common Stock, and Preferred Stock. There are no shares of Preferred Stock outstanding and only the Common Stock is listed on NASDAQ. Holders of the Common Stock are entitled to one vote for each share, and the holders of the Class B, ten votes for each share. Generally, the holders of the Common Stock and the Class B vote together on all matters.

Currently incorporated in State X, the company is proposing to reincorporate in State Y subject to the approval of its board of directors and shareholders. Following such reincorporation, the capital structure would be identical to the current structure. The company would issue, on a one-for-one basis, shares of its State Y Common Stock and State Y Class B Common Stock for all shares of the State X Common Stock and State X Class B Common Stock. You stated that the voting rights in the State Y corporate structure would be identical to those in the State X structure.

Following our review of the information you provided, we have determined that the company’s issuance of Common Stock and Class B Common Stock in connection with the company’s reincorporation would not violate the Rule or the Policy because the issuance will not reduce or restrict the voting rights of existing shareholders.Publication Date*: 7/31/2012 Identification Number: 869

Staff Interpretation Letter 2005-14 Identification Number 861

This is in response to your letter regarding the applicability of The NASDAQ Stock Market’s shareholder approval and voting rights requirements to the company’s proposed private placement (the “Transaction”). Specifically, you asked about the potential applicability of Marketplace Rules 4350(i)(1)(B) and 4350(i)(1)(D), 4351 (the “Rules”) and IM-4350-2.

According to the information you provided, the company proposes to issue shares of non-voting exchangeable preferred stock in a private offering (the “Financing”). As described, the preferred stock would be exchangeable for ten shares of the company’s common stock and will be non-voting, except as otherwise required by Delaware law and subject to a right of its holders to consent to any amendment of its terms. You stated that the preferred stock cannot be exchanged for common stock unless shareholder approval is obtained. If still outstanding, the preferred stock will become redeemable for cash on the later of the fourth anniversary of the Financing closing date and 30 business days after the company publicly announces the final results of its product liability trial. The Financing investors will have the right to appoint up to two members of the board of directors.

Following our review of the information provided, we have concluded that by structuring the Financing as you described, the company will comply with the Rules and IM-4350-2. No common shares or voting power (except as required by law) are issuable without prior shareholder approval. The delayed redemption feature of the preferred stock is similar to an alternative outcome as defined under IM-4350-

2, but because no shares of common stock will be issued prior to obtaining shareholder approval, IM-4350-2 is not implicated. In addition, the transaction will comply with the voting rights provisions of Listing Rule 4351 since the percentage of the board of directors that may be appointed by the Financing investors will not exceed their percentage economic contribution to the company.

Publication Date*: 7/31/2012 Identification Number: 861

Staff Interpretation Letter 2004-83 Identification Number 955

Rule 4351: Voting rights of existing shareholders of publicly traded common stock registered under Section 12 of the Act cannot be disparately reduced or restricted through any corporate action or issuance. Examples of such corporate action or issuance include, but are not limited to, the adoption of time-phased voting plans, the adoption of capped voting rights plans, the issuance of super-voting stock, or the issuance of stock with voting rights less than the per share voting rights of the existing common stock through an exchange offer.

IM-4351. Voting Rights Policy: [NASDAQ’s] Voting Rights Policy is based upon, but more flexible than, former SEC Rule 19c-4. Accordingly, The NASDAQ Stock Market will permit corporate actions or issuances by NASDAQ issuers that would have been permitted under Rule 19c-4, as well as other actions or issuances that are not inconsistent with this policy. In evaluating such other actions or issuances, NASDAQ will consider, among other things, the economics of such actions or issuances and the voting rights being granted. NASDAQ's interpretations under the policy will be flexible, recognizing that both the capital markets and the circumstances and needs of NASDAQ issuers change over time.

