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Frequently Asked Questions
  Staff Interpretation Letter 2007-25
Identification Number 801
This is in response to your correspondence regarding the applicability of NASDAQ’s shareholder approval requirements to proposed issuances of securities by the company (the “Transaction”) to the New Investor and the Prior Investor as described below.  Specifically, you asked about the potential applicability of Marketplace Rules 4350(i)(1)(A),  4350(i)(1)(B), and 4350(i)(1)(D) (the “Rules”).  In addition, you asked whether the company would be required to provide notice of the Transaction to NASDAQ pursuant to Listing Rule 4310(c)(17).
According to the information you submitted, approximately two weeks ago the company entered into an agreement with the New Investor pursuant to which the New Investor will purchase newly issued shares of the company’s common stock in up to three separate closings.  As a result of a prior transaction with the Prior Investor, the Prior Investor has the right (the “Purchase Right”), but not the obligation, to purchase a portion of any new equity securities issued by the company to maintain its ownership position.  The Purchase Right would be triggered by each issuance to the New Investor.  The aggregate number of shares that could be issued to the New Investor in the three closings would equal approximately 5% of the pre-transaction total shares outstanding.  If the Prior Investor were to exercise the Purchase Right in full, an additional approximately 3% of the pre-transaction total shares outstanding would be issued to the Prior Investor, resulting in a total issuance equal to approximately 8% of the pre-transaction shares outstanding.
Two members of the company’s board of directors are executive officers of the Prior Investor.  The Prior Investor is currently the largest owner of the company’s outstanding common stock and will remain such following the issuances, with an ownership position of approximately 25% of the outstanding shares both before and after the Transaction.
Following our review of the information you provided, we have reached the following conclusions.  The issuances to the Prior Investor are subject to the provisions of Listing Rule 4350(i)(1)(A) because directors of the company are officers of the Prior Investor.  As such, for the Transaction to comply with Listing Rule 4350(i)(1)(A), the issuances to the Prior Investor cannot be at a discount to the market value of the common stock, unless shareholder approval is obtained.  That is, such issuances cannot be at a price less than the closing bid price immediately preceding the time the Prior Investor exercises the Purchase Right with respect to any investment by the New Investor.  Rule 4350(i)(1)(B) will not require shareholder approval because, given the ownership positions, the Transaction will not result in a change of control.  Rule 4350(i)(1)(D) is not applicable because the aggregate potential issuance is less than 20% of the pre-transaction outstanding shares.  With respect to Listing Rule 4310(c)(17), because the aggregate issuance in the Transaction will equal  less than 10% of the outstanding shares, notification to NASDAQ would not be required provided that: (i) the issuances to the Prior Investor are not at a price less than market value or (ii) the issuances to the Prior Investor, if at a discount to the market value, are approved by the company’s shareholders.
Publication Date*: 7/31/2012 Mailto Link Identification Number: 801
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