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  Staff Interpretation Letter 2008-6
Identification Number 751
This is in response to your correspondence wherein you asked whether the company’s proposed issuance of securities (the “Proposed Transaction”) would be aggregated with a prior transaction (the “Prior Transaction”) for purposes of the shareholder approval requirements of Marketplace Listing Rule 4350(i).  Specifically, your question relates to the applicability of Listing Rule 4350(i)(1)(D)(ii) (the “Rule”).
According to the information you provided, in the Prior Transaction, which closed approximately seven months ago, the company sold shares of common stock and warrants to purchase shares of common stock in a private placement.  The common stock was issued at a discount to the greater of book or market value and was less than 10% of the pre-transaction outstanding shares.  The total number of shares issuable in the Prior Transaction, giving effect to the exercise of the warrants, was equal to approximately 13% of the pre-transaction outstanding shares prior to giving effect to anti-dilution adjustments.  The warrants are exercisable for common stock at a price that initially exceeded the greater of book or market value with weighted average anti-dilution protection (the “Anti-dilution Protection”) that could increase the number of shares issuable.  The warrants contain a limitation such that the company cannot issue shares in the Prior Transaction that would require shareholder approval under the Rule unless such approval is obtained (the “Prior Transaction Cap”).
In the Proposed Transaction, the company would issue shares of common stock in a private placement to several investors at a discount to the market value.  The company may also issue warrants to purchase shares of common stock.  It is anticipated that the warrants will have an exercise price in excess of the greater of book value or market value and will not be exercisable until six months after the closing of the Proposed Transaction.  The number of shares that would be issued, including shares that could be issued upon the exercise of the warrants, would equal less than 20% of the pre-transaction outstanding shares.  Because of the Anti-Dilution Protection applicable to the warrants issued in the Prior Transaction, the company will be required to issue additional warrants to the investors in the Prior Transaction (the  Additional Warrants”).
You stated that there are no contingencies between the transactions, the Proposed Transaction was not contemplated at the time of the Prior Transaction, and the proceeds are for different purposes.  Specifically, you indicated that the funds raised in the Prior Transaction had been used to pay contract research organization costs associated with, and to enroll patients for, the company’s Phase II clinical trials and to make regulatory filings with the FDA.  You stated that the Proposed Transaction is necessary to fund Phase III trials and the eventual commercialization of its drug product.  In addition, you stated that there may be up to a 25% overlap in the two transactions because the investors in the Prior Transaction have a contractual right to purchase up to 25% of any subsequent transactions.  Although the company has solicited elections from the investors in the Prior Transaction, it does not yet know whether there will be any commonality of investors.  Finally, you stated that no officers, directors, employees, or consultants participated in the Prior Transaction, and none will participate in the Proposed Transaction.
Following our review of the information you provided, we have determined that the Proposed Transaction would not be aggregated with the Prior Transaction for purposes of the Rule.  Additionally, the Additional Warrants will not be added to the shares issued in the Proposed Transactions because they are being issued in accordance with the terms of the Prior Transaction and are subject to the Prior Transaction Cap.  As such, given that the issuance in the Proposed Transaction would equal less than 20% of the pre-transaction outstanding shares, the Proposed Transaction would not require shareholder approval under the Rule.
Please note that if there is significant commonality of investors in the Prior Transaction and the Proposed Transaction, our determination may change.  Note also that you have not asked us, and we have not reached a conclusion, as to whether any other provision of Listing Rule 4350(i) would require shareholder approval of the Proposed Transaction.  For example, if the issuance could result in a change of control, shareholder approval would be required under Listing Rule 4350(i)(1)(B).
Publication Date*: 7/31/2012 Mailto Link Identification Number: 751
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