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Frequently Asked Questions
  Staff Interpretation Letter 2006-34
Identification Number 843
This is in response to your correspondence regarding the applicability of the shareholder approval requirements to a proposed issuance of securities by the company in a private placement (the “Transaction”).  Specifically, you asked about the potential applicability of Marketplace Rules 4350(i)(1)(B) and 4350(i)(1)(D) (the “Rules”).
 
According to the information you submitted, in the Transaction the company would issue shares of common stock (“Common Shares”) and warrants to purchase additional shares of common stock (“Warrants”) to several investors, none of whom is an officer, director, employee, or consultant of the company.  In addition, the company would issue Warrants to the placement agent (the “Placement Agent Warrants”).  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, including the Placement Agent Warrants, would equal approximately 6% 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 Warrants will not be exercisable until 180 days after issuance.  The company’s market value exceeds its book value.
 
You stated that, as a result of the Transaction, no investor individually, or as part of a group, could beneficially own, or obtain the right to acquire, more than 19.99% of the company’s outstanding common shares or the voting power of the company on a post-transaction basis, and there would be no other related arrangements between the company and any of the investors.
 
Following our review of the information you provided, we have determined that the Transaction will not require shareholder approval under the Rules.  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 as described above, and the Warrants cannot be exercised until 180 days 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 will not require shareholder approval under Listing Rule 4350(i)(1)(B).
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 843
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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