Relevant Facts: In 1986, a company completed its initial public offering and listed on NASDAQ with a single class of common stock with one vote per share. In 2001, the company replaced the single class structure with its current dual class structure (the “Dual Class Structure”) consisting of Class A common stock with one-tenth vote per share and Class B common stock with one vote per share (the “super-voting stock”). Both classes are listed on NASDAQ. At the time of the listing, NASDAQ advised the company that the Dual Class Structure would be in compliance with both the Rule and the Policy, subject to certain limitations and restrictions, including that no additional shares of Class B stock could be issued without the prior approval of NASDAQ. The restriction on future issuance of the heavier voting Class B stock is an appropriate safeguard against potential shareholder disenfranchisement, which is necessary because the company’s newly created dual structure is not an “existing structure” of the type contemplated by the Policy.

The company is contemplating various proposed purchases (the “Transactions”) of its super-voting stock by the current majority shareholder (the “Shareholder”). The Shareholder currently owns approximately 63% of the Class B Stock and has approximately 58% of the total voting power of the company. The proposed Transactions include:

• Purchases of Class B shares on the open market (the “Open Market Purchases”);• Purchases of Class B shares from the holders of the Class B shares in privately negotiated transactions (the “Private Purchases”);• An open-ended tender offer by the Shareholder to purchase Class B shares (the “Tender Offer”). This transaction would be

conducted so as not to jeopardize the listing eligibility of the Class B shares on NASDAQ; and• Purchase of newly issued Class B shares directly from the company (the “Direct Purchase”).

Issue: Are the proposed Transactions consistent with Listing Rule 4351 and IM-4351?

Determination: NASDAQ concluded that the Open Market Purchases, the Private Purchases, and the Tender Offer would not violate the Rule or the Policy because none of these transactions would involve the issuance of additional securities by the company, and none would be a corporate action that would have the effect of reducing or restricting the voting rights of existing shareholders. However, the Direct Purchase would not be permitted. Although the Policy provides that companies with existing dual class capital structures would generally be permitted to issue additional shares of the existing super voting stock, the company’s structure is not an “existing dual structure” for purposes of the Policy. Generally, NASDAQ believes that an “existing dual structure” is one that was in place prior to a company’s being subject to the Rule or the Policy, such as prior to its initial public offering. The company’s dual class structure was implemented after its initial public offering. As such, because the Direct Purchase involves the issuance of new shares of Class B shares to advance the Shareholder’s objective of acquiring substantially all of the company’s Class B shares, NASDAQ concluded that the Direct Purchase would disenfranchise existing shareholders and, therefore, is not permitted under the Rule or the Policy.

Publication Date*: 7/31/2012 Identification Number: 955

Staff Interpretation Letter 2004-36 Identification Number 929

Rule 4350(i)(1)(D)(ii): Each issuer shall require shareholder approval ... prior to the issuance of designated securities … in connection with a transaction other than a public offering involving: … (ii) the sale, issuance or potential issuance by the company of common stock

(or securities convertible into or exercisable [for] common stock) equal to 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock.

Rule 4351: Voting rights of existing shareholders of publicly traded common stock registered under Section 12 of the Act cannot be disparately reduced or restricted through any corporate action or issuance. Examples of such corporate action or issuance include, but are not limited to, the adoption of time-phased voting plans, the adoption of capped voting rights plans, the issuance of super-voting stock, or the issuance of stock with voting rights less than the per share voting rights of the existing common stock through an exchange offer.

IM-4351. Voting Rights Policy: [NASDAQ’s] Voting Rights Policy is based upon, but more flexible than, former SEC Rule 19c-4. Accordingly, The NASDAQ Stock Market will permit corporate actions or issuances by NASDAQ issuers that would have been permitted

under Rule 19c-4, as well as other actions or issuances that are not inconsistent with this policy. In evaluating such other actions or issuances, NASDAQ will consider, among other things, the economics of such actions or issuances and the voting rights being granted. NASDAQ's interpretations under the policy will be flexible, recognizing that both the capital markets and the circumstances and needs of

NASDAQ issuers change over time.

