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Frequently Asked Questions
  For purposes of Nasdaq's shareholder approval rules, what is "Minimum Price" and "market value"?
Identification Number 271

Nasdaq rules require shareholder approval for certain transactions that are priced below the "Minimum Price," as defined in Nasdaq's rules. Under Listing Rule 5635(d), shareholder approval is required in connection with a transaction, other than a public offering, at a price below the Minimum Price involving the sale, issuance or potential issuance by the Company of common stock (or securities convertible into or exercisable for common stock), which alone or together with sales by officers, directors or Substantial Shareholders of the Company, equals 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance. Listing Rule 5635(d) defines "Minimum Price" as the lower of: (i) the closing price (as reflected on Nasdaq.com); or (ii) the average closing price of the common stock (as reflected on Nasdaq.com) for the five trading days immediately preceding the signing of the binding agreement.

In addition, under Listing Rule 5635(c), shareholder approval is required for any issuance to an officer, director, employee or consultant of the company at a price less than market value. For this purpose, Listing Rule 5005(a)(23) defines "market value" as the consolidated closing bid price per share immediately preceding the entering into of the binding agreement to issue the securities.

If the transaction is entered into during market hours, before the close of the regular session at 4 PM Eastern Time, market value or Minimum Price are determined based on the previous trading day's closing bid or closing price (or the average closing price for the previous five trading days), as applicable. If the transaction is entered into after the close of the regular session, then that day's closing bid or closing price (or the average closing price for that day and the previous four trading days) is used. Please note that the closing price (Nasdaq Official Closing Price) may differ from the consolidated closing bid price and, therefore, a transaction priced at or above the Minimum Price may still be at a discount to market value for purposes of Listing Rule 5635(c). See also FAQ #275.

Publication Date*: 10/10/2018 Mailto Link Identification Number: 271
Frequently Asked Questions
  How is the percentage of shares of common stock to be issued in a transaction calculated?
Identification Number 182
The percentage of shares of common stock to be issued in a transaction is calculated using the following formula:
 
Maximum Potential Issuance of Shares of Common Stock
Pre-transaction Issued and Outstanding Shares of Common Stock
 
To correctly calculate the percentage of shares to be issued, the numerator of this equation must contain all securities initially issued or potentially issuable or potentially exercisable or convertible into shares or common stock as a result of the transaction (e.g., earn-out clauses, penalty provisions, equity compensation awards assumed or in assumed plans, etc.).
 
To correctly determine the denominator, the company should use only issued and outstanding shares. If the company has multiple classes of common stock, all shares should be added together. However, the denominator should not assume the conversion or exercise of any options, warrants or other convertible securities.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 182
Frequently Asked Questions
  Does a sale of securities in a transaction (other than a public offering) at a discount to the market value to officers, directors, employees, or consultants require shareholder approval under Listing Rule 5635(c)?
Identification Number 275

Yes. The issuance of common stock (or equivalents) or securities convertible into or exercisable for common stock to officers, directors, employees, or consultants at a price less than the market value of the stock is considered a form of "equity compensation" and requires shareholder approval unless the issuance is part of a public offering (as described in IM-5635-3). For this purpose, market value is the consolidated closing bid price immediately preceding the time the company enters into a binding agreement to issue the securities.

Issuances to an entity controlled by an officer, director, employee, or consultant of the listed company may also be considered equity compensation under certain circumstances, such as where the issuance would be accounted for under Generally Accepted Accounting Principles as equity compensation or result in the disclosure of compensation under the applicable provisions of Regulation S-K.

Note that this provision also applies to limited partnerships, which are required by Rule 5615(a)(4)(H) to obtain the same approval for equity compensation as would be required under Rule 5635(c) and IM-5635-1. Also note that the Minimum Price, as defined in Listing Rule 5635(d), is not applicable to Listing Rule 5635(c) and thus is not relevant to this FAQ.

A company considering an issuance to an entity controlled by an officer, director, employee, or consultant is encouraged to contact its Listing Qualifications analyst by phone at +1 301 978 8008 to discuss the transaction prior to entering into a definitive agreement.

