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Libraries:
Staff Interpretation Letters
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Filters:
All Years; Shareholder Approval; All
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Identification Number
866
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This is in response to your letters regarding the company, whose common stock is listed on The NASDAQ SmallCap Market. You asked about the applicability of NASDAQ’s shareholder approval requirements to a transaction (the “Proposed Offering”), which you
described. Specifically, your question relates to Marketplace Rules 4350(i)(1)(B) and 4350(i)(1)(D) (the “Rules”) and whether the shares issued in the Proposed Offering would be aggregated with the company’s 2004 private placement (the “Prior Financing”).
According to the information you provided, pursuant to the Proposed Offering, the company intends to raise funds through the sale of units. Each unit is comprised of one share of newly designated convertible preferred stock (the “Preferred Stock”) and
one warrant to purchase shares of common stock. The Preferred Stock and warrants are convertible into and exercisable for shares equal to 21% of the company’s pre-transaction outstanding common shares. The Preferred Stock and warrants are subject to anti-dilution
protection such that the conversion and exercise prices could be reduced if the company issues securities in the future at a lower price. The Proposed Offering will consist of two closings. The First Closing is limited to 19.99% of the pre-transaction outstanding
shares (the “Limitation”). The Second Closing, but not the First Closing, is subject to obtaining shareholder approval.
Pursuant to the Limitation, prior to seeking shareholder approval, no holder of the Preferred Stock may convert its Preferred Stock, and no person holding the warrants can exercise such warrants, such that the issuance of common shares would be more than
19.99% of the company’s common stock on a pre-transaction basis or to the extent that such issuance would constitute a change of control under Marketplace Listing Rule 4350(i)(1)(B). In addition, prior to shareholder approval, no one shareholder or affiliated
group could own more than 20% of the shares or voting power or have the right to acquire more than 20% of the shares or voting power of the company. In the event the company does not receive shareholder approval, the terms of the transaction do not change.
None of the purchasers in the Proposed Offering are officers, directors, consultants or employees of the company.
The Preferred Stock shares are voting shares; however, the Certificate of Designation prohibits holders of the Preferred Stock from voting such shares at a greater rate than as if converted at market value on the date of the First Closing. The Preferred
stockholders cannot vote to approve the Proposed Offering.
You stated that the Proposed Offering and the Prior Financing are significantly different in the uses of proceeds. There were five investors who invested approximately 33% in the aggregate of the Prior Financing and who will invest approximately 36% in
the aggregate of the Proposed Offering. There were a total of 14 investors in the Prior Financing and the company expects 22 investors to participate in the Proposed Offering.
Following our review of the information you provided, we have determined that the Proposed Offering will not be aggregated with the Prior Financing for purposes of Listing Rule 4350(i)(1)(D). Although there is some commonality of investors, the transactions
will be separated by over eight months and neither was contingent on the other. In addition, given the ownership restrictions described above, the Proposed Offering cannot result in a change of control prior to shareholder approval. Accordingly, the Proposed
Offering as you described it complies with the Rules.
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Publication Date*:
7/31/2012
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Identification Number:
866
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