Relevant Facts: Pursuant to a proposed private placement (the “Proposed Transaction”), a company plans to offer convertible Preferred Stock to institutional investors. In connection with the private placement, the company provided the following information:

• The Preferred Stock will be convertible into common stock at a conversion price of approximately 110% of the volume weighted average price of the common stock for the five trading days immediately prior to the signing of the definitive agreement;

• The Proposed Transaction would initially result in an issuance of common stock of 19.2% of the company’s total shares outstanding (on a pre-issuance basis);

• The Preferred Stock would contain anti-dilution provisions, which adjust the conversion price, such that it may potentially reduce the conversion price below the market value at the date of the definitive agreement and also increase the number of shares of common stock issuable in connection with the Proposed Transaction. However, the shares issued as a result of the anti-dilution provisions would be subject to a cap that limits the shares issued, in the Proposed Transaction, including shares issued for anti-dilution adjustments, to 19.9% of shares outstanding on the definitive agreement date, unless shareholder approval is obtained.

• The Certificate of Designation for the Preferred Stock will include a provision that, unless stockholder approval is obtained: (i) limits the company’s ability to pay dividends and redemption payments in common stock; and (ii) caps the total shares issuable upon conversion of the Preferred Stock, including shares issued for anti-dilution adjustments, to 19.9% of the company’s outstanding common stock (the “Maximum Issuance”), as of the execution date;

• The Preferred Stock will vote on an as-converted basis with such voting power fixed at the initial conversion ratio, which is based on a 10% premium to the market price on the execution date, and the voting power will not be increased as a result of any anti-dilution calculations; and

• The investors participating in the Proposed Transaction will have the right to participate in future equity-linked financings for one year following the closing, other than strategic investments, underwritten public offerings and employee and director stock options provided that no investor will be permitted to participate if such participation will result in such investor holding more than 19.9% of the voting power of the company unless shareholder approval is obtained. In addition, shares issued under the right to participation will be included in the Maximum Issuance permitted without shareholder approval.

In January 2004, prior to the company’s re-listing on The NASDAQ National Market, the company issued 1,000,000 shares of common stock in a private placement (the “Previous Transaction”) to two funds affiliated with a large institutional investor (the “Investor”). * Under the terms of the private placement to the Investor, the purchasers have the right to participate in the company’s future private equity offerings for one year following the date of closing. The company does not expect the Investor to participate in the Proposed Transaction, and, if the Investor does participate, such participation is expected to be in the same proportion as its existing ownership.

Issue: Is shareholder approval required for the Proposed Transaction under NASDAQ’s rules?

Determination: No. NASDAQ determined that shareholder approval for the Proposed Transaction was not required under Listing Rule 4350(i)(1)(D)(ii), since the cap will restrict the potential issuance of common stock to less than 20% of the company’s pre-transaction outstanding shares and voting power unless shareholder approval is obtained. In the event that shareholder approval is not obtained, the terms of the transaction will not change.

Issue: Will the shares issuable under the Proposed Transaction be aggregated with the shares issued in the Previous Transaction for purposes of determining whether or not shareholder approval under the Rule is required?

Determination: No. The Proposed Transaction will not be aggregated with the Previous Transaction for application purposes of Listing Rule 4350(i)(1)(D)(ii). NASDAQ based its determination on the following factors: (i) there are no contingencies between the two

transactions; (ii) both transactions involve issuances of different classes of securities; and (iii) the proceeds from the Proposed Transaction will be used for purposes distinct from those of the Previous Transaction.

NASDAQ advised the company that future transactions that result or could potentially result in issuances of common stock will be reviewed by Staff, which may determine that it is appropriate to aggregate such issuances with prior issuances, including those discussed within.

Issue: Does the issuance of the Preferred Stock comply with Listing Rule 4351 and NASDAQ’s Voting Rights Policy?

Determination: Yes. The Preferred Stock will vote in the same proportion as its initial conversion price, which is at a price greater than market value. Accordingly, the Proposed Transaction complies with the Voting Rights Rule and Policy.

*The company was listed on The NASDAQ SmallCap Market until early 2003, when it was delisted and commenced trading on the Over-the-Counter Bulletin Board. The company was subsequently approved for re-listing on The NASDAQ National Market in early 2004.