Publication Date*: 10/10/2018 Mailto Link Identification Number: 275
Frequently Asked Questions
  What is a change of control for purposes of the shareholder approval requirement of Listing Rule 5635(b)?
Identification Number 195
Generally, a change of control would occur when, as a result of the issuance, an investor or a group would own, or have the right to acquire, 20% or more of the outstanding shares of common stock or voting power and such ownership or voting power would be the largest ownership position. However, Nasdaq will consider all facts and circumstances concerning a transaction, including whether there are any other relationships or agreements between the company and the investor or group.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 195
Frequently Asked Questions
  Are there any exceptions to Nasdaq's shareholder approval requirement for equity compensation?
Identification Number 238
Yes. Pursuant to Listing Rule 5635(c), shareholder approval is not required for:
    • Warrants or rights issued to all security holders on equal terms;
    • Stock purchase plans available to all security holders on equal terms (e.g., a dividend reinvestment plan);
    • Tax qualified, non-discriminatory employee benefit plans or parallel nonqualified plans which are regulated under the Internal Revenue Code and Treasury Department regulations, provided such plans are approved by the issuer's independent compensation committee or a majority of the issuer's independent directors. A similar plan for the company's non-U.S. employees, which provides features necessary to comply with applicable non-U.S. tax laws, is also exempt from the shareholder approval requirement;
    • Plans that provide a convenient way to purchase shares on the open market or from the issuer at fair market value;
    • Certain plans relating to mergers and acquisitions; or
    • Inducement grants.  
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 238
Frequently Asked Questions
  What is considered a material amendment to an existing equity compensation plan or arrangement?
Identification Number 219
As set forth in IM-5635-1, a material amendment includes, but is not limited to, the following:
    • Any material increase in the number of shares to be issued under the plan (other than to reflect a reorganization, stock split, merger, spinoff or similar transaction);
    • Any material increase in benefits to participants, including any material change to: (i) permit a repricing (or decrease in exercise price) of outstanding options, (ii) reduce the price at which shares or options to purchase shares may be offered, or (iii) extend the duration of a plan;
    • Any material expansion of the class of participants eligible to participate in the plan; and
    • Any expansion in the types of options or awards provided under the plan.
While general authority to amend a plan would not obviate the need for shareholder approval, if a plan permits a specific action without further shareholder approval, then no such approval would generally be required. In that regard, absent specific authorization in the plan, a repricing, or a similar action, would not be permitted without shareholder approval.  
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 219
Frequently Asked Questions
  When should I fill out a Listing Application?
Identification Number 40
A Listing Application must be completed by all companies that wish to initially list on Nasdaq or by a company that is already listed on Nasdaq but wishes to transfer between the Nasdaq Global Market and the Nasdaq Capital Market. A listed company should also complete and submit a listing application if it wishes to list a secondary security on Nasdaq.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 40
Frequently Asked Questions
  Do Nasdaq rules require shareholder approval if a transaction is priced below "book value"?
Identification Number 1649
While Nasdaq's shareholder approval rules previously considered book value in determining whether shareholder approval was required for certain transactions, this rule was changed, and book value is no longer considered, as of September 26, 2018. See SEC Release No. 34-84287; File No. SR-NASDAQ-2018-008 and FAQ #271.
 
Publication Date*: 10/16/2018 Mailto Link Identification Number: 1649
Frequently Asked Questions
  Must a company provide notice to Nasdaq about its shareholder meeting?
Identification Number 85
A company that files its proxy statement via EDGAR in connection with an annual shareholder meeting does not have to provide any additional notice to Nasdaq about its annual meeting. A company that does not file a proxy via EDGAR must send its proxy statement or other shareholder notice to Listing Qualifications via email at continuedlisting@nasdaq.com no later than when it is mailed to shareholders.  
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 85
Frequently Asked Questions
  What factors does Nasdaq consider when determining whether to aggregate the shares issued in separate transactions for purposes of determining whether the threshold for shareholder approval has been triggered?
Identification Number 283
In deciding whether to aggregate transactions to determine whether shareholder approval is required, Nasdaq will consider whether the company is engaging in a stand-alone transaction or a series of issuances.

In general, Nasdaq will consider the following factors in making this determination:
    • Timing of the issuances - Timing alone is not necessarily a determining factor, and there is no definitive time period as to whether transactions are aggregated. Generally, if there are no other linkage factors present, transactions more than six months apart would not be aggregated;
    • Initiation of the subsequent transaction or transactions - At the time of the first transaction, was the company already planning the subsequent transaction? Did it already expect that it would have to raise additional capital?;
    • Commonality of investors - Transactions with common investors are more likely to be aggregated. In addition, the time period over which transactions would be aggregated, may be extended when there are common investors;
    • Existence of any contingencies between the issuances or transactions - Are the sales contingent upon one another? For example, a company may be required to obtain an equity line of credit before completing a discounted private placement;
    • Commonality as to the use of the proceeds/Same plan of financing - Transactions may be aggregated if they are used for the same purpose or plan of financing; and
    • Timing of the board of directors approval.
When transactions are aggregated, the calculation total shares outstanding or total voting power outstanding is made based on the shares and votes outstanding prior to the closing of the first issuance.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 283
material_search_footer*The Publication Date reflects the date of first inclusion in the Reference Library, which was launched on July 31, 2012, or a subsequent update to the material. Material may have been previously available on a different Nasdaq web site.
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