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Libraries:   FAQs - Listings
Filters:   Shareholder Approval,Voting Rights; Acquisitions,Change of Control,Definitions,Director Representation,Dual Structure,Equity Compensation - Exceptions,Equity Compensation - General/Applicability,Equity Compensation - Materiality of Amendments,Financial Viability Exceptions,General,Private Placements - 20% Limit,Private Placements - Aggregation,Private Placements - General/Applicability,Private Placements - Pricing,Share Caps & Alternative Outcomes
 
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Frequently Asked Questions
  Is shareholder approval required for an acquisition of stock or assets of another company?
Identification Number 179
Yes. Pursuant to Listing Rule 5635(a), shareholder approval is required if any director, officer or 5% or greater shareholder has a 5% or greater interest (or such persons collectively have a 10% or greater interest), directly or indirectly, in the company or assets to be acquired or in the consideration to be paid in the transaction(s) and the present or potential issuance of common stock, or securities convertible into or exercisable for common stock, could result in an increase in outstanding common stock or voting power of 5% or more.
 
In addition, shareholder approval is required for an acquisition of stock or assets of another company if the present or potential issuance of common stock or securities convertible into or exercisable for common stock, other than a public offering for cash, may equal or exceed 20% of the voting power or the total shares outstanding on a pre-transaction basis.  
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 179
Frequently Asked Questions
  What factors need to be considered in determining whether shareholder approval is required for a transaction involving the acquisition of stock or assets of another company?
Identification Number 180

Listing Rule 5635(a) describes when shareholder approval is required for a transaction involving the acquisition of stock or assets of another company. Among the factors considered in determining whether shareholder approval is required are the number of shares to be issued, including any shares issuable pursuant to an earn-out or similar provision, the voting power of any shares to be issued, and whether any director, officer or substantial shareholder has an interest in the company or assets to be acquired or the consideration to be paid in the transaction.

In addition, please note the following:

    • Even if shareholder approval is not required under Listing Rule 5635(a), shareholder approval may still be required if the transaction will result in a change of control under Listing Rule 5635(b); and
    • There is no pricing test when determining if shareholder approval is required for securities issued in connection with an acquisition. Thus, shares issued in a private placement priced above the Minimum Price may require shareholder approval if the proceeds are used to fund an acquisition.  

Publication Date*: 10/10/2018 Mailto Link Identification Number: 180
Frequently Asked Questions
  How does Nasdaq compute the number of shares issuable in a transaction?
Identification Number 181
In determining the potential issuance in a transaction, Nasdaq will include all shares that are potentially issuable, even if the circumstances for their issuance are remote. For example, if the company has any anti-dilution features or reset provisions or earn-out or similar provisions that could potentially reach the shareholder approval requirement thresholds, then the company would be required to obtain shareholder approval before issuing shares in the transaction.
 
Publication Date*: 9/9/2021 Mailto Link Identification Number: 181
Frequently Asked Questions
  How do Nasdaq's shareholder approval rules apply to strategic partnerships or stock-for-stock swaps between companies?
Identification Number 184
When a listed company and another company enter into a strategic partnership and exchange shares, the transaction should be analyzed under Listing Rule 5635(a). Thus, for these types of transactions, companies will generally be prohibited from issuing shares that equal or exceed either 5% or 20%, as applicable, of the total shares outstanding or total votes outstanding on a pre-transaction basis without first obtaining shareholder approval, without regard to the price at which the shares are issued.  
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 184
Frequently Asked Questions
  Would Nasdaq consider the effect of an "earn-out" or similar provision when calculating the maximum potential share issuance in connection with the acquisition of stock or assets of another company?
Identification Number 185
Yes. Since "earn-out" provisions can result in future issuances of shares if certain targets are met, such as earnings or revenue, Nasdaq will include the shares which could be issued under such provisions in determining whether the potential share issuance associated with an acquisition can exceed the shareholder approval thresholds.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 185
Frequently Asked Questions
  What factors does Nasdaq consider when determining whether to aggregate the shares issued in separate acquisition transactions for purposes of determining whether the threshold for shareholder approval has been triggered?
Identification Number 186
Nasdaq will consider factors including, but not limited to, the following when determining whether acquisitions should be aggregated for purposes of the shareholder approval requirement:
    • Timing of the acquisitions;
    • Commonality of ownership of the target companies;
    • Commonality of officers and directors in target companies; and
    • Existence of any contingencies between or among the transactions.
Publication Date*: 7/31/2012 Mailto Link Identification Number: 186
Frequently Asked Questions
  When a company completes a private placement to finance an acquisition, is the analysis of whether shareholder approval is required made, pursuant to Listing Rule 5635(d), the private placement rule, or Listing Rule 5635(a), the acquisition rule?
Identification Number 187
Generally, a private placement used to finance an acquisition will be considered under Listing Rule 5635(a), the acquisition rule. For example, if a private placement is consummated in close proximity to the acquisition of stock or assets, Nasdaq may determine that the private placement financed the acquisition, and thus the private placement shares would be aggregated with any other shares issued in connection with the acquisition in determining whether the threshold has been or will be exceeded under Listing Rule 5635(a), the acquisition rule. In making this determination, Nasdaq will consider the particular facts and circumstances including, but not limited to:
    • The proximity of the financing to the acquisition;
    • The stated use of the proceeds;
    • The timing of board authorization for the financing and the acquisition, respectively; and
    • Any stated contingencies in the financing or acquisition documents, which relate the transactions to one another.
However, any portion of the private placement proceeds specifically designated for uses other than the acquisition would be evaluated under the private placement rule.  
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 187
Frequently Asked Questions
  If the shares issued in connection with the acquisition are priced at or above the Minimum Price on the date the agreement is entered into, does the company still need shareholder approval?
Identification Number 189

