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Replies to post #13630 on Citadel EFT Inc (fka CDFT)
03/15/13 11:07 PM
Question 105.03
Question: If a security holder owns convertible preferred securities that are convertible into greater than five percent of a class of equity securities registered under Section 12 of the Exchange Act, is the security holder obligated to file a beneficial ownership report even though the conversion terms of the preferred securities expressly provide that the security holder may not convert the preferred securities if doing so would cause it to own more than five percent of the issuer's outstanding underlying equity securities?
Answer: Depending on the conversion terms, it is possible that the security holder would not be obligated to file a beneficial ownership report. Rule 13d-3(d)(1)(i) states that a security holder is deemed to beneficially own any underlying securities that the security holder has the right to acquire within sixty days, including the right to acquire through conversion. Conversion provisions that limit the ownership of a class of securities must be binding and valid (e.g., provisions that are non-waivable, enforceable, established in the issuer's governing instruments, applicable to affiliates and assigns, etc.) to effectively eliminate the right of the holder of the convertible securities to acquire the underlying shares and, thereby, relieve the holder of a beneficial ownership report filing obligation. [For a further discussion of the factors that may indicate that a conversion cap is binding and valid, see Brief of the Securities and Exchange Commission, Amicus Curiae in Levy v. Southbrook International Investments, Ltd.] [Sep. 14, 2009]
Series C Convertible Preferred Stock
F-9
On September 26, 2012, Citadel amended its articles of incorporation to approve the designation of 30,000,000 shares of Series B convertible preferred stock, (“Series C stock”) at a par value of $0.00001. The Series C stock has liquidation rights upon any liquidation, dissolution or winding up of the Company whether voluntary or involuntary and shall be paid out of the assets of the Company equal to $1.00 per share or in the event of an aggregate subscription by a single subscriber for Series C stock in excess of $100,000, $0.997 per share, plus all declared but unpaid dividends. The Series C stock is convertible at any time, but not before six months or twelve months depending on the Company’s filing of certain public reports, into the number of shares of common stock equal to the price of the Series C stock divided by the par value of the common stock. The Series C stock has voting rights equal to ten votes for any election or other vote placed before the shareholders of the company.
Series D Convertible Preferred Stock
On September 26, 2012, Citadel amended its articles of incorporation to approve the designation of 18,000,000 shares of Series D convertible preferred stock, (“Series D stock”) at a par value of $0.00001. The Series C stock has liquidation rights upon any liquidation, dissolution or winding up of the Company whether voluntary or involuntary and shall be paid out of the assets of the Company equal to $1.00 per share or in the event of an aggregate subscription by a single subscriber for Series D stock in excess of $100,000, $0.997 per share, plus all declared but unpaid dividends. The Series D stock is convertible at any time, but not before six months or twelve months depending on the Company’s filing of certain public reports, into the number of shares of common stock equal to the price of the Series C stock divided by the par value of the common stock. The Series D stock has voting rights equal to ten votes for any election or other vote placed before the shareholders of the company.
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