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  Staff Interpretation Letter 2008-2
Identification Number 747
This is in response to your correspondence regarding the applicability of the shareholder approval requirements to a proposed change in the exercise prices (the “Exercise Price Change”) of two sets of previously issued warrants, the first issued in 2001 (the “2001 Warrants”) and the second in 2005 (the “2005 Warrants”).  Specifically, you asked about the potential applicability of Marketplace Rules 4350(i)(1)(A), 4350(i)(1)(B) and 4350(i)(1)(D)(ii) (the “Rules”).
According to the information you provided, the company issued the 2001 Warrants in connection with a private placement (the “2001 Issuance”) which occurred approximately three years prior to its initial public offering in 2004.  In 2005, the company conducted a private placement of shares of its common stock and the 2005 Warrants (the “2005 Issuance”).  The 2001 Issuance was not subject to NASDAQ’s shareholder approval requirements because the issuance occurred prior to the company’s listing on NASDAQ.  The 2005 Issuance did not require shareholder approval under the Rules because the issuance price was not less than the greater of book or market value and did not result in a change of control.
You stated that as a result of recent unfavorable events involving its clinical stage product candidates, the company has re-evaluated and substantially revised the strategic plan that had been in place at the time of the 2001 and the 2005 Issuances.  These events included unfavorable results on two product candidates, resulting in the termination of collaboration agreements with one third-party partner and the expected termination with another.  Because of these events, the company is seeking alternative forms of financing as it refocuses its product development strategy and attempts to enter into new collaboration agreements.  As such, the company is considering the Exercise Price Change as a means of raising capital.
In the Exercise Price Change, the company would offer to reduce the exercise prices of the 2001 Warrants and the 2005 Warrants to a price equal to the consolidated closing bid price immediately preceding the time the company and the holders of the warrants enter into a binding agreement with the respect to the change (the “New Exercise Price”).  The company’s market value exceeds its book value.  Under the agreement, warrant holders who accept the offer would be required to exercise their warrants within a specified time period.  The company is also considering issuing new warrants (the “New Warrants”), to participating warrant holders, with an exercise price equal to the New Exercise Price.  Current warrant holders include entities with which certain of the members of the company’s board of directors are affiliated.  You stated that as result of the Exercise Price Change and the issuance of any New Warrants, no investor would own or have the right to acquire as much as 20% of the company’s outstanding shares of common stock or voting power (the “Ownership Positions”).  In addition, you stated that the number of shares of common stock subject to the Exercise Price Change plus the number of shares of common stock issuable pursuant to the New Warrants is expected to be less than 20% of the company’s pre-transaction total shares outstanding.  If such aggregate number were to exceed 20%, then the New Warrants would not be exercisable until at least six months after the transaction.
Following our review of the information you submitted, we have determined that the Exercise Price Change will not require shareholder approval under the Rules.  For determining whether the exercise price is at a discount to the market value, the Exercise Price Change is considered to be a new transaction because of the amount of time that has elapsed since the original transactions and the significant changes in circumstances since the original transactions giving rise to the company’s need to seek additional sources of financing.  As such, because the New Exercise Price will not be less than the market value, shareholder approval is not required of the Exercise Price Change or the New Warrants by: (i) Listing Rule 4350(i)(1)(A) because an issuance at market value is not considered to be equity compensation, or (ii) Listing Rule 4350(i)(1)(D).  Shareholder approval is not required by Listing Rule 4350(i)(1)(B) because, due to the Ownership Positions, the New Exercise Price and the potential New Warrants will not result in a change of control.
Publication Date*: 7/31/2012 Mailto Link Identification Number: 747
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