SEC Company Response from APPLIED ENERGETICS, INC. (AERG, AERGP) (CIK 0000879911) (AERG) — Nov 24, 2008
APPLIED ENERGETICS, INC. (AERG, AERGP) (CIK 0000879911)
Date: Nov. 24, 2008 · CIK: 0000879911 · Accession: 0001144204-08-066439
AI Filing Summary & Sentiment
File numbers found in text: 001-1405
Referenced dates: November 12, 2008
Show Raw Text
CORRESP
1
filename1.htm
Unassociated Document
Phone:
(212)
885-5442
Fax:
(212)
885-5001
Email:
BShiffman@BlankRome.com
November
24, 2008
BY
FEDEX AND EDGAR
Jeffrey
Jaramillo, Esq.
Division
of Corporate Finance - Mail Stop 3561
United
States Securities and Exchange Commission
100
F
Street, N.E.
Washington,
D.C. 20549
Re:
Applied
Energetics, Inc.
Form
10-K for the Fiscal Year Ended December 31,
2007
File
No. 001-1405
Dear
Sir
and Madam:
On
behalf
of Applied Energetics, Inc. (“Company”), we hereby submit the following
responses to the Staff’s comment letter dated November 12, 2008.
Form
10-K for the fiscal year ended December 31, 2007
Note
9. Stockholders Equity, page F-17
We
note your response to our comment 2, where you state that the Series A Preferred
Stock is redeemable upon a change of control, which solely is within the control
of the Company. Please elaborate as to how this change in control redemption
provision for your series A Preferred Stock is solely within the control of
the
Company. Also, please provide us with the complete definition of what
constitutes a “change in control” as stipulated in your Series A Preferred Stock
change in control redemption provision. As part of your response, please tell
us
how the Company can prevent a purchaser from acquiring a majority of the voting
power of the Company’s outstanding common stock. We may have further comment
upon receipt of your response.
405
Lexington Avenue New York, NY 10174-0208
www.BlankRome.com
Delaware
·
Florida
·
New
Jersey ·
New York
·
Ohio
·
Pennsylvania ·
Washington, DC ·
Hong Kong
Jeffrey
Jaramillo, Esq.
November
24, 2008
Page
2
The
definition “Change of Control” as set forth in the Certificate of Designation
for the Company’s Series A Redeemable Convertible Preferred Stock (the “Series A
Preferred Stock”) is as follows:
(i) Any
“person” or “group” (as such terms are used in Section 13(d) of the Exchange
Act) other than the Corporation, a subsidiary of the Corporation or
Corporation’s subsidiary employee benefit plan, files a schedule TO or any
schedule, form or report under the Exchange Act disclosing that such person
or
group has become the direct or indirect “beneficial owner” (as defined in Rules
13d-3 under the Exchange Act) of Common Stock representing more than 50% or
more
of the voting power of Common Stock entitled to vote generally in election
of
directors of the Corporation: or
(ii) The
Corporation consolidates or merges with or into another person (other than
a
wholly owned subsidiary ); provided, however, that a transaction, where the
holders of the Corporation’s Common Stock immediately prior to such transaction
have, directly or indirectly more than 50% of the aggregate power of the common
stock of the continuing or surviving corporation or transferee entitled to
vote
generally at the election of directors immediately after such event shall not
be
a Change of Control.
(iii) The
Corporation and/or one or more of its Subsidiaries sells, assigns, conveys,
transfers, leases or otherwise disposes of all or substantially all of its
assets (determined on a consolidated basis) to any person (other than to the
Company or a wholly owned Subsidiary);
(iv) If
during
any period of two consecutive years the Continuing Directors (as defined in
Section 7(j)) cease for any reason to constitute a majority of the Board of
Directs; or
(v) The
Corporation or its stockholders adopt a plan of liquidation or
dissolution.
“Continuing
Directors” means, as of any date of determination, any member of the Board of
Directors who was (1) a member of such Board of Directors on the date of the
initial issuance of Series A Convertible Preferred Stock or (2) nominated for
election or elected to the Board of Directors with the approval of a majority
of
the Continuing Directors who were members of such Board of Directors at the
time
of such nomination or election.
A
Change
of Control under clause (i) of the definition can be prevented by the Company
because of the ability of the Board of Directors to designate one or more series
of preferred stock with such rights, designations, preferences and powers as
the
Board so determines and to issue shares of such series of preferred stock.
The
blank check preferred stock has been authorized by the Company’s Certificate of
Incorporation prior to the Company’s designation and issuance of the Series A
Preferred Stock. Following issuance of the Series A Preferred Stock, the Company
still had authorized but undesignated shares of blank check preferred stock.
