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Frequently Asked Questions
  Staff Interpretation Letter 2007-32  
Identification Number 808
This is in response to your correspondence regarding the applicability of the shareholder approval requirements to two proposed transactions. In one transaction, the company would issue shares of its common stock in a private placement (the “Proposed Common Stock Issuance”). In the other transaction, the company would issue warrants (the “Warrants”), exercisable for shares of its common stock, in order to obtain a debt facility. Specifically, you asked whether, for purposes of Marketplace Listing Rule 4350(i)(1)(D)(ii) (the “Rule”), the Proposed Common Stock Issuance would be aggregated with a prior issuance of common stock (the “Prior Issuance”). In addition, you asked whether the shares underlying the Warrants would be aggregated with the Proposed Common Stock Issuance in considering whether either requires shareholder approval under the Rule.
 
In the Prior Issuance, which occurred approximately seven months ago, the company sold shares of its Common Stock at a price less than the market value of the stock in a private placement to several investors. The number of shares that were issued was less than 20% of the pre-transaction outstanding shares.
 
In the Proposed Common Stock Issuance, the terms of which have not been established, the company would sell up to 20% of its pre-transaction shares of common stock. The investors in the Prior Issuance would not purchase more than 30% of the shares in the Proposed Common Stock Issuance and would not comprise more than 25% of the investors in the Proposed Common Stock Issuance. None of the investors in the Prior Issuance would be the lead investor in the Proposed Common Stock Issuance. As a result of the Proposed Common Stock Issuance, no investor could acquire as much as 20% of the company’s outstanding shares of common stock when aggregated with all shares of held by such investor.  No officer, director, employee, or consultant of the company would be an investor in the Proposed Common Stock Issuance. There are no contingencies between the Prior Issuance and the Proposed Common Stock Issuance.
 
You stated that at the time of the Prior Issuance, the company did not know that it would have to consummate another financing at this time. The need for the Proposed Common Stock Issuance is primarily due to the acceleration of Phase 3 trials of a pharmaceutical product the company is developing. This acceleration, which was unforeseen at the time of the Prior Issuance, will result in the costs of research and development being due sooner than anticipated. The proceeds from the Prior Issuance were not used in connection with this product, but instead were used for the development of other products.
 
The Warrants would be issued to a lender (the “Lender”) in connection with a non-convertible debt facility the Lender would provide. The Lender would not be an investor, or an affiliate of any investor, in the Proposed Common Stock Issuance. The exercise price of the Warrants would be not less than the greater of book or market value immediately preceding the entering into of the binding agreement, and the Warrants would not contain any anti-dilution adjustments other than for stock splits and similar events.  The Warrants would not be exercisable until at least six months after the later of (i) their issuance, or (ii) the closing of the Proposed Common Stock Issuance.
 
Following our review of the information you provided, we have determined that the Proposed Common Stock Issuance would not be aggregated with the Prior Issuance for purposes of the Rule because: (i) approximately seven months would have passed between the transactions; (ii) the need for the Proposed Issuance arose from a change in circumstances following the Prior Issuance; (iii) there are no contingencies between the transactions; and (iv) the Proposed Common Stock Issuance was not contemplated at the time of the Prior Issuance. In addition, the Warrants would not be aggregated with the Proposed Common Stock Issuance because the Warrants would not be exercisable for less than the greater of book or market value and could not be exercised until the at least six months after the later of (i) their issuance. or (ii) the closing of the Proposed Common Stock Issuance.  Please note that you have not asked us to reach, and we have not reached, a conclusion as to the applicability of the shareholder approval requirements other than as described herein.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 808
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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