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  Staff Interpretation Letter 2006-6
Identification Number 817
This is in response to your correspondence regarding the applicability of the shareholder approval requirements of Marketplace Listing Rule 4350(i)(1)(D)(ii) (the “Rule”) to a proposed issuance of securities (the “Proposed Transaction”) expected to close within two weeks.  You asked whether the Proposed Transaction would be aggregated with a private placement completed six months ago (the “Prior Transaction”) for purposes of the applicability of the Rule.  In addition, your question relates to Marketplace Listing Rule 4350(i)(1)(B).
According to the information you provided, pursuant to the Proposed Transaction, the company would issue shares of its common stock to approximately eight purchasers at a price less than market value.  The number of shares that would be issued would equal less than 20% of the pre-transaction outstanding shares.  In the Prior Transaction, the company sold shares of its common stock equal to 19.9% of the pre-transaction outstanding shares to four purchasers at a discount to the market price.  There are no contingencies between the transactions.
You stated that the proceeds from the Prior Transaction were used primarily for: (i) research and development; (ii) commercialization expenses; (iii) potential licenses and acquisitions of complimentary products, technologies or businesses, and (iv) general corporate purposes.  You described a change in circumstances following the Prior Transaction giving rise to the need for the Proposed Transaction.  Specifically, at the time of the Prior Transaction the company had anticipated entering into a collaboration agreement with a third party relating to the marketing, distribution, and sales of the company’s products.  Because no such collaboration agreement has been reached, the company expects to use the proceeds from the Proposed Transaction to finance its own sales and marketing efforts.
You stated that the purchasers in the Proposed Transaction may include two investors (the “Prior Purchasers’) who purchased approximately 60% of the shares sold in the Prior Transaction.  In the Proposed Transaction, such purchasers would purchase no more than 30% of the shares that would be sold and would constitute no more than 25% of the number of purchasers.  Neither of the Prior Purchasers would be either the lead investor or the largest purchaser in the Proposed Transaction.  The purchasers in the Proposed Transaction will not include any company officer, director, employee, or consultant.
In addition, you stated that: (i) the Proposed Transaction would not result in any purchaser owning as much as 20% of the company’s outstanding shares; (ii) the purchasers would act as individuals and not as a group; (iii) there would be no additional arrangements between the company and any of the investors; and (iv) none of the purchasers currently has board representation and none would have any such representation as a result of 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 because: (i) a change in circumstances following the Prior Transaction gave rise to the need for the Proposed Transaction;
(ii) approximately six months would have passed between the transactions; and (iii) there are no contingencies between the transactions, and the Proposed Transaction was not contemplated at the time of the Prior Transaction.  As such, based on your representations, shareholder approval of the Proposed Transaction would not be required under Listing Rule 4350(i)(1)(D) because the issuance of common shares at less than market value would equal less than 20% of the common shares and voting power outstanding on a pre-transaction basis.  Further, given the ownership limitation and the lack of other arrangements between the company and the purchasers as described above, the Proposed Transaction would not result in a change of control and would not require shareholder approval under Listing Rule 4350(i)(1)(B).
Publication Date*: 7/31/2012 Mailto Link Identification Number: 817
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