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  Staff Interpretation Letter 2008-23
Identification Number 767
This is in response to your correspondence regarding the applicability of NASDAQ’s shareholder approval requirements to an issuance of securities in a private placement (the “Proposed Transaction”).  You asked about the potential applicability of Marketplace Rules 4350(i)(1)(A),  4350(i)(1)(B),  4350(i)(1)(C), and 4350(i)(1)(D) (the “Rules”).
According to the information you provided, in the Proposed Transaction, the company would sell shares of convertible preferred stock, which would be convertible into common stock.  The potential issuance of common stock would exceed 20% of the company’s pre-transaction outstanding shares.  The conversion price would exceed the greater of book or market value and would not be subject to any adjustment provision other than in connection with stock splits and similar changes to the company’s capitalization.  The company expects that between 5 and 25 investors will participate in the Proposed Transaction.  No investor individually, or as part of a group, would beneficially own, or have the right to acquire, more than 19.9% of the company’s outstanding shares or voting power on a post-transaction basis (the “Ownership Limitation”).  The proceeds would be used to provide additional capital and for other general corporate purposes.  The lead investor in the Proposed Transaction would be entitled to designate one member of the company’s board of directors until it ceases to own at least 3% of the company’s voting equity securities.  You stated that the Proposed Transaction is not connected with any acquisition or merger.
Following our review of the information you provided, we have determined that the Proposed Transaction would not require shareholder approval under the Rules.  Rule 4350(i)(1)(A) would not require shareholder approval because no shares of common stock could be acquired by any officer, director, employee or consultant of the company at a discount to market value.  Given the Ownership Limitation, the Proposed Transaction would not result in a change of control, and, therefore, would not require shareholder approval under Listing Rule 4350(i)(1)(B).  Because the issuance would not be in connection with the acquisition of the stock or assets of another company, shareholder approval would not be required under Listing Rule 4350(i)(1)(C).  Finally, shareholder approval would not be required under Listing Rule 4350(i)(1)(D) because the conversion price would not be less than the greater of book or market value.
Publication Date*: 7/31/2012 Mailto Link Identification Number: 767
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