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  Staff Interpretation Letter 2005-48
Identification Number 895
This is in response to your letters regarding the applicability of the shareholder approval and voting rights requirements to the company’s proposed issuance of securities (the “Transaction”) which you described.  Specifically, you asked about the potential applicability of Marketplace Rules 4350(i)(1)(A), 4350(i)(1)(B), 4350(i)(1)(C), 4350(i)(1)(D), and 4351(the “Rules”).
According to the information you provided, in the Transaction, the company would sell to Investor approximately 24.8% of its pre-transaction outstanding shares of common stock (the “Private Placement Shares”).  You stated that as a result of the Transaction, the Investor would own 19.9 % of the company’s post-transaction outstanding shares (the “Ownership Position”).  You stated that the company has no current plans to issue any shares to the Investor in addition to the Private Placement Shares.  No officer, director, employee or consultant of the company would receive any of the company’s securities in the Transaction.  The proceeds will be used for general corporate purposes and will not be used in connection with the acquisition of the stock or assets of another company.  The Investor will not be entitled to any seat on the company’s board of directors, and the Private Placement Shares will not have any heightened voting power.
You stated that the shares would be sold at a premium to the closing bid price at the time the purchase agreement (the “Purchase Agreement”) relating to the Transaction was signed.  You stated that the conditions to closing include:
  • Compliance with the Hart-Scott-Rodino Antitrust Improvements Act and other applicable regulatory requirements;
  • The absence of litigation against the company or the Investor that relates to the issuance of the shares;
  • The accuracy of the representations and warranties made by the company;
  • The performance and compliance with all covenants, agreements and conditions contained in the Purchase Agreement to be performed or complied with by the company;
  • Delivery of a legal opinion from the company’s counsel;
  • The absence of a Material Adverse Effect as defined in the Purchase Agreement;*
  • The listing of the Private Placement Shares on the NASDAQ National Market; and
  • The Research Collaboration and License Agreement to be entered into between the company and an affiliate of the Investor shall have been executed as required by the Purchase Agreement upon satisfaction of the other conditions to closing.
Following our review of the information provided, we have concluded that by structuring the Transaction as you described, the company would comply with the Rules.  Specifically, Listing Rule 4350(i)(1)(A) is not applicable because no shares would be acquired by any officer, director, employee or consultant of the company.  Rule 4350(i)(1)(B) will not require shareholder approval because, given the size of the Ownership Position, the Transaction would not result in a change of control. Listing Rule 4350(i)(1)(C) will not require shareholder approval because the Transaction would not be in connection with the acquisition of the stock or assets of another company.  Even though the Transaction would result in an issuance of more than 20% of the company’s pre-transaction outstanding shares, Listing Rule 4350(i)(1)(D) will not require shareholder approval because the price would not be less than the greater of book or market value immediately preceding the entering into of the binding agreement (the signing of the Purchase Agreement).  The Transaction would not violate the voting rights requirements of Listing Rule 4351 because the Private Placement Shares would not have any heightened voting power.
*Pursuant to the Purchase Agreement, a Material Adverse Effect means a material adverse effect on the business, properties, financial condition or results of operations of the company and its Subsidiaries, taken as a whole; provided, however, that none of the following shall constitute, or shall be considered in determining whether there has occurred, a Material Adverse Effect: (a) changes that are the result of general economic or political factors affecting the national, or world economy or acts of war or terrorism (except to the extent that such changes have a disproportionate effect on the company and its Subsidiaries, taken as a whole); (b) changes that are the result of factors generally affecting the industries or markets in which the company operates (except to the extent that such changes have a disproportionate effect on the company and its Subsidiaries, taken as a whole); (c) any adverse change, effect or circumstance arising out of or resulting from actions contemplated by the parties in connection with this Agreement or the pendency or announcement of the transactions contemplated by this Agreement; (d) changes in law, rule or regulations or generally accepted accounting principles and (e) any action taken pursuant to or in accordance with this Agreement or at the request of the Investor.
Publication Date*: 7/31/2012 Mailto Link Identification Number: 895
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