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  Staff Interpretation Letter 2007-34
Identification Number 810
This is in response to your correspondence regarding whether the company’s proposed equity financing facility (the “New Facility”) would be aggregated with its prior equity financing facility (the “Prior Facility”) for purposes of the shareholder approval requirements of Marketplace Listing Rule 4350(i)(1)(D)(ii) (the “Rule”).
According to the information you provided, the agreement (the “Agreement”) for the Prior Facility was entered into with the Purchaser approximately nineteen months ago.  Under the Prior Facility, the company, at its discretion, is entitled to sell to the Purchaser, and the Purchaser is obligated to buy, shares of the company’s common stock from time to time over a three-year period.  The number of shares that can be sold under the Prior Facility cannot exceed 19.9% of the shares outstanding prior to the execution of the Agreement (the “Share Maximum”).  In addition, the aggregate dollar value of the shares issued cannot exceed a specified amount (the “Dollar Maximum”).
The company’s stock price has declined approximately 45% since the date of the Agreement, substantially reducing the amount of funding available under the Prior Facility because of the Share Maximum.  The company believes that the amount remaining available under the Prior Facility is insufficient to fund its ongoing activities and that as a result, it needs to enter into the New Facility.  Under the New Facility, the company would have the right to sell, and the Purchaser would be obligated to buy, shares of the company’s common stock from time to time over a three-year period.  The total number of shares that could be issued, including shares that could be issued upon the exercise of warrants issued in connection with entering into the New Facility, would be less than 20% of the shares outstanding prior to entering the agreement for the New Facility.  In addition, the New Facility would be subject to a maximum dollar amount of shares that could be issued.
You stated that the Prior Facility contains, and the New Facility would contain, provisions that would prevent the company from issuing shares under either facility that would result in the Purchaser’s owning 20% or more of the company’s outstanding shares or voting power.
Following our review of the information you provided, we have determined that the Prior Facility and the New Facility will not be aggregated for purposes of the applicability of the Rule.  We have reached this conclusion because: (i) at least nineteen months will have passed following the execution of the Agreement and before the execution of the agreement for the New Facility; (ii) there were no contingencies between the facilities; and (iii) there has been a change in circumstances since the company entered into the Prior Facility, specifically, the steep reduction in the stock price resulting in a limitation on the amount of funding available.  Please note that you have not asked us to reach, and we have not reached, a conclusion as to the applicability of the shareholder approval requirements other than as described herein.
Publication Date*: 7/31/2012 Mailto Link Identification Number: 810
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