NorthWest Biotherapeutics Inc (NWBO)

[Poor Man -]

We see two major benefits from this resolution. This first is obvious – the cancelling of the shares removes previously accounted for dilution (something that NWBO has been criticized heavily for over the last twelve months). This is a bonus for shareholders that have had to sit back and accept dilution while the company has remained quiet as to exactly what that dilution is set to fund.

The second, and perhaps more importantly looking at things from a long term perspective, is that the willingness of Cognate to accept a reduction in its share holdings, and further, the removal of some anti dilution provisions associated with warrants it holds, *****suggests it believes Northwest isn’t going to dilute too much more before it starts bringing in cash. This, and that it expects this cash to be substantial, and relatively near term.***

Those are good points. One caveat is that message may not necessarily mean they will not dilute/increase the number of shares issued and outstanding. But rather Cognate is either more likely to be paid in cash or will not be subject to lock-up periods, which will allow them to sell into the market before any additional issuance of shares. (Note: If shareholder approval is required to issue additional shares to Cognate, the issuance of shares may no longer be a convenient form of payment.)

The problem seems to have its origins with NWBO and Cognate being portfolio companies in the same Fund III, with one being public and the other being private. Any transfer of services and shares has the potential to look like or be challenged insider dealing, even if the transactions are legitimate and considered market. And that's one reason those Nasdaq rules are in place, in order to help prevent the potential for that kind of gamesmanship.

As reported in the Company’s ongoing SEC filings, Cognate is an affiliate of the Company, and the Company’s CEO, Linda Powers, serves on the Board of Cognate. Cognate is owned by Toucan Capital Fund III (“Fund III”), a passive holding entity that holds portfolio company shares of a predecessor fund which invested in both the Company and Cognate, as well as in other companies. Fund III has no employees and no active operations; it is continuing to passively hold the portfolio company shares of the predecessor fund until those portfolio companies reach an exit or cease operations. Ms. Powers serves as the Managing Director of Fund III and as such is considered to have voting and dispositive control over the portfolio company shares held by Fund III, including the shares of Cognate.

Nasdaq rule 5635(c) requires that a company obtain shareholder approval prior to the issuance of shares or securities exercisable for common shares for officers, directors, employees or consultants of the Company. Although the shares were not issued to Ms. Powers and Ms. Powers never received any of the shares issued by the Company to Cognate, the Nasdaq Staff determined that because the Company recorded its issuances of common stock to Cognate as equity compensation under U.S. GAAP, and because of Ms. Powers’ role in regard to Cognate, this rule should apply to the stock issuances made by the Company to Cognate. As result, the Nasdaq Staff determined that those issuances were not in compliance with Rule 5635(c).