Publication Date*: 7/31/2012 Identification Number: 929

Staff Interpretation Letter 2004-29 Identification Number 926

Rule 4350(i)(2): Exceptions to the shareholder approval requirements may be made upon application to NASDAQ when: (A) the delay would seriously jeopardize the financial viability of the enterprise; and (B) reliance by the company on this exception is expressly approved by the audit committee or a comparable body of the board of directors. A company relying on this exception must mail to all shareholders no later than ten days before issuance of the securities a letter alerting them to its omission to seek the shareholder approval that would otherwise be required and indicating that the audit committee or a comparable body of the board of directors has expressly approved the exception.

Rule 4351: Voting rights of existing shareholders of publicly traded common stock registered under Section 12 of the Act cannot be disparately reduced or restricted through any corporate action or issuance. Examples of such corporate action or issuance include, but are not limited to, the adoption of time-phased voting plans, the adoption of capped voting rights plans, the issuance of super-voting stock, or the issuance of stock with voting rights less than the per share voting rights of the existing common stock through an exchange offer.

IM-4351. Voting Rights Policy: [NASDAQ’s] Voting Rights Policy is based upon, but more flexible than, former SEC Rule 19c-4. Accordingly, The NASDAQ Stock Market will permit corporate actions or issuances by NASDAQ issuers that would have been permitted

under Rule 19c-4, as well as other actions or issuances that are not inconsistent with this policy. In evaluating such other actions or issuances, NASDAQ will consider, among other things, the economics of such actions or issuances and the voting rights being granted. NASDAQ's interpretations under the policy will be flexible, recognizing that both the capital markets and the circumstances and needs of NASDAQ issuers change over time.

Relevant Facts: A company proposes to issue convertible preferred stock and a warrant (the “Preferred Stock” and the “Warrant”, respectively) to a group of investors (the “Investors”). In addition, as a condition to making the investment, the Investors are requiring that the principal amount and the accrued and unpaid interest of the outstanding debentures previously issued by the company to other investors be converted into Preferred Stock at the first closing (together with the Preferred Stock and the Warrant, the “Proposed Transaction”).

The Preferred Stock will vote on an as-converted basis; however, the Investors will not be entitled to vote on the shares to be issued in the second closing. Additionally, the Investors will be entitled to nominate two directors to the company’s board of directors. The company’s board is currently comprised of seven directors. Assuming the Investors’ nominees replace two current directors, the Investors’ representation on the board would equal approximately 29%.

As structured, the Proposed Transaction would require shareholder approval. The company represented that a delay in the completion of the Proposed Transaction, due to the need to secure shareholder approval, would seriously jeopardize the financial viability of the company. Accordingly, the company sought relief from NASDAQ’s shareholder approval rules, pursuant to the Financial Viability Exception (the “Exception”) available under Listing Rule 4350(i)(2), stating that its cash and cash equivalents could not sustain the company through the duration of the proxy solicitation process and that without the Exception, it would significantly curtail, or cease entirely, its operations and/or file for bankruptcy protection. The company noted that its audit committee had approved the reliance on the Exception.

The company is requesting the Exception solely for the issuance of $15 million in Proposed Transaction at the first closing. Subsequently, the company will seek shareholder approval for the remaining $10 million investment prior to a second closing.

Issue: Is the company eligible for a Financial Viability Exception, pursuant to Listing Rule 4350(i)(2)?

Determination: Based on a review of the circumstances described above, NASDAQ determined to grant the company’s request for an exception from the shareholder approval requirements because without the requested exemption the company would have no alternative to meet its capital requirements and may have to seek bankruptcy protection in the event that the transaction was delayed. The company was required to send a letter to all shareholders and to issue a press release describing the transaction at least ten days prior to closing the transaction and alerting shareholders of the company’s omission to seek the shareholder approval that would otherwise be required.

Issue: Is the issuance of the Preferred Stock consistent with Listing Rule 4351, NASDAQ’s Voting Rights Rule, and IM-4351, NASDAQ’s Voting Rights Policy?

