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  Staff Interpretation Letter 2009-18
Identification Number 736
This is in response to your correspondence regarding the applicability of the shareholder approval requirement of Listing Rule 5635(d) (the “Shareholder Approval Rule”) and the voting rights requirements of Listing Rule 5640 and IM-5640 (collectively, the “Voting Rights Rule”) to a proposed issuance of securities (the “Proposed Offering”).
According to the information you provided, in the Proposed Offering the company would offer shares of a newly designated senior common stock (the “Senior Common”) at a fixed price (the “Offering Price’) in a continuous private placement on a best-effort basis over a twenty-four month period (the “Offering Period”). The company expects that during the Offering Period, it will accept subscription agreements which would become effective twice monthly. In addition, each holder of the Senior Common would be entitled to reinvest distributions that would be paid on the Senior Common for additional shares of Senior  Common at the Offering Price. Except where required by law, the Senior Common would be non-voting.
The Senior Common would be convertible into shares of the company’s class of common stock which is listed on NASDAQ (the “Common Stock”). The number of shares of Common Stock that could be issued exceeds 20% of the pre-offering outstanding shares. The conversion price would be equal to the greater of the highest book or market value per share during the Offering Period. The book value would be that value attributable to the company’s common stockholders’ equity and would not give effect to the company’s outstanding preferred stock.
Following our review of the information you provided, we have determined that the Proposed Offering, structured as you described, would satisfy the Shareholder Approval Rule and the Voting Rights Rule. Although the potential issuance exceeds 20% of the pre-offering outstanding shares, shareholder approval would not be required under the Shareholder Approval Rule because the conversion price could not be less than the greater of book or market value per share. The Proposed Offering would comply with the Voting Rights Rule because the issuance of the Senior Common would not disparately reduce or restrict the voting rights of existing shareholders in that it is non-voting, except as required by law. Please note that you have not asked us to reach, and we have not reached, a conclusion as to the applicability of the Listing Rules in any way other than as addressed herein.
Publication Date*: 7/31/2012 Mailto Link Identification Number: 736
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