Yes. There is no pricing test under the acquisition rule; therefore, if the potential share issuance will exceed the shareholder approval thresholds, shareholder approval is required regardless of the price at which the shares are issued.

Publication Date*: 10/10/2018 Mailto Link Identification Number: 189
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
  If a change of control occurs, but not as the result of an issuance of securities by the company, is shareholder approval required?
Identification Number 196
Listing Rule 5635(b) requires shareholder approval in connection with the issuance of designated securities. If no issuance of securities by the company will occur, shareholder approval is generally not required. However, if the change of control occurs in connection with another transaction involving the company, the transactions may be aggregated and shareholder approval may be required.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 196
Frequently Asked Questions
  Assume a shareholder holds a controlling interest prior to a transaction involving an issuance of shares to another entity. After the transaction, this shareholder will still be the largest shareholder, but will hold less than 20% of the common stock. Does this represent a change of control?
Identification Number 197
No. A change of control does not occur unless a new control position is created. On these facts, given that the shareholder remains the largest shareholder, no new control position is created.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 197
Frequently Asked Questions
  A company is planning a private placement of common stock. The company's largest shareholder currently holds 18% of the company's outstanding common stock and will hold 24% of the outstanding common stock after the transaction. Will this transaction represent a change of control?
Identification Number 198
Yes. On these facts, Nasdaq would conclude that the shareholder is obtaining a new control position. As such shareholder approval pursuant to Listing Rule 5635(b) would be required.  
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 198
Frequently Asked Questions
  How is the percentage of voting power to be issued in a transaction calculated?
Identification Number 183
The percentage of voting power to be issued in a transaction is calculated using the following formula:
 
Maximum Potential Issuance of New Votes
Pre-transaction Votes Outstanding
 
The numerator of this equation should contain the voting power of 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.).
 
In calculating the denominator, the company should not include any convertible securities that are not permitted to vote on an as-converted basis.