Determination: NASDAQ determined that because the Preferred Stock will vote on an as-converted basis and may be converted at a discount to market value, the issuance of the Preferred Stock would be presumed to be prohibited. See, e.g., IM-4350-1. However, NASDAQ noted that under the Voting Rights Rule and Policy, it is appropriate to consider whether an issuance is designed to “rescue” a company in financial distress. In such cases, it may be permissible to issue preferred stock with heightened voting protection that is consistent with the reasonable expectations of investors willing to provide additional equity to the company in these circumstances. See Section III.C.2 of SEC Release No. 34-35121. Accordingly, based on the company’s assertion that the voting rights provisions of the Preferred Stock as described are the only basis on which the Investors are willing to proceed with the Proposed Transaction, the company’s representations regarding its financial situation, and the analysis of the voting rights in these circumstances, NASDAQ concluded that the Preferred Stock conversion and voting provisions are consistent with the Voting Rights Rule and Policy.

Publication Date*: 7/31/2012 Identification Number: 926

Staff Interpretation Letter 2003-53 Identification Number 1020

Rule 4351: Voting rights of existing shareholders of publicly traded common stock registered under Section 12 of the Act cannot be disparately reduced or restricted through any corporate action or issuance. Examples of such corporate action or issuance include, but are not limited to, the adoption of time-phased voting plans, the adoption of capped voting rights plans, the issuance of super-voting stock, or the issuance of stock with voting rights less than the per share voting rights of the existing common stock through an exchange offer.

IM-4351. Voting Rights Policy: [NASDAQ’s] Voting Rights Policy is based upon, but more flexible than, former SEC Rule 19c-4. Accordingly, The NASDAQ Stock Market will permit corporate actions or issuances by NASDAQ issuers that would have been permitted under Rule 19c-4, as well as other actions or issuances that are not inconsistent with this policy. In evaluating such other actions or issuances, NASDAQ will consider, among other things, the economics of such actions or issuances and the voting rights being granted. NASDAQ's interpretations under the policy will be flexible, recognizing that both the capital markets and the circumstances and needs of NASDAQ issuers change over time.

Relevant Facts: A company proposes to issue, to a single investor, non-convertible preferred stock and a warrant to purchase common stock. The warrant is exercisable at a price in excess of the market price of that common stock. The preferred stock will be entitled to vote with the company’s common shareholders at a rate equal to the amount paid for the preferred stock divided by the exercise price of the warrant. Thus, the investor will be entitled to fewer votes under the preferred stock than could have been received by buying common stock directly. Following the transaction, the investor will be entitled to votes representing in excess of 50% of the total votes outstanding. In addition, the investor will also be entitled to nominate four members to the company’s seven member board, provided that it holds at least 50% of the voting power outstanding. In the event, the investor’s voting power decreases, the number of directors it is entitled to nominate would decrease proportionately.

As the transaction would result in a change of control, the company acknowledged that it would be required to obtain shareholder approval prior to consummation of the transaction.

Issue: Do the voting rights associated with the preferred shares comply with NASDAQ’s Voting Rights Rule and Policy?

Determination: Yes. The terms of the preferred stock comply with the Voting Rights Rule and Policy. The preferred shares would not vote on a heavier basis than the common stock based on the market price as of the binding agreement date. Additionally, the contractual right to nominate a certain number of directors is also consistent with the Voting Rights Rule and Policy. In that regard, the investor’s board nomination rights will initially be consistent with the investment. Further, as the investor’s percentage ownership interest decreases, the right to nominate directors will also decrease proportionately.

Publication Date*: 7/31/2012 Identification Number: 1020

Staff Interpretation Letter 2003-14 Identification Number 985

Rule 4350(i)(1)(D)(ii): Each issuer shall require shareholder approval prior to the issuance of designated securities … in connection with a transaction other than a public offering involving the sale, issuance or potential issuance by the company of common stock (or securities convertible into or exercisable common stock) equal to 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock.

