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Frequently Asked Questions
  Staff Interpretation Letter 2006-10
Identification Number 820
This is in response to your correspondence regarding whether the company could complete the transaction you described (the “Proposed Transaction”) prior to the end of the 15-day notice period for the Listing of Additional Shares referenced in Marketplace Listing Rule 4310(c)(17)(D).  In addition, your question relates to the shareholder approval requirements of Marketplace Rules 4350(i)(1)(B), 4350(i)(1)(C), and 4350(i)(1)(D) (the “Rules”).
 
According to the information you submitted, in the Proposed Transaction the company would issue shares of common stock (“Common Shares”) and warrants (“Warrants”) to several investors, none of whom is an officer, director, employee, or consultant of the company.  The number of Common Shares would equal no more than 19.9% of the pre-transaction outstanding shares and would be sold at a discount to market value.  The number of shares of common stock that could be issued upon the exercise of the Warrants would be up to approximately 5% of the pre-transaction outstanding shares.  The Warrants would be exercisable into common stock at a price not less than the closing bid price immediately preceding the entering into of the binding agreement notwithstanding any anti-dilution provisions except those relating to stock splits and similar events.  The company’s market value exceeds its book value.  The Warrants will not be exercisable until six months after issuance.
 
You stated that as a result of the Proposed Transaction, no investor individually or as part of a group would obtain, or have the right to obtain, 20% or more of the voting power or total shares outstanding of the company.  No investor has been or will be offered board representation in connection with the Proposed Transaction, and there would be no other arrangements between the company and any of the investors.
 
The proceeds of the Proposed Transaction would be used to repay debt assumed in connection with an acquisition in May 2005.  You stated that the Proposed Transaction is not required by the transaction documents relating to the acquisition and that at the time of the acquisition, the company did not have a specific intention to conduct the Proposed Transaction or any other specified financing to pay down the debt incurred in the acquisition.  Instead, the company had intended to pay down the debt through cash from operations from the acquired entity.  You stated that other than in the normal course of business in connection with issuing securities in shareholder-approved employee benefit plans, the company has not issued shares in an equity financing since May 2005.
 
Following our review of the information you provided, we have determined that the Proposed Transaction will not require shareholder approval under the Rules.  Rule 4350(i)(1)(C) will not require shareholder approval because the issuance will not be in connection with an acquisition.  In that regard, we note that the most recent acquisition occurred approximately ten months ago and that at the time of that acquisition there was no plan or agreement to conduct any equity financing.  Rule 4350(i)(1)(D) will not require shareholder approval because the issuance of the Common Shares, although at a price less than market value, will equal less than 20% of the common shares and voting power outstanding on a pre-transaction basis.  Because the exercise price of the Warrants will not be less than the greater of book and market value, and the Warrants cannot be exercised until six months after the date of closing, the Warrants will not require shareholder approval.  Further, given the ownership positions and the lack of any other arrangements between the company and any of the investors, the Proposed Transaction would not result in a change of control and therefore will not require shareholder approval under Listing Rule 4350(i)(1)(B).  Lastly, because we have completed our review, the company may close the Proposed Transaction prior to the end of the 15-day notice period referenced in Marketplace Listing Rule 4310(c)(17) provided that the company submits to NASDAQ all required documentation prior to closing.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 820
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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