This is in response to your correspondence regarding the potential applicability of the shareholder approval requirements to a proposed transaction (the “Proposed Transaction”) which you described. Specifically, your question relates to Marketplace Listing
Rule 4350(i)(1)(D)(ii) (the “Rule”).
According to the information you provided, the company issued the Notes in a private placement (the “Note Offering”) approximately nine months ago, and the conversion price exceeded the book and market value of the company’s stock. As such, shareholder
approval was not required under the Rule for the Note Offering. The Holder purchased approximately 9% of the Notes. In the Proposed Transaction the company would enter into an agreement with the Holder pursuant to which the company would make a cash payment
(the “Inducement Payment”) to the Holder to induce the Holder to convert all or a portion of the Notes that it holds. The conversion would take place at the Notes’ original terms, which would not be changed. Because a definitive agreement relating to the
Proposed Transaction has not been reached, it is unknown whether the Holder’s effective conversion price, after giving effect to the Inducement Payment, would exceed the greater of book or market value. The number of shares that would be issued, however,
would be less than 20% of the company’s pre-transaction outstanding shares. The Holder is not an officer, director, employee, or consultant of the company. The company has no plans to enter into similar agreements with other holders of the Notes.
In a transaction (the “Equity Offering”) completed approximately four months ago, the company sold shares of its common stock and warrants. Shareholder approval was not required by the Rule because the aggregate issuance was limited to 19.9% of the pre-transaction
outstanding shares. The Holder was a participant in, and purchased approximately 10% of, the Equity Offering.
You stated that the Equity Offering was completed to fund the company’s development efforts. The Proposed Transaction would not raise any new funds, but is being undertaken to restructure the company’s securities and to eliminate debt outstanding on the
company’s balance sheet. You also said that the Proposed Transaction would be completed on terms that represent a discount to the interest that otherwise would be payable on the Notes, if they were held to maturity.
Following our review of the information you submitted, we have concluded that the Proposed Transaction will not require shareholder approval under the Rule. Specifically, the Proposed Transaction would not be aggregated with the Equity Offering because:
(i) the number of shares that would be issued in the Proposed Transaction is determined by the terms of indenture covering the Note Offering and, accordingly, there would be no increase in the number of common shares that are issuable; (ii) there are no contingencies
between the Proposed Transaction and the Equity Offering; and (iii) the transactions are not part of the same financing plan, in that the Equity Offering was to raise funds for specific corporate purposes, and the Proposed Transaction would be designed to
restructure the company’s balance sheet. Further, while the Inducement Payment could result in the conversion price of the Holder’s Notes being at a discount to the market price, the number of common shares that would be issued is less than 20% of the pre-transaction
outstanding shares. Be advised, however, that any similar transactions with the Holder and with other holders of the Notes would be aggregated for purposes of determining whether the resultant net conversion price is at a discount to the greater of book or
market value, and, therefore, whether shareholder approval is required.