IM-4350-2. Interpretive Material Regarding the Use of Share Caps: If the terms of a transaction can change based upon the outcome of a shareholder vote, any share issuance cap will be void, and thus the transaction will violate NASDAQ rules, unless the terms of the transaction specifically provide that no shares may be issued prior to the approval by shareholders.

Rule 4351: Voting rights of existing shareholders of publicly traded common stock registered under Section 12 of the Act cannot be disparately reduced or restricted through any corporate action or issuance. Examples of such corporate action or issuance include, but are not limited to, the adoption of time-phased voting plans, the adoption of capped voting rights plans, the issuance of super-voting stock, or the issuance of stock with voting rights less than the per share voting rights of the existing common stock through an exchange offer.

IM-4351. Voting Rights Policy: NASDAQ’s Voting Rights Policy is based upon, but more flexible than, former SEC Rule 19c-4. Accordingly, The NASDAQ Stock Market will permit corporate actions or issuances by NASDAQ issuers that would have been permitted

under Rule 19c-4, as well as other actions or issuances that are not inconsistent with this policy. In evaluating such other actions or issuances, NASDAQ will consider, among other things, the economics of such actions or issuances and the voting rights being granted. NASDAQ's interpretations under the policy will be flexible, recognizing that both the capital markets and the circumstances and needs of NASDAQ issuers change over time.

Relevant Facts: A company proposes to issue to four affiliated investors (collectively, the “Investors”) exchangeable interest-bearing promissory notes (the “Notes”), bearing interest at a rate of 25% per annum. The Notes carry no voting power. Following shareholder approval, the Notes will be exchanged for Series B convertible preferred stock (the “Series B”). The Investors will also be granted warrants to acquire shares of Class A common stock. In addition, following shareholder approval, the company may issue additional Series B preferred stock to the Investors. The conversion price of the Series B will be at a discount to the market price of the Class A common stock and will be subject to an adjustment based on the average price of the Class A common stock for the 15 days prior to the date of the binding agreement. No common shares are issuable prior to the shareholder vote. If shareholders do not approve, the Notes may be immediately repaid by the company and must be repaid upon the earlier of the maturity date, or upon demand by the Investors at any time 30 days after the shareholder vote. The Series B has voting rights, but will not vote at a higher rate than as if converted at the lesser of market value of the Class A common stock as of the date of the binding agreement to issue the Series B or the date of issuance of the Series B.

Issue: Does NASDAQ require shareholder approval for this transaction?

Determination: By structuring the transaction as outlined above, the company will comply with Listing Rule 4350(i)(1)(D)(ii) and IM-4350-2. Although the potential issuance of common stock exceeds 20% of the company’s pre-transaction outstanding shares and voting power, no common shares are issuable without prior shareholder approval, and the Notes carry no voting power. Further, although there is an alternative outcome if shareholders do not approve the transaction, the transaction complies with Listing Rule 4350(i)(1)(D) and IM-4350-2 because no common stock can be issued prior to the shareholder vote. Accordingly, shareholder approval is not required for this transaction.

Issue: Does the issuance of the preferred shares comply with NASDAQ’s Voting Rights Rule?

Determination: The Series B will not have higher voting power than as if converted at the lesser of market value of the Class A common stock as of the date of the agreement or the date of issuance of the Series B.

Further, the Notes have no voting power. Accordingly, the Transaction complies with the Voting Rights Rule and Policy.

Publication Date*: 7/31/2012 Identification Number: 985

Staff Interpretation Letter 2003-3 Identification Number 974

Rule 4351: Voting rights of existing shareholders of publicly traded common stock registered under Section 12 of the Act cannot be disparately reduced or restricted through any corporate action or issuance. Examples of such corporate action or issuance include, but are not limited to, the adoption of time-phased voting plans, the adoption of capped voting rights plans, the issuance of super-voting stock, or the issuance of stock with voting rights less than the per share voting rights of the existing common stock through an exchange offer.

