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  Staff Interpretation Letter 2005-32
Identification Number 879
This is in response to your letters regarding a proposed private placement of shares of the company’s common stock expected to be consummated in July 2005 (the “July Offering”).  Specifically, you asked: (i) whether the shares to be issued in the July Offering would be aggregated with the shares issued in a  private placement in January 2005 (the “January Offering”) for purposes of Marketplace Listing Rule 4350(i)(1)(D) (the “Rule”); and (ii) whether the July Offering will require shareholder approval under the Rule. Your question relates also to the applicability of Listing Rule 4350(i)(1)(B).
According to the information you provided, in the January Offering, the company issued shares of common stock equal to 19.99% of the total number of shares outstanding prior to the transaction. The proceeds from the January Offering were used for working capital purposes.
You stated that in the July Offering, the number of shares of common stock (the “Common Shares”) issued will equal less than 20% of the pre-transaction outstanding shares, and the price will be less than market value. In addition, the July Offering may include warrants (the “Warrants”). The shares of common stock issuable upon the exercise of the Warrants, together with the Common Shares, could result in an issuance equal to greater than 20% of the pre-transaction outstanding shares. The Warrants (i) will not be exercisable for less than the greater of book or market value; (ii) will not be exercisable prior to six months after the closing of the July Offering; and (iii) will contain no anti-dilution or price protection provisions. The company plans to use the proceeds from the July Offering for clinical studies.
You stated that since the completion of the January Offering, there have been changes in the company’s circumstances, which led to the planning of the July Offering.  These changes included delays in the receipt of certain regulatory approvals for a drug product and in the establishment of a collaboration agreement and resulted in increased expenses and the lack of expected additional funding.  The company’s management first presented the prospect of the July Offering to the board of directors in May 2005.
No officer, director, employee, consultant of the company will be permitted to purchase shares in the July Offering, and none of the investors who participated in the January Offering will participate in the July Offering. No purchaser will own, or have the right to acquire, 20% or more of the company’s outstanding shares of common stock or outstanding voting power as a result of the July Offering. For the July Offering, the company will use a placement agent different from the one used for the January Offering. You further stated that there are no contingencies between the January Offering and the July Offering and that the July Offering was not contemplated at the time the company completed the January Offering. Prior to the January Offering, the company’s most recent issuance of common shares in a financing had been in March 2004.
Following our review of the information you provided, we have determined that the shares to be issued in the July Offering will not be aggregated with the shares issued in the January Offering for purposes of the Rule because: (i) the July Offering was not contemplated at the time of the January Offering; (ii) there were no contingencies between the two transactions; (iii) none of the investors who participated in the January Offering will participate in the July Offering; and (iv) approximately six months time passed between the two transactions. In addition, based on your representations regarding the July Offering, shareholder approval is not required for the July Offering under Listing Rule 4350(i)(1)(D) because the issuance of the common shares, although at a price less than market value, will equal less than 20% of the common shares and voting power outstanding on a pre-transaction basis. Because the exercise price of the Warrants will not be less than the greater of book and market value, and the warrants may not be exercised until six months after the date of closing, the Warrants do not require shareholder approval. Further, given the ownership restrictions described above, the July Offering will not result in a change of control and will not require shareholder approval under Listing Rule 4350(i)(1)(B).
Publication Date*: 7/31/2012 Mailto Link Identification Number: 879
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