To determine the voting power of a company with a multiple class structure, start by obtaining the number of outstanding shares in each class of voting securities, whether or not publicly traded. Then, multiply the number of votes per share for each class of securities by the number of outstanding shares to obtain the total number of votes for each class of shares. Lastly, add together the votes of the classes.  
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 183
Frequently Asked Questions
  A company has issued and subsequently repurchased shares of its common stock. The repurchased shares are now considered treasury shares. Are these shares considered outstanding?
Identification Number 199
No. For purposes of the shareholder approval requirements, treasury shares are not considered to be outstanding shares.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 199
Frequently Asked Questions
  If a company issues a security with special voting rights, such as the right to appoint a director, but not general voting rights, does that security contribute towards the calculation of whether the company is issuing voting power equal to or in excess of 20% of the voting power outstanding before the issuance under Listing Rule 5635?
Identification Number 200
No. A security that only has special voting rights would not be considered in the calculation of whether the company is issuing voting power in excess of 20% of the voting power outstanding before the transaction. However, Nasdaq will review the issuance of any security with special voting rights under the voting rights requirements of Listing Rule 5640.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 200
Frequently Asked Questions
  What constitutes shareholder approval where it is required under Nasdaq's rules?
Identification Number 201
Pursuant to Listing Rule 5635(e)(4), in order to satisfy Nasdaq's shareholder approval requirement, a majority of the total votes cast on the proposal must be voted in favor of the proposal.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 201
Frequently Asked Questions
  Are abstentions and broker non-votes considered to be votes cast for a proposal?
Identification Number 202
Nasdaq does not define the term "votes cast". As such, a company must calculate the "votes cast" in accordance with its governing documents and any applicable state law. Note also that the SEC requires a company to disclose the method by which votes will be counted, including the treatment and effect of abstentions and broker non-votes under applicable state law as well as the company's charter and bylaw provisions.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 202
Frequently Asked Questions
  Is the inducement exemption available to induce a member of the board of directors to enter into employment?
Identification Number 248
No. Listing Rule 5635(c) provides that the exemption is available only for a "person not previously an employee or director."
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 248
Frequently Asked Questions
  Is the inducement exemption available to induce someone to become a consultant to the company?
Identification Number 250
No. Pursuant to Listing Rule 5635(c), the exemption applies to issuances to induce someone to enter into employment. Because a consultant is not an employee, the exemption is not available.  
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 250
Frequently Asked Questions
  Is the inducement exemption available to induce a consultant to become an employee?
Identification Number 251
Provided the consultant was not already acting as an employee, the exemption would be available to induce a consultant to become an employee. This determination would be made based on an examination of the applicable facts and circumstances.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 251
Frequently Asked Questions
  What is "bona fide period of non-employment"?
Identification Number 252
A "bona fide period of non-employment" is determined on a case-by-case basis. This analysis is not based on time alone. Additional factors in the analysis include:
    • Whether there was a relationship between the former employee and the company during the time of non-employment;
    • Whether the former employee received payments from the company during the period of non-employment;
    • The reasons for ending the employment relationship;
    • Whether the former employee was employed elsewhere after leaving the company; and
    • Whether there was an agreement or understanding that the former employee would return to the company.
Publication Date*: 7/31/2012 Mailto Link Identification Number: 252
Frequently Asked Questions
  For purposes of the required disclosure of inducement awards, what is meant by "promptly"?
Identification Number 254
As a safe-harbor, Nasdaq will consider disclosures made within four business days after the award to have been made "promptly."
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 254
Frequently Asked Questions
  What details must a company include in the press release disclosing its reliance upon the shareholder approval exception for an inducement grant?
Identification Number 255
A company is required to disclose the material terms of the inducement grant, including the recipient(s) of the grant and the number of shares involved. If the disclosure relates to an award to executive officers, or the award was individually negotiated, then the disclosure must include the identity of the recipient.  
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 255
Frequently Asked Questions
  Can a company disclose the combined size of inducement awards made to a number of employees?
Identification Number 256
For individually negotiated awards and awards made to executive officers, aggregated disclosure of multiple awards is not permitted. Otherwise, aggregation is permitted: (i) over a period up to two weeks for a company that typically grants equity awards as inducements to new employees, and (ii) when a company makes inducement awards to employees of a target company in connection with a merger or acquisition. Aggregated disclosure must include the material terms of the awards, including the number of employees and the number of shares involved. Such aggregated disclosure does not need to identify specific employees.  
 
Publication Date*: 6/4/2014 Mailto Link Identification Number: 256
Frequently Asked Questions
  May a company use a Form 8-K to disclose an inducement grant in lieu of a press release?
Identification Number 257
No. If the company is relying on the exemption from shareholder approval contained in Listing Rule 5635(c)(4), the Rule specifically requires disclosure through a press release.  
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 257
Frequently Asked Questions
  May a company rely on the inducement exception for a grant made immediately after an individual is hired if the grant was not discussed or negotiated in connection with the hiring process?
Identification Number 258
No. Such an award would not be considered a material inducement to the individual entering into employment with the company. Only grants made in connection with an offer of employment are eligible for this exception.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 258
Frequently Asked Questions
  May a company adopt a plan without shareholder approval that would be used solely for inducement awards?
Identification Number 259
Yes. A company may do so provided that all awards made under the plan meet the requirements of Listing Rule 5635(c) and IM-5635-1.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 259
Frequently Asked Questions
  Is shareholder approval required to amend an inducement award for which the company did not receive shareholder approval?
Identification Number 260
Yes. A material amendment to an equity compensation award would require shareholder approval, even if the initial grant did not require approval because it was an inducement grant. The materiality of the amendment would be assessed according to IM-5635-1.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 260
Frequently Asked Questions
  Do plans or arrangements involving a merger or acquisition require shareholder approval under Listing Rule 5635(c)?
Identification Number 243
Under IM-5635-1, plans or arrangements involving a merger or acquisition do not require shareholder approval under Listing Rule 5635(c) in two situations.
 
