referencelibrarybanner
Listing Center Coronavirus FAQs for Nasdaq-listed Companies
Reference Library - Advanced Search
Find
 


Library 



 
Timeframe
Category
 
Sub-Category
** To make multiple selections, select the first criterion and then press and hold the Ctrl Key **
 
1- 1 of 1 Search Results for:
Libraries:   Staff Interpretation Letters
Filters:   All Years; Shareholder Approval;
 
Search   Clear


Expand All
Printer Friendly View
Mailto Link 
Page: 1 of 1
Frequently Asked Questions
  Staff Interpretation Letter 2006-15    
Identification Number 825
This is in response to your correspondence regarding the potential applicability of the shareholder approval requirements of Marketplace Rules 4350(i)(1)(B) and 4350(i)(1)(D) (the “Rules”) to a proposed issuance of securities (the “Proposed Transaction”).  In addition, you asked about the potential applicability of the voting rights requirements of Listing Rule 4351 (the “Voting Rights Rule”).
 
According to the information you submitted, in the Proposed Transaction, the company would issue shares of Preferred Stock (the “Initial Preferred Shares”) and a warrant (the “Warrant”) to purchase additional shares of Preferred Stock (the “Additional Preferred Shares”) to an investor (the “New Investor”).  The Initial Preferred Shares would be convertible into more than 20% of the pre-transaction outstanding shares, and the Additional Preferred Shares into approximately 10%.
 
The conversion price (the “Conversion Price”) of the Initial Preferred Shares and the Additional Preferred Shares would equal the closing bid price of the common stock immediately preceding the execution of the definitive purchase agreement (the “Closing Bid Price”).  In addition, the New Investor would pay $0.125 for each share of common stock that could be issued upon the exercise of the Warrant.  The exercise price (the “Exercise Price”) of the Warrant would be no less than the Closing Bid Price.  The Initial Preferred Shares, the Additional Preferred Shares, and the Warrant would not contain any “reset” or other price-based adjustments provisions.  The company’s market value exceeds its book value.
 
Currently, the largest shareholder (the “Largest Shareholder”) owns between 35% and 40% of the company’s outstanding shares.  On a post-transaction basis after giving effect to the to the total number of common shares that could be issued in the Proposed Transaction, the Largest Shareholder would own more than 25% of company’s outstanding shares, and approximately 1.5% more than the New Investor.
 
You stated that as a result of the Proposed Transaction, the New Investor would have the right to elect one member to the company’s board of directors, which will have six members.  There will be no additional arrangements between the company and the New Investor.  The Preferred Stock would vote on as-converted basis.  The proceeds of the Proposed Transaction would be used for general corporate purposes.  No officer, director, employee, or consultant of the company would be a purchaser in the Proposed Transaction.
 
Following our review of the information you submitted, we have concluded that shareholder approval of the Proposed Transaction is not required pursuant to the Rules.  Although the issuance would exceed 20% of the pre-transaction outstanding shares, the Conversion Price and the Exercise Price would not be less than the greater of book or market value.  Accordingly, shareholder approval is not required pursuant to Listing Rule 4350(i)(1)(D).  Further, because the Largest Shareholder would remain the largest shareholder following the Proposed Transaction, the Proposed Transaction would not result in a change of control, and, accordingly, shareholder approval is not required pursuant to Listing Rule 4350(i)(1)(B).  Additionally, the requirements of the Voting Rights Rule will be satisfied because: (i) the Preferred Stock will not have greater voting power than as if converted at market value on the date of issuance, and (ii) the percentage of the members of the board of directors that may be appointed by the New Investor will not exceed the New Investor’s relative contribution to the company.
 
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 825
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.
Page: 1 of 1
home_footer_links
Copyright_statement
App Store       Google Play       Listing Center Content RSS Feed
The Nasdaq Stock Market, Nasdaq, The Nasdaq Global Select Market, The Nasdaq Global Market, The Nasdaq Capital Market, ExACT and Exchange Analysis and Compliance Tracking system are trademarks of Nasdaq, Inc.
FINRA® and Financial Industry Regulatory Authority, Inc.® are registered trademarks of Financial Industry Regulatory Authority, Inc. OTCBBTM and OTC Bulletin BoardTM are trademarks of FINRA