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  Listing Council Decision 2004-10
Identification Number 621
Rule 4350(g): Each issuer shall solicit proxies and provide statements for all meetings of shareholders and shall provide copies of such proxy solicitation to NASDAQ.
Rule 4350(e): Each issuer shall hold an annual meeting of shareholders and shall provide notice of such meeting to NASDAQ. Issue: Eight months after the end of its fiscal year, the company still had not filed a definitive proxy statement with the Securities and Exchange Commission or set a definitive shareholder meeting date.
Determination: The company was properly delisted for failure to comply with the proxy solicitation and annual meeting requirements.
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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: … (ii) 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.
Issue: The company violated Listing Rule 4350(i)(1)(D)(ii) by issuing greater than 20% of the pre-transaction total shares outstanding at a discount to the market price. The offering, which was scheduled to close in two tranches, consisted of up to 20,000,000 shares of common stock at $0.75 per share, together with the potential issuance of another 10,000,000 shares of common stock resulting from the exercise of warrants at $1.00 per share. As such, the aggregate potential issuance would be 30,000,000 shares, or 99% of the 30,095,328 total shares outstanding on a pre-transaction basis. The first tranche consisted of approximately 2,650,000 shares of common stock, together with 1,325,000 associated warrants, with the balance of the securities to be issued only upon receiving shareholder approval. After the closing of the first tranche, but before closing the second tranche, the company’s securities were delisted from The NASDAQ Stock Market. Before closing the second tranche and also before obtaining shareholder approval, the transaction was restructured to reduce the offering price of the common stock to $0.40 per share and the warrant exercise price to $0.50 per share. At the second closing, the company issued 25,374,999 additional shares of common stock and warrants exercisable for 12,687,502 shares of common stock, for an aggregate potential issuance of 38,062,501 shares of common stock. The company was aware, that even though it was delisted, it was still subject to NASDAQ’s shareholder approval rules.
Determination: The Listing Council determined, as a separate ground, that the company’s securities should not be relisted, based on the company’s failure to comply with the shareholder approval requirement. The Listing Council noted that the company was aware that even though it had been delisted, it was still subject to all of NASDAQ’s corporate governance rules, while appealing its Panel decision. As such, the issuance of securities in the second tranche of the offering required shareholder approval because the company issued greater than 20% of the pre-transaction total common shares outstanding at a discount to the market price.
Publication Date*: 7/31/2012 Mailto Link Identification Number: 621
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