• 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.

Transactions that constitute a Public Offering generally are not subject to Nasdaq’s shareholder approval requirements. 

Generally, a firm commitment underwritten securities offering registered with the SEC will be considered a Public Offering (based on factors described in IM-5635-3) because the underwriter will market the offering and price discovery takes place through the underwriter’s book building process. Nasdaq understands that while underwriters can control their marketing efforts, the ultimate number of purchasers in a transaction is out of control of the issuer and the underwriter.  As such, Nasdaq relies primarily on the marketing efforts in assessing whether a transaction is a Public Offering under IM-5635-3. 

However, structuring an offering as a firm commitment underwritten securities offering does not guarantee that the offering constitutes a Public Offering under IM-5635-3.  For example, Nasdaq has observed firm commitment underwritten offerings that were sold to a small number of purchasers.  Nasdaq believes that such a transaction may be indicative of the lack of true price discovery during the book building process or of an insufficient marketing effort.  In such cases, the transaction may not be considered a Public Offering for purposes of the Nasdaq shareholder approval rules.

In addition, if the Company and its broker dealer indicate to Nasdaq that an offering was broadly marketed, but resulted in a disproportionately small number of purchasers, Nasdaq may investigate the broker dealer, or refer the matter to FINRA for further investigation, to determine whether the marketing efforts were, in fact, consistent with the representations made.

Listed companies may issue warrants that allow the holder, under certain circumstances, to exercise or exchange them for stock in a cashless transaction. Nasdaq's Listing Rules do not explicitly prohibit or restrict the issuance of warrants with this kind of cashless exercise/exchange provision. However, these warrants may be Future Priced Securities, as defined in Rule IM-5635-4. Typically, a warrant that is a Future Priced Security would allow the warrant holder to surrender an "out-of-the-money" warrant in exchange for a fixed dollar value of shares (usually calculated through a formula) with the actual number of shares determined based on the share price at the time of surrender. This would result in the issuance of an increasing number of shares as the share price declines. Depending on the circumstances, Nasdaq may determine that the issuance of securities with this provision raises public interest concerns under the Rule 5100 Series.

Warrants may be structured to limit or mitigate these concerns through features that may limit the dilutive effect of the transaction. Such features may provide incentives to the investor to hold the security for a longer time period or limit the number of shares into which the Future Priced Security may be converted.

When reviewing transactions that include these types of securities for compliance with the Listing Rules, including whether they raise public interest concerns, Nasdaq generally assumes that conversion of the warrants will result in the maximum possible dilution over the shortest period of time. In addition, in determining whether the issuance of a warrant that is a Future Priced Security raises public interest concerns, Nasdaq staff will consider among other things: (1) the business purpose of the transaction; (2) the amount to be raised in the transaction relative to the Company's existing capital structure; (3) the dilutive effect of the transaction on the existing shareholders; (4) the risk undertaken by the Future Priced Security investor(s); (5) the relationship between the investor(s) and the Company; (6) whether the transaction was preceded by other similar transactions; (7) whether the transaction is consistent with the just and equitable principles of trade; and (8) whether the warrant includes features to limit the potential dilutive effect of its conversion or exercise, including floors on the conversion or exercise price. In order to properly reflect the potential dilutive effect, such floors must be subject to adjustment for reverse stock splits and other changes to the company's capital structure. Nasdaq encourages any company considering issuing a warrant that provides for cashless exercise and/or exchanges of the warrant for stock to review IM-5635-4 and to consult with the Listing Qualifications Department at (301) 978-8008.

For purposes of Listing Rule 5635(d) "Minimum Price" means a price that is the lower of: (i) the closing price (as reflected on Nasdaq.com) immediately preceding the signing of the binding agreement; 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. Please note that the Nasdaq Official Closing Price is different from the Closing Price. For purposes of Listing Rule 5635(d), the “closing price” means the Nasdaq Official Closing Price and is reported on https://www.nasdaq.com/market-activity/quotes/historical-nocp. See also FAQ #271.

For purposes of determining "market value" under the shareholder approval requirements related to equity compensation under Listing Rule 5635(c), Nasdaq looks to the consolidated closing bid price as of 4 PM Eastern time. A Nasdaq company can view its security's relevant closing bid price on Nasdaq Online (www.nasdaq.net).  This information is under the “4:00 Close” column in the “Bids and Asks” tab of the “Trade History.”  Nasdaq-listed companies can also call their representative at Nasdaq's Market Intelligence Desk. Companies can find the telephone number for their representative by logging into Nasdaq Online and clicking on "My MID." When requesting this information, please be sure to specify the consolidated closing bid price. Others may call the Market Intelligence Desk at +1 646 344 7777 or Nasdaq MarketWatch at +1 301 978 8500 or +1 800 537 3929. When requesting this information, please be sure to specify the consolidated closing bid price.

