Marianne McKeon, Dewey Ballantine LLP
June 4, 2004
Ms. Marianne McKeon
Dewey Ballantine LLP
1301 Avenue of the Americas
New York 10019-6092
Re: Request for Exemption from the Lock-Up Provisions of NASD Conduct Rule 2710
Dear Ms. McKeon:
This letter responds to your request in letters dated April 14, 2004 and May 11, 2004 for an exemption from the lock-up provisions in Rule 2710(g) for shares to be issued upon the split of the common stock of Cabela Inc. (the "Company" or "Cabela"). For the reasons set forth below, NASD staff grants your request for an exemption.
Based upon your letters, we understand the pertinent facts to be as follows. The Company is affording all of its shareholders the opportunity to participate in its IPO as selling shareholders. The Company has issued shares over the past three years at prices ranging from $33.50 to $50.40. The Company's founders and immediate family members hold approximately 40% of Cabela's common stock. Entities affiliated with J.P. Morgan Securities Inc. and Wachovia Capital Markets LLC, who are underwriters in this offering, are among the Company's other security holders (collectively referred to as "Affiliated Entities"). All of the shares held by the Affiliated Entities were acquired more than 180 days prior to the required filing of the offering with NASD and, as such, are not deemed to be underwriting compensation in connection with the offering,1 or subject to the Rule's lock-up provisions2 ("Exempt Shares"). The Company will determine the amount of shares that its institutional shareholders, including the Affiliated Entities, will be permitted to sell in the offering. Shares not sold in the offering will be subject to an underwriter's lock-up.
Your letters indicate that Cabela plans to split its outstanding shares of common stock shortly before the IPO to achieve an appropriate price per share for the selling security holders to sell their shares in the IPO. You state that issuers like Cabela often seek stock splits (or reverse splits) to achieve a price per share for the IPO that the underwriters believe is desirable for an efficient distribution of the stock and consistent with market expectations. The price range for the public offering and ratio for the split for Cabela have not yet been determined. Your letter notes, however, that any shares received by the Affiliated Entities as part of the stock split, while not deemed to be underwriting compensation under paragraph (d)(5) of Rule 2710, are subject to the Rule's lock-up provisions. This has the effect of denying the Affiliated Entities the opportunity to participate in the IPO as selling shareholders with respect to shares received as part of the stock split. Your letter states that requiring the Affiliated Entities to comply with the lock-up provisions with respect to such shares is not consistent with the underlying purposes of the Rule, its lock-up provisions, protecting investors, or the public interest.
The Company has offered all shareholders the opportunity to register and sell their shares in the upcoming IPO. The occasion of a stock split should not in your view deprive certain shareholders the opportunity to sell their shares as part of the IPO insofar as the stock split is not intended to change the economic position of the any shareholder, including the Affiliated Entities. For example, if an Affiliated Entity owned 4% of the Company before the split, it would still own 4% of the Company after the split.
Based upon the facts described in your correspondence, and pursuant to Rule 2710(j) and the Rule 9600 exemption Series, the staff of the Department hereby grants an exemption to the Affiliated Entities from the lock-up provisions with respect to shares received as part of a stock split of the Exempt Shares. We find that the exemption in this case is consistent with the purposes of Rule 2710, the protection of investors, and the public interest, as required by Rule 2710(j). The offering and participating members remain subject to all other provisions of Rule 2710, including all filing and compensation requirements.
Please note that the opinions expressed herein are staff opinions only and have not been reviewed or endorsed by the Board of Governors of NASD. This letter responds only to the issues you have raised based on the facts as you have described them in your letters, and does not address any other rule or interpretation of NASD, or all the possible regulatory and legal issues involved.
Very truly yours,
Joseph E. Price, Vice President
Corporate Financing Department
1 See Rule 2710(d)(1).
2 See Rule 2710(g).