CITY OF INDUSTRY, Calif. — (BUSINESS WIRE) — Dec. 16, 2005 — Global ePoint, Inc. (Nasdaq: GEPT – News), a leading manufacturer of security technologies for the aviation, law enforcement, industrial and commercial markets, announced today that it received a letter from the Nasdaq Stock Market on December 12, 2005 stating that the Nasdaq staff believed that Global ePoint did not comply with Marketplace Rule 4350(i)(1)(D), which requires shareholder approval for issuances of common stock or securities convertible into common stock if the amount of the issuance is equal to 20% or more of the common stock outstanding before the issuance, and is issued at a price less than the greater of market value or book value of the stock before the issuance.
On June 3, 2005 the Company issued Series C preferred stock that is convertible into 1,250,004 shares of the Company’s common stock at a conversion price of $2.80 per share. The shares issuable upon conversion of the Series C equaled approximately 10% of the total shares then outstanding and the conversion price represented a slight 2.8% discount from market price at the time of the Series C financing.
On November 7, 2005, the Company issued Series D preferred stock that is convertible into 1,442,311 shares of the Company’s common stock at a conversion price of $4.16 per share. This conversion price represented a 25% premium over the market price at the time of the Series D financing.
While neither the Series C nor Series D financing would individually violate Marketplace Rule 4350(i)(1)(D), the Nasdaq has determined to aggregate the two financings for purposes of its analysis. Although the Series C shares were sold at a slight discount to market and only amounted to 10% of the Company’s outstanding shares, Nasdaq asserted that the dividend and redemption provisions of the Series D preferred stock allow for the possibility of issuances at an effective price below the market price at the time of the Series D financing which, when combined with issuances upon conversion of the Series C preferred, would arguably exceed the 20% threshold of Marketplace Rule 4350(i)(1)(D) and thereby trigger a shareholder approval requirement. The terms of the Series D preferred stock currently prohibit issuances of stock pursuant to the dividend and redemption features without shareholder approval if required under the rules of the applicable trading market.
The Company stated that it has been in discussions with Nasdaq and has submitted a proposal for achieving compliance with Marketplace Rule 4350(i)(1)(D). The proposal involves modifications to the dividend and redemption provisions to preclude the possibility of share issuances at an effective price below the market price at the time of the Series D preferred stock financing. The modifications have been approved by the Series D preferred stockholders. The Company believes it will be able to resolve the Nasdaq’s comments in a timely fashion.
This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, and actual circumstances, events or results may differ materially from those projected in such forward-looking statements. The Company cautions readers not to place undue reliance on any forward-looking statements. The Company does not undertake, and specifically disclaims any obligation, to update or revise such statements to reflect new circumstances or unanticipated events as they occur.