Particle Drilling Technologies Receives NASDAQ Notification

Particle Drilling Technologies has received a staff determination letter from The Nasdaq Stock Market ("Nasdaq") on March 31, 2009, indicating that the Company did not comply with Marketplace Rule 4350(i)(1)(B) (the "Rule").

On February 11, 2009, the Company entered into an agreement to sell up to $1.2 million 10% aggregate principal amount of its 10% Senior Secured PIK Notes due 2010. In connection with the note issuance, the Company agreed to issue warrants to purchase an aggregate of up to 7,130,200 shares of common stock with an exercise price of $0.105 per share. LC Capital Master Fund, Ltd., a Cayman Islands exempted company ("LC"), an investor in the transaction and the Company's largest shareholder and beneficial owner of approximately 17.5% of the total shares outstanding, received 6,060,670 warrants in the offering. Upon review, the Nasdaq staff determined that the transaction did not comply with the Rule because the potential issuance of shares upon exercise of the warrants will result in a change of control of the Company and, therefore, required shareholder approval.

To address the Nasdaq staff's concerns, the Company structured the warrant agreement with LC to restrict its voting power by requiring the shares of common stock issued upon conversion of the warrants to be voted in the same proportion as all other votes cast for all matters put before shareholders. The warrant agreement did not, however, limit the ability of LC to acquire beneficial ownership of the shares of common stock subject to the warrant. As a result, because LC has the ability to exercise the warrants and beneficially own approximately 29% of the Company's common stock, the Nasdaq staff has taken the position upon review that the transaction resulted in a change of control and, therefore, required shareholder approval under the Rule.

In addition, the Nasdaq staff also notified the Company on February 17, 2009 that it did not comply with Marketplace Rule 4310(c)(3), which requires the Company to have a minimum of $2,500,000 in stockholders' equity or $35,000,000 market value of listed securities or $500,000 of net income from continuing operations for the most recently completed fiscal year or two of the three most recently completed fiscal years. The Company is not currently in compliance with any of these requirements, but has submitted a plan of compliance to Nasdaq.
The Nasdaq staff is using both of these matters as a basis for delisting the Company's securities from The Nasdaq Stock Market.
The Company plans to appeal the Nasdaq staff's determination to the Nasdaq Listing Qualifications Panel (the "Panel"), pursuant to the procedures set forth in the Nasdaq Marketplace Rule 4800 Series. This hearing request will stay the suspension of the Company's securities and the filing of the Form 25-NSE pending the Panel's decision.


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