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  Staff Interpretation Letter 2003-42
Identification Number 1009
Rule 4350(i)(1)(B):  Each issuer shall require shareholder approval prior to the issuance of designated securities … when the issuance or potential issuance will result in a change of control.
Rule 4350(i)(1)(D)(ii):  Each issuer shall require shareholder approval prior to the issuance of designated securities … in connection with a transaction other than a public offering involving the sale, issuance or potential issuance by the company of common stock (or securities convertible into or exercisable [for] common stock) equal to 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the stock.
Rule 4310(c)(17)(D):  The issuer shall be required to notify NASDAQ on the appropriate form no later than 15 calendar days prior to: … entering into a transaction that may result in the potential issuance of common stock (or securities convertible into common stock) greater than 10% of either the total shares outstanding or the voting power outstanding on a pre-transaction basis.
Relevant Facts:  A company intends to raise approximately $13 million through the issuance of common stock and warrants to purchase common stock to approximately 10 accredited investors (the “Proposed Transaction”).  The company also plans to issue warrants to the placement agent representing approximately 5% of the number of common shares being offered.  The total issuance would be approximately 16% of the total shares outstanding on a pre-transaction basis.  The common stock will be issued at a discount to market price, and the warrants will be exercisable at a premium.  The warrants will contain anti-dilution provisions for stock splits and similar events, including transactions affecting all shareholders generally, but will not contain other adjustments affecting either the price or the number of shares.  The company stated that none of the participants in the transaction are officers or directors of the company or persons known to be current shareholders.  The company would like to close the Proposed Transaction prior to the conclusion of the 15 day notification period prescribed in Listing Rule 4310(c)(17)(D).
Issue:  Is shareholder approval required for the Proposed Transaction?
Determination:  No.  Pursuant to Listing Rule 4350(i)(1)(B), shareholder approval is not required because the consummation of the Proposed Transaction will not result in a change of control of the company.  No investor will own alone, or as a member of a group, 20% or more of the company’s common stock or voting power following the Proposed Transaction.  Further, shareholder approval is not required, pursuant to Listing Rule 435(i)(1)(D)(ii), because the total issuance in the Proposed Transaction will equal less than 20% of the total shares outstanding on a pre-transaction basis.
Issue:  May the company complete the Proposed Transaction prior the end of the 15-day period contemplated by Listing Rule 4310(c)(17)(D)?
Determination:  Given that the company submitted its Notification: Listing of Additional Shares and that NASDAQ has completed its review of the Proposed Transaction, the company may close the Proposed Transaction prior to the expiration of the 15-day period referenced in Listing Rule 4310(c)(17)(D).
Publication Date*: 7/31/2012 Mailto Link Identification Number: 1009
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