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Frequently Asked Questions
  Staff Interpretation Letter 2008-9
Identification Number 754
This is in response to your correspondence regarding the applicability of the shareholder approval requirements of Marketplace Rules 4350(i)(1)(A), 4350(i)(1)(B), 4350(i)(1)(C), and 4350(i)(1)(D) (the “Rules”) to an issuance of securities.
 
According to the information you provided, approximately two months ago the company entered into agreements (the “Agreements”) with the Shareholder relating to the formation of a limited liability company (the “LLC”).  The Shareholder currently owns approximately 8% of the company’s outstanding shares.  Pursuant to the Agreements, the company and the Shareholder would each contribute certain assets to the LLC and, through the LLC, would jointly develop certain properties for the operation of a business (the “Project”).  The closing of the Agreements is conditioned on, among other things, financing being received by the LLC.  The financing would not be provided by the company and would not involve an issuance of securities by the company.
 
After the Agreements were reached, an affiliate of the Shareholder (the “Shareholder’s Affiliate”) proposed making an investment in the company, and the company and the Shareholder’s Affiliate entered into a agreement for a private placement (the “Private Placement”) pursuant to which the Shareholder’s Affiliate would purchase shares of common stock equal to approximately 14% of the company’s pre-transaction outstanding shares at a discount to market value.  The Private Placement has not yet closed.  The closings of the Private Placement and the Agreements are not contingent on each other, and each would close without regard to the other.  Further, the Private Placement is not conditioned on the consummation of any of the transactions contemplated by the Agreements, and the proceeds of the Private Placement will not be used to finance the Project.
 
Following the closing of the Private Placement, the Shareholder and the Shareholder’s Affiliate would own, in the aggregate, less than 20% of the company’s then outstanding common shares and voting power (the “Aggregate Ownership”).  The Shareholder’s Affiliate is not an officer, director, employee, or consultant of the company.
 
Following our review of the information you provided, we have determined that the issuance of the common stock in the Private Placement does not require shareholder approval under the Rules.  Although the shares would be sold at a discount, shareholder approval would not be required under: (i) Listing Rule 4350(i)(1)(A) because the purchaser is not an officer, director, employee, or consultant of the company; or (ii) Listing Rule 4350(i)(1)(D) because the number of shares issued would equal less than 20% of the pre-transaction outstanding shares.  In addition, shareholder approval would not be required under Listing Rule 4350(i)(1)(B) because the issuance would not result in a change of control given the Aggregate Ownership.  Finally, Listing Rule 4350(i)(1)(C) is not applicable because the issuance would not be in connection with the acquisition of the stock or assets of another company.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 754
material_search_footer*The Publication Date reflects the date of first inclusion in the Reference Library, which was launched on July 31, 2012, or a subsequent update to the material. Material may have been previously available on a different Nasdaq web site.
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