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  Staff Interpretation Letter 2004-110
Identification Number 965
Rule 4350(i)(1)(B):  Each issuer shall require shareholder approval … prior to the issuance of designated securities … in connection with the acquisition of the stock or assets of another company…when the issuance or potential issuance will result in a change of control of the issuer.
 
Rule 4350(i)(1)(C)(ii):  Each issuer shall require shareholder approval … prior to the issuance of designated securities …in connection with the acquisition of the stock or assets of another company …where, due to the present or potential issuance of common stock, or securities convertible into or exercisable for common stock, other than a public offering for cash: (a) the common stock has or will have upon issuance voting power equal to or in excess of 20% of the voting power outstanding before the issuance of stock or securities convertible into or exercisable for common stock; or (b) the number of shares of common stock to be issued is or will be equal to or in excess of 20% of the number of shares of common stock outstanding before the issuance of the stock or securities.
 
Rule 4350(i)(1)(D):  Each issuer shall require shareholder approval … prior to the issuance of designated securities in connection with a transaction other than a public offering involving:  (i) the sale, issuance or potential issuance by the issuer of common stock (or securities convertible in to or exercisable for common stock) at a price less than the greater of book or market value which together with sales by officers, directors or substantial shareholders of the company equals 20% or more of common stock or 20% or more of the voting power outstanding before the issuance; or (ii) the sale, issuance or potential issuance by the company of common stock (or securities convertible into or exercisable common stock) equal to 20% or more of the common stock or 20% of more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock.
 
Relevant Facts:  A company is considering a private placement (the “Proposed Transaction”).  Approximately one year earlier, the company issued shares and warrants to an investor (“Investor A”).  The proceeds from the sale of this transaction (the “Prior Transaction”) were used to purchase shares of a target company (the “Target”).  The company also received shareholder approval to issue additional shares in exchange for more shares of the Target (the “Share Exchange”).
 
Investor A would not participate in the Proposed Transaction, and no one investor could own more than 4.99% of the company’s outstanding ordinary shares as a result of the Proposed Transaction.  In addition, no officers, directors, employees or consultants of the company will purchase shares in the Proposed Transaction.  The purpose of the Proposed Transaction is to provide the company with financing to support the business of Target.
 
Issue: Would the Proposed Transaction be aggregated, for purposes of NASDAQ’s shareholder approval rules, with either the Prior Transaction or the Share Exchange?
 
Determination:  The Proposed Transaction would not be aggregated with the Share Exchange for purposes of Rules 4350(i)(1)(C)(ii) or 4350(i)(1)(D) because the shareholders approved the Share Exchange.  In addition, the Prior Transaction and the Proposed Transaction will not be aggregated for purposes of these rules because: (i) a substantial length of time has elapsed between the transactions; (ii) there is no commonality of investors; and (iii) the transactions are not contingent on each other.  In addition, shareholder approval is not required pursuant to Listing Rule 4350(i)(1)(B) because the Proposed Transaction will not result in a change of control since no participating investor will be permitted to own more than 4.99% of the company’s ordinary shares as a result of the Proposed Transaction.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 965
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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