This is in response to your correspondence regarding the applicability of the shareholder approval requirements of Marketplace Rules 4350(i)(1)(B), 4350(i)(1)(C), and 4350(i)(1)(D) (the “Rules”) to two proposed transactions (the “Proposed Transactions”)
which you described. The Proposed Transactions are: (i) a private placement (the “Private Placement”); and (ii) the acquisition of a portion of the outstanding stock of the Target (the “Acquisition”).
According to the information you provided, the Private Placement would consist of the sale of common stock (the “Shares”) and warrants (the “Warrants”) to several investors. The number of Shares that would be issued (the “Share Issuance”) could exceed
20% of the pre-transaction outstanding shares, and, in addition, the Warrants would be exercisable into that number of shares equal to 50% of the Share Issuance. The Warrants would be exercisable, however, only after shareholder approval of such exercise,
and the Shares would not be entitled to vote in the shareholder vote to approve the exercise. Should shareholders not approve the exercise of the Warrants, the remaining terms of the Private Placement would not change. The Shares would be sold at a price
not less than the closing bid price of the company’s common stock immediately preceding the execution of the binding agreement, and there would be no additional consideration that would be attributable to the Warrants. The company’s market value exceeds its
book value. After giving effect to the Private Placement: (i) no investor in the Private Placement would beneficially own or control, alone or as a part of a group, 20% or more of the outstanding shares or voting power of the company; and (ii) the company’s
current largest shareholder would remain the largest.
In the Acquisition, the company would issue shares of its common stock (the “Acquisition Shares”) and cash in exchange for shares of the Target. The issuance of the Acquisition Shares would take place only after shareholder approval of such issuance.
You stated that: (i) the Proposed Transactions are separate from each other; (ii) the failure of one to occur would not cause the other not to proceed; (iii) they are not contingent on each other; (iv) they will be discussed and approved, if approved,
at separate board meetings; (v) no portion of the proceeds of the Private Placement would be used to finance the Acquisition; (vi) the proceeds of the Private Placement will be used for working capital of the company and not for working capital of the Target;
and (vii) the cash portion of the Acquisition will be funded from cash on hand.
Following our review of the information you submitted, we have determined that the Proposed Transactions comply with the Rules. The Shares that would be issued in exchange for shares of the Target would be issued only after shareholder approval in compliance
with 4350(i)(1)(C). Based on your representations as summarized above, the Shares that would be issued in the Private Placement would not be considered to be in connection with the acquisition of the Target’s shares and, accordingly, the Private Placement
would not be subject to shareholder approval under Listing Rule 4350(i)(1)(C). The Shares to be issued in the Private Placement will be issued at market value, and therefore shareholder approval is not required for the Private Placement under Listing Rule
4350(i)(1)(D). In that regard, we note that it is not necessary to attribute a value to the Warrants for purposes of determining whether the Shares are being issued at a discount because the Warrants could be exercised only if the company’s shareholders vote
to approve such exercise, and the Shares cannot be voted in the vote to approve such exercise. Please note that pursuant to IM-4350-2:
(i) shares issued under a cap cannot be counted in the vote to approve the removal of the cap; (ii) a cap must apply for the life of the transaction unless shareholder approval is obtained; and (iii) if the terms of a transaction can change based on the
outcome of the shareholder vote, then no shares of common stock may be issued prior to the vote. Further, given that following the Private Placement no investor in the Private Placement, either alone or as a part of a group, would own 20% or more of the outstanding
shares or voting power of the company, that the company’s current largest shareholder would retain that position, and that there are no other arrangements between the company and any of the investors, the Private Placement would not result in a change of control
and therefore would not require shareholder approval under Listing Rule 4350(i)(1)(B). Lastly, because we have completed our review, the company may close the Proposed Transaction prior to the end of the 15-day notice period referenced in Marketplace Listing
Rule 4310(c)(17) provided that the company submits to NASDAQ all required documentation prior to closing.