To determine whether securities that are convertible into or exercisable for common stock are issued at a discount to the Minimum Price, the conversion or exercise price is compared to the Minimum Price of the common stock. For purposes of Listing Rule 5635(d) "Minimum Price" means a price that is the lower of: (i) the Nasdaq Official Closing Price (as reflected on https://www.nasdaq.com/market-activity/quotes/historical-nocp) immediately preceding the signing of the binding agreement; or (ii) the average Nasdaq Official Closing Price of the common stock (as reflected on https://www.nasdaq.com/market-activity/quotes/historical-nocp) for the five trading days immediately preceding the signing of the binding agreement. See FAQ #271. If the conversion or exercise price is less than the Minimum Price, then the issuance is at a discount to the applicable value. Please note that the Nasdaq Official Closing Price is different from the Closing Price.

A potential adjustment to the number of shares or conversion price due to a change to the company's capital structure, such as due to a stock split or extraordinary dividend, does not affect the determination of whether a transaction is at a discount to Minimum Price. However, if the company may reduce the conversion price, issue additional shares, or make a cash payment to the investors as a result of subsequent transactions or events, including "make whole" payments, the calculation of the conversion price will presume that the maximum amount of any such adjustments will be made. Similarly, potential cash payments to the security holders at the time of conversion, other than for accrued interest, are deducted from the value of the note and the resulting amount would be divided by the number of shares issuable when determining the effective conversion price. An example of such cash payments is payments for "foregone interest" that would have been earned by the investors after the time of conversion.

Note that the determination as to whether convertible securities are issued at a discount may differ for insiders (officers, directors, employees and consultants) and all other investors. When considering an issuance to an insider, the security must be issued at a price greater than "market value". See FAQ#271.

No. A flexible settlement provision in a convertible instrument allows the issuer to settle conversions through payment or delivery of cash, shares of the company's common stock, or a combination of cash and shares. A convertible instrument with a flexible settlement provision that affects only the form of the settlement, without changing the conversion price of the instrument, will be treated under Rule 5635(c) and (d) the same as a convertible instrument with physical settlement only. See also FAQ#271 and 276.

The presence of any provision that could cause the conversion or exercise price to be reduced to below the Minimum Price immediately before the entering into of the binding agreement will cause the transaction to be viewed as a discounted issuance. These provisions include anti-dilution provisions (except for stock splits or similar changes to the company's capitalization) or provisions allowing the company to voluntarily reduce the conversion or exercise price.

Note that if the issuance is to insiders (officers, directors, employees and consultants), then the conversion or exercise price cannot be reduced below the market value, which is the consolidated closing bid price. See FAQ #271.

Generally, shares underlying warrants are aggregated with an accompanying issuance of common stock (or the equivalent) at a discount unless the warrants: (i) are not exercisable for at least six months following closing, and (ii) are not exercisable for less than the Minimum Price.

Yes. A value of $0.125, plus any amount that the warrant is currently in the money or could be in the money due to adjustments, such as for price protection, is attributed to each warrant. For example, consider a company with a market value of common stock of $10 per share. In the transaction, the company will issue units consisting of one share of common stock and one warrant exercisable for one share at $10 per share. Nasdaq will consider the common stock to be issued at a discount unless the issuance price of the units is at least $10.125. Increasing the exercise price of the warrants by $0.125 does not satisfy this pricing requirement. If, in the above example, a company issues a convertible instrument rather than common stock, Nasdaq will consider the common stock issuable in such transaction to be at market price if the conversion price is at least $10.125 and warrant exercise price is at least $10.

This analysis is without regard to whether the warrants are immediately exercisable because delay in the exercisability of the warrant does not render it without value.

Note that the determination as to whether the warrant is at a discount may differ for insiders (officers, directors, employees and consultants) and all other investors. See FAQ #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. Please note that the Nasdaq Official Closing Price is different from the Closing Price. For purposes of Listing Rule 5635(d), the “closing price” means the Nasdaq Official Closing Price, available at https://www.nasdaq.com/market-activity/quotes/historical-nocp. See also FAQ #272.     

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.

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.