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Frequently Asked Questions
  Staff Interpretation Letter 2007-15
Identification Number 791
This is in response to your correspondence regarding whether a proposed transaction (the “Proposed Transaction”) would be aggregated with a prior transaction (the “Prior Transaction”, and together with the Proposed Transaction, the “Transactions”) for purposes of the applicability of NASDAQ’s shareholder approval requirements.  Specifically, your question relates to Marketplace Rules 4350(i)(1)(B), 4350(i)(1)(C)(ii), and 4350(i)(1)(D).
 
According to the information you submitted, in the Prior Transaction, which was completed approximately seven weeks ago, the company issued shares of its common stock and warrants to purchase additional shares to several investors in a private placement.  The proceeds were raised to satisfy the company’s working capital needs through the end of 2008.  The Prior Transaction did not require shareholder approval under the Rules.
 
You stated that the purpose of the Prior Transaction was to effect a capital infusion without which the company would not have had sufficient cash to fund its ongoing operations for more than approximately seven months.  Approximately one month after the closing of the Prior Transaction, the company began to consider the Proposed Transaction when an acquisition opportunity (“Acquisition”) became available due to the actions of an independent third party.
 
In the Proposed Transaction, the terms of which have not been finalized, the company would issue up to 19.9% of its pre-transaction outstanding shares to one or more investors at a price that could be less than market value.  The proceeds from the Proposed Transaction would be used to partially fund the acquisition of the Target.  The remainder of the Acquisition funding would come from a term loan and not from the Prior Financing.  The investors in the Proposed Transaction would not include any of the investors in the Prior Transaction or any officers, directors, employees, or consultants of the company.
 
You stated that there are no linkages or contingencies between the Transactions.  The Proposed Transaction would be done solely to fund the Acquisition.  If the Acquisition does not take place, the Proposed Transaction will not be consummated.
 
You stated that the investors in the Proposed Transaction would hold less than 20% of the company’s outstanding shares in the aggregate and would not have any “control-type” arrangements with the company.  The investors would be granted the right to nominate one director to the company’s board of directors, which would then have six members.
 
Following our review of the information you provided, we have determined that the Proposed Transaction would not be aggregated with the Prior Transaction because there are no linkages or contingencies between the Transactions, there will be no commonality of investors, the proceeds will be used for different purposes, and the need for the Proposed Transaction arose only after the closing of the Prior Transaction.  Accordingly, provided the issuance is less than 20% of the pre-transaction outstanding shares, shareholder approval of the Proposed Transaction would not be required under either Listing Rule 4350(i)(1)(C)(ii) or Listing Rule 4350(i)(1)(D).  Please be advised that for purposes of the shareholder approval requirements, the Proposed Transaction would be considered to be in connection with the Acquisition meaning that the percentage thresholds of Listing Rule 4350(i)(1)(C) would apply without regard to whether the issuance is at a discount.  With regard to Listing Rule 4350(i)(1)(B), given the ownership positions and the lack of other arrangements between the company and any of the investors, the Proposed Transaction would not result in a change of control and therefore would not require shareholder approval under that rule.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 791
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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