First, shareholder approval will not be required to convert, replace or adjust outstanding options or other equity compensation awards to reflect the transaction.
 
Second, shares available under certain plans acquired in acquisitions and mergers may be used for certain post-transaction grants without further shareholder approval. This exception applies to situations where the party which is not a listed company following the transaction has shares available for grant under pre-existing plans that meet the requirements of this Listing Rule 5635(c). The assumed plans of the target must have been approved by the target's shareholders. The shares may be used for post-transaction grants of options and other equity awards by the listed company (after appropriate adjustment of the number of shares to reflect the transaction), either under the pre-existing plan or arrangement or another plan or arrangement, without further shareholder approval, provided: (i) the time during which those shares are available for grants is not extended beyond the period when they would have been available under the pre-existing plan, absent the transaction, and (ii) such options and other awards are not granted to individuals who were employed by the granting company or its subsidiaries at the time the merger or acquisition was consummated. Nasdaq would view a plan or arrangement adopted in contemplation of the merger or acquisition transaction as not pre-existing for purposes of this exception.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 243
Frequently Asked Questions
  Are the shares that are issuable as a result of the conversion of the target's outstanding awards and the assumption of the target's equity plans included in determining whether shareholder approval is required under Listing Rule 5635(a)?
Identification Number 244
Yes. In determining whether shareholder approval is required of the acquisition under Listing Rule 5635(a), the shares issuable to adjust, replace, or convert the target's outstanding awards are included as are any additional shares that would be available under an assumed plan or arrangement of the target. The shares would not be included, however, to the extent they come from a shareholder approved plan of the acquiring company, provided that there is no increase in the number of shares available under such plan.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 244
Frequently Asked Questions
  Would a plan or arrangement adopted in contemplation of a merger or acquisition be considered as a pre-existing plan for purposes of the exception from the shareholder approval requirement?
Identification Number 245
No. Such a plan or arrangement would not be exempt from the shareholder approval requirement.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 245
Frequently Asked Questions
  If the target of a merger or acquisition has a pre-existing evergreen plan that is assumed in the transaction, when will shareholder approval be required for that plan?
Identification Number 246
An assumed evergreen plan is subject to the limitation in IM-5635-1 that an evergreen plan cannot have a term in excess of ten years unless shareholder approval is obtained every ten years. The initial ten-year period is measured from the date the target company established the plan.  
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 246
Frequently Asked Questions
  Does Nasdaq require shareholder approval of "tax qualified, non-discriminatory employee benefit plans"?
Identification Number 239
No. Listing Rule 5635(c)(2) states that shareholder approval is not required for tax qualified, non-discriminatory employee benefit plans (e.g., plans that meet the requirements of Section 401(a) or 423 of the Internal Revenue Code) or parallel nonqualified plans. Please note that these plans are subject to approval by either the company's independent compensation committee or a majority of the issuer's independent directors. Similar plans for the company's non-U.S. employees, which provide features necessary to comply with applicable non-U.S. tax laws, are also exempt from shareholder approval.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 239
Frequently Asked Questions
  What is a "parallel nonqualified plan"?
Identification Number 240
For purposes of Listing Rule 5635(c) and IM-5635-1, the term "parallel nonqualified plan" means a plan that is a pension plan within the meaning of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. 1002 (1999), that is designed to work in parallel with a plan intended to be qualified under Internal Revenue Code Section 401(a), to provide benefits that exceed the limits set forth in Internal Revenue Code Section 402(g) (the section that limits an employee's annual pre-tax contributions to a 401(k) plan), Internal Revenue Code Section 401(a)(17) (the section that limits the amount of an employee's compensation that can be taken into account for plan purposes) and/or Internal Revenue Code Section 415 (the section that limits the contributions and benefits under qualified plans) and/or any successor or similar limitations that may thereafter be enacted.
 