Relevant Facts: The company proposed a preferred stock issuance to one investor. Upon the conclusion of the transaction, the investor would own common shares and preferred shares convertible into common shares. These shares, on an aggregated basis, constituted 37% of the post-transaction total shares outstanding. This included common shares owned by the investor prior to the transaction. As the transaction would result in a change of control, the company proposed to obtain shareholder approval prior to the consummation. The preferred stock would be priced at or above the market value of the common stock on the date of the binding agreement. While the preferred stock would originally be set to convert into common stock on a one for one basis, it was subject to anti-dilution provisions, which could lower the conversion price in the event the company sold shares in the future at a price below the preferred stock issuance price. The preferred stock would vote on an as-converted basis at a one to one ratio to the common stock. That ratio would not be adjusted even if the anti-dilution provisions were triggered and resulted in a lower conversion price. Thus, at no time, would the preferred stock vote at a heavier rate than the common stock. Finally, the holders of the preferred stock will have the right to nominate two members of the company’s board of directors, which will consist of eight members.

Issue: Does the issuance of the preferred shares comply with NASDAQ’s Voting Rights Rule?

Determination: Yes. The issuance of the preferred stock would comply with the voting rights rule. Because the voting rights of the preferred stockholders are capped at the original conversion ratio, the company has precluded the possibility that the preferred stockholders could have heavier voting rights, even if the conversion price is subsequently adjusted. Additionally, the contractual right to board representation would also comply with the voting rights rule. The board representation rights of the preferred stockholders will not exceed their contribution to the company’s capitalization – i.e., they will own 37% of the post-transaction common stock (on an as-converted-basis), but they will only be entitled to board representation of 25%.

Publication Date*: 7/31/2012 Identification Number: 974

Staff Interpretation Letter 2002-5 Identification Number 970

Rule 4351: Voting rights of existing shareholders of publicly traded common stock registered under Section 12 of the Act cannot be disparately reduced or restricted through any corporate action or issuance. Examples of such corporate action or issuance include, but are not limited to, the adoption of time-phased voting plans, the adoption of capped voting rights plans, the issuance of super-voting stock, or the issuance of stock with voting rights less than the per share voting rights of the existing common stock through an exchange offer.

IM-4351. Voting Rights Policy: NASDAQ will accept any action or issuance relating to the voting rights structure of a non-U.S. issuer that is in compliance with The NASDAQ Stock Market's requirements for domestic companies or that is not prohibited by the issuer's home country law.

Relevant Facts: A non-U.S. company proposed to enter into a transaction, pursuant to which certain investors would be granted preemptive rights, director nomination rights, board committee appointment rights, and approval rights that could be prohibited by Listing Rule 4351. The company submitted a letter from its legal counsel in its home country stating that the proposed rights were not prohibited under the laws of that country.

Issue: Are the proposed voting and director nomination rights consistent with Listing Rule 4351 and IM-4351?

Determination: Based on the letter from the company’s counsel, NASDAQ concluded that the proposed rights were consistent with Listing Rule 4351 and IM-4351 because IM-4351 states that: “NASDAQ will accept any action or issuance relating to the voting rights structure of a non-U.S. issuer that is in compliance with The NASDAQ Stock Market’s requirements for domestic companies or that is not prohibited by the issuer’s home country law”, and the proposed rights were not prohibited under the company’s home country lawPublication Date*: 7/31/2012 Identification Number: 970

Staff Interpretation Letter 2017-3 Identification Number 1656

This is in response to your correspondence asking whether a proposed Exchange Transaction, as defined below, by the Company requires shareholder approval under Listing Rule 5635 (the "Rule") and whether it complies with voting rights requirements of Listing Rule 5640 and IM-5640 (the "Voting Rights Requirements").

Currently, the Company's authorized capital stock consists of three classes of common stock, High-vote common stock, Voting common stock and Non-voting common stock (collectively the "Common Stock"), each of which is listed on Nasdaq, and two series of preferred stock (Series X and Series Y convertible preferred stock, collectively, the "Preferred Stock"), which are closely-held and not publicly traded. The Substantial Shareholder currently has a greater than 20% voting and economic interest in the Company through its holding of all Series X and Series Y convertible preferred stock. Each share of Series X preferred stock is convertible into one share of Voting

common stock and one share of Non-voting common stock. Each share of Series Y preferred stock is convertible into two shares Non-voting common stock.