The
Board has the sole authority to determine the timing of the issuance and the
terms of the preferred stock. The Board, at any time after issuance of the
Series A Preferred Stock, can designate a series of preferred stock (the “New
Stock”) with super-majority voting rights that trigger upon a person or group
requiring 50% or more of the voting power of the Common Stock and provide that
the New Stock vote together with the Common Stock as a single class. The New
Stock would have majority voting power generally in the election of directors
of
the Corporation and would prevent a Change of Control for purposes of the Series
A Preferred Stock from occurring. The Company has an employee benefit plan
in
place and could at any time issue shares of the New Stock to such plan.
Accordingly, it is, and since the date of issuance of the Series A Preferred
Stock has been, solely within the control of the Company to prevent a person
or
group from acquiring a majority of the voting power of the Common Stock entitled
to voted generally in the election of directors.
405
Lexington Avenue New York, NY 10174-0208
www.BlankRome.com
Delaware
·
Florida
·
New
Jersey ·
New York
·
Ohio
·
Pennsylvania ·
Washington, DC ·
Hong Kong
Jeffrey
Jaramillo, Esq.
November
24, 2008
Page
3
The
occurrence of clauses (ii), (iii) and (v) of the definition of Change of Control
is solely within the control of the Company as it occurs only upon a sale of
the
entire company as such a transaction requires approval of the Board of Directors
under Delaware law (Section 251(b)).
The
occurrence of clause (iv) of the definition of Change of Control is solely
within the control of the Board of Directors of the Company. It is solely within
the Board’s power to nominate or approve the nominating of directors for
election to the Board. The Board nominates directors for election at each
stockholders meeting. The Board also has the ability to approve any nominee
properly nominated by a stockholder prior to the election of such director
by
the stockholders, which would make such nominee a Continuing Director.
Additionally, the Company’s Certificate of Incorporation provides for a
staggered Board of Directors with three year terms. Therefore, a majority of
the
directors cannot be appointed by the stockholders at any stockholder meeting.
The Company’s By-laws provide that the Board may increase the number of
directors by resolution of the Board and may fill vacancies. Therefore, it
is
solely within the control of the Board to ensure that a majority of the
Directors are Continuing Directors.
Form
10-K for the quarterly period ended September 30, 2008
Note
13. Subsequent Events
We
note the disclosure indicating that from November 3, 2008 to November 4, 2008,
the Registrant entered into agreements with six stockholders’ to issue an
aggregate of 5,051,000 shares of its common stock in exchange for the return
of
505,100 of its Series A Redeemable Convertible Preferred Stock. Please tell
us
and revise the notes to your financial statements in future filings to explain
how you accounted for this transaction in your financial statements. If you
believe the fair value of the common shares issued in this exchange transaction
was equivalent to the fair value of the preferred shares received, please
explain your basis or rational for this conclusion.
405
Lexington Avenue New York, NY 10174-0208
www.BlankRome.com
Delaware
·
Florida
·
New
Jersey ·
New York
·
Ohio
·
Pennsylvania ·
Washington, DC ·
Hong Kong
Jeffrey
Jaramillo, Esq.
November
24, 2008
Page
4
We
will
account for this transaction as a redemption pursuant to EITF D-42, which states
that the excess of (1) fair value of the consideration transferred to the
holders of the preferred stock over (2) the carrying amount of the preferred
stock will be subtracted from net earnings to arrive at net earnings available
to common shareholders. In this instance, the carrying amount of the Series
A
Preferred Stock exceeded the fair value of common shares issued by the Company.
As provided in EITF D-42 the excess of the carrying amount of the redeemed
Series A Preferred Stock over the fair value of the consideration transferred
will be deducted from the Company’s net loss to arrive at net loss available to
common shareholders.
We
considered the inducement model addressed in EITF D-42 (based on SFAS 84) and
found it not to be applicable because we did not offer changed conversion
privileges only exercisable for a limited period of time. Instead, we separately
negotiated redemption on an individual basis with a limited number of
holders.
The
accounting treatment will be presented in the financial statements and notes
thereto in our Form 10-K for the year ending December 31, 2008.
We
thank
you in advance for your assistance. If you have any questions, please do not
hesitate to contact me.
Very
truly yours,
/s/
Brad
L. Shiffman
Brad
L.
Shiffman
405
Lexington Avenue New York, NY 10174-0208
www.BlankRome.com
Delaware
·
Florida
·
New
Jersey ·
New York
·
Ohio
·
Pennsylvania ·
Washington, DC ·
Hong Kong