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Frequently Asked Questions
  May a Nasdaq-listed company issue "penny warrants" or other deeply discounted equity securities in a Public Offering?
Identification Number 280
Transactions that constitute a Public Offering generally are not subject to Nasdaq’s shareholder approval requirements.  Nasdaq determines whether a transaction constitutes a Public Offering based on factors described in IM-5635-3, one of which is the extent of any discount to the market price of the securities offered.
 
Nasdaq closely examines any transaction that includes deeply discounted equity securities, including warrants that are exercisable for little or no consideration, sometimes called "penny warrants." Such a transaction may provide little economic benefit for the company and be highly dilutive to existing public shareholders.
 
Issuance of deeply discounted securities in a transaction (including a registered underwritten offering) may result in such issuance not qualifying as a Public Offering for purposes of determining whether shareholder approval is required. For this purpose, a discount to the Minimum Price (as defined in Listing Rule 5635(d)) in excess of 50%, typically, precludes a determination that such transaction is a Public Offering. Note that the previous sentence is not meant to be interpreted as a “safe harbor” and, therefore, an offering with 45% discount may not constitute a Public Offering based on this discount in conjunction with an analysis of the other factors in IM-5635-3.
 
In addition, if an issuance includes common stock (or the equivalent) and other securities sold together as an investment unit, it is necessary to attribute a value to securities issued with common stock.
 
For example, if an offering includes the issuance of warrants (other than placement agent warrants), then in determining the discount to the Minimum Price Nasdaq will attribute a value of $0.125 to each “plain vanilla” warrant with an exercise price no less than the offering price of the common stock. For warrants that are in the money or contain price protection or any other structured provisions that increase the potential dilution in the transaction, Nasdaq will attribute a value to each warrant equal to, or greater than, the value determined based on the Black Scholes model.
 
Generally, Nasdaq does not consider pre-funded warrants to be deeply discounted equity securities because the purchaser typically “pre-funds” the warrant at the time of issuance by paying the price that approximates the price of the underlying share of common stock.
 
In addition, Nasdaq may exercise its discretionary authority under Listing Rule 5101 to object to a transaction that includes deeply discounted securities, even when shareholder approval is not required. Any Nasdaq-listed company considering a transaction involving "penny warrants" or other deeply discounted securities 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*: 6/30/2020 Mailto Link Identification Number: 280
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