referencelibrarybanner
Board Diversity
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; All
 
Search   Clear


Expand All Printer Friendly View Mailto Link 
Page: 1 of 1
Frequently Asked Questions
  Staff Interpretation 2021-02
Identification Number 1794

This is in response to your correspondence asking whether the issuance of the Preferred Stock in a proposed transaction (the “Transaction”) would comply with the shareholder approval requirements in Listing Rule 5635 and IM-5635-2 (together, the “Rules”) as well as the Nasdaq policy guidance for Future Price Securities in Listing Rule IM-5635-4. You also asked whether the proposed issuance of the Preferred Stock would comply with the voting rights requirements in Listing Rule 5640 and IM-5640 with respect to the voting power of the Preferred Stock (the “Voting Power”) and the investor’s right to nominate members of the company’s board of directors and, in certain circumstances, to have a non-member board observer (the “Board Rights”).

In the Transaction the Company has agreed to issue and sell shares of the newly designated Preferred Stock (the “Preferred Stock”) at a price per share, paid in cash, equal to the stated value. The Transaction is subject to certain closing conditions and you stated that the parties have agreed to use reasonable best efforts to cause the closing conditions to be satisfied as promptly as reasonably practicable. You stated that the Company intends to use the net proceeds for working capital and general corporate purposes and not in connection with the acquisition of the stock or assets of another company. You also stated that the issuance will not be to officers, directors, employees, or consultants of the Company.

The Preferred Stock will become convertible into shares of common stock, subject to a limit of 19.99% of the pre-transaction outstanding shares (the “Issuance Limitation”), at a price that could be less than the Minimum Price, as defined in Listing Rule 5635(d)(1)(A). The conversion price of the Preferred Stock is based on a formula linked to the market price of the common stock at the time of conversion and floats with the market price of the common stock, subject to a floor that is about a 10% discount to the Minimum Price (the “Floor Price”). No holder of the Preferred Stock is entitled to receive shares of common stock upon conversion, if the holder or group would beneficially own, or have the right to acquire, more than 19.99% of the company’s outstanding shares or voting power on a post-conversion basis (the “Ownership Limitation”). You stated that in the case either the Issuance Limitation or the Ownership Limitation is triggered, the excess, if any, of the conversion consideration otherwise payable upon conversion will be paid in cash.

The Preferred Stock will vote together with the common stock as a single class on all matters submitted to a vote of the holders of the common stock and will be entitled to a number of votes on an as-converted basis based on the Minimum Price, subject to the Ownership Limitation.

Pursuant to the Board Rights, the holders of the Preferred Stock would be entitled to appoint one or two directors to the board such that the investor’s board representation is consistent with its percentage ownership interest in the company. In that regard, you stated that the investor will be entitled to nominate the directors only if the quotient of the number of votes the Preferred Stock is entitled to as a percentage of the votes attributable to the total shares outstanding is greater than the quotient of the number of nominated directors as a percentage of the total number of directors on the Company’s board. If the investor is not entitled to nominate a director, it will be able to appoint a non-member board observer (the “Observer”) so long as it continues to own at least 30% of the common stock issuable or issued upon conversion of Preferred Stock originally issued to it in the Transaction. The Observer is entitled to attend board committee meetings, but you have confirmed that the members of each Nasdaq mandated committee, such as audit, nomination, and compensation committees have the absolute and sole discretion to exclude the Observer from the proceedings of the respective committee.

Following our review of the information you provided, we have determined that the Transaction, structured as you described, would not require shareholder approval under the Rules. Given the Ownership Limitation, shareholder approval is not required under Listing Rule 5635(b) because the issuance of the Preferred Stock could not result in a change control.  Given the Issuance Limitation, shareholder approval is not required under Listing Rule 5635(d) because the number of shares that could be issued is less than 20% of the pre-transaction outstanding shares and the Voting Power is not at a discount to the Minimum Price. Shareholder approval is not required under Listing Rule 5635(a) because the issuance is not in connection with the acquisition of stock or assets of another company. Shareholder approval is not required under Listing Rule 5635(c) because the issuance is not to officers, directors, employees or consultants of the Company. Although the Preferred Stock is a Future Priced Security under Listing Rule IM-5635-4, the issuance of the Preferred Stock does not result in a failure to comply with Nasdaq’s listing requirements. In that regard, we note that the Floor Price limits the maximum discount to the Minimum Price of the common stock issuable upon conversion at about 10%. We have also determined that the Voting Power and the Board Representation would satisfy the voting rights requirements because: (i) the Preferred Stock would not have higher voting power than as if converted at the Minimum Price immediately preceding the company entering into the binding agreement to issue the Preferred Stock, and (ii) the Board Rights will be consistent with the ownership interest attributable to the holder of the Preferred Stock and would decline proportionally if the ownership interest were to decline.

Publication Date*: 7/22/2021 Mailto Link Identification Number: 1794
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