However, a plan will not be considered a "parallel nonqualified plan" unless: (i) it covers all or substantially all employees of an employer who are participants in the related qualified plan whose annual compensation is in excess of the limit of Code Section 401(a)(17) (or any successor or similar limitation that may hereafter be enacted); (ii) its terms are substantially the same as the qualified plan that it parallels except for the elimination of the limitations described in the preceding sentence; and, (iii) no participant receives employer equity contributions under the plan in excess of 25% of the participant's cash compensation.  
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 240
Frequently Asked Questions
  Does Nasdaq require shareholder approval of "parallel nonqualified plans"?
Identification Number 241
No. Listing Rule 5635(c) specifically grants an exception to the shareholder approval requirement for parallel nonqualified plans. Please note that these plans are subject to approval by either the company's independent compensation committee or a majority of the company's independent directors. Similar plans for the company's non-U.S. employees, which provides features necessary to comply with applicable non-U.S. tax laws, are also exempt from shareholder approval.  
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 241
Frequently Asked Questions
  Is a plan that provides non-U.S. employees with substantially the same benefits as a Section 401(a) plan, Section 423 plan, or parallel nonqualified plans that the listed company provides to its U.S. employees, but for features necessary to comply with applicable foreign tax law, also exempt from shareholder approval under Listing Rule 5635(c)(2)?
Identification Number 242
Yes. IM-5635-1 provides that an equity compensation plan that provides non-U.S. employees with substantially the same benefits as comparable tax qualified, non-discriminatory plans or parallel nonqualified plans provided to U.S. employees, but for features necessary to comply with applicable foreign tax law, are exempt from the requirement to obtain shareholder approval. However, if the company is required to obtain shareholder approval under the Internal Revenue Code for the U.S. plan, then the foreign plan would have to be approved by shareholders on the same schedule as the counterpart U.S. plan. Alternatively, if the shares under the foreign plan would be deducted from the shares available under a compliant U.S. plan, then separate shareholder approval would not be required of the foreign plan.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 242
Frequently Asked Questions
  Does Nasdaq require shareholder approval of equity compensation plans?
Identification Number 203

Yes. Listing Rule 5635(c) requires that a Nasdaq listed company seek shareholder approval when it establishes or materially amends a stock option or purchase plan or other arrangement pursuant to which stock may be acquired by officers, directors, employees or consultants. This includes any sale of securities at a discount to the market value to an officer, director, employee or consultant, even if part of a larger financing transaction. See FAQ #275.

In addition, please see IM 5635-1 and FAQ #219, which focus on those corporate actions that would be considered material amendments to existing plans and/or arrangements, and thus, require shareholder approval. IM 5635-1 also discusses circumstances under which shareholder approval is not required pursuant to Listing Rule 5635(c).

Publication Date*: 7/31/2012 Mailto Link Identification Number: 203
Frequently Asked Questions
  Nasdaq adopted its current rules regarding shareholder approval of equity compensation plans on June 30, 2003. Do plans adopted prior to that date require additional shareholder approval?
Identification Number 208
Plans that were adopted in compliance with the prior rule were grandfathered when Nasdaq adopted the current rules. However, any material amendment to such a plan effected on or after June 30, 2003, requires shareholder approval. In addition, if a grandfathered plan contains an evergreen provision, the plan cannot have a term in excess of ten years unless shareholder approval is obtained every ten years. Shareholder approval for a grandfathered plan with an evergreen provision would initially need to be obtained within ten years after the effective date of the plan. For more information, please see the final approval order.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 208
Frequently Asked Questions
  Is there an exception for de minimis issuances under Listing Rule 5635(c)?
Identification Number 209
No. The Rule requires shareholder approval whenever the company establishes or materially amends a stock option or purchase plan or other arrangement pursuant to which stock may be acquired by officers, directors, employees or consultants. Unlike the prior rule, there is no exception for de minimis issuances or "broadly- based" plans.  
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 209
Frequently Asked Questions
  Are issuances of treasury shares subject to Listing Rule 5635(c)?
Identification Number 210
The fact that shares will be issued from the company's treasury or repurchased shares has no impact on the analysis of whether shareholder approval is required under the Rule. Such shares are subject to the Rule.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 210
Frequently Asked Questions
  Who is considered to be a consultant for purposes of Listing Rule 5635(c)?
Identification Number 211
A consultant is anyone for whom the company is eligible to use a Form S-8. The instructions for the Form S-8 state that: "Form S-8 is available for the issuance of securities to consultants or advisors only if: (i) they are natural persons; (ii) they provide bona fide services to the registrant; and (iii) the services are not in connection with the offer or sale of securities in a capital-raising transaction, and do not directly or indirectly promote or maintain a market for the registrant's securities."

