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Frequently Asked Questions
  Staff Interpretation Letter 2005-16  
Identification Number 863
This is in response to your letter regarding your client, the company, whose common stock is listed on The NASDAQ National Market.  You asked about the applicability of NASDAQ’s shareholder approval requirements to a proposed transaction, and in particular, the application of Marketplace Rules 4350(i)(1)(B) and 4350(i)(1)(D) (the “Rules”).
 
According to the information you provided, the company intends to raise funds through the sale of common stock and warrants in a private placement to institutional investors (the “Transaction”).  In the Transaction, the company will sell shares of common stock equal to more than 20% of its pre-transaction shares, and warrants exercisable for additional common shares (i.e., 10% warrant coverage).
 
The issuance price (the “Issuance Price”) per share of the common stock will be the sum of: (i) the closing bid price of the common stock immediately preceding the execution of the definitive agreement (the “Agreement”) and (ii) $0.0125 to allow for the attribution of $0.125 for each full warrant (i.e., 10% multiplied by $0.125 equals $0.0125).  The warrants will be exercisable at a higher price than the Issuance Price.  The warrants will expire five years after issuance, and contain anti-dilution protection for stock splits and similar events, but will not contain price adjustments or economic dilution adjustment features.  No investor individually, or as part of a group, can beneficially own, or have 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.
 
Following our review of the information you submitted, we have concluded that shareholder approval is not required pursuant to the Rules.  Although the issuance will exceed 20% of the pre-transaction outstanding shares, the Issuance Price and the exercise price of the warrants will 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, given the ownership restrictions described above, the Transaction will not result in a change of control and shareholder approval in not required pursuant to Listing Rule 4350(i)(1)(B).
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 863
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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