You stated that so long as the Substantial Shareholder continues to hold a specified percentage, representing a supermajority, of the shares of Series X preferred stock ("Veto Rights Threshold"), the Company must obtain the consent of the Substantial Shareholder before the Company can take certain actions ("Veto Rights"), including effecting substantial acquisitions and increasing the size of the Company's board beyond a certain number ("Maximum Board Size"). In addition, Substantial Shareholder, as the holder of the Preferred Stock, has the right to elect the number of members of the Company's board of directors proportional to its voting interest in the Company. The Preferred Stock will automatically convert into the applicable series of Common Stock when the number of shares of Series X preferred stock is less than 80% of the Veto Rights Threshold.

You stated that the Substantial Shareholder is seeking additional liquidity and, to that end, the Company is proposing to issue Series X-1 and Series Y-1 (the "New Preferred Stock") in exchange for the Preferred Stock held by the Substantial Shareholder (the "Exchange Transaction"). The terms of the New Preferred Stock will mimic the terms of the Preferred Stock except that:

• New Series X-1 convertible preferred stock would be convertible only into Voting common stock and into the aggregate number of shares of Voting common stock into which the Series X preferred stock is currently convertible;

• New Series Y-1 convertible preferred stock would be convertible into the aggregate number of shares of Non-voting common stock into which the Preferred Stock is currently convertible;

• The Maximum Board Size may be adjusted to support the Potential Acquisition (as defined below); and • In the event of future common stock dividends, the holders of the New Preferred Stock would participate on a pari passu basis with

holders of common stock, whereas holders of Preferred Stock are entitled to the benefits of dividends by means of an adjustment to the conversion ratio.

You stated that the Company is in initial discussion with an unrelated third party to acquire such third party (the "Potential Acquisition") for a consideration that may consist of Common Stock.

You stated that the Substantial Shareholder indicated that an agreement to undertake the Exchange Transaction is one of the bases upon which it has agreed to support the Potential Acquisition; however, the Substantial Shareholder has already provided all consents under the Veto Rights necessary for the Company to proceed with the Potential Acquisition and the completion of the Exchange Transaction and the Potential Acquisition are not contingent on one another.

Following our review of the information you provided, we have determined that the Exchange Transaction does not require shareholder approval under the Rule and complies with the Voting Rights Requirements. Listing Rule 5635(a) requires shareholder approval in certain circumstances "prior to the issuance of securities in connection with the acquisition of the stock or assets of another company"; Listing Rule 5635(b) requires shareholder approval "prior to the issuance of securities when the issuance or potential issuance would result in a change of control of the company"; Listing Rule 5635(c) requires shareholder approval "prior to the issuance of securities when a stock option or purchase plan is to be established or materially amended or other equity compensation arrangement made or materially amended, pursuant to which stock may be acquired by officers, directors, employees, or consultants"; and Listing Rule 5635(d) requires shareholder approval "prior to the issuance of securities" in connection with certain transactions at a price below the greater of book or market value. Each of these rules predicates the need for shareholder approval on an issuance of securities by the company. In the Exchange Transaction, while the Company is providing New Preferred Stock (convertible into shares of Common Stock) in exchange for Preferred Stock, the aggregate number of shares of Voting common stock and Non-Voting common stock issuable upon conversion is the same for the Preferred Stock and the New Preferred Stock. Further, the potential adjustment to the Maximum Board Size and the mechanics of adjustments for future common stock dividends do not materially alter the economic and governance rights of the holders of the Preferred Stock and the Common Stock. As such, the Exchange Transaction would not be considered an issuance of the company's securities for purposes of the Listing Rules and such corporate action does not disparately reduce or restrict the voting rights of Common Stock holders.

Publication Date*: 11/5/2018 Identification Number: 1656

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