Notwithstanding the requirement that a consultant must be a natural person, under the SEC guidance, where the consultant performs services for the issuer through a wholly-owned corporate alter ego, the issuer may contract with, and register securities on Form S-8 as compensation to that corporate entity.  See Release No. 33–7646, 34–41109, 64 FR 11103 (March 8, 1999) (citing to Aaron Spelling Productions, SEC No-Action Letter (July 1, 1987)). Accordingly, issuances to such entity, may constitute equity compensation under Listing Rule 5635(c).

Publication Date*: 9/17/2020 Mailto Link Identification Number: 211
Frequently Asked Questions
  Can a company establish and issue shares from an equity compensation plan or arrangement before seeking shareholder approval?
Identification Number 212
A company may adopt an equity plan or arrangement, and grant options (but not shares of stock) thereunder, prior to obtaining shareholder approval provided that: (i) no options can be exercised prior to obtaining shareholder approval, and (ii) the plan can be unwound, and the outstanding options cancelled, if shareholder approval is not obtained. Companies should be aware of any accounting issues that may arise under these circumstances.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 212
Frequently Asked Questions
  May a company grant stock awards subject to obtaining subsequent shareholder approval?
Identification Number 213
No. Unlike a situation where the exercise of stock options is contingent on obtaining shareholder approval, a company may not grant shares of stock prior to obtaining shareholder approval.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 213
Frequently Asked Questions
  Does Nasdaq's shareholder approval requirement for equity compensation plans or arrangements apply to Foreign Private Issuers?
Identification Number 214
Yes. Nasdaq's shareholder approval requirement for equity compensation plans or arrangements applies to Foreign Private Issuers. However, a Foreign Private Issuer may follow its home country practice in lieu of this requirement if it follows the process described in Listing Rule 5615(a)(3). Please see Non-U.S. Companies FAQs for additional information regarding this process.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 214
Frequently Asked Questions
  Is Nasdaq's requirement for shareholder approval of equity compensation plans or arrangements applicable to initial listings?
Identification Number 215
Generally, shareholder approval is not required of plans or arrangements that are in place at the time of a company's listing on Nasdaq. Shareholder approval is required, however, for any material amendment to such plans after listing. In addition, if the plan contains an evergreen provision, the plan cannot have a term in excess of ten years unless shareholder approval is obtained every ten years as set forth in IM-5635-1.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 215
Frequently Asked Questions
  What is the difference between a formula plan and an evergreen plan? When is shareholder approval required of formula or evergreen plans?
Identification Number 218
A formula plan provides for automatic grants pursuant to a formula. Examples include restricted stock grants based on a certain dollar amount and/or matching stock contributions based on the amount of compensation a participant elects to defer. An evergreen plan is one that contains a formula for the automatic increase in the number of shares available under the plan.

Formula and evergreen plans cannot have a term in excess of ten years unless shareholder approval is obtained every ten years. Plans that do not contain a formula and do not impose a limit on the number of shares available for grant would require shareholder approval of each grant under the plan.
 
Publication Date*: 7/31/2012 Mailto Link Identification Number: 218
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
  Is a change to the "sublimit" within an equity compensation plan a material change?
Identification Number 1673

An equity compensation plan must provide for an overall limit on the number of shares that may be issued under the plan. In some cases, a plan may also include a further "sublimit" on the number of shares available for a particular type of award, such as restricted stock or options.

A revision to increase the number of shares available under such a sublimit would, generally, be a material amendment to the equity compensation plan because this change would be an expansion of the types of awards available under the plan.

Publication Date*: 1/11/2019 Mailto Link Identification Number: 1673
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
  Is an amendment to an equity compensation plan to increase the withholding rate to satisfy tax obligations, such as from the minimum tax rate to the maximum tax rate, considered a material amendment?
Identification Number 1269
Generally, an amendment to increase the withholding rate to satisfy tax obligations would not be considered a material amendment to an equity compensation plan. Allowing the holder of an award to surrender unissued shares to pay tax withholdings is similar to settling the award in cash at market price, and neither creates a material increase in benefits to participants nor increases the number of shares to be issued under the plan. This type of change also is not an expansion in the types of awards provided under the plan. This analysis is the same regardless of whether the plan allows the shares surrendered for tax withholdings to be added back to the pool of shares available for issuance as future awards. Accordingly, an amendment to an equity compensation plan to increase the withholding rate to satisfy tax obligations would not be considered a material amendment to the plan.
 
Publication Date*: 10/19/2016 Mailto Link Identification Number: 1269
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