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Libraries:   Listing Council Decisions
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  Listing Council Decision 2003-10
Identification Number 670
Rule 4350(i)(1)(A): issuers must obtain shareholder approval for an arrangement made pursuant to which stock may be acquired by officers and directors. Shareholder approval is not required if the amount of securities which may be issued under the arrangement does not exceed the lesser of 1% of the number of shares of common stock, 1% of the voting power outstanding or 25,000 shares.
 
Issue: The company violated Listing Rule 4350(i)(1)(A) by issuing shares in private placements to Section 16 officers and directors at a discount to market price. The discount was approximately 1%, which amounted to $1,000. The Panel issued a decision requiring the Section 16 officers and directors, who had received a discount in the private placements, to pay the difference between what they had paid and the market price of the company’s common stock on the date of issuance.
 
Determination: The company may either restructure the transaction such that the Section 16 officers and directors provide additional consideration to the company or rescind the violative transactions. Although the company has proposed to seek shareholder ratification of the violative transactions in connection with its annual meeting, shareholder ratification of a violative transaction is not an acceptable substitute for prior shareholder approval. The Panel’s decision was reversed to the extent it permitted the company to address the shareholder approval violation by requiring
insiders to pay the market price on the date of issuance. This allows insiders to eliminate their investment risk by electing to opt out of the transaction if the market price subsequently decreases. The company should adjust the price to the greater of the market value as of the date of the binding agreement or the date NASDAQ first notified the company of the deficiency.
Publication Date*: 7/31/2012 Mailto Link Identification Number: 670
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